As filed with the Securities and Exchange Commission on August 8, 2002
Registration No. 333-88242
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------
JACOBS ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
-----------------
Delaware
(State or other jurisdiction of incorporation or organization)
7990
(Primary Standard Industrial Classification Code Number)
34-1959351
(I.R.S. Employer Identification Number)
240 Main Street, Black Hawk, Colorado 80422
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-----------------
Stephen R. Roark, Chief Financial Officer
Jacobs Entertainment, Inc.
240 Main Street, Black Hawk, Colorado 80422 Telephone (303) 582-1117
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------
Copy of all communications to:
Robert A. Weible, Esq.
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth St.
Cleveland, Ohio 44114-3485
Telephone (216) 621-0200
-----------------
Approximate date of commencement of proposed sale of the securities to the
public:
As soon as practical after this registration statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ___________
-----------------
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed
maximum Proposed
offering maximum Amount of
Title of each class of Amount to be price per aggregate registration
securities to be registered /(1)(2)/ registered unit offering price fee
- ---------------------------------------------------------------------------------------------
11 7/8% Senior Secured Notes Due 2009 $125,000,000 100% $125,000,000 $11,500
- ---------------------------------------------------------------------------------------------
Guarantees of 11 7/8% Senior Secured Notes
Due 2009 -- -- -- --
- ---------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Determined in accordance with Rule 457(f) promulgated under the Security
Act of 1933, as amended.
(2) Determined in accordance with Rule 457(n) of the Securities Act of 1933, as
amended; no separate registration fee payable for the guarantees.
================================================================================
Note: Specific details relating to the fee calculation will be furnished in
notes to the table, including references to the provisions of Rule 457 relied
upon, if the basis of the calculation is not otherwise evident from the
information presented in the table.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
BECOMES EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
TABLE OF ADDITIONAL REGISTRANTS
Each of the following subsidiaries of Jacobs Entertainment, Inc. and each other
subsidiary that is or becomes a guarantor of the securities registered hereby
is hereby made a registrant.
Exact Name of Registrant State of Jurisdiction of Primary Standard Industrial I.R.S. Employer
As Specified in its Charter Incorporation or Organization Classification Code Number Identification Number
- --------------------------- ----------------------------- --------------------------- ---------------------
Black Hawk Gaming & Colorado 7011 84-1158484
Development Company, Inc.
Gold Dust West Casino, Inc. Nevada 7011 84-1531817
Black Hawk/Jacobs Colorado 7011 84-1344735
Entertainment, LLC
Gilpin Hotel Venture Colorado 7011 None
Gilpin Ventures, Inc. Colorado 7990 84-1177995
Jalou II Inc. Louisiana 7990 34-1926209
Winner's Choice Casino, Inc. Louisiana 7990 72-1227314
Diversified Opportunities Ohio 7990 34-1828344
Group Ltd.
Jalou L.L.C. Louisiana 7990 31-1749671
Houma Truck Plaza & Louisiana 7990 72-1447916
Casino L.L.C.
Jalou--Cash's L.L.C. Louisiana 7990 31-1750851
JACE, Inc. Louisiana 7990 72-1221055
Lucky Magnolia Truck Stop Louisiana 7990 72-1268240
and Casino, L.L.C.
Bayou Vista Truck Plaza and Louisiana 7990 72-1460460
Casino, L.L.C.
Raceland Truck Plaza and Louisiana 7990 72-1478884
Casino, L.L.C.
Colonial Holdings, Inc. Virginia 7948 54-1826807
Colonial Downs, L.P. Virginia 7990 54-1739103
Stansley Racing Corp. Virginia 7990 52-1880278
Address, Including Zip
Code and
Telephone Number,
Including Area
Codes of Registrant's
Principal
Registrant Executive Offices
---------- ----------------------
Black Hawk Gaming & 240 Main Street
Development Company, Black Hawk, CO 80422
Inc. (303) 582-1117
Gold Dust West Casino, 444 Vine Street
Inc. Reno, NV 89505
(303) 582-1117
Black Hawk/Jacobs 240 Main Street
Entertainment, LLC Black Hawk, CO 80422
(303) 582-1117
Gilpin Hotel Venture 240 Main Street
Black Hawk, CO 80422
(303) 582-1117
Gilpin Ventures, Inc. 240 Main Street
Black Hawk, CO 80422
(303) 582-1117
Jalou II Inc. 10515 Colonial Downs
Parkway
New Kent, VA 23124
(303) 582-1117
Winner's Choice Casino, 2650 Highway 108
Inc. Sulphur, LA 70663
(303) 582-1117
Diversified Opportunities 1231 Main Street
Group Ltd. Cleveland, Ohio 44113
(303) 582-1117
Jalou L.L.C. 10515 Colonial Downs
Parkway
New Kent, VA 23124
(303) 582-1117
Houma Truck Plaza & 1541 Grand Caillou Road
Casino, L.L.C. Houma, LA 23124
(303) 582-1117
Jalou--Cash's L.L.C. 10515 Colonial Downs
Parkway
New Kent, VA 23124
(303) 582-1117
JACE, Inc. 213 West Park Avenue
Thibodaux, LA 70301
(303) 582-1117
Lucky Magnolia Truck Stop 40235 Highway 16
and Casino, L.L.C. Denham Springs, LA 70706
(303) 582-1117
Bayou Vista Truck Plaza 1829 Highway 90 West
and Casino, L.L.C. Bayou Vista, LA 70380
(303) 582-1117
Raceland Truck Plaza and 109 S. Service Road
Casino, L.L.C. Raceland, LA 70394
(303) 582-1117
Address, Including Zip
Code and
Telephone Number,
Including Area
Codes of Registrant's
Principal
Registrant Executive Offices
---------- ----------------------
Colonial Holdings, Inc. 10515 Colonial Downs
Parkway
New Kent, VA 23124
(804) 966-7223
Colonial Downs, L.P. 10515 Colonial Downs
Parkway
New Kent, VA 23124
(804) 966-7223
Stansley Racing Corp. 10515 Colonial Downs
Parkway
New Kent, VA 23124
(804) 966-7223
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, dated August , 2002
PROSPECTUS
OFFER TO EXCHANGE
$125,000,000
NEW 11 7/8% SENIOR SECURED NOTES DUE 2009
FOR ANY AND ALL OUTSTANDING 11 7/8% SENIOR SECURED NOTES DUE 2009
OF
[LOGO] JACOBS
ENTERTAINMENT, INC.
(FORMERLY GAMECO, INC.)
This prospectus (and accompanying letter of transmittal) relates to our
proposed offer to exchange up to $125,000,000 aggregate principal amount of new
11 7/8% Senior Secured Notes due 2009 (the "New Notes"), which will be freely
transferable, for any and all outstanding 11 7/8% Senior Secured Notes due 2009
issued in a private offering on February 8, 2002, which are subject to certain
transfer restrictions (the "Old Notes," and together with the New Notes, the
"notes").
The exchange offer expires at [ ], New York City time, on [ ],
unless extended.
The terms of the New Notes are substantially identical to the terms of the
Old Notes, except that the New Notes will be freely transferable and issued
free of any covenants regarding exchange and registration rights.
New Notes will be exchanged for all Old Notes that are validly tendered and
not validly withdrawn. Tenders of Old Notes may be withdrawn at any time
prior to expiration of the exchange offer. The exchange offer is not
conditioned on a minimum aggregate principal amount of Old Notes being
tendered. It is, however, subject to certain conditions, including that it
not violate applicable laws or any applicable interpretation of the
Securities and Exchange Commission.
The exchange of Old Notes for New Notes should not be a taxable event for
United States federal income tax purposes.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the exchange offer. Old Notes not exchanged in the exchange
offer will remain outstanding and will be entitled to the benefits of the
Indenture, but, except under certain circumstances, will have no further
exchange or registration rights under the Registration Rights Agreement.
"Affiliates" of Jacobs Entertainment, Inc. (within the meaning of the
Securities act of 1933) may not participate in the exchange offer.
All broker-dealers must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933. See "Plan of Distribution"
beginning on page [ ].
We do not intend to apply for listing of the New Notes on any securities
exchange or to arrange for them to be quoted on any quotation system.
-----------------
Please see "Risk Factors" beginning on page [ ] for a discussion
of certain factors you should consider in connection with the exchange offer.
-----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NEW NOTES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
NONE OF THE NEVADA GAMING COMMISSION, THE NEVADA GAMING CONTROL BOARD, THE
COLORADO LIMITED GAMING CONTROL COMMISSION OR ANY OTHER GAMING AUTHORITY HAS
APPROVED OR DISAPPROVED OF THE NEW NOTES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS OR THE INVESTMENT MERITS OF THE NOTES OFFERED
HEREBY.
WE MAY AMEND OR SUPPLEMENT THIS PROSPECTUS FROM TIME TO TIME BY FILING
AMENDMENTS OR SUPPLEMENTS AS REQUIRED. YOU SHOULD READ THIS ENTIRE PROSPECTUS
(AND ACCOMPANYING LETTER OF TRANSMITTAL AND RELATED DOCUMENTS) AND ANY
AMENDMENTS OR SUPPLEMENTS CAREFULLY BEFORE MAKING YOUR INVESTMENT DECISION.
-----------------
Our principal executive offices are located at 240 Main Street,
Black Hawk, Colorado 80422
Our telephone number is (303) 582-1117
The date of this prospectus is August , 2002
TABLE OF CONTENTS
WHERE YOU CAN FIND ADDITIONAL INFORMATION.............................. ii
FORWARD-LOOKING STATEMENTS............................................. iii
PROSPECTUS SUMMARY..................................................... 1
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER............................. 4
SUMMARY OF THE TERMS OF THE NEW NOTES.................................. 7
RISK FACTORS........................................................... 14
THE EXCHANGE OFFER..................................................... 23
USE OF PROCEEDS........................................................ 32
CAPITALIZATION......................................................... 34
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.................. 36
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME......... 40
SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA.......... 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................ 44
BUSINESS............................................................... 65
REGULATION AND TAXATION................................................ 73
MANAGEMENT............................................................. 87
RELATED PARTY TRANSACTIONS............................................. 91
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......... 92
DESCRIPTION OF OTHER INDEBTEDNESS...................................... 93
DESCRIPTION OF THE NOTES............................................... 96
BOOK ENTRY; DELIVERY AND FORM.......................................... 146
REGISTRATION RIGHTS.................................................... 149
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.................. 151
PLAN OF DISTRIBUTION................................................... 157
LEGAL MATTERS.......................................................... 158
INDEPENDENT AUDITORS...................................................
INDEX TO FINANCIAL STATEMENTS.......................................... F-1
i
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form S-4 with the Securities and
Exchange Commission, or the Commission, under the Securities Act of 1933, or
Securities Act, with respect to the New Notes. This prospectus, which
constitutes a part of the registration statement, omits certain information
contained in the registration statement, and reference is made to the
registration statement and the exhibits and schedules thereto for further
information with respect to us and the New Notes offered hereby. This
prospectus contains summaries of the material terms of certain documents and in
each instance reference is made to the copy of such document filed as an
exhibit to the registration statement. Each such summary is qualified in its
entirety by such reference.
Upon effectiveness of this registration statement, we will be subject to the
informational reporting requirements of the Securities Exchange Act of 1934, or
Exchange Act. We have agreed that, whether or not required to do so by the
rules and regulations of the Commission (and within the time periods that are
or would be prescribed thereby), for so long as any of the notes remain
outstanding, we will furnish to the holders of the notes and file with the
Commission (unless the Commission will not accept such a filing) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if we were
required to file such forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and, with respect to the
annual information only, a report thereon by our certified independent
accountants and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if we were required to file such reports. In addition,
for so long as any of the Old Notes remain outstanding, we have agreed to make
available, upon request, to any prospective purchaser or beneficial owner of
the Old Notes in connection with any sale thereof the information required by
Rule 144A(d)(4) under the Securities Act. In addition, this prospectus
incorporates important business and financial information about the Company
that is not included in or delivered with the document. INFORMATION MAY BE
OBTAINED FROM US WITHOUT CHARGE AT JACOBS ENTERTAINMENT, INC., 240 MAIN STREET,
BLACK HAWK, COLORADO 80422, ATTENTION: STEPHEN R. ROARK, CHIEF FINANCIAL
OFFICER, TELEPHONE (303) 582-1117. TO OBTAIN TIMELY DELIVERY OF INFORMATION, WE
MUST RECEIVE YOUR REQUEST NO LATER THAN FIVE (5) BUSINESS DAYS BEFORE THE
EXPIRATION DATE OF THE EXCHANGE OFFER.
This registration statement (including the exhibits and schedules hereto)
and the periodic reports and other information may be inspected and copied at
the public reference facilities of the Commission, Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on
the operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. Copies of this material can be obtained from the Commission by
mail at prescribed rates. Requests should be directed to the Commission's
Public Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Commission maintains a website
(http://www.sec.gov) that contains such reports and other information that we
have filed.
ii
FORWARD-LOOKING STATEMENTS
We make "forward-looking statements" throughout this prospectus. Whenever
you read a statement that is not simply a statement of historical fact (such as
when we describe what we "believe," "expect" or "anticipate" will occur, and
make other similar statements), you must remember that our expectations may not
be correct, even though we believe they are reasonable. You should read this
prospectus completely and with the understanding that actual future results may
be materially different from our expectations. We will not update these
forward-looking statements, even though our situation will change in the future.
Whether actual results will conform with our expectations and predictions is
subject to a number of risks and uncertainties, including those relating to or
arising from:
. our ability to integrate differing operations into one cohesive business;
. capital expansions at our gaming and pari-mutuel wagering facilities;
. the activities and success of our competitors;
. our ability to maintain regulatory approvals for our businesses and to
receive regulatory approvals for new businesses;
. our dependence on key personnel;
. the maintenance of agreements with Colonial Holdings' horsemen;
. the possibility of legislation that may prohibit or limit continued
operation of our gaming or pari-mutuel wagering properties; and
. our ability to service the interest and make principal payments on the
notes.
iii
PROSPECTUS SUMMARY
The following summary does not contain all of the information that may be
important to you. You should read this entire prospectus carefully, including
the "Risk Factors" section and the financial statements (and related notes),
before making an investment decision. Unless otherwise indicated, all
references in this prospectus to "we," "us," "our" and similar terms, as well
as references to "Jacobs Entertainment," refer to Jacobs Entertainment, Inc.
and its subsidiaries.
Our Company
We are a geographically diversified gaming and pari-mutuel wagering company
with properties in Colorado, Nevada, Louisiana and Virginia. We own and operate
three land-based casinos, six truck plaza video gaming facilities and a horse
racing track with three off-track wagering facilities. In addition, we are
party to an agreement that entitles us to a portion of the gaming revenue from
an additional truck plaza video gaming facility, and lease and operate a fourth
off-track wagering facility. We acquired all of our gaming and pari-mutuel
wagering properties and operations on February 22, 2002. We changed our name
from Gameco, Inc. to Jacobs Entertainment, Inc. on June 7, 2002.
All of our gaming facilities target local customers and emphasize revenues
from slot machine play or video gaming, or both. For the year ended December
31, 2001, our pro forma net revenues and pro forma EBITDA (as defined in
"Summary Unaudited Consolidated Pro Forma Financial and Other Data" below) were
approximately $164 million and $34 million, respectively. For the fiscal
quarter ended March 31, 2002, our pro forma net revenues and pro forma EBITDA
were approximately $40 million and $10 million, respectively. See page 38 for
unaudited consolidated proforma financial statements and page 13 for the
calculation of pro forma EBITDA.
The following table sets forth certain information and property level EBITDA
(excluding corporate overhead) of our properties. See page 65 for detail
calculations of EBITDA.
Year Ended
As of March 31, 2002 December 31, 2001
-------------------------- ----------------------------
Approximate Percentage of Property
Gaming Gaming Level
Facility Square Gaming Table Revenue from EBITDA(1)
Property Location Type Footage Machines Games Machines (in thousands)
- -------- -------------------- ------------ ----------- -------- ----- ------------- --------------
The Lodge Casino........ Black Hawk, Colorado Land-based 25,000 870 23 91% $18,095
casino
Gilpin Hotel Casino..... Black Hawk, Colorado Land-based 16,000 460 0 99 4,732
casino
Gold Dust West Casino... Reno, Nevada Land-based 17,500 500 0 100 4,771
casino
Louisiana Truck Plazas.. Louisiana Video 13,000 334 0 100 7,954
(various gaming
locations)
Colonial Downs Racetrack Horse racing
and off-track wagering and pari-
facilities............. Virginia mutuel
(various wagering
locations) N/A N/A N/A N/A 4,223
------ ----- --- -------
Total................ 71,500 2,170 23 $39,775
====== ===== === =======
- --------
(1) Property Level EBITDA excludes corporate overhead expense of approximately
$4.3 million in the aggregate for all of our properties. Property Level
EBITDA for the Louisiana Truck Plazas is presented on a pro forma basis.
1
Business Strategy and Competitive Strengths
Our business strategy is to create a broad, geographically diversified base
of gaming and pari-mutuel wagering properties that provide our customers with
high quality experiences that build significant customer loyalty. We focus on
attracting and fostering repeat business from local gaming patrons at our
casino, truck plaza video gaming and pari-mutuel wagering facilities. Our local
patrons are typically experienced gaming customers who seek convenient
locations, high payouts, and a pleasant atmosphere.
We believe that there are opportunities for growth and operational
efficiencies in the markets in which we operate. Black Hawk, Colorado continues
to be one of the fastest growing gaming markets in the country, having
experienced a 20.7% compound annual growth in gaming revenue from 1998 through
2001. We believe that our two Black Hawk properties will continue to benefit
from this growth, and plan to expand our Gilpin Hotel Casino property in Black
Hawk to further capitalize on this opportunity. We believe that certain of our
Louisiana truck plaza video gaming properties have not reached their full
potential, as they have only recently commenced gaming operations. In addition,
we may acquire or develop additional gaming properties catering to local gaming
patrons in the future, further expanding our geographic diversity.
Our strategy for our casino and video gaming operations is to continue to
provide our customers with a user-friendly gaming environment featuring
convenient locations, ample parking, good food at affordable prices and
promotional incentives that reward frequent play. Our strategy for our horse
racing operations is to be a competitive participant in the industry by
capitalizing on our unique dirt and turf track facilities for live racing,
hosting marquee racing events, and expanding our off-track wagering facility
network under appropriate circumstances.
Broad Geographic and Asset Diversification. We own and operate three
land-based casinos, six truck plaza video gaming facilities and a horse racing
track with three off-track wagering facilities, in four states. In addition, we
are party to an agreement that entitles us to a portion of the gaming revenue
from an additional truck plaza video gaming facility, and lease and operate an
additional off-track wagering facility. We believe that because of our
geographic and asset diversification, we are less dependent on results at a
specific property or in a specific market to generate our cash flow. In
addition, this geographic diversity helps mitigate our susceptibility to
regional economic downturns or weather conditions.
Strong Emphasis on Slot and Video Gaming Revenues. All of our gaming
facilities emphasize slot machine or video gaming play, or both. We believe
slot machine play to be the fastest growing, most consistently profitable and
lowest risk segment of the gaming entertainment business. We offer a wide
variety of games to attract customers and encourage them to play for longer
periods of time, thereby promoting the stability of our gaming revenue. We
intend to maximize slot and video gaming revenue by continuing to invest in
state-of-the art equipment and systems and replacing older models with the most
current product offerings in appropriate markets.
Significant Barriers to Entry. There are significant regulatory and other
barriers to entry in each of the markets in which we operate. In Black Hawk,
Colorado these barriers include the limited availability of space in the
approved gaming district, which is defined in the state constitution, and the
high cost of acquiring land and constructing new gaming facilities. There are
stringent licensing requirements and substantial licensing and compliance
expenses attendant to commencing and conducting gaming operations in Nevada. In
Louisiana, the barriers to entry include restrictions that require truck plaza
video gaming facilities to meet specified minimum levels of diesel and total
fuel sales, have a specified minimum site acreage and conduct 24-hour
restaurant operations. These restrictions also prohibit the operation of more
than 50 video gaming machines at any location, and require truck plaza video
gaming facilities to be located only in those parishes that voted to continue
video gaming during a one-time state-wide referendum in 1996. In Virginia, in
all but the county in which we operate and one additional county, the operator
of any competing horse racing track would need to secure passage of a
referendum in the locale in which the track is to be operated. Furthermore,
licenses are available for only two additional off-track wagering facilities,
and opening any off-track wagering facility in any locale other than those in
which we currently operate would also require the passage of a referendum.
2
Strong, Experienced Management Team. Our senior management team is an
experienced group of industry veterans. Jeffrey P. Jacobs, our Chairman and
Chief Executive Officer, has been Black Hawk Gaming's Chief Executive Officer
since November 1996 and the Chief Executive Officer of Colonial Holdings since
March 1997. Stephen R. Roark, our Chief Financial Officer and President of
Casino Operations, has been Black Hawk Gaming's President since September 1995
and its Chief Financial Officer since 1993. Ian M. Stewart, our President of
Pari-Mutuel Wagering and Video Poker Operations, has been President of Colonial
Holdings since November 1998 and its Chief Financial Officer since June 1997.
The three general managers of our casinos, who have a combined total of
approximately 45 years of casino management experience, report directly to Mr.
Roark. Reid Smith and J. Richard Gottardi oversee the day-to-day operations of
our truck plaza video gaming operations, have over 20 years of combined
experience in the gaming industry and report directly to Mr. Stewart. We
believe the expertise and experience of our management team will enable us to
enhance the operation of our existing properties and any properties we may
acquire in the future.
Our Properties
Our Casino Properties
Our casino properties consist of The Lodge Casino at Black Hawk and the
Gilpin Hotel Casino, both in Black Hawk, Colorado, and the Gold Dust West
Casino in Reno, Nevada. The Lodge Casino is located on a 2.5 acre site that
abuts State Highway 119, with approximately 25,000 square feet of gaming space
on two floors containing 870 slot machines and 23 table games, 50 hotel rooms,
three restaurants, four bars, and onsite parking for 600 vehicles. The Gilpin
Hotel Casino is located on one acre in the heart of the historic district of
Black Hawk, with approximately 16,000 square feet of gaming space containing
460 slot machines and four table games, two restaurants, four bars, and parking
for 200 vehicles. The Gold Dust West Casino is located on 4.6 acres in Reno's
central downtown gaming district, with approximately 17,500 square feet of
gaming space containing 500 slot machines, a 6,600 square foot dining facility,
106 motel rooms and parking for 275 vehicles.
Our Truck Plaza Video Gaming Properties
Our truck plaza video gaming properties consist of six truck plaza video
gaming facilities located in Louisiana and a share in the gaming revenues of an
additional Louisiana truck plaza video gaming facility. Our properties include
the Houma Truck Plaza and Casino in Houma; Winner's Choice Casino in Sulphur;
Lucky Magnolia Truck Stop and Casino in St. Helena Parish; Bayou Vista Truck
Plaza and Casino in Bayou Vista; Colonel's Truck Plaza and Casino in Thibodaux;
and Raceland Truck Plaza and Casino in Raceland. We are also party to an
agreement that entitles us to a portion of the gaming revenues from Cash's
Truck Plaza and Casino in Lobdell. Each truck plaza features a convenience
store, fueling operations, a 24-hour restaurant, and 50 video gaming devices
(except for Lucky Magnolia Truck Stop and Casino and Raceland Truck Plaza and
Casino, which have 40 and 44 video gaming devices, respectively).
Our Horse Racing Track and Off-track Wagering Facilities
We hold the only unlimited licenses in Virginia to own and operate a
racetrack and off-track wagering facilities. Under these licenses, we own and
operate the Colonial Downs Racetrack in New Kent, Virginia and three off-track
wagering facilities, and lease and operate an additional off-track wagering
facility. Our racetrack facility consists of a one and one-quarter mile dirt
track and a 180-foot wide turf track, an outside grandstand that seats
approximately 4,000 patrons, two simulcast television amphitheaters, two
covered patio-seating areas, four bars, a large concession food court, a gift
shop, and wagering locations with approximately 100 tellers. Our off-track
wagering facilities are located in Richmond, Chesapeake, Hampton, and
Brunswick, Virginia. These facilities are structured to accommodate the needs
of various patrons, from the seasoned handicapper to the novice wagerer, and
provide patrons with a comfortable, upscale environment including a full bar
and a range of restaurant services, and state of the art audio/video technology
for receiving off-track import simulcast thoroughbred and harness racing from
nationally-known racetracks.
3
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The Old Notes............... On February 8, 2002, we issued $125,000,000
aggregate principal amount of our 11 7/8% Senior
Secured Notes due 2009 to CIBC World Markets
Corp. in a private placement. CIBC World Markets
Corp. and Libra Securities, LLC (whom we refer to
as the "initial purchasers") then sold those
notes to qualified institutional buyers in
reliance on Rule 144A and Regulation S under the
Securities Act. Because they were sold pursuant
to exemptions from registration under the
Securities Act, the Old Notes are subject to
transfer restrictions. In connection with the
issuance of the Old Notes, we entered into a
registration rights agreement with the initial
purchasers in which we agreed to either: (a) file
with the Commission a registration statement
covering the New Notes, use our best efforts to
cause the registration statement to become
effective under the Securities Act, and upon
effectiveness of the registration statement,
complete the exchange offer; or (b) cause the Old
Notes to be registered under the Securities Act
pursuant to a resale shelf registration
statement. If we do not comply with our
obligations under the Registration Rights
Agreement, we will be required to pay certain
liquidated damages. See "Registration Rights."
The Exchange Offer.......... We are offering to exchange up to $125,000,000
principal amount of New Notes for an identical
principal amount of Old Notes. Old Notes may be
exchanged only in $1,000 increments. The terms of
the New Notes are identical in all material
respect to the terms of the Old Notes except that
the New Notes have been registered under the
Securities Act and will not bear legends
restricting their transfer. The New Notes will
evidence the same debt as the Old Notes and will
be issued under and entitled to the benefits of
the same indenture that governs the Old Notes.
Holders of Old Notes do not have any appraisal or
dissenters' rights in connection with the
exchange offer. Because we have registered the
New Notes, the New Notes will not be subject to
transfer restrictions and holders of New Notes
will have no registration rights.
Consequences of Failure
to Exchange............... If you do not exchange your Old Notes for New
Notes pursuant to the exchange offer, you will
still be subject to the restrictions on transfer
of your Old Notes as described in the legend on
the Old Notes. In general, you may not offer to
sell or sell the Old Notes, except pursuant to a
registration statement under the Securities Act
or any exemption from registration thereunder and
in compliance with applicable state securities
laws.
Resale of New Notes......... We believe you may offer for resale, resell or
otherwise transfer the New Notes you receive in
the exchange offer without further compliance
with the registration and prospectus delivery
provisions of the Securities Act unless you:
4
. are an "affiliate" of ours within the
meaning of Rule 405 under the Securities
Act;
. are a broker-dealer who purchased Old
Notes directly from us for resale under
Rule 144A or Regulation S or any other
exemption under the Securities Act;
. acquired the New Notes other than in the
ordinary course of your business; or
. have an arrangement with any person to
engage in the distribution of New Notes.
Each broker-dealer who is issued New Notes in the
exchange offer for its own account in exchange
for Old Notes acquired by the broker-dealer as a
result of market-making or other trading
activities must acknowledge that it will deliver
a prospectus meeting the requirements of the
Securities Act in connection with any resale of
the New Notes issued in the exchange offer. A
broker-dealer may use this prospectus for an
offer to resell, a resale or any other transfer
of the New Notes issued to it in the exchange
offer.
Expiration Date and Time.... 5:00 p.m., New York City time, on the later to
occur of , 2002 or 30 business days
after the date the registration statement is
declared effective. See "The Exchange
Offer--Expiration Date; Extensions; Amendments."
Withdrawal Rights........... You may withdraw Old Notes you tendered by
furnishing a written notice of withdrawal to the
exchange agent or by complying with DTC's
Automated Tender Offer Program System (ATOP)
withdrawal procedures at any time before
p.m. New York City time on the expiration date.
See "The Exchange Offer--Withdrawal of Tenders."
Accrued Interest on the
New Notes and the Old Notes The New Notes will bear interest from February 8,
2002 or, if later, from the most recent date of
payment of interest on the Old Notes.
Accordingly, if you tender Old Notes that are
accepted for exchange, you will not receive
interest that is accrued but unpaid on the Old
Notes at the time of tender.
Conditions to the Exchange
Offer..................... The exchange offer is subject only to the
following conditions:
. regulatory approval from Nevada state
gaming authorities
. the compliance of the exchange offer with
applicable securities laws;
. the proper tender of the Old Notes;
. our receipt of certain representations
made by the holders of the Old Notes, as
described below; and
. no judicial or administrative proceeding
having been threatened that would limit us
from proceeding with the exchange offer.
5
The exchange offer is not conditioned upon any
minimum aggregate principal amount of Old Notes
being tendered for exchange.
Representations............. By participating in the exchange offer, you will
represent to us that, among other things:
. you will acquire the New Notes you receive
in the exchange offer in the ordinary
course of your business;
. you are not engaging in and do not intend
to engage in a distribution of the New
Notes;
. you do not have an arrangement or
understanding with any person to
participate in the distribution of the New
Notes; and
. you are not an "affiliate," as defined
under Rule 405 of the Securities Act, of
ours.
Procedures for Tendering Old
Notes..................... To accept the exchange offer, you must send the
exchange agent either:
. a properly completed and validly executed
letter of transmittal; or
. a computer-generated agent's message
transmitted pursuant to DTC's ATOP System;
and either
. tendered Old Notes held in certificated
form; or
. a timely confirmation of book-entry
transfer of your Old Notes into the
exchange agent's account at DTC.
Additional documents may be required if you
tender pursuant to the guaranteed delivery
procedures described below. For more information,
see "The Exchange Offer--Procedures for
Tendering."
Tenders by Beneficial Owners If you are a beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
or are held in book-entry form and you wish to
tender those Old Notes in the exchange offer, you
should contact the registered holder as soon as
possible and instruct the registered holder to
tender on your behalf. See "The Exchange
Offer--Procedures for Tendering."
Guaranteed Delivery
Procedures................ If you are unable to comply with the procedures
for tendering, you may tender your Old Notes
according to the guaranteed delivery procedures
described in this prospectus under the heading
"The Exchange Offer--Guaranteed Delivery
Procedures."
Certain United States
Federal Tax Considerations See "Certain United States Federal Income Tax
Considerations" for a discussion of U.S. federal
income tax considerations you should consider
before tendering Old Notes in the exchange offer.
Exchange Agent.............. Wells Fargo Bank Minnesota, National Association
is serving as exchange agent for the exchange
offer. The address and telephone number for the
exchange agent is listed under "The Exchange
Offer--Exchange Agent."
6
SUMMARY OF THE TERMS OF THE NEW NOTES
The terms of the New Notes to be issued in the exchange offer are identical
to the terms of the outstanding Old Notes except that we have registered the
New Notes under the Securities Act. The notes issued in the exchange offer will
evidence the same debt as the Old Notes, and both the Old Notes and the New
Notes are governed by the same indenture. The terms and conditions described
below are subject to important limitations and exceptions. The "Description of
the Notes" section of this prospectus contains a more detailed description of
the terms and conditions of the notes.
The Offering of New Notes
Securities Offered.......... $125,000,000 principal amount of 11 7/8% senior
secured notes.
Maturity Date............... February 1, 2009.
Interest Rate............... 11 7/8% per year.
Interest Payment Dates...... Each February 1 and August 1, beginning August 1,
2002.
Security and Ranking........ The notes and the guarantees of our subsidiary
guarantors will be secured by a first priority
lien (subject to the exceptions described herein)
on substantially all of our and the guarantors'
respective current and future assets, other than
the excluded assets, as described herein. We may
not be able to grant security interests in
certain of our assets and certain of our assets
may be subject to prior liens.
On July 12, 2002, we entered into a new senior
secured revolving credit facility with Foothill
Capital Corporation (the "Senior Credit Facility)
in the amount of $10.0 million. The lien on the
real property and related assets comprising The
Lodge Casino and the Gilpin Hotel Casino in Black
Hawk, Colorado granted to the lender under the
Senior Credit Facility is senior to the lien
securing the notes and, subject to certain
conditions, limits the exercise of remedies under
the security interests in such assets by the
holders.
Additionally, the real property comprising the
Business Improvement District relating to The
Lodge Casino is subject to a first priority lien
in favor of the $5.5 million aggregate principal
amount outstanding of Black Hawk Business
Improvement District Special Assessment Bonds
described herein and the notes will also be
subject to such prior lien.
See "Description of the Notes--Security."
7
The notes will rank senior in right of payment to
all of our existing and future subordinated debt
and equal in right of payment to all of our
senior debt. As of March 31, 2002, we had $146
million of debt outstanding.
Guarantees.................. All of our present and future restricted
subsidiaries will guarantee the notes with
unconditional guarantees of payment that will
rank senior in right of payment to all of their
existing and future subordinated debt and equal
in right of payment to all of their existing and
future senior debt.
Optional Redemption......... Except in the case of certain equity offerings by
us, we cannot choose to redeem the notes prior to
February 1, 2006.
At any time from and after that date (which may
be more than once), we can choose to redeem some
or all of the notes at specified prices, plus
accrued interest.
Optional Redemption after
Certain Equity Offerings.. At any time (which may be more than once) before
February 1, 2005, we can choose to purchase up to
35% of the outstanding principal amount of the
notes with money that we raise in certain equity
offerings, as long as:
. we pay 111.875% of the face amount of the
notes bought, plus accrued interest;
. we purchase the notes within 45 days after
completing the offering; and
. at least $81.25 million in aggregate
principal amount of Old Notes and New
Notes (65% of the principal amount of the
Old Notes originally issued) remains
outstanding after the purchase.
Disposition Based
Upon Gaming Laws.......... The notes are subject to redemption requirements
imposed by laws and regulations of authorities in
jurisdictions in which we conduct gaming and
pari-mutuel wagering operations. See "Description
of the Notes--Mandatory Disposition in Accordance
with Gaming Laws."
Change of Control Offer..... If we experience a change in control, we must
offer to purchase your notes at 101% of their
face amount, plus accrued interest. We might not
be able to pay you the required price for notes
you present to us at the time of a change in
control, because we might not have enough funds
at that time.
Asset Sale and Event of
Loss Proceeds............. We may have to use the net cash proceeds from
selling assets or from events of casualty loss to
offer to purchase your notes at their face
amount, plus accrued interest.
8
Certain Indenture Provisions The indenture governing the notes limits what we
(and most or all of our subsidiaries) may do. For
example, the indenture limits our ability to:
. incur more debt;
. pay dividends and make distributions;
. issue stock of subsidiaries;
. make investments;
. repurchase stock;
. create liens;
. enter into transactions with affiliates;
. enter into sale-leaseback transactions;
. merge or consolidate; and
. transfer and sell assets.
These limitations are subject to a number of
important exceptions.
Use of Proceeds............. We will not receive any proceeds upon completion
of the exchange offer. See the "Use of Proceeds"
section of this prospectus for further
information.
For more complete information about the notes, see the "Description of the
Notes" section of this prospectus.
9
Risk Factors
Before making an investment in the New Notes, you should consider carefully
the information included in the "Risk Factors" section of this prospectus, as
well as other information contained in this prospectus.
Summary Unaudited Consolidated Historical Financial, Pro Forma and Other Data
The following summary unaudited consolidated historical statement of income
data of Jacobs Entertainment for the three months ended March 31, 2002, and the
summary unaudited historical consolidated balance sheet data at March 31, 2002,
are derived from the consolidated historical interim financial data of Jacobs
Entertainment contained herein on page F-2. The summary unaudited consolidated
pro forma statement of income data for the year ended December 31, 2001, and
the three months ended March 31, 2002, were prepared by combining (i) the
contribution to Jacobs Entertainment of certain historical assets and
liabilities of Diversified Opportunities Group Ltd., (ii) the effect of the
issuance of the Old Notes and the repayment of certain indebtedness, and (iii)
the effect of the acquisitions of the publicly held shares of Black Hawk Gaming
& Development Company, Inc. and Colonial Holdings, Inc., and the acquisition of
certain Louisiana truck plaza gaming properties, as discussed herein. The
historical financial data assumes the transactions occurred on February 22,
2002 (acquisition date), and therefore reflects the actual results of Jacobs
Entertainment as of and for the three months ended March 31, 2002. The
unaudited pro forma statements of income have been prepared assuming all of the
transactions referred to above occurred on January 1, 2001.
The following financial information is based on, and should be read in
conjunction with, the historical consolidated financial statements and related
notes of Jacobs Entertainment, Black Hawk Gaming & Development Company, Inc.,
and Jalou, and the unaudited pro forma consolidated financial statements
included elsewhere in this prospectus. The historical financial information for
the three months ended March 31, 2002 is based on, and should be read in
conjunction with, the historical consolidated financial statements and related
notes of Jacobs Entertainment as contained herein on page F-2. The pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results or financial position that would have
occurred if the acquisitions and the issuance of the Old Notes had occurred in
an earlier period, nor is it necessarily indicative of our future operating
results or financial position.
10
Three Months Ended Year Ended Three Months Ended
March 31, 2002 December 31, 2001 March 31, 2002
(Historical) (Pro forma) (Pro forma)
------------------ ----------------- ------------------
(in thousands,
except ratios)
Statement of Income Data:
Net revenues...................................... $ 25,686 $164,728 $40,361
Operating income.................................. 4,564 22,930 6,707
Interest expense, net of interest income.......... 3,200 18,571 4,633
Net (loss) income................................. (443) 4,359 2,074
Balance Sheet Data (as of March 31, 2002):
Cash and cash equivalents......................... 19,083
Total assets...................................... 232,167
Total long-term debt, including current
maturities...................................... 146,198
Stockholders' equity.............................. 62,214
Other Financial Data:
EBITDA(1)......................................... 4,703 33,860 9,551
Transaction fees and expenses..................... 455
Depreciation and amortization..................... 1,403 10,930 2,744
Financial Ratios Data:
Ratio of senior debt (as of March 31, 2002) to
pro forma annualized EBITDA (2)................. 3.6x
Ratio of net senior debt (as of March 31, 2002)
to pro forma annualized EBITDA (3).............. 3.1x
Ratio of total debt (as of March 31, 2002) to pro
forma annualized EBITDA (4)..................... 3.8x
Ratio of net debt (as of March 31, 2002) to pro
forma annualized EBITDA (5)..................... 3.3x
Ratio of EBITDA to interest expense (6)........... 2.0x
Ratio of earnings to fixed charges (7)............ 1.4x 1.4x
- --------
1. EBITDA is defined as net (loss) income before interest expense, income
taxes, depreciation and amortization and privatization and other
nonrecurring costs, and:
. Is not intended to be a performance measure that should be regarded as an
alternative either to operating income or net (loss) income nor as an
indicator of operating performance, or as an alternative to the statement
of cash flows as a measure of liquidity;
. Is not intended to represent funds available for debt service, dividends,
reinvestment or other discretionary uses; and
. Should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with accounting principles generally
accepted in the United States of America.
11
EBITDA information is included in this prospectus because our management
believes that EBITDA is a meaningful measure of performance commonly used in
the gaming industry and by the investment community to analyze and compare
companies such as ours. Our definition of EBITDA may not be identical to
similarly titled measures reported by other companies. EBITDA for Jacobs
Entertainment is computed as follows:
Three Months Ended Year Ended Three Months Ended
March 31, 2002 December 31, 2001 March 31, 2002
(Historical) (Pro forma) (Pro forma)
------------------ ----------------- ------------------
EBITDA:
Net (loss) income............. $ (443) $ 4,359 $ 2,074
Depreciation and amortization. 1,403 10,930 2,744
Interest...................... 3,288 18,571 4,733
Transaction fees and expenses. 455
------ ------- -------
EBITDA........................... $4,703 $33,860 $ 9,551
====== ======= =======
Pro forma annualized EBITDA...... $38,204
=======
Pro forma annualized EBITDA has been calculated based on multiplying EBITDA
for the three months ended March 31, 2002 by four quarters as there are no
significant factors, such as seasonality, that would affect this calculation.
2. Senior debt includes the Old Notes, the Black Hawk Business Improvement
District Special Assessment bonds, the Louisiana properties seller notes,
and debt of Colonial Holdings, and is computed as follows:
Three Months Ended
March 31, 2002
------------------
Senior Debt (as of March 31, 2002):
Old Notes.............................................................. $120,050
Black Hawk Business Improvement District Special Assessment bonds...... 4,920
Louisiana properties seller notes...................................... 10,535
Debt of Colonial Holdings.............................................. 1,693
--------
Total Senior Debt......................................................... $137,198
========
Pro forma annualized EBITDA............................................... $ 38,204
========
Ratio of Senior Debt (as of March 31, 2002) to pro forma annualized EBITDA 3.6x
========
3. Net senior debt includes the Old Notes, the Black Hawk Business Improvement
District Special Assessments bonds, the Louisiana properties seller notes,
and debt of Colonial Holdings, net of cash and cash equivalents, and is
computed as follows:
Three Months Ended
March 31, 2002
------------------
Net Senior Debt (as of March 31, 2002):
Old Notes.................................................................. $120,050
Black Hawk Business Improvement District Special Assessment bonds.......... 4,920
Louisiana properties seller notes.......................................... 10,535
Debt of Colonial Holdings.................................................. 1,693
Less: cash and cash equivalents............................................ (19,083)
--------
Total Net Senior Debt......................................................... $118,115
--------
Pro forma annualized EBITDA................................................... $ 38,204
========
Ratio of Net Senior Debt (as of March 31, 2002) to pro forma annualized EBITDA 3.1x
========
12
4. Total debt refers to all outstanding long-term debt, including current
maturities, and is computed as follows:
Three Months Ended
March 31, 2002
------------------
Total Debt (as of March 31, 2002):
Old Notes............................................................. $120,050
Black Hawk Business Improvement District Special Assessment bonds..... 4,920
Debt of Colonial Holdings............................................. 1,693
Existing Louisiana properties seller notes............................ 4,740
New Louisiana properties seller notes................................. 5,795
Subordinated debt to affiliate........................................ 9,000
--------
Total Debt............................................................... $146,198
========
Pro forma annualized EBITDA.............................................. $ 38,204
========
Ratio of Total Debt (as of March 31, 2002) to pro forma annualized EBITDA 3.8x
========
5. Net debt refers to all outstanding long-term debt, including current
maturities, net of cash and cash equivalents, and is computed as follows:
Three Months Ended
March 31, 2002
------------------
Net Debt (as of March 31, 2002):
Total debt................................................................ $146,198
Less: cash and cash equivalents........................................... (19,083)
--------
Total Net Debt............................................................... $127,115
========
Pro forma annualized EBITDA.................................................. $ 38,204
========
Ratio of Total Net Debt (as of March 31, 2002) to pro forma annualized EBITDA 3.3x
========
6. Ratio of pro forma EBITDA to interest expense is computed as follows:
Three Months Ended
March 31, 2002
------------------
Pro forma EBITDA for the three months ended March 31, 2002.......... $9,551
======
Pro forma Interest Expense for the three months ended March 31, 2002 $4,733
======
Ratio of pro forma EBITDA to pro forma Interest Expense............. 2.0x
======
7. For the purpose of determining the ratio of earnings to fixed charges,
"earnings" consist of earnings before income tax expense plus fixed charges.
"Fixed charges" consist of interest expense, including amortization of
deferred financing costs, plus one-third of rental expense (this portion is
considered to be representative of the interest factor), and is computed as
follows:
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2002
(Historical) (Pro Forma)
------------------ ------------------
Earnings:
Pre-tax income from continuing operations.................... $1,364 $2,074
Add: Fixed charges........................................... 3,473 5,185
------ ------
Total Earnings.................................................. $4,837 $7,259
====== ======
Fixed Charges:
Interest expense............................................. $3,288 $4,733
Amortization of capitalized expenses related to indebtedness. 97 237
Estimated interest on rental expense......................... 88 215
------ ------
Total Fixed Charges............................................. $3,473 $5,185
====== ======
Ratio of Earnings to Fixed Charges.............................. 1.4x 1.4x
====== ======
13
RISK FACTORS
An investment in the New Notes is subject to a number of risks. You should
consider carefully the following factors, as well as the additional information
cross-referenced to the body of this prospectus and the other matters described
in this prospectus.
Risks Related to Our Indebtedness
Our substantial indebtedness could adversely affect our financial health and
prevent us from fulfilling our obligations under the notes.
We have a significant amount of indebtedness. As of March 31, 2002 we had
total indebtedness of approximately $146 million and total stockholders' equity
of $62 million.
Our substantial indebtedness could have important consequences to you. For
example, it could:
. make it more difficult for us to satisfy our obligations with respect to
the notes;
. increase our vulnerability to general adverse economic and industry
conditions;
. require us to dedicate a substantial portion of our cash flow from
operations to debt service, thereby reducing the availability of our cash
flow to fund working capital, capital expenditures, and other general
corporate purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
. limit our ability to fund a required regulatory redemption or a change of
control offer;
. place us at a competitive disadvantage to our competitors that have less
debt; and
. limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
A failure to comply with those covenants could result in an event of
default which, if not cured or waived, could have a significant adverse
effect on us.
The occurrence of any one of these events could have a material adverse effect
on our business, financial condition, results of operations, prospects and
ability to satisfy our obligations under the notes.
In addition, subject to specified limitations in the indenture governing the
notes, we may be able to incur limited additional indebtedness in the future.
Our Senior Credit Facility permits borrowings of up to $10.0 million, and all
of the security interests securing those borrowings will be contractually
senior to the notes and guarantees, as provided in the intercreditor agreement
among the trustee and the lender under the Senior Credit Facility. If new debt
is added to our and our subsidiaries' current debt levels, the related risks we
and they now face could intensify.
Our indebtedness imposes restrictive covenants on us.
The note indenture and the loan agreement for our Senior Credit Facility
contain certain restrictive covenants that, among other things, restrict our
ability to:
. incur more debt;
. pay dividends and make distributions;
. issue stock of subsidiaries;
. make investments;
14
. repurchase stock;
. create liens;
. enter into transactions with affiliates;
. enter into sale-leaseback transactions;
. merge or consolidate; and
. transfer and sell assets.
Our Senior Credit Facility also requires us to meet a number of financial
ratios and tests. The covenants governing the notes and the covenants governing
our Senior Credit Facility will restrict the operations of our subsidiaries and
these limitations could impair our ability to meet such financial ratios and
tests. In addition, our ability to meet these ratios and tests and to comply
with our provisions governing our indebtedness may be affected by changes in
economic or business conditions or other events beyond our control. Our failure
to comply with our debt-related obligations could result in an event of default
which, if not cured or waived, could result in an acceleration of our
indebtedness. Acceleration of indebtedness outstanding under our Senior Credit
Facility or any of our other indebtedness may cause us to be unable to make
interest payments on the notes and to repay the principal amount of the notes
or may cause the guarantors to be unable to make payments under their
guarantees.
Complying with these covenants could materially limit our financial and
operating flexibility and could cause us to take actions that we otherwise
would not take or cause us not to take actions that we otherwise would take.
Despite current indebtedness levels, we may still be able to incur
substantially more debt, which could exacerbate the risks described above.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The note indenture does not fully prohibit us or
our subsidiaries from doing so. If new debt is added to our and our
subsidiaries' current debt levels, the related risks that we and they now face
could intensify. See "Description of the Notes."
To service our indebtedness, we will require a significant amount of cash,
the availability of which depends on many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, including
the notes and the Senior Credit Facility, and to fund our operations, will
depend on our ability to generate cash. This, to an extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. Based on our anticipated level of
operations and revenue growth, we believe our cash flow from operations,
available cash, the Senior Credit Facility and future borrowings will be
adequate to meet our liquidity needs for the next few years. However, we cannot
assure you that our business will generate sufficient cash flow from operations
or that borrowings will be available to us in amounts sufficient to enable us
to pay our indebtedness, including the notes and the Senior Credit Facility, or
to fund our other liquidity needs. In addition, if we consummate significant
acquisitions in the future, our cash requirements may increase significantly.
If we are unable to generate sufficient cash flow and are unable to refinance
or extend outstanding borrowings, we may have to:
. reduce or delay planned expansion and capital expenditures;
. sell assets;
. restructure debt; or
. raise additional capital.
Furthermore, we may need to refinance all or a portion of our debt,
including the notes, on or before maturity. We cannot assure you that we will
be able to refinance any of our debt, including the notes, on commercially
reasonable terms or at all.
15
Risks Related to Our Business
We may face difficulties in integrating our operations and in managing
facilities we may acquire or expand.
We are conducting our casino operations, the Louisiana truck plaza
operations and the racing and pari-mutuel wagering operations largely as they
had been conducted before we acquired them. Nonetheless, we have conducted
these businesses on a combined basis for only a limited amount of time, and the
consolidation of control and managerial and administrative integration of these
operations will require the continued dedication of management resources that
may divert attention from our day-to-day business operations. This could
materially harm our business, financial condition and results of operations. We
cannot assure you that we will be able to manage the combined operations
effectively or realize any of the anticipated benefits of our acquisitions.
In addition, we may pursue expansion and acquisition opportunities and would
face significant challenges in managing the expansion and acquisition efforts
and in integrating the expanded or new operations into our existing business.
Any failure to manage our growth effectively could materially harm our
business, financial condition and results of operations.
We face risks related to the development and expansion of our properties.
We expect to use a portion of our available cash to remodel and expand The
Gilpin Hotel Casino. These improvements are budgeted to cost approximately $6.0
million. While we expect construction and other disruptions during the
renovation period that will temporarily adversely affect our business, we
believe completion of these renovations will enable us to continue to compete
effectively in the Black Hawk market and ultimately to improve our operating
results. However, the remodeling and expansion process involves substantial
risks, including the possibility of cost overruns and delays, market or site
deterioration after construction has begun, and the emergence of additional
competition.
We face significant competition.
The gaming industry is characterized by a high degree of competition among a
large number of participants, many of which have financial and other resources
that are greater than our resources. Competitive gaming activities include
casinos, pari-mutuel wagering, video lottery terminals and other gaming
devices, and other forms of legalized gaming.
New or expanded operations by other persons can be expected to increase
competition for our gaming operations and could have a material adverse impact
on us.
Casino Operations. Our casino operations are conducted in Black Hawk,
Colorado and Reno, Nevada. Competition in the Black Hawk gaming market, which
is the primary gaming market in Colorado, is intense. In addition, large,
well-financed companies may continue to enter the Black Hawk and other Colorado
markets through the purchase or expansion of existing facilities, which could
materially harm our business, financial condition and results of operations.
For example, the Black Hawk Casino by Hyatt, which is managed by an affiliate
of Hyatt Corporation, opened in Black Hawk on December 20, 2001. The addition
of the Black Hawk Casino by Hyatt added 1320 machines to the market.
In addition to competing with other gaming facilities in Colorado as
described above, we compete to a lesser degree, for both customers and
potential future gaming sites, with gaming companies nationwide, including
casinos in Nevada and several other states, and casinos on Native American
lands in several states, many of which have substantially greater financial
resources and experience in the gaming business. The expansion of legalized
casino gaming to new jurisdictions throughout the United States may also affect
competitive conditions.
16
The Gold Dust West Casino in Reno, Nevada encounters strong competition from
large hotel and casino facilities and smaller casinos similar in size to the
Gold Dust West Casino in the Reno area, which includes Sparks, Nevada. There is
also competition from gaming establishments in other towns and cities in Nevada
and, to a lesser extent, other jurisdictions in the United States where gaming
has been legalized (including Native American gaming establishments).
In addition, we believe that the introduction of casino gaming, or the
expansion of presently conducted gaming activities (particularly at Native
American establishments) in areas in or close to Nevada, such as California,
Oregon, Washington, Arizona and western Canada, could materially harm our
operations at our Reno property.
Louisiana Truck Plaza Operations. The Louisiana truck plaza operations
compete with other truck plazas located in Louisiana and other forms of gaming,
such as land-based, riverboat and Native American casinos, as well as slot
machines located at horseracing tracks and video poker machines located in
bars, restaurants, hotels and off-track wagering facilities.
Pari-mutuel Wagering Operations. We operate a racetrack in New Kent,
Virginia, and off-track wagering facilities in Chesapeake, Richmond, Hampton
and Brunswick, Virginia.
We compete with racetracks located outside Virginia (including several in
Delaware, Maryland, New Jersey, New York, Pennsylvania, and West Virginia, some
of which augment their purses with slot machine revenues) and other forms of
gaming, such as land-based casinos, including those in Atlantic City, New
Jersey, and statewide lotteries in Virginia and neighboring states. We also
face competition from a wide range of entertainment options, including live and
televised sporting events and other recreational activities such as theme parks
(Kings Dominion to the northwest and Busch Gardens to the southeast) and more
recently internet-based pari-mutuel wagering and telephone account wagering on
horse racing.
We compete for wagering dollars and simulcast fees with live racing and
races simulcast from racetracks in other states, particularly racetracks in
neighboring states such as Charles Town in West Virginia, Pimlico Race Course,
Laurel Park, and Rosecroft Raceway in Maryland, and Delaware Park in Delaware.
For additional information regarding the competitive environment we face,
see "Business--Competition."
We face extensive regulation from gaming authorities.
Licensing Requirements. As owners and operators of gaming and pari-mutuel
wagering facilities, we are subject to extensive state and local and some
Federal regulation. State and local authorities require us and our subsidiaries
to demonstrate suitability to obtain and retain various licenses and require
that we have registrations, permits and approvals to conduct gaming and
wagering operations. Various regulatory authorities, including the Colorado
Limited Gaming Control Commission, the Nevada Gaming Commission, the Nevada
State Gaming Control Board, the Louisiana Gaming and Control Board and the
Virginia Racing Commission may, for any reason set forth in the applicable
legislation, limit, condition, suspend or revoke a license or registration to
conduct gaming or wagering operations or prevent us from owning the securities
of any of our gaming or wagering subsidiaries. Like all gaming and wagering
operators in the jurisdictions in which we operate, we will need to apply
periodically to renew our licenses or registrations. We cannot assure you that
we will be able to obtain such renewals. Regulatory authorities may also levy
substantial fines against us or seize our assets or those of our subsidiaries
or of the people involved in violating gaming laws or regulations. Any of these
events could materially harm our business, financial condition and results of
operations.
Gaming authorities in the United States can generally require that any
beneficial owner of our securities, including holders of the notes, file an
application for a finding of suitability. Under certain circumstances, we will
have the right to redeem your notes or cause you to dispose of your notes in
order to comply with gaming laws to which we are subject. See "Description of
the Notes--Mandatory Disposition in Accordance with Gaming Laws."
17
Potential Changes in Regulatory Environment. From time to time,
legislators and special interest groups have proposed legislation that would
expand, restrict or prevent gaming or wagering operations in the jurisdictions
in which we operate. Any expansion of gaming or wagering or restriction on or
prohibition of our gaming or wagering operations could materially harm our
business, financial condition and results of operations.
Taxation. We believe that the prospect of significant additional revenue is
one of the primary reasons that jurisdictions permit legalized gaming and
wagering. As a result, gaming and wagering companies are typically subject to
significant taxes and fees in addition to normal federal, state, local and
provincial income taxes, and such taxes and fees are subject to increase at any
time. We pay substantial taxes and fees with respect to all of our operations.
From time to time, federal, state and local legislators and officials have
proposed changes in tax laws, or in the administration of such laws, affecting
the gaming and wagering industry. It is not possible to predict the likelihood
of changes in tax laws or in the administration of such laws. Such changes, if
adopted, could materially harm our business, financial condition and results of
operations.
Compliance with Other Laws. We are also subject to a variety of other rules
and regulations, including zoning, environmental, construction and land-use
laws and regulations governing the serving of alcoholic beverages.
We depend on our key personnel.
We are highly dependent on the services of Jeffrey P. Jacobs, Stephen R.
Roark and Ian M. Stewart and other officers and key employees. The loss of the
services of any of these individuals could materially harm our business,
financial condition and results of operations.
Economic conditions, seasonality and weather conditions could affect our
operations.
Our business, financial condition and results of operations may be harmed by
general and local economic conditions. If the U.S. economy or the local economy
in a market in which we operate suffers a downturn, our properties could be
harmed as the disposable income of consumers or their willingness to patronize
our operations declines, resulting in a decrease in the number of patrons at
our properties or a decrease in the amount that patrons are willing to wager.
In addition, seasonality and weather conditions can affect our results of
operations. Our pari-mutuel wagering revenues are higher during scheduled live
racing than at other times of the year. Adverse weather conditions can cause
cancellation of or curtail attendance at outdoor races, thereby reducing
wagering and our revenues. Attendance and wagering at both outdoor races and
satellite wagering facilities can be harmed by holidays and other competing
seasonal activities. Winter travel conditions can adversely affect patronage
and revenues at our Colorado casinos. Although casino business is not seasonal,
levels of gaming activity increase significantly during weekends and holidays,
especially holiday weekends.
We depend on agreements with Colonial Holdings' horsemen to operate our
racing and wagering business.
The Federal Interstate Horseracing Act and the Virginia Racing Act require
Colonial Holdings to have written agreements with representative Virginia
horsemen's groups in order to simulcast races. Our current agreements with the
Virginia Horsemen's Benevolence and Protective Association (the "VaHBPA") and
the Virginia Harness Horse Association (the "VHHA") expire on December 31, 2002.
If we cannot reach agreement prior to the expiration of these agreements,
the Virginia Racing Commission has the right to suspend our licenses to operate
our racetrack and the off-track wagering facilities until agreements are in
place. Although it is difficult to predict the likelihood of such an event,
closure of the off-track wagering facilities would be detrimental to the
horsemen groups as well as us since each horsemen group's primary source of
purse funds is its percentage of wagering at the off-track facilities.
Negotiation of new horsemen's agreements is not expected to commence until
autumn 2002.
18
Energy price increases may adversely affect our costs and our revenues.
Our casino and horse racing and pari-mutuel wagering operations use
significant amounts of electricity and other forms of energy. Any substantial
increase in the cost of the forms of energy we use may negatively affect our
results of operations. In addition, consumer energy or gasoline price increases
may reduce the disposable income of our potential customers or their
willingness to patronize our operations and correspondingly reduce our
patronage and revenues. Furthermore, a fuel price increase may impact fuel
sales in Louisiana, making it more difficult to meet minimum fuel sale
requirements.
Risks Related to the Offering
Your right to receive payments on the notes will be effectively subordinated
to payments under our Senior Credit Facility and any equipment financing to
the extent of the collateral securing this other debt. The proceeds from the
collateral securing the notes may not be sufficient to pay all amounts owed
under the notes if an event of default occurs, even if the fair market value
of the collateral would otherwise be sufficient to pay the amounts owed under
the notes.
The notes and guarantees will be effectively subordinated to (a) up to $10.0
million principal amount of indebtedness that may be incurred under our Senior
Credit Facility with respect to the assets securing the Senior Credit Facility,
pursuant to the intercreditor agreement described below, and (b) any future
equipment financing and purchase money debt, in each case to the extent of the
assets securing that indebtedness. As a result, upon any distribution to our
creditors or the creditors of any subsidiary guarantors in bankruptcy,
liquidation, reorganization or similar proceedings, or following acceleration
of our indebtedness or an event of default under such indebtedness, our lenders
under our Senior Credit Facility, our equipment financing and our purchase
money indebtedness will be entitled to be repaid in full from the proceeds of
the assets securing such indebtedness, or the sale of the equipment subject to
such equipment financing, before any payment is made to you from such proceeds.
There can be no assurance that the fair market value of the collateral securing
the notes would be sufficient to pay the amounts due under the notes, even
absent the Senior Credit Facility, any equipment financing and any purchase
money debt.
The trustee under the indenture and the lenders under our Senior Credit
Facility have entered into an intercreditor agreement governing the
relationships among them and their obligations and rights. Financing by
multiple lenders with security interests in common collateral may result in
increased complexity and lack of flexibility in a debt restructuring or other
work-out relating to us. Furthermore, under the intercreditor agreement, the
trustee's remedies in the event of a default will be limited. Under the
intercreditor agreement, if the notes become due and payable prior to the
stated maturity or are not paid in full at the stated maturity at a time during
which we have indebtedness outstanding under our Senior Credit Facility, the
trustee will not have the right to foreclose upon the assets securing the
Senior Credit Facility unless and until the lenders under the Senior Credit
Facility fail to take steps to exercise remedies with respect to or in
connection with the collateral within 180 days following notice to such lenders
of the occurrence of an event of default under the indenture. In addition, the
intercreditor agreement will prevent the trustee and the holders of the notes
from pursuing remedies with respect to the assets securing the Senior Credit
Facility in an insolvency proceeding. The intercreditor agreement also provides
that the net proceeds from the sale of the assets securing the Senior Credit
Facility will first be applied to repay indebtedness outstanding under the
credit facility and thereafter to the holders of the notes.
The value of the collateral securing the notes may not be sufficient to pay
all amounts owed under the notes if an event of default occurs.
A large portion of the collateral securing the notes consists of our
casinos, truck plazas and personal property, which depreciate in value over
time. As a result, if an event of default occurs with respect to the notes, we
cannot assure you that the liquidation of the collateral securing the notes
will produce sufficient proceeds to pay all amounts owed under the notes. The
value of the collateral at any time will depend on market and other economic
conditions, including the availability of suitable buyers for the collateral.
If the proceeds are insufficient, the deficiency would be an unsecured
obligation. There can be no assurance that you would recover any deficiency.
19
We may have subsidiaries in the future that will not guarantee the notes.
We may have subsidiaries in the future that will not guarantee the notes.
Any non-guarantor subsidiary would have no obligation to make payments to us or
in respect of the notes. In the event of a bankruptcy, liquidation or
reorganization of any non-guarantor subsidiary, the creditors of such
subsidiary (including trade creditors) would generally be entitled to payment
of their claims from the assets of such subsidiary before any assets were made
available for distribution to us as a stockholder. After paying its own
creditors, a non-guarantor subsidiary may not have any remaining assets
available for payment to you as a holder of notes. As a result, the notes would
be effectively junior in right of payment to the obligations of any
non-guarantor subsidiary.
The trustee's ability to realize on the collateral securing the notes may be
limited.
The trustee's ability to foreclose on the pledged shares and other
collateral comprising our gaming businesses is limited by relevant gaming laws.
Regulations of the gaming authorities in the several states in which we operate
provide that no person may acquire an interest in a gaming licensee or enforce
a security interest in the stock of a corporation that is the holder of a
gaming license or that owns stock in such a corporation without the prior
approval of the gaming authority. As such, neither the trustee nor any holder
is permitted to operate or manage any gaming business or assets unless that
person has been licensed under applicable law for that purpose.
Gaming law requires that any person who proposes to own shares of licensed
corporations or of registered holding corporations must be found suitable as a
stockholder of such corporations by the applicable gaming authority and other
relevant gaming authorities before acquiring ownership of those interests.
Consequently, it would be necessary for the trustee to file an application with
the gaming authorities requesting approval to enforce the security interest in
any pledged stock and obtain that approval before it may take any steps to
enforce the security interest. Additionally, the trustee must file applications
with the gaming authorities requesting approval to enforce a security interest
in our gaming assets before it may take steps to enforce the security interest.
Moreover, it would be necessary for a prospective purchaser of the pledged
stock or of the gaming assets to file the necessary applications, be
investigated, and be licensed or found suitable by the gaming authorities
before acquiring the gaming assets or the pledged stock through the foreclosure
sale. These requirements may therefore limit the number of potential bidders
who would participate in any foreclosure sale and may delay the sale of any
pledged stock or other gaming assets, either of which could have an adverse
effect on the proceeds received from those sales.
In addition, the trustee's ability to foreclose on and sell the collateral
will be subject to the procedural restrictions of state real estate law and the
Uniform Commercial Code. Furthermore, the right of the trustee to foreclose
upon and sell the collateral is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or
against us or any of our subsidiaries prior to, or possibly even after, the
trustee has repossessed and disposed of the collateral.
We are a holding company and will depend on the business of our subsidiaries
to satisfy our obligations under the notes.
We are a holding company. Substantially all of the operations necessary to
fund payment on the notes are conducted by our subsidiaries. Our ability to
make payment on the notes depends on our subsidiaries' cash flow and their
payment of funds to us. Our subsidiaries' ability to make payments to us
depends on their earnings, the terms of their indebtedness, business and tax
considerations, legal and regulatory restrictions and economic conditions.
20
We may not have the ability to raise the funds necessary to finance the
change of control offer required by the indenture.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding notes. However, it
is possible that we will not have sufficient funds at the time of such a change
of control to make the required repurchase of notes. The change of control
provisions may not protect you in a transaction in which we incur a large
amount of debt, including a reorganization, restructuring, merger or other
similar transaction, because that kind of transaction may not involve any shift
in voting power or beneficial ownership, or may not involve a shift large
enough to trigger a change of control as defined in the note indenture. See
"Description of the Notes--Repurchase at the Option of Holders--Change of
Control."
The Notes were issued with original issue discount. As a result, you will
generally be required for United States federal income tax purposes to
include in gross income accrued original issue discount on the Notes before
the receipt of a cash payment on account thereof, and in the event of a
bankruptcy of the Company, a Note holder's claim would not include any
unamortized original discount.
Original issue discount (the difference between the notes' stated redemption
price at maturity and their issue price) will accrue from the issue date of the
notes, and purchasers of the notes generally will be required to include such
amounts in gross income for United States federal income tax purposes in
advance of their receipt of the cash payments to which the income is
attributable. See "Certain United States Federal Income Tax Consequences."
If a bankruptcy case is commenced by or against us under the United States
Bankruptcy Code after the issuance of the notes, the claim of a holder of the
Notes may be limited to an amount equal to the sum of (1) the Notes' issue
price, (2) accrued and unpaid interest thereon through the date of the
bankruptcy filing, and (3) that portion of the original issue discount deemed
to have accrued from the issue date through the date of the bankruptcy filing.
Any original issue discount deemed not to have accrued as of the date of any
such bankruptcy filing would constitute "unmatured interest" and would not be
allowed under the Bankruptcy Code. Accordingly, the holder's claim would likely
be less than the notes' stated redemption price at maturity.
Federal and state statutes allow courts, under specific circumstances, to
void guarantees, subordinate claims in respect of indebtedness and require
debt holders to return payments received from guarantors.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a court could void a guarantee of one or more of our
subsidiaries or claims related to the notes or subordinate a subsidiary's
guarantee to all of our other debts or all other debts of the guarantor if,
among other things, we or the guarantor, at the time we or it incurred the
indebtedness evidenced by its guarantee:
. received less than reasonably equivalent value or fair consideration for
the incurrence of that indebtedness; and
. we were or the guarantor was insolvent or rendered insolvent by reason of
that incurrence;
. we were or the guarantor was engaged in a business or transaction for
which our or the guarantor's remaining assets constituted unreasonably
small capital; or
. we or the guarantor intended to incur, or believed that we or it would
incur, debts beyond our or its ability to pay those debts as they mature.
In addition, a court could void any payment by us or the guarantor pursuant
to the notes or a guarantee and require that payment to be returned to us or
the guarantor, or to a fund for the benefit of our creditors or the creditors
of the guarantor.
21
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
. the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets,
. the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature, or
. it could not pay its debts as they become due.
We believe that we and the guarantors will have received reasonably
equivalent value and fair consideration for the incurrence of the indebtedness
and obligations represented by the notes and the guarantees. On the basis of
historical financial information, recent operating history and other factors,
we believe that we and each subsidiary guarantor, after giving effect to its
guarantee of these notes, will not be insolvent, will not have unreasonably
small capital for the business in which we are or it is engaged and will not
have incurred debts beyond our or its ability to pay such debts as they mature.
There can be no assurance, however, as to what standard a court would apply in
making those determinations or that a court would agree with our conclusions in
this regard.
Members of the Jacobs family own a controlling interest in our capital stock
and may significantly influence our affairs or may pursue other activities
that compete with us.
Jeffrey P. Jacobs, our Chairman and Chief Executive Officer, owns 50% of our
common shares and a trust controlled by Richard E. Jacobs, his father, owns the
remaining 50% of our common shares. Each has the ability significantly to
influence our affairs, including the election of our directors and transactions
including mergers, consolidations or sales of assets. In addition, none of
Jeffrey P. Jacobs, Richard E. Jacobs or any of the entities which either of
them control is restricted from pursuing other opportunities which may compete
for business with our operations. An entity owned by Jeffrey P. Jacobs and
Richard E. Jacobs is the beneficial owner of 9% of the common stock of Riviera
Holdings Corporation, which operates two casinos, one in Black Hawk, Colorado
and the other in Las Vegas, Nevada.
Risks Related to the Exchange Offer
If you do not properly tender your Old Notes, you will continue to hold
unregistered Old Notes and your ability to transfer Old Notes will be adversely
affected.
We will only issue New Notes in exchange for Old Notes that are timely
received by the exchange agent together with all required documents, including
a properly completed and signed letter of transmittal. Therefore, you should
allow sufficient time to ensure timely delivery of the Old Notes and you should
carefully follow the instructions on how to tender your Old Notes. Neither we
nor the exchange agent are required to tell you of any defects or
irregularities with respect to your tender of the Old Notes. If you do not
tender your Old Notes or if we do not accept your Old Notes because you did not
tender your Old Notes properly, then, after we consummate the exchange offer,
you will continue to hold Old Notes that are subject to the existing transfer
restrictions. In addition, if you tender your Old Notes for the purpose of
participating in a distribution of the New Notes, you will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the New Notes. If you are a
broker-dealer that receives New Notes for your own account in exchange for Old
Notes that you acquired as a result of market-making activities or any other
trading activities, you will be required to acknowledge that you will deliver a
prospectus in connection with any resale of those New Notes. After the exchange
offer is consummated, if you continue to hold any Old Notes, you may have
difficulty selling them because there will be fewer Old Notes outstanding. In
addition, if a large amount of Old Notes are not tendered or are tendered
improperly, the limited amount of New Notes that would be issued and
outstanding after we consummate the exchange offer could reduce the market
price of the New Notes.
22
There may not be a liquid market for resale of the New Notes. The New Notes
are new securities for which there currently is no market. Although the initial
purchasers have informed us that they intend to make a market in the New Notes,
they are not obligated to do so and any such market-making may be discontinued
at any time without notice. In addition, the market-making activity may be
limited during the pendency of the exchange offer. Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Notes.
We do not intend to apply for listing of the New Notes on any securities
exchange or for quotation of the New Notes on the Nasdaq National Market or
otherwise.
The liquidity of, and trading market for, the New Notes also may be
adversely affected by general declines in the market for similar securities.
Any such decline may occur independently of our financial performance and
prospects.
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
On February 8, 2002, we issued $125,000,000 aggregate principal amount of
Old Notes to CIBC World Markets Corp. in a transaction not registered under the
Securities Act. The sale of the Old Notes was made in reliance on an exemption
from registration under the Securities Act. The initial purchasers then sold
the Old Notes to qualified institutional buyers under Rule 144A or Regulation S
of the Securities Act. Because the Old Notes have been sold pursuant to
exemptions from registration, the Old Notes are subject to transfer
restrictions.
In connection with the issuance of the Old Notes, we entered into a
registration rights agreement with the initial purchasers that requires us to:
. file with the Commission a registration statement under the Securities
Act covering the New Notes;
. use our best efforts to cause the registration statement to become
effective under the Securities Act; and
. complete the exchange offer upon effectiveness of the registration
statement.
A copy of the registration rights agreement with the initial purchasers has
been filed with the Commission as Exhibit 4.5 to our registration statement.
Any discussion of the terms of the registration rights agreement is qualified
in its entirety by reference to the complete agreement.
Following the completion of the exchange offer, holders of the Old Notes not
tendered will not have any further registration rights other than as described
in the paragraphs below, and those Old Notes will continue to be subject to
certain restrictions on transfer. Accordingly, the liquidity of the market for
the Old Notes may be adversely affected. Upon completion of the exchange offer,
holders of New Notes will have no registration rights.
Resale of New Notes
Based on existing interpretations of the Securities Act by the staff of the
Commission described in several no-action letters to third parties, we believe
that, subject to the exceptions set forth below, the New Notes issued in the
exchange offer may be offered for resale, resold and otherwise transferred by
you without further compliance with the registration and prospectus delivery
provisions of the Securities Act unless you:
. are an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act;
. are a broker-dealer who purchased Old Notes directly from us for resale
under Rule 144A or Regulation S or any other available exemption under
the Securities Act;
. acquired the New Notes other than in the ordinary course of your
business; or
. have an arrangement with any person to engage in the distribution of New
Notes.
23
Broker-dealers that are receiving New Notes for their own account must have
acquired the Old Notes as a result of market-making or other trading activities
in order to participate in the exchange offer. Each broker-dealer that receives
New Notes for its own account under the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of the New Notes. The
letter of transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be admitting that it is an "underwriter"
within the meaning of the Securities Act. We are required to allow
broker-dealers to use this prospectus following the exchange offer in
connection with the resale of New Notes received in exchange for Old Notes
acquired by broker-dealers for their own account as a result of market-making
or other trading activities. If required by applicable securities laws, we
will, upon written request, make this prospectus available to any broker-dealer
for use in connection with a resale of New Notes for a period of 180 days after
the consummation of the exchange offer. See "Plan of Distribution."
Terms of the Exchange Offer
Upon the terms and subject to the conditions stated in this prospectus and
in the letter of transmittal, we will accept all Old Notes validly tendered by
you and not withdrawn before 5:00 p.m. New York City time on the expiration
date. After authentication of the New Notes by the trustee or an authenticating
agent, we will issue $1,000 principal amount of New Notes in exchange for each
$1,000 principal amount of Old Notes accepted in the exchange offer. You may
tender some or all of your Old Notes pursuant to the exchange offer. However,
Old Notes may be tendered only in integral multiples of $1,000 in principal
amount.
The terms of the New Notes are identical in all material respects to the
terms of the Old Notes except that the New Notes have been registered under the
Securities Act and will not bear legends restricting transfer. The New Notes
will evidence the same debt as the Old Notes and will be issued under and
entitled to the benefits of the same indenture.
As of the date of this prospectus, $125,000,000 aggregate principal amount
of the Old Notes was outstanding.
By tendering your Old Notes for New Notes in the exchange offer and signing
or agreeing to be bound by the letter of transmittal, you will represent to us
that:
. you will acquire the New Notes you receive in the exchange offer in the
ordinary course of your business;
. you are not engaging in and do not intend to engage in a distribution of
the New Notes;
. you do not have an arrangement or understanding with any person to
participate in the distribution of the New Notes; and
. you are not an "affiliate," as defined under Rule 405 of the Securities
Act, of ours.
This prospectus, together with the accompanying letter of transmittal, is
initially being sent to all registered holders of the Old Notes. There will be
no fixed record date for determining registered holders of Old Notes entitled
to participation in the exchange offer.
We intend to conduct the exchange offer as required by the Exchange Act, and
the rules and regulations of the Commission under the Exchange Act, including
Rule 14e-1, to the extent applicable. Rule 14e-1 describes unlawful tender
practices under the Exchange Act. This section requires us, among other things:
. to hold our exchange offer open for at least 20 business days;
. to give 10 days notice of any change in certain terms of this offer; and
. to issue a press release in the event of an extension of the exchange
offer.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered.
24
We will be considered to have accepted Old Notes tendered according to the
procedures in this prospectus when, as and if we have given oral or written
notice of acceptance to the exchange agent. See "--Exchange Agent." The
exchange agent will act as agent for the tendering holders of the Old Notes for
the purpose of receiving New Notes from us and delivering New Notes to those
holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of other events described in this prospectus,
certificates for these unaccepted Old Notes will be returned, at our cost, to
the tendering holder of the Old Notes or, in the case of Old Notes tendered by
book-entry transfer, into the holder's account at DTC according to the
procedures described below, as soon as practicable after the expiration date.
If you tender Old Notes in the exchange offer, you will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes related to the exchange of Old Notes in the
exchange offer. We will pay all charges and expenses, other than applicable
taxes, in connection with the exchange offer. See "--Solicitation of Tenders;
Fees and Expenses."
Expiration Date; Extensions; Amendments
The exchange offer will expire at 5:00 p.m., New York City time, on the
later to occur of or 30 business days after the date that notice of the
exchange offer is first mailed to the holders of Old Notes.
We expressly reserve the right, in our sole discretion:
. to delay acceptance of any Old Notes or to terminate the exchange offer
and to refuse to accept Old Notes not previously accepted, if any of the
conditions described below shall not have been met and is not waived by
us;
. to amend the terms of the exchange offer in any manner;
. to purchase or make offers for any Old Notes that remain outstanding
subsequent to the expiration date; and
. to the extent permitted by applicable law, to purchase Old Notes in the
open market, in privately negotiated transactions or otherwise.
Any delay in acceptance, termination, extension, or amendment will be
followed as promptly as practicable by oral or written notice to the exchange
agent and by making a public announcement. If the exchange offer is amended in
a manner determined by us to constitute a material change, we will promptly
disclose the amendment in a manner reasonably calculated to inform you of the
amendment. Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, termination, extension, or amendment
of the exchange offer, we shall have no obligation to publish, advise, or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
You are advised that we may extend the exchange offer in the event some of
the holders of the Old Notes do not tender on a timely basis. In order to give
these noteholders the ability to participate in the exchange and to avoid the
significant reduction in liquidity associated with holding an unexchanged note,
we may elect to extend the exchange offer until all outstanding Old Notes are
tendered.
Interest on the New Notes
The New Notes will bear interest from February 8, 2002 or, if later, from
the most recent date of payment of interest on the Old Notes. Accordingly, if
you tender Old Notes that are accepted for exchange, you will not receive
interest that is accrued but unpaid on the Old Notes at the time of tender.
Interest on the New Notes will be payable semi-annually on each February 1 and
August 1, commencing on the next interest payment date.
25
Procedures for Tendering
Only a holder of Old Notes may tender Old Notes in the exchange offer. If
you are a beneficial owner whose Old Notes are registered in the name of your
broker, dealer, commercial bank, trust company or other nominee or are held in
book-entry form and wish to tender, you should contact the registered holder
promptly and instruct the registered holder to tender on your behalf. If you
are a beneficial owner and wish to tender on your own behalf, you must, before
completing and executing the letter of transmittal and delivering your Old
Notes, either make appropriate arrangements to register ownership of the Old
Notes in your name or obtain a properly completed bond power from the
registered holder. The transfer of record ownership may take considerable time.
Your tender will constitute an agreement between you and us according to the
terms and subject to the conditions described in this prospectus and in the
letter of transmittal. If you desire to tender Old Notes and cannot comply with
the procedures set forth herein for tender on a timely basis or your Old Notes
are not immediately available, you must comply with the procedures for
guaranteed delivery set forth in "--Guaranteed Delivery Procedures."
The method of delivery to the exchange agent of Old Notes, the letter of
transmittal and all other required documents is at your election and risk.
Delivery of such documents will be considered made only when the exchange agent
actually receives them or they are deemed received under the ATOP procedures
described below. In all cases, sufficient time should be allowed to assure
delivery to the exchange agent before the expiration date. No letter of
transmittal or Old Notes should be sent to us. You may also request that your
respective brokers, dealers, commercial banks, trust companies or nominees
effect the tender for you, in each case as described in this prospectus and in
the letter of transmittal.
Old Notes Held in Certificated Form
For you to validly tender Old Notes held in physical form, the exchange
agent must receive, before 5:00 p.m. New York City time on the expiration date,
at its address set forth in this prospectus:
. a properly completed and validly executed letter of transmittal, or a
manually signed facsimile thereof, together with any signature guarantees
and any other documents required by the instructions to the letter of
transmittal, and
. certificates for tendered Old Notes.
Old Notes Held in Book-Entry Form
We understand that the exchange agent will make a request promptly after the
date of the prospectus to establish accounts for the Old Notes at DTC for the
purpose of facilitating the exchange offer, and subject to their establishment,
any financial institution that is a participant in DTC may make book-entry
delivery of Old Notes by causing DTC to transfer the Old Notes into the
exchange agent's account for the Old Notes using DTC's procedures for transfer.
If you desire to transfer Old Notes held in book-entry form with DTC, the
exchange agent must receive, before 5:00 p.m. New York City time on the
expiration date, at its address set forth in this prospectus, a confirmation of
book-entry transfer of the Old Notes into the exchange agent's account at DTC,
which is referred to in this prospectus as a "book-entry confirmation," and:
. a properly completed and validly executed letter of transmittal, or
manually signed facsimile thereof, together with any signature guarantees
and other documents required by the instructions in the letter of
transmittal; or
. an agent's message transmitted pursuant to DTC's Automated Tender Offer
Program.
26
Tender of Old Notes Using DTC'S Automated Tender Offer Program (ATOP)
The exchange agent and DTC have confirmed that the exchange offer is
eligible for DTC's Automated Tender Offer Program. Accordingly, DTC
participants may electronically transmit their acceptance of the exchange offer
by causing DTC to transfer Old Notes held in book-entry form to the exchange
agent in accordance with DTC's ATOP procedures for transfer. DTC will then send
a book-entry confirmation, including an agent's message to the exchange agent.
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, which
states that DTC has received an express acknowledgment from the participant in
DTC tendering Old Notes that are the subject of that book-entry confirmation
that the participant has received and agrees to be bound by the terms of the
letter of transmittal, and that we may enforce such agreement against such
participant. If you use ATOP procedures to tender Old Notes you will not be
required to deliver a letter of transmittal to the exchange agent, but you will
be bound by its terms just as if you had signed it.
Signatures
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an "eligible institution" unless the Old Notes
tendered with the letter of transmittal are tendered:
. by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" in the
letter of transmittal; or
. for the account of an "eligible institution."
An "eligible institution" is a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.;
a commercial bank or trust company having an office or correspondent in the
United States; an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act; or an "eligible institution" that is a
participant in a recognized medallion guarantee program.
If the letter of transmittal is signed by a person other than the registered
holder or DTC participant who is listed as the owner, the Old Notes must be
endorsed or accompanied by appropriate bond powers which authorize the person
to tender the Old Notes on behalf of the registered holder or DTC participant
who is listed as the owner, in either case signed as the name of the registered
holder who appears on the Old Notes or the DTC participant who is listed as the
owner. If the letter of transmittal or any Old Notes or bond powers are signed
or endorsed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, those persons should so indicate when signing, and
unless waived by us, evidence satisfactory to us of their authority to so act
must be submitted with the letter of transmittal.
If you tender your notes through ATOP, signatures and signature guarantees
are not required.
Determinations of Validity
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of the tendered Old Notes will be determined
by us in our sole discretion. Our determinations will be final and binding. We
reserve the absolute right to reject any and all Old Notes not properly
tendered or any Old Notes our acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the absolute right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of Old Notes must be cured within the time we shall determine. Although
we intend to notify holders of defects or irregularities related to tenders of
Old Notes, neither we nor the exchange agent nor any other person will be under
any duty to give notification of defects or irregularities related to tenders
of Old Notes nor will any of them incur liability for
27
failure to give notification. Tenders of Old Notes will not be considered to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the exchange agent that we determine are not properly
tendered or the tender of which is otherwise rejected by us and as to which the
defects or irregularities have not been cured or waived by us will be returned
by the exchange agent to the tendering holder unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration date.
Guaranteed Delivery Procedures
If you wish to tender your Old Notes and:
. your Old Notes are not immediately available;
. you cannot complete the procedure for book-entry transfer on a timely
basis;
. you cannot deliver your Old Notes, the letter of transmittal or any other
required documents to the exchange agent before the expiration date; or
. you cannot complete a tender of Old Notes held in book-entry form using
DTC's ATOP procedures on a timely basis,
then, you may effect a tender if you tender through an eligible institution as
defined under "--Procedures for Tendering--Signatures," or if you tender using
ATOP's guaranteed delivery procedures.
A tender of Old Notes made by or through an eligible institution will be
accepted if:
. before 5:00 p.m., New York City time, on the expiration date, the
exchange agent receives from an eligible institution a properly completed
and duly executed notice of guaranteed delivery, by facsimile
transmittal, mail or hand delivery, that: (1) sets forth the name and
address of the holder, the certificate number or numbers of the holder's
Old Notes and the principal amount of the Old Notes tendered, (2) states
that the tender is being made, and (3) guarantees that, within five
business days after the expiration date, a properly completed and validly
executed letter of transmittal or facsimile, together with certificates
representing the Old Notes to be tendered in proper form for transfer, or
a book-entry confirmation, and any other documents required by the letter
of transmittal will be deposited by the eligible institution with the
exchange agent; and
. the properly completed and executed letter of transmittal or a facsimile,
together with the certificates representing all tendered Old Notes in
proper form for transfer, or a book-entry confirmation, and all other
documents required by the letter of transmittal are received by the
exchange agent within five business days after the expiration date.
A tender made through DTC's Automated Tender Offer Program will be accepted
if:
. before 5:00 p.m., New York City time, on the expiration date, the
exchange agent receives an agent's message from DTC stating that DTC has
received an express acknowledgment from the participant in DTC tendering
the Old Notes that it has received and agrees to be bound by the notice
of guaranteed delivery; and
. the exchange agent receives, within five business days after the
expiration date, either: (1) a book-entry confirmation transmitted via
DTCs ATOP procedures; or (2) a properly completed and executed letter of
transmittal or a facsimile, together with the certificates representing
all tendered Old Notes in proper form for transfer, or a book-entry
confirmation, and all other documents required by the letter of
transmittal.
Upon your request, the exchange agent will send to you a notice of
guaranteed delivery so that you may tender your Old Notes according to the
guaranteed delivery procedures described above.
28
Withdrawal of Tenders
You may withdraw Old Notes you tendered at any time before 5:00 p.m. New
York City time on the expiration date. To withdraw a tender of Old Notes in the
exchange offer:
. a written or facsimile transmission of a notice of withdrawal must be
received by the exchange agent at its address listed below before 5:00
p.m., New York City time, on the expiration date; or
. you must comply with the appropriate DTC ATOP procedures.
Any notice of withdrawal must:
. specify the name of the person having deposited the Old Notes to be
withdrawn;
. identify the Old Notes to be withdrawn, including the certificate number
or numbers and principal amount of the Old Notes or, in the case of Old
Notes transferred by book-entry transfer, the name and number of the
account at the depositary to be credited;
. be signed by the same person and in the same manner as the original
signature on the letter of transmittal by which the Old Notes were
tendered, including any required signature guarantee, or be accompanied
by documents of transfer sufficient to permit the trustee for the Old
Notes to register the transfer of the Old Notes into the name of the
person withdrawing the tender; and
. specify the name in which any of the Old Notes are to be registered, if
different from that of the person who deposited the Old Notes to be
withdrawn.
All questions as to the validity, form and eligibility, including time of
receipt, of the withdrawal notices will be determined by us, and our
determinations will be final and binding on all parties. Any Old Notes so
withdrawn will be judged not to have been tendered for purposes of the exchange
offer, and no New Notes will be issued in exchange for those Old Notes unless
you validly retender the Old Notes so withdrawn. If your Old Notes that have
been tendered are not accepted for exchange, they will be returned to you
without cost to you or, in the case of Old Notes tendered by book-entry
transfer, into your account at DTC according to the procedures described above.
This return or crediting will take place as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. You may
retender properly withdrawn Old Notes by following one of the procedures
described above under "--Procedures for Tendering" at any time before the
expiration date.
Conditions
The exchange offer is subject only to the following conditions:
. regulatory approvals of Nevada state gaming authorities;
. the compliance of the exchange offer with securities laws;
. the proper tender of the Old Notes;
. our receipt of the required representations by the holders of the Old
Notes described above; and
. no judicial or administrative proceeding being pending or threatened that
would limit us from proceeding with the exchange offer.
The foregoing conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any such condition or we may
waive them in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of the forgoing rights does
not constitute a waiver of that right. Each of these rights is an ongoing right
that we may assert at any time and from time to time.
In addition, we will not accept for exchange any Old Notes tendered, and no
New Notes will be issued in exchange for those Old Notes, if at such time any
stop order is threatened or in effect with respect to the
29
registration statement of which this prospectus constitutes a part or with
respect to the qualification of the indenture under the Trust Indenture Act of
1939.
Exchange Agent
Wells Fargo Bank Minnesota, National Association, the trustee under the
indenture, has been appointed as exchange agent for the exchange offer. In this
capacity, the exchange agent has no fiduciary duties and will be acting solely
on the basis of our directions. You should direct requests for assistance and
requests for additional copies of this prospectus or of the letter of
transmittal to the exchange agent at the address below. You should send
certificates for Old Notes, letters of transmittal and any other required
documents to the exchange agent addressed as follows:
By Hand or Overnight Courier and by Registered or Certified Mail:
Wells Fargo Bank Minnesota, National Association
Jacobs Entertainment Exchange Agent
213 Court Street, Suite 920
Middletown, CT 06457
Attention: Robert Reynolds
By Facsimile (for eligible institutions only):
(860) 704-6219
Attention: Robert Reynolds
For information, call:
Robert Reynolds (860) 704-6216
Delivery of the letter of transmittal to an address other than as listed
above or transmission of instructions via facsimile other than as described
above does not constitute a valid delivery of the letter of transmittal.
Solicitation of Tenders; Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation
under the exchange offer is being made by mail. Our officers and regular
employees and our affiliates may make additional solicitations in person, by
telegraph, telephone or telecopier.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We, however, will pay the
exchange agent reasonable and customary fees for its services and will
reimburse the exchange agent for its reasonable out-of-pocket costs and
expenses in connection with the exchange offer and will indemnify the exchange
agent for all losses and claims incurred by it as a result of the exchange
offer.
We will pay the expenses to be incurred in connection with the exchange
offer, including fees and expenses of the exchange agent and trustee,
accounting and legal fees and printing costs.
Transfer Taxes
You will not be obligated to pay any transfer tax in connection with the
exchange, unless you instruct us to register New Notes in the name of, or
request that notes not tendered or not accepted in the exchange offer be
returned to, a person other than you. Under those circumstances, you will be
responsible for the payment of any applicable transfer tax.
30
Accounting Treatment
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in our accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by us
upon the closing of the exchange offer. We will amortize the expenses of the
exchange offer over the term of the New Notes.
Participation in the Exchange Offer; Untendered Notes
Participation in the exchange offer is voluntary. Holders of the Old Notes
are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all Old
Notes tendered under the terms of, this exchange offer, we will have fulfilled
a covenant contained in the registration rights agreement. If you do not tender
your Old Notes in the exchange offer, you will continue to hold your Old Notes
and will be entitled to all the rights, subject to certain limitations,
applicable to the Old Notes under the indenture. Holders of Old Notes will no
longer be entitled to any rights under the registration rights agreement, which
terminate and cease to have effect upon consummation of this exchange offer.
All untendered Old Notes will continue to be subject to the restrictions on
transfer described in the indenture. To the extent that Old Notes are tendered
and accepted in the exchange offer, the trading market for untendered Old Notes
could be adversely affected. The reduction in the number of outstanding Old
Notes following the exchange will probably significantly reduce the liquidity
of the untendered notes.
If you do not exchange your restricted Old Notes for registered New Notes
pursuant to the exchange offer, you will continue to be subject to the
restrictions on transfer of the restricted notes as described in the legend on
the notes. In general, the restricted notes may be offered or sold only if
registered under the Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. We do not currently anticipate that we will register the
restricted notes under the Securities Act. However, under limited circumstances
we may be required to file with the Commission a shelf registration statement
to cover resales of the restricted notes by the holders of Old Notes who
satisfy conditions relating to the provision of information in connection with
the shelf registration statement.
We may in the future seek to acquire untendered Old Notes in the open market
or through privately negotiated transactions, through subsequent exchange
offers or otherwise. The terms of any such purchases or offers could differ
from the terms of the exchange offer. We intend to make any acquisition of Old
Notes in accordance with the applicable requirements of the Exchange Act, and
the rules and regulations of the Commission under the Exchange Act, including
Rule 14e-1, to the extent applicable. We have no present plan to acquire any
Old Notes that are not tendered in the exchange offer or to file a registration
statement to permit resales of any Old Notes that are not tendered in the
exchange offer. Holders of Old Notes do not have any appraisal or dissenters'
rights in connection with the exchange offer.
31
USE OF PROCEEDS
We will not receive any proceeds in connection with the exchange offer. In
consideration for issuing the New Notes in exchange for the Old Notes as
described in this prospectus, we will receive, retire and cancel the Old Notes.
We used the proceeds of the sale of the Old Notes to:
. Refinance the outstanding indebtedness and other obligations of Black
Hawk Gaming;
. Finance the merger consideration payable to Black Hawk Gaming
shareholders and option holders;
. Refinance the debt incurred by Jalou L.L.C. to acquire Bayou Vista Truck
Plaza and Casino and Lucky Magnolia Truck Stop and Casino and the debt
incurred for the acquisition by Jalou L.L.C. of Raceland Truck Plaza and
Casino;
. Refinance the debt incurred by Jalou II to acquire Colonel's Truck Plaza
and Casino;
. Finance the merger consideration payable to Colonial Holdings
shareholders and option holders;
. Pay accrued interest and other expenses owed by Colonial Holdings to CD
Entertainment, an affiliate of Jeffrey P. Jacobs; and
. Pay transaction fees and expenses related to the offering of the Old
Notes and the recent acquisitions.
As part of the recent acquisitions, entities controlled by Jeffrey P. Jacobs
and The Richard E. Jacobs Revocable Trust contributed to us substantially all
of their direct and indirect interests in Diversified and certain of its
affiliates, including Jalou L.L.C. and Jalou II, in exchange for our issuance
to them of our common stock. We did not pay any cash consideration in
connection with that contribution.
The following table illustrates the uses of the net proceeds from the sale
of the Old Notes together with prior or concurrent funding from other sources:
(dollars in
thousands)
-----------
Sources:
Proceeds of Old Notes(1).................................................. $120,050
New Louisiana properties seller notes(2).................................. 5,795
Cash...................................................................... 7,469
--------
Total sources......................................................... $133,314
========
Uses:
Repayment of Black Hawk Gaming obligations(3)............................. $ 59,946
Black Hawk Gaming acquisition consideration(4)............................ 36,980
Louisiana truck plaza acquisition consideration(5)........................ 20,282
Colonial Holdings acquisition consideration(6)............................ 4,820
Payment of accrued interest, advances and other payables to affiliates(7). 3,240
Remaining transaction fees and expenses(8)................................ 8,046
--------
Total uses............................................................ $133,314
========
- --------
(1) Reflects unamortized offering discount of approximately $4.95 million.
(2) Notes issued to the sellers of Colonel's Truck Plaza and Casino, Raceland
Truck Plaza and Casino, Bayou Vista Truck Plaza and Casino and Lucky
Magnolia Truck Stop and Casino. The notes bear interest at a rate of 8.5%
per annum, mature on April 30, 2009, and are in the principal amount of
$2.2 million, $1.1 million, $1.7 million and $0.8 million, respectively.
Each such note is secured by a second mortgage on the facility to which the
note relates, and the Old Notes and Exchange Notes are and will be secured
by a first priority mortgage on each such facility.
32
(3) Includes indebtedness of $58.8 million that was the outstanding portion as
of December 31, 2001 of Black Hawk Gaming's four-year, $75.0 million
reducing revolving credit facility with Wells Fargo Bank. Outstanding
amounts under the facility bore interest at a blended rate equal to 8.94%
per annum and had a final maturity of April 2004. In addition, as of
December 31, 2001, the interest rate swap liability was $1.1 million ($1.9
million, net of associated income tax benefit of approximately $0.8
million). This credit facility was terminated upon repayment on February
22, 2002.
(4) The Black Hawk Gaming acquisition consideration was determined by
negotiation with the Special Committee of the Board of Directors of Black
Hawk Gaming, which engaged an independent investment banking firm to assist
it in determining and negotiating a fair and equitable purchase price. The
acquisition was approved by shareholder vote on January 4, 2002.
(5) On January 11, 2002, Jalou L.L.C. purchased Bayou Vista Truck Plaza and
Casino and Lucky Magnolia Truck Stop and Casino, and Jalou II Inc.
purchased Colonel's Truck Plaza and Casino. In addition, on February 22,
2002, Jalou L.L.C. purchased Raceland Truck Plaza and Casino. The aggregate
purchase price for these acquisitions was approximately $20.3 million,
subject to post-closing adjustments, and is financed by:
. promissory notes issued to the sellers of such properties totaling
approximately $5.8 million;
. $5.7 million of funds borrowed from The Richard E. Jacobs Revocable
Trust, bearing no interest, which was repaid with proceeds from the Old
Notes; and
. the remainder of funds borrowed from unaffiliated third party lenders,
bearing interest at a weighted average rate of 6.7%. All such borrowings
from The Trust and the unaffiliated third party lender were repaid with a
portion of the net proceeds of the offering of the Old Notes.
(6) The Colonial Holdings acquisition consideration was determined by
negotiation with the Special Committee of the Board of Directors of
Colonial Holdings, which engaged an independent investment banking firm to
assist it in determining and negotiating a fair and equitable purchase
price. The acquisition was approved by shareholder vote on January 11, 2002.
(7) Includes $1.8 million of accrued interest as of December 31, 2001 under
convertible promissory notes between CD Entertainment Ltd., as lender, and
Colonial Holdings and Colonial Downs, L.P., as borrowers. These notes were
contributed to Jacobs Entertainment as part of the acquisitions described
herein. These notes were modified to (1) reduce the outstanding principal
amount due to $15.7 million through the forgiveness of $10.0 million of
indebtedness, (2) eliminate any amortization payments, (3) eliminate the
conversion feature and (4) extend the maturity to February 1, 2009.
Colonial Holdings and Colonial Downs are able to elect, at their option, to
pay interest in cash or in kind. Also includes $750,000 in credit
enhancement fees for 1999 and 2000, working capital advance of $500,000 in
2001 and other miscellaneous receivables of approximately $200,000 due from
Colonial Holdings.
(8) The remaining transaction fees and expenses are comprised primarily of
professional fees associated with the issuance of the Old Notes, and the
redemption of the Old Notes for the New Notes.
33
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents,
and capitalization, as of March 31, 2002, based on the historical consolidated
financial data of Jacobs Entertainment as contained on page F-2 . The table
includes all of our recent acquisitions and the application of net proceeds of
the Old Notes as described under "Use of Proceeds." You should read this
information in conjunction with the information under "Use of Proceeds,"
"Selected Consolidated Historical Financial and Operating Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the financial statements and notes thereto included elsewhere
in this prospectus.
As of
March 31, 2002
--------------
(dollars in
thousands)
Cash and cash equivalents..................................... $ 19,083
========
Long-term debt, including current maturities:
Senior Credit Facility (1)................................. 10,000
Notes offered hereby (2)................................... $120,050
Black Hawk special assessment bonds (3).................... 4,920
Indebtedness of Colonial Holdings (4)...................... 1,693
Existing Louisiana properties seller notes (5)............. 4,740
New Louisiana properties seller notes (6).................. 5,795
Subordinated debt to affiliates (7)........................ 9,000
--------
Total long-term debt, including current maturities..... 156,198
Stockholders' equity.......................................... 62,214
--------
Total capitalization................................... $218,412
========
- --------
(1) On July 12, 2002 we entered into our Senior Credit Facility in the amount
of $10.0 million. See "Description of Other Indebtedness."
(2) Reflects unamortized offering discount of approximately $4.95 million.
(3) Black Hawk Business Improvement District Special Assessment Bonds, issued
in March 1999, in one tranche of $2.0 million and another tranche of $4.0
million. The interest rate on the $2.0 million tranche is 6.25% per annum,
and the $4.0 million tranche bears interest at the rate of 6.5% per annum.
The $2.0 million tranche has a final maturity of December 1, 2004, and the
$4.0 million tranche has a final maturity of December 1, 2011. The bonds
are secured by a first priority lien on the real property comprising the
Black Hawk Improvement District relating to The Lodge Casino, which ranks
senior to the security for the notes offered hereby. See "Description of
Other Indebtedness" for more information.
(4) Indebtedness includes a note payable to the Maryland Jockey Club, or MJC,
in the amount of $1.2 million as of December 31, 2001, bearing interest at
7.75%, payable in quarterly installments of interest plus principal of
$72,500 and maturing December 2005. Colonial Holdings has an additional
note payable to MJC in the amount of $0.3 million, bearing interest at the
prime rate (4.75% at December 31, 2001) and maturing January 2002. Colonial
Holdings also has a note payable to Citizens and Farmers Bank in the amount
of $0.1 million as of December 31, 2001, bearing interest at 8.5%, payable
in monthly installments of $15,000, maturing August 2002 and secured by a
lien on certain equipment, which ranks prior to the security for payment of
the notes offered hereby. Finally, Colonial Holdings has a series of notes
used to finance various insurance premiums payable to certain insurance
companies in the aggregate amount of $0.03 million as of December 31, 2001,
bearing interest at 8.36%. See "Description of Other Indebtedness" for more
information.
(5) Winner's Choice Casino, Inc., the Jalou II subsidiary that owns Winner's
Choice Casino, is the obligor on a note dated February 7, 2001, as amended
on September 26, 2001, in the principal amount of $1.2 million, payable to
the former owners of the facility. Jalou-Cash's L.L.C., the Jalou L.L.C.
subsidiary that owns a
34
revenue interest in Cash's Truck Plaza and Casino, is the obligor on a note
dated February 7, 2001, as amended on September 26, 2001, in the
principal amount of $1.7 million, payable to the former owner of
the facility. Houma Truck Plaza & Casino, L.L.C., the Jalou L.L.C.
subsidiary that owns the Houma Truck Plaza and Casino, is the obligor on a
note dated February 7, 2001, as amended on September 26, 2001, in the
principal amount of $1.8 million, payable to the former owner of the
facility's gaming devices. Each of these notes bears interest at 8.0% per
annum until October 1, 2001 and 8.5% per annum thereafter, matures on March
31, 2009, and is secured by a second mortgage and pledge of the leasehold
interest or security interest in the revenue interest on the facility to
which it relates and a lien on the land, building and equipment. On
acquisition, these seller notes were assumed by and became obligations of
Jacobs Entertainment. See "Description of Other Indebtedness" for more
information.
(6) Notes payable issued to the sellers of Colonel's Truck Plaza and Casino,
Raceland Truck Plaza and Casino, Bayou Vista Truck Plaza and Casino and
Lucky Magnolia Truck Stop and Casino. The notes payable bear interest at a
rate of 8.5% per annum, mature on April 30, 2009, and are in the principal
amount of $2.2 million, $1.1 million, $1.7 million and $0.8 million,
respectively. Each such note is secured by a second mortgage on the
facility to which the note relates and the Old Notes and Exchange Notes are
and will be secured by a first priority mortgage on each such facility. On
acquisition, these notes were assumed by and became obligations of Jacobs
Entertainment. See "Description of Other Indebtedness" for more information.
(7) Notes payable to The Richard E. Jacobs Revocable Trust and Jeffrey P.
Jacobs in the amounts of $8.0 million and $1.0 million, respectively, as of
December 31, 2001, each bearing interest at 12.0%, with semi-annual
interest only payments beginning March 31, 2002 and continuing until
maturity on January 31, 2010, at which time the principal balance plus any
unpaid interest becomes due. These notes were assumed by Jacobs
Entertainment and are subordinate to the obligations of the Old Notes and
Exchange Notes. See "Description of Other Indebtedness" for more
information.
35
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated financial statements set forth below
are presented to show the Jacobs Entertainment financial statements after the
impact of the offering of the Old Notes, the recent acquisitions, and the
related matters described under "Use of Proceeds."
The following unaudited pro forma consolidated statements of income for the
year ended December 31, 2001 and the three months ended March 31, 2002, give
effect to the following transactions:
. the contribution to Jacobs Entertainment of certain historical assets and
liabilities of Diversified. Diversified's consolidated financial
statements include the accounts of Colonial Holdings because Diversified
owned over 50.0% of Colonial Holdings' voting shares at December 31, 2001;
. the acquisition by Jacobs Entertainment of the publicly held shares of
Black Hawk Gaming;
. the contribution to Jacobs Entertainment of the stock of Jalou II Inc.;
. the acquisition by Jacobs Entertainment of the publicly held shares of
Colonial Holdings;
. the acquisition by Jalou L.L.C., a wholly owned subsidiary of
Diversified, and Jalou II Inc., of two Louisiana entities that own the
Houma Truck Plaza and Casino and Winner's Choice Casino, as well as an
acquired interest in the gaming revenues of Cash's Truck Plaza and
Casino, which occurred in February 2001;
. the 2002 acquisitions by Jalou L.L.C. and Jalou II Inc. of four other
Louisiana entities that own Colonel's Casino Truck Plaza, Raceland Truck
Plaza and Casino, Bayou Vista Truck Plaza and Casino and Lucky Magnolia
Truck Stop and Casino; and
. the issuance and sale of $125.0 million in principal amount of Old Notes
on February 8, 2002.
Jeffrey P. Jacobs and The Richard E. Jacobs Revocable Trust contributed
substantially all of their interests in Diversified and their combined 100%
interest in Jalou II Inc. in exchange for the common stock of Jacobs
Entertainment. On the acquisition date, immediately prior to the acquisition of
the publicly held shares of Black Hawk Gaming and Colonial Holdings,
Diversified owned 100% of Jalou L.L.C., approximately 43.5% of Colonial
Holdings, approximately 32% of Black Hawk Gaming, and a 25% interest in the
Lodge Casino at Black Hawk (the remaining 75% of which was owned by Black Hawk
Gaming). The exchange of Jacobs Entertainment shares for the interests of
Diversified and Jalou II Inc., was accounted for as a combination of entities
under common control, which is similar to the pooling of interests method of
accounting for business combinations.
The ownership interest of the Jalou entities and the acquisition dates for
each property are as follows:
Jalou LLC--Houma Truck Plaza and Casino and an interest in the gaming
revenues of Cash's Truck Plaza and Casino were acquired on February 7,
2001. Bayou Vista Truck Plaza and Casino and Lucky Magnolia Truck Stop
and Casino were acquired on January 11, 2002, and Raceland Truck Plaza
and Casino was acquired on February 22, 2002.
Jalou II Inc.--Winner's Choice Casino was acquired on February 7, 2001,
and Colonel's Truck Plaza and Casino was acquired on January 11, 2002.
These acquisitions were recorded using the purchase method of accounting
for business combinations, and the total purchase price for the
properties acquired in 2002 was approximately $20,282,000.
Jacobs Entertainment acquired the remaining 56.5% of Colonial Holding's
common stock and outstanding stock options for approximately $4,820,000, which
was recorded using the purchase method of accounting for business combinations.
Jacobs Entertainment also acquired the remaining 68% of Black Hawk Gaming's
common stock for approximately $36,980,000. This transaction was recorded using
the purchase method of accounting for business combinations.
36
The unaudited pro forma consolidated statements of income have been prepared
assuming all of the transactions referred to above occurred on January 1, 2001.
For the 2001 Louisiana acquisitions and Gold Dust West, amortization expense
has been recorded for the goodwill and other intangible assets arising from the
acquisitions as they were completed prior to July 1, 2001. As all other
acquisitions occurred after July 1, 2001, goodwill and other intangible assets
amortization will not be recorded for purposes of the unaudited pro forma
consolidated statements of income. The unaudited pro forma consolidated
statements of income do not include the impact of nonrecurring charges or
credits directly attributable to the transactions. In the opinion of
management, all adjustments have been made that are necessary to present fairly
the pro forma data.
The unaudited pro forma consolidated statements of income should be read in
conjunction with the related notes. The unaudited pro forma consolidated
statements of income are presented for illustrative purposes only and are not
necessarily indicative of the results of operations that would have been
achieved had the transactions reflected therein been consummated as of the date
indicated or of the results of operations for any future periods.
37
Jacobs Entertainment Unaudited Pro Forma Consolidated Statements of Income
Year Ended December 31, 2001
(in thousands)
Louisiana
Truck
Plazas
Acquired Jacobs
Jacobs in 2001 Entertain-
Entertain- Black Hawk and Pro Forma ment
ment(1) Gaming(2) 2002(3) Adjustments Pro Forma
---------- ---------- --------- ----------- ----------
NET REVENUES..................................... $ 46,653 $ 98,549 $21,067 $(1,541)(a) $ 164,728
COSTS AND EXPENSES:
Direct expenses............................... 31,878 42,752 12,715 87,345
Selling, general and administrative expenses.. 7,385 32,229 5,387 (1,541)(a) 43,523
(192)(b)
255(c)
Depreciation and
amortization................................. 2,681 7,789 856 (396)(d) 10,930
Transaction fees and
expenses..................................... 624 1,374 (1,998)(e)
-------- -------- ------- -------- ---------
Total operating
expenses.................................. 42,568 84,144 18,958 (3,872) 141,798
OPERATING INCOME................................. 4,085 14,405 2,109 2,331 22,930
INTEREST EXPENSE,
NET............................................. (4,130) (5,089) (520) (8,832)(f) (18,571)
-------- -------- ------- -------- ---------
(LOSS) INCOME BEFORE EQUITY INVESTMENTS, MINORITY
INTEREST AND INCOME TAXES....................... (45) 9,316 1,589 (6,501) 4,359
EQUITY IN EARNINGS OF INVESTMENTS................ 3,377 (3,377)(a)
MINORITY INTEREST................................ 1,258 (2,030) 772(a)
-------- -------- ------- -------- ---------
INCOME (LOSS) BEFORE INCOME TAXES................ 4,590 7,286 1,589 (9,106) 4,359
INCOME TAXES..................................... (3,117) 3,117(g)
-------- -------- ------- -------- ---------
NET INCOME....................................... $ 4,590 $ 4,169 $ 1,589 $(5,989) $ 4,359
======== ======== ======= ======== =========
- --------
(1) Includes the accounts of Jacobs Entertainment for the entire year, and the
operations of the Jalou L.L.C. and Jalou II properties (Houma Truck Plaza
and Casino, an interest in the gaming revenues of Cash's Truck Plaza and
Casino and Winner's Choice Casino) acquired on February 7, 2001, for the
period subsequent to the acquisition date through December 31, 2001.
(2) Includes the results of Gold Dust West, acquired by Black Hawk Gaming in
January 2001, for the period subsequent to the acquisition date through
December 31, 2001.
(3) Includes the accounts of four Louisiana truck plaza gaming properties
acquired in 2002 (Colonel's Truck Plaza and Casino, Lucky Magnolia Truck
Stop and Casino, Bayou Vista Truck Plaza and Casino, and Raceland Truck
Plaza and Casino), in addition to the results of the Louisiana properties
acquired in February 2001 (Houma Truck Plaza and Casino, an interest in the
gaming revenues of Cash's Truck Plaza and Casino and Winner's Choice
Casino) for the period from January 1, 2001 to the February 7, 2001
acquisition date.
38
Jacobs Entertainment Unaudited Pro Forma Consolidated Statements of Income
Three Months Ended March 31, 2002
(in thousands)
Louisiana
Truck Plazas
Acquired in
2002--Results
Black for Period Jacobs
Jacobs Hawk Prior to Pro Forma Entertainment
Entertainment (1) Gaming (2) Acquisitions (3) Adjustments Pro Forma
----------------- ---------- ---------------- ----------- -------------
NET REVENUES........................ $25,686 $13,904 $1,414 $ (643) (a) $40,361
COSTS AND EXPENSES:
Direct expenses.................. 15,048 6,488 1,017 22,553
Selling, general and
administrative expenses........ 4,216 4,713 62 (643) (a) 8,357
(28) (b)
37 (c)
Depreciation and
amortization................... 1,403 1,361 29 (49) (d) 2,744
Transaction fees and
expenses....................... 455 3,794 (4,249) (e)
------- ------- ------ ------- -------
Total operating expenses..... 21,122 16,356 1,108 (4,932) 33,654
OPERATING INCOME.................... 4,564 (2,419) 306 4,256 6,707
INTEREST EXPENSE, NET............... (3,200) (2,336) (35) 938 (f) (4,633)
------- ------- ------ ------- -------
INCOME (LOSS) BEFORE
EQUITY INVESTMENTS,
AND MINORITY INTEREST............. 1,364 (4,755) 271 5,194 2,074
EQUITY IN LOSS OF
INVESTMENTS....................... (1,980) 1,980 (a)
MINORITY INTEREST IN LOSS........... 173 288 (461) (a)
------- ------- ------ ------- -------
NET (LOSS) INCOME................... $ (443) $(4,467) $ 271 $ 6,713 $ 2,074
======= ======= ====== ======= =======
- --------
(1) Jacobs Entertainment balances are derived from the consolidated historical
interim financial data contained on page F-2.
(2) Black Hawk Gaming balances represent amounts for the period from January 1,
2002, through the February 22, 2002 acquisition date by Jacobs
Entertainment.
(3) Louisiana truck plaza balances represent amounts for the period from
January 1, 2002, through their respective acquisition dates (January 11,
2002, for Colonel's Truck Plaza and Casino, Lucky Magnolia Truck Stop and
Casino, Bayou Vista Truck Plaza and Casino, and February 22, 2002, for
Raceland Truck Plaza and Casino).
39
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
(a) To eliminate equity in earnings (loss) of investments, minority interest
earnings (loss) and the management fees charged to Black Hawk Gaming by
Diversified. The management contract was cancelled upon the acquisition of
Black Hawk Gaming on February 22, 2002.
(b) To remove redundant Black Hawk Gaming and Colonial Holdings costs related
to the investor relations function (public relations costs, corporate stock
transfer costs, directors' fees, etc.) of $192 annually. These costs for
the investor relations function are no longer necessary because there is no
publicly traded stock.
(c) To adjust officers' compensation to terms of new employment agreements.
(d) To record the depreciation and amortization effect of acquisitions
described herein.
Year Ended Three Months Ended
December 31, 2001 March 31, 2002
----------------- ------------------
Additional depreciation on write-up of fixed assets for Louisiana
truck plazas acquired in 2002.................................. $ 91 $ 21
Elimination of amortization of deferred financing fees of Black
Hawk Gaming indebtedness that was repaid....................... (709) (103)
Reduction of depreciation due to write-down of Colonial Holdings'
fixed assets upon acquisition.................................. (307) (45)
Additional amortization of identifiable intangible assets........ 529 78
----- -----
Depreciation and amortization adjustment......................... $(396) $ (49)
===== =====
(e) Elimination of one-time transaction fees and expenses associated with
consummating the offering of the Old Notes, the acquisitions and the buyout
of the Black Hawk Gaming stock options as part of the acquisition (for the
three months ended March 31, 2002).
(f) To record net increase in interest expense:
Year Ended Three Months Ended
December 31, 2001 March 31, 2002
----------------- ------------------
Historical interest expense (including amounts associated with the
termination of the Black Hawk Gaming interest rate swap for the
three months ended March 31, 2002).............................. $ 9,739 $5,571
------- ------
Additional pro forma interest adjustment.......................... 8,832 (938)
------- ------
Pro forma interest expense based on pro forma debt outstanding of
$146,577 and $146,198 for the year ended December 31, 2001,
and three months ended March 31, 2002, respectively............. $18,571 $4,633
======= ======
Pro forma and historical interest expense is presented net of interest
income of $398 and $100 for the year ended December 31, 2001, and three
months ended March 31, 2002, respectively, and is based on the following:
. The Notes ($125,000 at 11.875%).
. Amortization of $4,950 discount.
. Black Hawk Special Assessment Bonds ($5,299 and $4,920 at December 31,
2001 and March 31, 2002, respectively, at rates ranging from 6.25% to
6.5%).
. Indebtedness of Colonial Holdings ($1,693 at rates ranging from 4.75% to
8.5%).
40
. Louisiana property seller notes ($10,535 at rates ranging from 8% to
8.5%).
. Subordinated debt to affiliates ($9,000 at 12%).
. Amortization of $6,632 of deferred transaction fees.
(g) To eliminate income tax expense as Jacobs Entertainment is a Subchapter "S"
corporation, and therefore, its owners are liable for the taxes on their
share of the corporation's taxable income.
41
Jacobs Entertainment
The following selected consolidated historical financial data of Jacobs
Entertainment as of December 31, 2000 and 2001 and for each of the three years
ended December 31, 2001 is derived from the financial statements audited by
Deloitte & Touche LLP, independent auditors. The selected consolidated
historical financial data should be read in conjunction with the consolidated
financial statements of Jacobs Entertainment and notes thereto, and other
financial information included herein.
Three
Months
Year Ended December 31, Ended
-------------------------------------------- March 31,
1997 1998 1999 2000 2001 2002
------- ------- ------- ------- -------- ---------
(in thousands)
Statements of Operations Data:
Total revenues........................ $23,647 $30,647 $30,625 $30,655 $ 45,343 $ 25,686
Total costs and expenses.............. 24,114 33,623 27,650 29,367 41,258 21,122
------- ------- ------- ------- -------- --------
Operating income...................... (467) (2,976) 2,975 1,288 4,085 4,564
Interest expense, net................. 559 (2,842) (2,840) (2,396) (4,130) (3,200)
Gain on sale of assets................ -- 1,622 -- -- -- (1,980)
Other................................. (84) -- -- -- -- --
Equity in earnings of investments and
minority interest................... -- 5,472 4,143 5,399 4,635 173
------- ------- ------- ------- -------- --------
Net income (loss)..................... $ 8 $ 1,276 $ 4,278 $ 4,291 $ 4,590 $ (443)
======= ======= ======= ======= ======== ========
Balance Sheet Data (end of period):
Current assets........................ $ 6,013 $ 3,630 $ 3,885 $ 2,169 $ 5,170 $ 26,086
Total assets.......................... 67,875 86,876 86,977 86,277 104,654 232,167
Current liabilities................... 15,480 16,974 21,058 6,299 10,013 24,518
Long-term debt and other liabilities.. 15,474 27,475 20,050 1,159 14,676 145,435
Minority interest..................... -- 23,832 20,116 18,567 17,308 --
Stockholders' equity.................. 36,921 18,595 25,753 60,252 62,657 62,214
Other Financial Data:
Ratio of earnings to fixed charges (1) .41 1.30 1.72 1.44 2.28 1.40
- --------
(1) See Exhibit 12.1 for calculations.
42
Black Hawk Gaming
The following selected consolidated historical financial data of Black Hawk
Gaming & Development Company, Inc. as of December 31, 1997, 1998, 1999, 2000
and 2001 and for each of the five years ended December 31, 2001 is derived from
the financial statements audited by Deloitte & Touche LLP, independent
auditors. The selected consolidated historical financial data should be read in
conjunction with the consolidated financial statements of Black Hawk Gaming &
Development Company, Inc. and notes thereto, and other financial information
included herein.
Year Ended December 31,
----------------------------------------------
1997 1998 1999 2000 2001
------- -------- -------- ------- --------
Statements of Operations Data:
Net revenues..................................... $ 1,136 $ 43,161 $ 79,607 $78,874 $ 98,549
Total costs and expenses......................... 1,382 36,077 65,147 65,240 84,144
------- -------- -------- ------- --------
Operating (loss) income.......................... (246) 7,084 14,460 13,634 14,405
Interest income/(expense), net................... 124 (2,566) (4,341) (3,138) (5,089)
Minority interest................................ -- (469) (1,768) (2,060) (2,030)
Equity in earnings of joint venture.............. 2,813 1,018
------- -------- -------- ------- --------
Income before income taxes and extraordinary item 2,691 5,067 8,351 8,436 7,286
Provision for income taxes....................... 1,071 1,901 2,928 2,975 3,117
------- -------- -------- ------- --------
Income before extraordinary item................. 1,620 3,166 5,423 5,461 4,169
------- -------- -------- ------- --------
Extraordinary item............................... 86 46 -- -- --
------- -------- -------- ------- --------
Net income....................................... $ 1,706 $ 3,212 $ 5,423 $ 5,461 $ 4,169
======= ======== ======== ======= ========
Balance Sheet Data (end of period):
Current assets................................... $ 1,267 $ 12,424 $ 12,104 $10,907 $ 18,404
Total assets..................................... 49,304 102,062 101,080 97,476 129,694
Current liabilities.............................. 3,111 11,717 11,285 11,005 10,715
Long-term debt and other liabilities............. 12,897 51,978 45,181 35,669 66,324
Minority interest................................ 6,705 7,542 8,115 8,740 7,413
Stockholders' equity............................. 26,591 30,825 36,499 42,062 45,242
Other Financial Data:
Ratio of earnings to fixed charges (1)........... 2.06 2.02 2.95 3.51 2.49
(1) See Exhibit 12.1 for calculations.
43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This section discusses the results of our operations on a historical basis
(and on a pro forma basis for the March 31 data only). Management's discussion
and analysis of the results of operations of Black Hawk Gaming is presented for
additional analysis because Jacobs Entertainment's equity in earnings of Black
Hawk Gaming represents a significant component of net income during all years
presented. You should read the following discussion and analysis in conjunction
with the sections entitled "Selected Historical Financial and Operating Data"
and "Unaudited Pro Forma Consolidated Financial Statements" as well as the
audited consolidated financial statements appearing elsewhere in this
prospectus. Certain statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations constitute
"forward-looking statements," which statements involve risks and uncertainties.
See "Forward-Looking Statements."
Historical information, other than revenues, may not necessarily be
meaningful, as our cost structure and capitalization following the acquisition
and contribution transactions described in this prospectus are significantly
different from those existing prior to those transactions. Further, the
historical information should not necessarily be taken as a reliable indicator
of our future performance with respect to our recent acquisitions.
Introduction
On February 22, 2002, we completed several acquisitions, which were
primarily funded by the proceeds from the issuance of $125.0 million in senior
secured notes on February 8, 2002. These notes bear an 11 7/8% interest rate
and are due in 2009. The acquisitions are as follows:
On February 22, 2002 Jeffrey P. Jacobs and The Richard E. Jacobs Revocable
Trust contributed substantially all of their interests in Diversified and their
combined 100% interest in Jalou II in exchange for 100% of the common stock of
Jacobs Entertainment. On the acquisition date, immediately prior to the
acquisition of the publicly held shares of Black Hawk Gaming and Colonial
Holdings described below, Diversified owned 100% of Jalou L.L.C., approximately
44% of Colonial Holdings, approximately 32% of Black Hawk Gaming, and a 25%
interest in the Lodge Casino at Black Hawk ("the Lodge") (of which the
remaining 75% was owned by Black Hawk Gaming). The exchange of Jacobs
Entertainment shares for the interests of Diversified and Jalou II was
accounted for as a combination of entities under common control, which is
similar to the pooling of interests method of accounting for business
combinations. As a result, the results of operations of Diversified and Jalou
II are presented in the Jacobs Entertainment income statement as though this
transaction had been completed at the beginning of each year presented.
The ownership interest of the Jalou entities and the acquisition dates for
each property are as follows:
Date acquired
-----------------
Jalou, LLC:
Houma Truck Plaza and Casino......... February 7, 2001
Cash's Casino........................ February 7, 2001
Bayou Vista Truck Plaza and Casino... January 11, 2002
Lucky Magnolia Truck Stop and Casino. January 11, 2002
Raceland Truck Plaza and Casino...... February 22, 2002
Jalou II:
Winner's Choice Casino............... February 7, 2001
Colonel's Truck Plaza and Casino..... January 11, 2002
These acquisitions were recorded using the purchase method of accounting for
business combinations, and the total purchase price for the properties acquired
in 2002 was approximately $20.3 million.
On February 22, 2002, Jacobs Entertainment also acquired the remaining 68%
of Black Hawk Gaming's common stock for approximately $37.0 million. This
transaction was recorded using the purchase method of
44
accounting for business combinations. Jacobs Entertainment also acquired the
remaining 56.5% of Colonial Holdings' common stock for approximately $4.8
million on February 22, 2002, which was recorded using the purchase method of
accounting for business combinations. As a result, the operations of Black Hawk
Gaming and Colonial Holdings are consolidated with Jacobs Entertainment for the
period subsequent to the February 22, 2002 acquisition date.
All of the Jalou property acquisitions completed by affiliates of Jacobs
Entertainment prior to December 31, 2001, were accounted for using the purchase
method of accounting. Accordingly, the results of Diversified and Jalou II for
the year ended December 31, 2001 include the completed Louisiana acquisitions
from the date of acquisition. We have described below the detail of the
components of the operations of Jacobs Entertainment for the periods presented.
As a result of these acquisitions, we are a geographically diversified
gaming and pari-mutuel wagering company with properties in Colorado, Nevada,
Louisiana and Virginia. We own and operate three land-based casinos, six truck
plaza video gaming facilities and a horseracing track with three off-track
wagering facilities. In addition, we are a party to an agreement that entitles
us to a portion of the gaming revenue from an additional truck plaza video
gaming facility and we lease and operate a fourth off-track wagering facility.
We have elected to be taxed under the provisions of Subchapter "S" of the
Internal Revenue Code of 1986. Under those provisions, the owners of our
company pay income taxes on our taxable income.
As a result of the transactions described above at various times during the
first quarter of fiscal 2002, we have experienced a number of changes during
the periods covered in these discussions, resulting in increases in the number
of subsidiaries and investments as discussed above.
Jacobs Entertainment
Results of Operations
The following discussion presents an analysis of the historical results of
our operations for the year ended December 31, 2001, as compared to the year
ended December 31, 2000; and an analysis of the historical results of our
operations for the year ended December 31, 2000, as compared to the year ended
December 31, 1999.
The 2001 consolidated statement of operations of Jacobs Entertainment
consisted of the following:
a.) The full year consolidated operations of Colonial Holdings, reduced by
the publicly held minority interest; plus
b.) All of the operations of Jalou II attributable to Winner's Choice Casino
for the period from its February 7, 2001 acquisition date through
December 31, 2001; plus
c.) All of the operations of Jalou L.L.C. attributable to Houma Truck Plaza
and Casino and an interest in the gaming revenues of Jalou-Cash's for
the period from their February 7, 2001 acquisition date through December
31, 2001; plus
d.) 25% of the equity in earnings of the Lodge for the period from January
1, 2001 through December 31, 2001; plus
e.) 32% of the equity in earnings of Black Hawk Gaming for the period from
January 1, 2001 through December 31, 2001.
The 2000 and 1999 consolidated statements of operations of Jacobs
Entertainment consisted of the following:
a.) The full years' consolidated operations of Colonial Holdings, reduced by
the publicly held minority interest; plus
45
b.) 25% of the equity in earnings of the Lodge for the period from January
1, 2000 through December 31, 2000, and for the period from January 1,
1999 through December 31, 1999; plus
c.) 32% of the equity in earnings of Black Hawk Gaming for the period from
January 1, 2000 through December 31, 2000, and for the period from
January 1, 1999 through December 31, 1999.
A summary of our consolidated operating results for the years ended December
31, 2001, 2000 and 1999 is as follows:
Year Ended December 31,
-----------------------
2001 2000 1999
------- ------- -------
(Dollars In Thousands)
Net Revenue
Gaming--Pari-mutuel................................. $27,781 $27,366 $27,285
Gaming--Truck plaza video poker..................... 6,666
Fuel................................................ 5,688
Other............................................... 6,518 4,430 4,431
Total net revenue............................... $46,653 $31,796 $31,716
Operating income....................................... $ 4,085 $ 1,288 $ 2,975
Interest expense, net.................................. $ 4,130 $ 2,396 $ 2,840
Equity in earnings of investments
--Black Hawk Gaming and the Lodge................... $ 3,377 $ 3,833 $ 3,528
Minority interest in (earnings) loss--Colonial Holdings $ 1,258 $ 1,566 $ 615
Net income............................................. $ 4,590 $ 4,291 $ 4,278
Year Ended December 31, 2001 Compared To Year Ended December 31, 2000
Total Revenues. Jacobs Entertainment generated total revenues for the year
ended December 31, 2001 of $46.7 million compared to $31.8 million for the same
period of 2000. The increase in revenues of $14.9 million, or 47%, is due
primarily to the inclusion of the operations of Jalou II and Jalou L.L.C.,
discussed above, which resulted in additional revenues comprised of video poker
gaming revenues and convenience store, fuel and restaurant revenues from the
truck plazas.
Colonial Holdings generated total revenues of $29.2 million for the year
ended December 31, 2001 compared to $28.6 million for the year ended December
31, 2000. The increase of $.6 million, or 2%, is due primarily to an increase
in revenue from the off-track wagering facilities, which increased for the year
ended December 31, 2001 because the off-track wagering facilities were closed
for two days during the year ended December 31, 2000 due to weather, and had
limited operations for several days with limited simulcast signals due to the
closure of several Northeastern tracks.
Costs and Expenses. Jacobs Entertainment costs and expenses (which include
depreciation and amortization) were $42.6 million and $30.5 million for the
years ended December 31, 2001 and 2000, respectively. The increase of $12.1
million, or 40%, in costs and expenses is due primarily to the operations of
Jalou II and Jalou L.L.C., which resulted in an additional $11.5 million in
costs and expenses.
Colonial Holdings contributed $31.2 million in costs and expenses for the
year ended December 31, 2001 compared to $30.6 million for the same period of
2000. The increase of $.6 million, or 2%, is attributed to increases in purse
expense of $.3 million for the year ended December 31, 2001 compared to the
same period of 2000. In addition, fees, pari-mutuel taxes, simulcast and other
direct expenses increased $.4 million for the year ended December 31, 2001,
compared to the same period of the 2000. Colonial Holdings also incurred
transaction fees and expenses relating to the recent acquisitions of $.6
million for the year ended December 31, 2001. These increases have been offset
by decreases in marketing, general and administrative expenses of $.7 million.
46
Depreciation and Amortization. Jacobs Entertainment had depreciation and
amortization of $2.7 million for the year ended December 31, 2001 compared to
$1.7 million for the same period of 2000. The overall increase of $1 million,
or 59%, is primarily due to the depreciation and amortization incurred by the
truck plazas. As further discussed under Recent Accounting Pronouncements, the
implementation of Financial Accounting Standards No. 142 ("SFAS 142"), which
became effective January 1, 2002, will result in the discontinuance of goodwill
amortization. Accordingly, the Company will no longer recognize the
amortization of goodwill as a recurring expense.
Interest Expense. Jacobs Entertainment had net interest expense totaling
$4.1 million during the year ended December 31, 2001 compared to $2.4 million
for the same period of 2000. The increase of $1.7 million, or 71%, is the
result of interest expense on borrowings incurred to fund the acquisitions of
the truck plazas.
Colonial Holdings had net interest expense totaling $2.7 million for each of
the years ended December 31, 2001 and December 31, 2000.
Equity in Earnings of Investments--Black Hawk Gaming and the Lodge. Jacobs
Entertainment had total equity in earnings of investments in Black Hawk Gaming
and the Lodge of $3.4 million for the year ended December 31, 2001 compared to
$3.8 million for the same period of 2000. Equity in earnings of investments
represents Jacobs Entertainment's 32% ownership interest of Black Hawk Gaming
and its 25% ownership interest in the Lodge. The decrease of $.4 million, or
11%, is primarily due to the related decrease in net income of these two
entities, which fell from a net $5.5 million for the year ended December 31,
2000 to a net $4.2 million for the same period in 2001. The decrease is due
primarily to $1.5 million in privatization and other non-recurring costs
incurred by Black Hawk Gaming, associated with the recent acquisitions.
Minority Interest. Minority interest for the year ended December 31, 2001
totaled $1.3 million compared to $1.6 million for the same period of 2000, a
decrease of $.3 million, or 19%. Minority interest represents the minority
interest in earnings reflecting the earnings attributable to the common stock
of Colonial Holdings not owned by Jacobs Entertainment during the periods of
comparison.
Net Income. As a result of the factors discussed above, Jacobs
Entertainment reported net income of $4.6 million for the year ended December
31, 2001 compared to $4.3 million for the same period of 2000, resulting in an
increase in net income of $.3 million, or 7%.
Year Ended December 31, 2000 Compared To Year Ended December 31, 1999
Total Revenues. Jacobs Entertainment generated total revenues of $31.8
million for the year ended December 31, 2000 compared to $31.7 million for the
same period of 1999. The increase in total revenues of $.1 million, or .3%, is
due to a decrease of $.5 million in live harness meet revenue and revenues from
the off-track wagering facilities, offset by an increase of $.6 million in
thoroughbred meet revenue and management fee revenue earned from Black Hawk
Gaming.
Costs and Expenses. Jacobs Entertainment costs and expenses (which include
depreciation and amortization) were $30.5 million and $28.7 million for the
years ended December 31, 2001 and 2000, respectively. The increase of $1.8
million, or 6%, in costs and expenses is due primarily to increases in purse
expense, fees, simulcast and other direct expenses of $2.6 million, offset by
decreases in marketing and general and administrative expenses of $.8 million.
Depreciation and Amortization. Jacobs Entertainment had depreciation and
amortization or $1.7 million for the year ended December 31, 2000 compared to
$1.8 million for the same period of 1999, a decrease of $.1 million, or 6%. The
decrease is primarily due to minor changes in the asset mix of the Company's
depreciable assets.
47
Interest Expense. Jacobs Entertainment had net interest expense totaling
$2.4 million during the year ended December 31, 2000 compared to $2.8 million
for the same period of 1999. The decrease of $.4 million, or 14%, is the result
of a non-recurring interest provision related to an arbitration award against
Colonial Holdings in June 1999.
Equity in Earnings of Investments--Black Hawk Gaming and the Lodge. Jacobs
Entertainment had total equity in earnings of investments in Black Hawk Gaming
and the Lodge of $3.8 million for the year ended December 31, 2000 compared to
$3.5 million for the same period of 1999. Equity in earnings of investments
represents the Jacobs Entertainment's 32% ownership interest in Black Hawk
Gaming and its 25% ownership interest in the Lodge. The increase of $.3
million, or 9%, is due to the related increase in net income of these two
entities.
Minority Interest. Minority interest for the year ended December 31, 2000
totaled $1.6 million compared to $.6 million for the same period of 1999.
Minority interest represents the minority interest in earnings reflecting the
earnings attributable to the common stock of Colonial Holdings not owned by
Jacobs Entertainment during the periods of comparison.
Net Income. As a result of the factors discussed above, Jacobs
Entertainment reported net income of $4.3 million for the year ended December
31, 2000 compared to $4.3 million for the same period of 1999.
Market Risk Disclosures
The potential market risk associated with Jacobs Entertainment relates to
its long-term debt balances. However, as all of the Company's long-term debt is
at a fixed interest rate, the risk of the variation in such rates is not
significant to the Company.
Significant Estimates and Critical Accounting Policies
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount 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 periods. Management periodically evaluates the
Company's policies and the estimates and assumptions related to such policies.
All of Jacobs Entertainment subsidiary companies operate in a highly regulated
industry. The Colonial Holdings, Jalou and Black Hawk Gaming operations are
subject to regulations that describe and regulate operating and internal
control procedures. The majority of gaming revenue is in the form of cash,
which by nature does not require complex estimations. Management estimates
certain liabilities with payment periods that extend for longer than several
months. Such estimates include the pari-mutuel ticket liability, self-insured
medical and workers compensation liabilities, and litigation costs. Jacobs
Entertainment believes that these estimates are reasonable based on past
experience with the business and based upon assumptions related to possible
outcomes in the future. Actual results could differ from those estimates.
Long-lived Assets
Management has determined that the Company's policy associated with its
long-lived assets and the related estimates is critical to the preparation of
the consolidated financial statements. The Company has a significant investment
in long-lived property and equipment. Management estimates that the
undiscounted future cash flows expected to result from the use of these assets
exceed the current carrying value of these assets. Any adverse change to the
estimate of these undiscounted cash flows could necessitate an impairment
charge that would adversely affect operating results. Management estimates the
useful lives for the Company's assets based on historical experience, estimates
of assets' commercial lives, and the likelihood of technological obsolescence.
Should the actual useful life of a class of assets differ from the estimated
useful life, an impairment charge would be recorded. Management reviews useful
lives and obsolescence and assesses commercial viability of the Company's
assets periodically.
48
Comparison of Jacobs Entertainment's and predecessors' historical operations
for the quarter ended March 31, 2002 to March 31, 2001
The following discussion presents an analysis of the historical results of
our operations for the quarter ended March 31, 2002 as compared to the quarter
ended March 31, 2001.
As of March 31, 2002 the consolidated statement of operations of Jacobs
Entertainment consisted of the following:
a.) The consolidated operations of Colonial Holdings for the period from
January 1, 2002 through February 22, 2002 reduced by the 56.5% minority
interest in earnings reflecting the earnings attributable to the common
stock of Colonial Holdings not owned prior to the acquisition of the
minority interest on February 22, 2002 (affiliates of Jacobs
Entertainment owned a controlling interest through a majority voting
interest of over fifty percent of the outstanding voting shares of
Colonial Holdings); plus
b.) All of the operations of Colonial Holdings for the period from February
22, 2002 through March 31, 2002 because of the acquisition of the
minority interest on February 22, 2002; plus
c.) All of the operations of Jalou LLC attributable to Houma and an interest
in the gaming revenues of Cash's for the entire quarter ended March 31,
2002; plus
d.) All of the operations of Jalou II attributable to the Winner's Choice
for the entire quarter ended March 31, 2002; plus
e.) All of the operations of Jalou II for the period from its January 11,
2002 acquisition date through March 31, 2002; plus
f.) All of the operations of Jalou LLC attributable to Lucky Magnolia and
Bayou Vista for the period from their January 11, 2002 acquisition date
through March 31, 2002; plus
g.) All of the operations of Jalou LLC attributable to Raceland from its
February 22, 2002 acquisition date through March 31, 2002; plus
h.) 25% of the equity in earnings of the Lodge for the period from January
1, 2002 through February 22, 2002; plus
i.) 32% of the equity in earnings of Black Hawk Gaming for the period from
January 1, 2002 through February 22, 2002; plus
j.) 100% of the operations of Black Hawk Gaming (which includes the Lodge)
for the period from February 22, 2002 through March 31, 2002 because of
the acquisition of the remaining shares on February 22, 2002.
As of March 31, 2001, the consolidated statement of operations of Jacobs
Entertainment consisted of the following:
a.) The consolidated operations of Colonial Holdings for the period from
January 1, 2001 through March 31, 2001 reduced by the 56.5% minority
interest in earnings reflecting the earnings attributable to the common
stock of Colonial Holdings not owned prior to the acquisition of
minority interest on February 22, 2002; plus
b.) All of the operations of Jalou II attributable to Winner's Choice for
the period from its February 7, 2001 acquisition date through March 31,
2001; plus
c.) All of the operations of Jalou LLC attributable to Houma and an interest
in the gaming revenues of Cash's for the period from their February 7,
2001 acquisition date to March 31, 2001; plus
d.) 25% of the equity in earnings of the Lodge for the period from January
1, 2001 through March 31, 2001; plus
49
e.) 32% of the equity in earnings of Black Hawk Gaming for the period from
January 1, 2001 through March 31, 2001.
As illustrated by the differing entities and periods covered by the various
transactions discussed above, a comparison between quarters on an historical
basis is difficult.
A summary of our consolidated operating results for the quarters ended March
31, 2002 and 2001 is as follows:
Three Months Ended
March 31,
------------------
2002 2001
------- ------
Net revenue:
Gaming--Casinos......................................................... $13,305 $1,129
Gaming--Pari-mutuel..................................................... 6,390 6,929
Other................................................................... 5,991 1,877
------- ------
Total net revenue................................................... $25,686 $9,935
------- ------
Operating income........................................................... $ 4,564 $1,342
------- ------
Interest expense........................................................... $ 3,288 $ 944
------- ------
Equity in (losses) earnings of investments--Black Hawk Gaming and the Lodge $(1,980) $ 893
------- ------
Minority interest in loss--Colonial........................................ $ 173 $ 47
------- ------
Net (loss) income.......................................................... $ (443) $1,362
======= ======
The overall composition of our financial position and the results of our
operations have significantly changed from the quarter ended March 31, 2001 as
compared to the quarter ended March 31, 2002. The changes are primarily
attributable to the following factors:
. The 2002 results include 100% of Colonial Holdings' operations for the
period following the February 22, 2002 acquisition date plus 43.5% of the
operations prior to that date in 2002, due to the 56.5% minority interest
(which existed until the February 22, 2002 acquisition date), whereas the
comparable 2001 period includes 43.5% of Colonial Holdings' operations
for the entire period. We will no longer record minority interest for the
results of operations subsequent to February 22, 2002 because we own 100%
of Colonial Holdings as of that date. The comparability of pari-mutuel
revenues is not impacted by the acquisition of stock from the minority
shareholders because Colonial Holdings' results were also consolidated in
2001. Furthermore, the decline in our pari-mutuel revenue from 2001 is
due primarily to a decrease in revenues from our off-track wagering
facilities.
. The 2002 results include 100% of Black Hawk Gaming's revenues being
reported as gaming revenues for the period from the February 22, 2002
acquisition date through March 31, 2002 whereas Black Hawk Gaming's and
the Lodge's results were included as a component of equity in earnings
(losses) of investments for periods prior to February 22, 2002. We will
no longer record "equity in earnings (losses) of investments" relative to
Black Hawk Gaming and the Lodge because we now own 100% of Black Hawk
Gaming, which includes the Lodge. Our equity in earnings of investments
went from $.9 million in earnings for the quarter ended March 31, 2001 to
a $2.0 million loss for the current quarter. This is primarily the result
of the write-off of various costs and expenses of Black Hawk Gaming
relating to our acquisition of the remaining shares on February 22, 2002.
See Note 4 in the accompanying notes to the unaudited consolidated
financial statements for a description of these costs.
. In addition to gaming revenue for Black Hawk Gaming for the period
described above, the 2002 results for gaming revenue includes video poker
revenue from all seven truck stop locations whereas the 2001 results
include only three locations due to the timing of the truck stop
acquisitions described above.
50
. Other revenue in 2001 is primarily comprised of sales from our
convenience store, fuel and restaurant operations located in the three
truck stop facilities that we owned in 2001. Other revenue in 2002
consists of similar revenues from four additional truck stops that we
acquired in 2002, food and beverage revenues from our casinos subsequent
to February 22, 2002, and revenue from our hotels attached to the Lodge
and Gold Dust West subsequent to February 22, 2002 (recall that all
casino operations were included as a component of equity in earnings
(loss) for periods prior to the February 22, 2002 acquisition date); and
. Interest expense in 2002 includes charges related to the $125.0 million
debt offering which occurred on February 8, 2002 whereas 2001 interest
expense does not.
Critical Accounting Policies
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount 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 periods. We periodically evaluate our policies,
and the estimates and assumptions related to these policies. All of our
subsidiary companies operate in a highly regulated industry. In our Colorado,
Virginia, Louisiana and Nevada operations, we are subject to regulations that
describe and regulate operating and internal control procedures. The majority
of our casino revenue is in the form of cash, personal checks, credit cards or
gaming chips and tokens, which by their nature do not require complex
estimations. We estimate certain liabilities with payment periods that extend
for longer than several months. Such estimates include our slot club
liabilities, outstanding gaming chip, token and pari-mutuel ticket liability,
self-insured medical and workers compensation liabilities, and litigation
costs. We believe that these estimates are reasonable based on our past
experience with the business and based upon our assumptions related to possible
outcomes in the future. Future actual results will likely differ from these
estimates.
We have determined that the following accounting policy and related
estimates are critical to the preparation of our consolidated financial
statements.
Long-lived Assets
We have a significant investment in long-lived property and equipment. We
estimate that the undiscounted future cash flows expected to result from the
use of these assets exceed the current carrying value of these assets. Any
adverse change to the estimate of these undiscounted cash flows could
necessitate an impairment charge that would adversely affect operating results.
We estimate the useful lives for our assets based on historical experience,
estimates of assets' commercial lives, and the likelihood of technological
obsolescence. Should the actual useful life of a class of assets differ from
the estimated useful life, we would record an impairment charge. We review
useful lives and obsolescence and assess commercial viability of our assets
periodically.
Jacobs Entertainment Liquidity and Capital Resources
On February 22, 2002 we completed the sale of $125.0 million of our senior
secured notes. Our notes are due 2009 and we pay annual interest at the rate of
11 7/8% on a semi-annual basis. The notes were offered at 96.04% of par and we
received net proceeds at closing of $120.05 million. We utilized the proceeds
of the notes plus cash from our combined companies of approximately $8.0
million to acquire the remaining shares and outstanding options of Black Hawk
Gaming for approximately $37.0 million, assume and refinance Black Hawk
Gaming's existing reducing revolving credit facility totaling approximately
$60.0 million and pay Black Hawk Gaming's interest rate swap breakage costs of
$1.1 million (net of tax benefit) on the acquisition date; acquire the
remaining shares and outstanding options of Colonial Holdings for $4.8 million;
pay the cash portion of the purchase price for the Louisiana truck plazas of
$14.5 million; pay accrued interest, advances and other payables to affiliates
of $3.2 million; and pay remaining transaction fees and expenses incurred
subsequent to December
51
31, 2001, totaling an estimated $2.4 million. In addition, we issued $5.8
million of promissory notes to the sellers of the Louisiana truck plazas we
acquired.
At March 31, 2002, after giving effect to the recent acquisitions, cash and
cash equivalents were approximately $19.0 million. At March 31, 2002 our total
debt approximated $146.0 million.
On July 12, 2002 we entered into our $10.0 million Senior Credit Facility.
At the time we entered into the Senior Credit Facility, the trustee under the
indenture entered into an intercreditor agreement with the lender under the
Senior Credit Facility which, among other things, subordinates the liens
securing the senior secured notes and the related guarantees to the
indebtedness under the Senior Credit Facility with respect to the assets
securing the Senior Credit Facility.
Our future liquidity, which includes our ability to make semi-annual
interest payments on the Notes and payments on our borrowings under the Senior
Credit Facility, depends upon the future success of Jacobs Entertainment as a
whole. Additionally, our ability to successfully integrate our operations is a
significant factor in the overall generation of our cash flows from operations.
At present, we do not have any off-balance sheet arrangements or
transactions with unconsolidated, limited purpose entities, nor are any
contemplated in the future.
We believe that our cash flow from operations, cash and cash equivalents and
our $10.0 million Senior Credit Facility discussed above will be adequate to
meet our debt service obligations as well as our capital expenditure
requirements for the next twelve months. However, we can give no assurance that
these sources of cash will be sufficient to enable us to do so. Further, in
addition to our normal capital expenditure requirements, we have planned a $6.0
million expansion of the Gilpin Hotel beginning in the third quarter of this
year, and we anticipate that we will pursue the acquisition of other properties
and engage in new development opportunities. We believe we will be able to pay
for the expansion project of the Gilpin Hotel out of our existing cash flow
over the nine month estimated construction time of the addition. However, we
may need to enter into new financing arrangements and raise additional capital
in the future if we are unable to sustain our current operations. Our ability
to incur additional debt is further restricted by the terms and covenants of
the Notes and the Senior Credit Facility. We can give no assurance that we will
be able to raise capital or obtain the necessary sources of liquidity and
financing on favorable terms, if at all. Additionally, any debt financing that
we may incur in the future will increase the amount of our total outstanding
indebtedness and our debt service requirements and heighten the related risks
we currently face.
We also face the risk that there could be a decline in the demand for our
product, which would reduce our ability to generate funds from operations.
While we believe our cash flows are geographically diverse, at present we do
have a significant concentration of cash flows generated in the Black Hawk
gaming market. Should the Black Hawk market decline or become saturated or
should the competition erode our market share, we would suffer a decline in the
available funds generated from operations. If this were to occur, there exists
the possibility that our credit rating could be downgraded, which would further
reduce our ability to access the capital markets and obtain additional or
alternative financing.
The following table provides disclosure concerning Jacobs Entertainment's
obligations and commitments to make future payments under contracts, such as
debt and lease agreements, and purchase and other long-term obligations, as of
March 31, 2002.
Less than 1-3 4-5 After 5
Total 1 Year Years Years Years
-------- --------- ------ ------ --------
Long-Term Debt (1)................ $145,435 $ 763 $3,764 $3,066 $137,842
Operating Leases (2).............. 12,531 1,461 940 630 9,500
Other Long-Term Obligations (3)... 5,440 476 952 952 3,060
-------- ------ ------ ------ --------
Total Contractual Cash Obligations $163,406 $2,700 $5,656 $4,648 $150,402
======== ====== ====== ====== ========
52
- --------
(1) Long-term debt includes amounts payable under the terms of the Notes, the
Black Hawk special assessment bonds, indebtedness of Colonial Holdings, the
Louisiana Properties' seller notes, and the subordinated debt to affiliate.
(2) Operating leases include a land and warehouse lease for the Gold Dust West
Casino in Reno, Nevada, as well as other leases for property and equipment.
(3) Other long-term obligations include the commitment of the Company's truck
stop operations to pay $1 per video poker machine per day, plus $1,000 per
machine annually, in licensing, to an outside party to maintain its video
poker machines in its truck stop premises.
In addition, Jacobs Entertainment has the following commitments and
obligations:
. Jacobs Entertainment's subsidiary Colonial Holdings has entered into an
agreement with a totalisator company, which provides wagering services
and designs, programs, and manufactures totalisator systems for use in
wagering applications. The basic terms of the agreement state that the
totalisator company shall provide totalisator services to Colonial
Holdings for all wagering held at Colonial Holdings' facilities through
2004 at a rate of .365% of handle. In addition, Colonial Holdings agreed
to use certain equipment provided by the totalisator company.
. Jacobs Entertainment's subsidiary Lucky Magnolia Truck Stop and Casino,
L.L.C. has an obligation to pay to an affiliate of a prior owner 4.9% of
its net video poker revenue, after associated state taxes, for as long as
video poker machines are operated on the property.
53
Jacobs Entertainment Pro Forma Results of Operations
The following pro forma information is provided to present the results of
operations as though the transactions described above had been completed at the
beginning of each of the quarters ended March 31, 2002 and March 31, 2001. The
information presented is by each state in which we now have operations and
presents our EBITDA by each business segment because this is how management
reviews and analyzes the results of operations of each of our properties.
EBITDA (earnings before interest, taxes, depreciation, amortization,
privatization and other non-recurring costs) is presented as a supplement in
the tables below and in the discussion of our operating results because this is
how management reviews and analyzes the results of our properties.
EBITDA can be computed directly from our consolidated statements of income
by adding to operating income the amounts shown for (1) depreciation and
amortization and (2) privatization and other non-recurring costs. This
information should not be considered as an alternative to any measure of
performance as promulgated under accounting principles generally accepted in
the United States of America (such as operating income or net (loss) income,
nor should it be considered as an indicator of our overall financial
performance. Our calculation of EBITDA may be different from the calculation
used by other companies and comparability may be limited. The components of
operations presented below differ from the analysis provided above for actual
results as the composition of the Company has changed due to the transactions
occurring during the first quarter of 2002. The following presentations reflect
100% of the operations for all entities for the respective quarters and,
therefore, management believes this represents the most appropriate method of
presenting the true operating performance capabilities of the combined
operations of the entities involved.
Three Months Ended
March 31,
(Pro Forma)
-----------------
2002 2001
------ ------
NET REVENUES
Colorado......................... 18,856 19,752
Nevada........................... 4,662 4,335
Louisiana........................ 10,168 9,246
Virginia......................... 6,657 7,305
------ ------
Total net revenues........... 40,343 40,638
====== ======
COSTS AND EXPENSES
Colorado......................... 13,178 14,051
Nevada........................... 3,497 3,098
Louisiana........................ 7,197 7,256
Virginia......................... 5,470 5,936
Net corporate overhead........... 1,399 1,072
------ ------
Total costs and expenses..... 30,741 31,413
====== ======
EBITDA
Colorado......................... 5,678 5,701
Nevada........................... 1,165 1,237
Louisiana........................ 2,971 1,990
Virginia......................... 1,187 1,369
Net corporate overhead........... (1,399) (1,072)
------ ------
Pro Forma EBITDA............. 9,602 9,225
====== ======
We continually review the overall operational aspects of our casino
operations and attempt to modify our operations, when and if necessary, to
remain competitive and to maintain our market share. We focus on our existing
customer base while developing marketing programs that increase new customer
visits. Our vision is to
54
be the best "locals casino" in each market by offering the best customer
service, slot selection, player club benefits and food and beverage service in
the market.
The majority of our casino revenues are generated from our three land based
casino properties. Our consolidated casino revenues are generally defined as
the "casino win" which is the amount of money wagered less the amount paid out
in prizes. Our consolidated net revenue is generally defined as casino win
reduced by various promotional allowances and incentive programs that we offer
to patrons and includes revenues from food and beverage, hotel and other
revenues. We utilize the food and beverage department of each of our properties
to drive revenues by offering a wide selection of high quality food choices at
reasonable prices. Additionally, we have 50 hotel rooms at the Lodge and 106
hotel rooms at our Reno property which we can offer to players, thereby
enhancing their visit to the Black Hawk and Reno areas, respectively.
Colorado
After giving effect to the transactions discussed above, Jacobs
Entertainment owns 100% of Black Hawk Gaming. Black Hawk Gaming owns the Gilpin
Hotel Casino, the Lodge, which are located in Black Hawk, Colorado, and the
Gold Dust West, Inc. ("Gold Dust"), which is located in Reno, Nevada.
Generally, the acquisition by Jacobs Entertainment of all of the capital stock
of Black Hawk Gaming as of February 22, 2002 does not affect the comparability
of the pro forma operations of Black Hawk Gaming. The following discussion
pertains to the results of operations of the Lodge and the Gilpin properties.
A summary of the net revenue, costs and expenses and EBITDA of our Colorado
properties is as follows:
Three Months Ended
March 31,
------------------
2002 2001
------- -------
Net revenues
Lodge............................ $14,580 $14,340
Gilpin........................... 4,276 5,412
------- -------
Total net revenues........... 18,856 19,752
------- -------
Costs and expenses
Lodge............................ 9,825 9,991
Gilpin........................... 3,353 4,060
------- -------
Total costs and expenses..... 13,178 14,051
------- -------
EBITDA
Lodge............................ 4,755 4,349
Gilpin........................... 923 1,352
------- -------
EBITDA....................... $ 5,678 $ 5,701
======= =======
Increased Competition in the Black Hawk Market
On February 4, 2000 a casino opened in Black Hawk with approximately 950
devices and a 550-car valet/self-parking garage. A second casino opened next
door to The Lodge on March 6, 2000 with approximately 600 devices and parking
for 500 cars. A third project opened on December 20, 2001 with approximately
1,300 devices and parking for 850 cars. Based upon the level of development
activity in Black Hawk, it is apparent that competition within this market will
continue to increase.
Overall, the new casinos have expanded Black Hawk's gaming market; however,
it is extremely difficult, if not impossible, to accurately predict the extent
of the future growth of this market. We expect some of our previous and
existing market share has been or likely will be lost to increased competition.
We believe that the
55
competition within this market will continue to increase and intensify. As a
result, our marketing costs, our personnel costs and other costs at our
properties will likely increase while we attempt to maintain our market share.
Pro Forma Results of operations for the Quarter Ended March 31, 2002
Compared To Quarter Ended March 31, 2001
Net Revenues. The decrease in net revenues of our Colorado operations is
attributable to a market shift toward larger gaming facilities within Black
Hawk. This shift adversely impacted the results of operations at the Gilpin,
which sustained a decrease in its net revenues for the quarter ended March 31,
2002 compared to the same period of 2001. The Gilpin's operations have been
most noticeably impacted due to the additional competition in Black Hawk, which
also includes the Lodge. We are currently planning a $6.0 million expansion for
the Gilpin, scheduled to begin in the third quarter of 2002. We believe this
expansion will provide a more competitive single floor casino environment and
enable us to compete more effectively with the newer and larger properties in
the market.
Costs and Expenses. Total costs and expenses associated with our Colorado
operations decreased $.9 million for the quarter ended March 31, 2002 compared
to the same period of 2001. The decrease of $.2 million in costs and expenses
attributable to the Lodge was primarily comprised of reductions in labor and
slot participation costs offset by an increase in gaming tax. The decrease of
$.7 million in costs and expenses attributable to the Gilpin Hotel was
primarily comprised of reductions in labor, slot participation, gaming taxes,
food and beverage cost of goods sold, and direct marketing costs.
Nevada
Pro Forma Results of operations for the Quarter Ended March 31, 2002
Compared To the Quarter Ended March 31, 2001
Our Nevada operations consist of the Gold Dust West Casino, located in Reno,
Nevada. The Gold Dust West Casino was acquired by Black Hawk Gaming on January
5, 2001. The net revenues of the Gold Dust increased by $.3 million for the
current quarter over the first quarter of 2001. In September of 2001 we
completed the installation of our slot player tracking system and we have been
actively enrolling members into our slot players club. We believe this effort
is beginning to increase play from our customers and accounts for the increase
in our net revenues during the current quarter. Our costs and expenses
increased by approximately $.4 million for the current quarter over last year.
This increase is primarily due to an increase in employee benefits as well as
some incremental costs related to general corporate overhead. As a result, our
EBITDA at the Gold Dust West Casino for the first quarter of 2002 is
approximately $1.2 million as compared to $1.2 million for the comparable
quarter of last year.
Louisiana
The Louisiana truck plaza video gaming properties consist of six truck plaza
gaming facilities located in Louisiana and a share in the gaming revenues of an
additional truck plaza. The acquisition dates of each of the respective truck
stops are discussed in the introduction of this section.
Each truck plaza features a convenience store, fueling operations, a 24-hour
restaurant and 50 video gaming devices (except for Lucky Magnolia Truck Stop
and Casino and Raceland Truck Plaza and Casino, which have 40 and 44 video
gaming devices, respectively).
The Louisiana truck plazas' revenues are comprised of (i) revenue from video
poker gaming machines; (ii) sales of gasoline and diesel fuel; (iii) sales of
groceries, trucker supplies and sundry items through their convenience stores;
(iv) sales of food and beverages in their restaurants and bars; and (v)
miscellaneous commissions on ATM's, pay telephones and lottery sales.
56
All video poker activity is reported instantaneously via a computer phone
line directly to the Louisiana State Police. The Louisiana truck plazas'
revenues are heavily dependent on meeting the minimum gallons of fuel sales
requirements necessary to operate video poker gaming machines in Louisiana.
These requirements must be complied with on a quarterly basis. In the event of
noncompliance, the Louisiana State Police must turn off a portion of the video
poker machines. The Louisiana truck plazas believe that they will continue to
meet the fuel sales requirements necessary to operate video poker gaming
machines in Louisiana at current levels.
Pro Forma Results of operations for the Quarter Ended March 31, 2002
Compared To the Quarter Ended March 31, 2001
Net revenues. The Louisiana truck plazas generated net revenues of $10.2
million for the quarter ended March 31, 2002 compared to $9.3 million for the
quarter ended March 31, 2001. This increase is due to the commencement of
gaming operations at Raceland Truck Plaza and Casino, and the increased gaming
revenue at Houma Truck Plaza and Casino, Cash's Casino and Colonel's Truck
Plaza and Casino.
Costs and Expenses. The Louisiana truck plazas' costs and expenses were $7.2
million for the quarter ended March 31, 2002 compared to $7.3 million for the
same period in 2001. The reduction of expenses was due to general operational
efficiencies.
Earnings Before Interest, Taxes, Depreciation and Amortization. The
Louisiana truck plazas reported EBITDA of $3.0 million for the quarter ended
March 31, 2002 compared to $2.0 million for the same period in 2001, resulting
in an increase in EBITDA of $1.0 million. This increase is due to a full
quarter of gaming operations at Raceland Truck Plaza and Casino in 2002, and
operational improvements at Houma Truck Plaza and Casino, Cash's Casino and
Colonel's Truck Plaza and Casino, as well as an increase in the share of gaming
revenue from Cash's Casino.
Virginia
Colonial Holdings' revenues are comprised of (i) pari-mutuel commissions
from wagering on races broadcast from out-of-state racetracks to Colonial
Holdings' off-track wagering facilities and the track using import
simulcasting; (ii) wagering at the track and Colonial Holdings' off-track
wagering facilities on its live races; (iii) admission fees, program and racing
form sales, and certain other ancillary activities; and (iv) net income from
food and beverage sales and concessions.
Colonial Holdings' revenues are heavily dependent on the operations of its
off-track wagering facilities. Revenues from the off-track wagering facilities
help support live racing at the track. The amount of revenue Colonial Holdings
earns from each wager depends on where the race is run and where the wagering
takes place. Revenues from import simulcasting of out-of-state races and from
wagering at the track and at the off-track wagering facilities on races run at
the track consist of the total amount wagered at Colonial Holdings' facilities,
less the amount paid on winning wagers. The percentage of each dollar wagered
on horse races that must be returned to the public on winning wagers (typically
about 79%) is legislated by the state in which a race takes place. Revenues
from export simulcasting consist of amounts payable to Colonial Holdings by the
out-of-state racetracks and their simulcast facilities with respect to wagering
on races run at the track.
Pro Forma Results of Operations for the Quarter Ended March 31, 2002
Compared To the Quarter Ended March 31, 2001
Total Revenues. Colonial Holdings generated total revenues for the quarter
ended March 31, 2002 of $6.7 million compared to $7.3 million for the same
period of 2001. The decrease of total revenues of $.6 million, or 8%, is due
primarily to a decrease in revenue from our off-track wagering facilities.
Costs and expenses. Colonial Holdings' direct operating costs were $5.5
million for the quarter ended March 31, 2002 compared to $5.9 million for the
same period of 2001. Direct operating expenses decreased 7%
57
for the quarter ended March 31, 2002 from the same period of 2001. Purse
expense decreased $.2 million for the quarter ended March 31, 2002 compared to
the same period of 2001. Fees, pari-mutuel taxes, simulcast and other direct
expenses decreased $.1 million for the quarter ended March 31, 2002, compared
to the same period of the 2001. The decrease in other direct expenses
correlated to the decrease in handle during the period.
Earnings Before Interest, Taxes, Depreciation and Amortization. Colonial
Holdings reported EBITDA of $1.2 million for the quarter ended March 31, 2002
compared to $1.4 million for the same period in 2001, resulting in a decrease
in EBITDA of $.2 million. The decrease in EBITDA was due to the decrease in
revenue from our off-track wagering facilities.
Historical Results of BHG
The following discussion presents an analysis of the historical financial
results of Black Hawk Gaming because Jacobs Entertainment's equity in earnings
of Black Hawk Gaming represents a significant component of net income for all
years presented.
Black Hawk Gaming
General
Revenues
The majority of Black Hawk Gaming's revenues are generated from its three
land based casino properties. Two of these casinos are located in Black Hawk
and our third casino is in Reno, Nevada. Black Hawk Gaming's consolidated
casino revenues are generally defined as the "casino win," which is the amount
of money wagered less the amount paid out in prizes. Black Hawk Gaming's
consolidated net revenue is generally defined by casino win reduced by various
promotional allowances and incentive programs that it offers to patrons, and
includes revenues from food and beverage, hotel and other revenues. Black Hawk
Gaming utilizes the food and beverage department of each of its properties to
drive its revenues by offering a wide selection of high quality food choices at
reasonable prices. Additionally, we have 50 hotel rooms at The Lodge Casino and
106 hotel rooms at our Reno property which we can offer to players, thereby
enhancing their visit to the Black Hawk and Reno areas, respectively.
Generally, our incentive programs reward players who play frequently by
offering various prizes and rewards, which further enhance the revenues of our
operations.
Results of Operations
Year Ended December 31, 2001 Compared To Year Ended December 31, 2000
Net Revenues. Black Hawk Gaming generated net revenues of $98.5 million for
the year ended December 31, 2001 compared to $78.9 million for the same period
of 2000. The increase in net revenues of $19.6 million, or 25%, is the result
of net revenues generated from the Gold Dust West Casino (acquired on January
4, 2001) of $18.5 million and an increase in net revenues generated at The
Lodge Casino of $2.6 million, offset by a decrease in net revenues at the
Gilpin Hotel Casino of $1.5 million.
Black Hawk Gaming believes the increase in net revenues at The Lodge Casino
is due to the overall growth in the Black Hawk market as well as a market shift
towards larger gaming facilities within the City of Black Hawk. This shift
adversely impacted the results of operations at the Gilpin Hotel Casino, which
resulted in a decrease in its net revenues for the year ended December 31, 2001
over the same period of 2000.
Costs and Expenses. Black Hawk Gaming's total costs and expenses (which
include depreciation and amortization and privatization and other non-recurring
costs) were $84.1 million for the year ended December 31, 2001 compared to
$65.2 million for the same period of 2000. The overall increase of $18.9
million, or 29%, was the result of costs and expenses associated with the Gold
Dust West of $15.8 million as well as increases in costs and expenses at The
Lodge Casino of approximately $2.4 million and privatization and other
non-recurring costs of $1.5 million. These costs and expenses were partially
offset by a reduction in costs and
58
expenses at the Gilpin Hotel Casino of $.8 million. The increase in costs and
expenses at The Lodge is primarily attributable to an increase in our
marketing, general and administrative costs of approximately $1.1 million, an
increase in our labor costs of an additional $1.1 million (which generally
comprises an increase in employee benefits of $.8 million and an overall
increase in compensation to employees of $.3 million) and an increase in other
costs and expenses of $.2 million. The primary reduction in costs and expenses
of the Gilpin totaling $.8 million was generally the result of savings realized
in a reduction of the overall workforce along with their related benefits of
$.7 and a reduction in other general and administrative costs totaling $.1
million.
Privatization Costs and Other Non-Recurring Costs. During the year ended
December 31, 2001, Black Hawk Gaming incurred transaction fees and expenses and
other non-recurring costs associated with the recent acquisition of
approximately $1.5 million. These costs include fees paid to financial advisors
hired to identify strategic alternatives and consult with Black Hawk Gaming
regarding those alternatives as well as fees paid to legal counsel and the
Special Committee of the Board of Directors of Black Hawk Gaming in its
analysis of the buyout offer. Also included in privatization and other
non-recurring costs is a total of $135,000 in fines assessed by the Colorado
Division of Gaming pursuant to the issuance of a stipulation and agreement for
each property alleging certain violations of Internal Control Minimum
Procedures. Black Hawk Gaming has strengthened and enhanced certain of its
procedures to address these specific violations and does not anticipate future
violations surrounding these issues.
Interest Expense. Black Hawk Gaming had interest expense totaling $5.1
million during the year ended December 31, 2001 compared to $3.1 million for
the same period of 2000. The increase of $2.0 million, or 65%, is primarily the
result of interest expense of $1.8 million on borrowings associated with the
acquisition of the Gold Dust West Casino and an increase in interest expense at
The Lodge Casino of $.4 million due to increased borrowings at The Lodge in
order to make additional distributions during the year to the partners of the
LLC that own The Lodge. These increases were partially offset by a reduction in
interest expense at the Gilpin Hotel Casino level of $.2 million, which is due
to an overall reduction in borrowings of The Gilpin during the year. Our total
interest expense amounts are net of interest income totaling $.2 million and
$.3 million during the year ended December 31, 2001 and 2000, respectively.
Depreciation and Amortization. Black Hawk Gaming had depreciation and
amortization of $7.8 million for the year ended December 31, 2001 compared to
$5.7 million for the same period of 2000. The overall increase of $2.1 million,
or 37%, is primarily due to the depreciation and amortization incurred by the
Gold Dust West Casino of $2.0 million. As further discussed under Recent
Accounting Pronouncements, the implementation of Financial Accounting Standards
No. 142 ("SFAS 142"), which became effective January 1, 2002, will result in
the discontinuance of goodwill amortization. Accordingly, the Company will no
longer recognize the amortization of goodwill as a recurring expense. The
Company will, however, be required to periodically ascertain the appropriate
carrying value of goodwill and determine whether or not an impairment cost
should be recognized. Total amortization costs incurred for 2001 and 2000
totaled approximately $1.5 million and $.4 million, respectively.
Minority Interest. Minority interest for the year ended December 31, 2001
totaled $2.0 million compared to $2.1 million for the same period of 2000.
Minority interest represented the 25% share of The Lodge Casino's income
(before eliminating inter-company transactions) which was owned by Diversified.
Income Taxes. Black Hawk Gaming's effective income tax rate for the years
ended December 31, 2001 and 2000 was 42% and 35% respectively, which resulted
in income tax expense of $3.1 million and $3.0 million, respectively. The
unique tax characteristics of the individual components of Black Hawk Gaming's
income before income taxes determine its overall effective tax rate. Due to the
significant costs incurred in association with the acquisition of Gold Dust
West Casino and the non-deductible nature of a substantial portion of those
costs, Black Hawk Gaming's effective income tax rate for the year ended
December 31, 2001 increased to 42% as compared to 35% for the comparable period
of the prior year. As a result of the offering and completion of the
acquisitions described herein, Black Hawk Gaming will be a qualified Subchapter
"S" subsidiary and Jacobs
59
Entertainment will elect to have the tax liability of Black Hawk Gaming pass
through to its individual shareholders. As a result, Black Hawk Gaming will no
longer recognize income tax expense.
Net Income. As a result of the factors discussed above, Black Hawk Gaming
reported net income of $4.2 million for the year ended December 31, 2001
compared to $5.5 million for the same period of 2000, resulting in a decrease
in net income of $1.3 million, or 24%.
Fiscal Year Ended December 31, 2000 Compared To Fiscal Year Ended December
31, 1999
The following discussion relating to changes in net revenues and costs and
expenses for the fiscal year ended December 31, 2000 compared to December 31,
1999, and reflects the reclassifications contemplated by EITF00-22 as further
discussed in "Selected Consolidated Historical Financial and Operating
Data--Black Hawk Gaming."
Net Revenues. Black Hawk Gaming generated net revenues of $78.8 million
during the year ended December 31, 2000 compared to $79.6 million for the same
period of 1999. The slight decrease in net revenues of $0.8 million is the
result of an increase in net revenues at The Lodge Casino of $1.9 million
offset by decreases in net revenues at the Gilpin Hotel Casino of $2.7 million.
Black Hawk Gaming attributes the increased gaming revenues at The Lodge
Casino to the propensity of casino patrons to visit larger casinos with a
greater variety of amenities like The Lodge Casino. Black Hawk Gaming
attributes the decline in gaming revenue at the Gilpin Hotel Casino to the
significant development of larger gaming facilities similar to The Lodge Casino.
Costs and Expenses. Black Hawk Gaming's total costs and expenses were $65.2
million for the year ended December 31, 2000 compared to $65.1 million for the
same period of 1999. The overall increase of $0.1 million, or 1%, was the
result of increases in labor costs of $0.9 million, slot participation expense
of $0.8 million, marketing related costs (excluding busing) of $1.3 million,
and repairs and maintenance of $0.2 million. Increased costs and expenses were
offset by reductions in gaming taxes of $0.5 million, bus program costs of $1.8
million, food and beverage cost of sales of $0.2 million, net returned check
expense after collections of $69,000, corporate overhead expenses of $0.2
million, and other net expenses of $0.3 million.
Interest Expense. Black Hawk Gaming had net interest expense totaling $3.1
million for the year ended December 31, 2000 compared to $4.3 million for the
same period of 1999. The decrease of $1.2 million, or 28%, is primarily the
result of paying down its debt by approximately $9.8 million at various times
during the year.
Depreciation and Amortization. Black Hawk Gaming had depreciation and
amortization of $5.7 million for the year ended December 31, 2000 compared to
$5.4 million for the same period of 1999. The increase of $0.3 million, or 6%,
is generally due to the net increase in Black Hawk Gaming's depreciable assets.
Depreciation and amortization primarily relates to buildings, equipment, and
intangible assets.
Minority Interest. Minority interest for the year ended December 31, 2000
totaled $2.0 million compared to $1.8 million for the same period of 1999.
Minority interest represents the 25% share of The Lodge Casino's income (before
eliminating inter-company transactions) that is owned by affiliated entities
acquired in the recent acquisitions.
Income Taxes. Black Hawk Gaming's effective income tax rate for the year
ended December 31, 2000 resulted in income tax expense of $3.0 million compared
to $2.9 million for the same period of 1999. The unique tax characteristics of
the individual components of Black Hawk Gaming's income before income taxes
determine its overall effective tax rate.
Net Income. As a result of the factors discussed above, Black Hawk Gaming
reported net income of $5.5 million for the year ended December 31, 2000
compared to $5.4 million for the same period of 1999.
60
Fiscal Year Ended December 31, 1999 Compared To Fiscal Year Ended December
31, 1998
The following discussion relating to changes in net revenues and costs and
expenses for the fiscal year ended December 31, 1999 compared to December 31,
1998, reflects the reclassifications contemplated by EITF 00-22 as further
discussed in "Selected Consolidated Historical Financial and Operating
Data--Black Hawk Gaming."
Net Revenues. Black Hawk Gaming generated net revenues of $79.6 million
during the year ended December 31, 1999 compared to $43.1 million for the same
period of 1998. The increase in net revenues of $36.5 million, or 85%, is
primarily the result of the acquisition of the other half of the Gilpin Hotel
Casino as well as the opening of The Lodge Casino.
Costs and Expenses. Black Hawk Gaming's total costs and expenses were $65.1
million for the year ended December 31, 1999 compared to $36.0 million for the
same period of 1998. The overall increase of $29.1 million, or 81%, is
primarily a result of an increase in salaries, wages, gaming taxes and
marketing costs due to the opening of The Lodge Casino and the acquisition of
the other half of the Gilpin Hotel Casino. During 1999 Black Hawk Gaming's
total payroll, including benefits, was $14.4 million at The Lodge Casino, $6.8
million at the Gilpin Hotel Casino and $1.1 million at the corporate level.
Black Hawk Gaming paid gaming taxes totaling $13.9, including $9.9 million at
The Lodge Casino and $4.0 at the Gilpin Hotel Casino. Black Hawk Gaming
incurred marketing costs of $12.9 million, including $8.3 million at The Lodge
Casino and $4.6 million at the Gilpin Hotel Casino.
Interest Expense. Black Hawk Gaming had net interest expense totaling $4.3
million for the year ended December 31, 1999 compared to $2.6 million for the
same period of 1998. The increase of $1.7 million, or 65%, is the result of the
debt incurred in order to develop and construct The Lodge Casino, as well as to
acquire the other half of the Gilpin Hotel Casino.
Depreciation and Amortization. Black Hawk Gaming had depreciation and
amortization of $5.4 million for the year ended December 31, 1999 compared to
$2.6 million for the same period of 1998. The increase of $2.8 million, or
108%, is primarily the result of the acquisition of the other half of the
Gilpin Hotel Casino as well as the opening of The Lodge Casino.
Minority Interest. Minority interest for the year ended December 31, 1999
totaled $1.8 million compared to $0.5 million for the same period of 1998.
Minority interest represents the 25% share of The Lodge Casino's income (before
eliminating intercompany transactions) that was owned by affiliated entities
acquired in the recent acquisitions.
Income Taxes. Black Hawk Gaming's effective income tax rate for the year
ended December 31, 1999 resulted in income tax expense of $2.9 million compared
to $1.9 million for the same period of 1998. The unique tax characteristics of
the individual components of Black Hawk Gaming's income before income taxes
determine its overall effective tax rate.
Net Income. As a result of the factors discussed above, Black Hawk Gaming
reported net income of $5.4 million for the year ended December 31, 1999
compared to $3.2 million for the same period of 1998, resulting in an increase
in net income of $2.2 million, or 69%. The increase in net income is almost
entirely from the acquisition of the other half of the Gilpin Hotel Casino as
well as the opening of The Lodge Casino.
Liquidity and Capital Resources
The net cash provided by operating activities was $13.7 million during the
year ended December 31, 2001 compared to net cash provided by operating
activities of $12.9 million for the same period of 2000.
Net cash used in investing activities for the year ended December 31, 2001
was $30.9 million. The uses of funds included payments for equipment purchases
and additions to Black Hawk Gaming's casinos of $5.0 million
61
and payments to acquire the Gold Dust West Casino of $26.0 million. These uses
of funds were partially offset by the proceeds from the sale of equipment of
$.1 million. Net cash used in investing activities for the year ended December
31, 2000 was $3.5 million. The primary uses of funds included payments for
equipment purchases and additions to Black Hawk Gaming's casinos totaling $2.4
million and payments related to the acquisition of the Gold Dust West Casino of
$.5 million. These uses of funds were partially offset by the proceeds from the
sale of equipment totaling $.1 million.
The net cash provided by financing activities during the year ended December
31, 2001 totaled $24.3 million. These sources of funds included proceeds from
Black Hawk Gaming's revolving credit facility of $36.5 million. These sources
were reduced by payments on special assessment bonds of $.4 million, payments
on long-term debt of $.4 million, payments to amend the reducing revolving
credit facility of $.6 million, payments on the reducing and revolving credit
facility of $7.6 million, and distributions to the 25% minority interest owners
of The Lodge Casino of $3.4 million representing the portion of earnings of The
Lodge Casino which were applicable to the minority interest owners. The net
cash used in financing activities during the year ended December 31, 2000
totaled $11.2 million. These uses of funds included payments on special
assessment bonds totaling $.3 million, payments on long-term debt of $.4
million, payments on the reducing and revolving credit facility of $9.1
million, and distributions to the 25% minority interest owner of The Lodge
Casino of $1.4 million representing the portion of earnings of The Lodge Casino
which was applicable to the minority interest owners. These uses of funds were
partially offset by other financing activities of $.1 million.
As of December 31, 2001, Black Hawk Gaming had working capital of
approximately $7.7 million compared to negative working capital of
approximately $99,000 at December 31, 2000. The increase in working capital is
primarily attributable to the increase in cash and cash equivalents from $8.5
million at December 31, 2000 to $15.7 million at December 31, 2001. This
increase in cash is due to management's decision to conserve funds and limit
debt pay-downs due to the pending merger on February 22, 2002.
Through December 31, 2001 Black Hawk Gaming had incurred approximately $1.5
million in costs relating to the recent acquisitions consisting principally of
investment banking, legal, accounting and other fees.
Market Risk Disclosures
On February 22, 2002, Jacobs Entertainment acquired Black Hawk Gaming. As a
result, Black Hawk Gaming's variable rate debt and interest rate swap were paid
off. Black Hawk Gaming has no other instruments for which market risk
disclosures are applicable.
Significant Estimates and Critical Accounting Policies
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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 periods. We periodically evaluate our
policies, and the estimates and assumptions related to these policies. We
operate in a highly regulated industry. For both our Black Hawk, Colorado and
Reno, Nevada operations, we are subject to regulations that describe and
regulate operating and internal control procedures. The majority of our casino
revenue is in the form of cash, personal checks or gaming chips and tokens,
which by their nature do not require complex estimations. We estimate certain
liabilities with payment periods that extend for longer than several months.
Such estimates include our slot club liabilities, outstanding gaming chip and
token liability, self insured medical and workers' compensation liabilities,
and litigation costs. We believe that these estimates are reasonable based on
our past experience with the business and based upon our assumptions related to
possible outcomes in the future. Future actual results will likely differ from
these estimates.
We have determined that the following accounting policies and related
estimates are critical to the preparation of our consolidated financial
statements.
62
Long-lived Assets
We have a significant investments in long-lived property and equipment. We
estimate that the undiscounted future cash flows expected to result from the
use of these assets exceeds the current carrying value of these assets. Any
adverse change to the estimate of these undiscounted cash flows could
necessitate an impairment charge that would adversely affect operating results.
We estimate the useful lives for our assets based on historical experience,
estimates of assets' commercial lives, and the likelihood of technological
obsolescence. Should the actual useful life of a class of assets be shorter
than the estimated useful life, we would record an impairment charge. We review
useful lives and obsolescence and assess the commercial viability of these
assets periodically.
Deferred Tax Assets
Black Hawk Gaming utilized estimates related to cash flow projections
related to the application of SFAS 109 for the realization of deferred tax
assets. Black Hawk Gaming's estimates were based on recent operating results
and budgets for future operating results. However, as previously discussed,
Jacobs Entertainment acquired Black Hawk Gaming on February 22, 2002. Jacobs
Entertainment is a subchapter "S" corporation and the owners of Jacobs
Entertainment will pay income taxes on its taxable income. Accordingly,
estimates regarding the realization of deferred tax assets are no longer
applicable.
Recent Accounting Pronouncements
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141 ("SFAS 141"), "Business Combinations," which became effective July 1,
2001. SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. We do not believe that the adoption of SFAS 141
will have a significant impact on the financial statements of any of the
entities acquired.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which became
effective January 1, 2002. SFAS 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the standard includes
provisions for the reclassification of certain existing recognized intangibles
as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS 142 also requires us to complete
a transitional goodwill impairment test six months from the date of adoption
and further requires us to evaluate the carrying value of goodwill for
impairment annually thereafter. We adopted SFAS 142 on January 1, 2002, have
completed our transitional impairment test and have determined that no
impairment of our goodwill balances exist. In addition, we have reassessed the
useful lives of our identifiable intangible assets without any change to the
previously established amortization periods of such assets.
In August 2001, the FASB issued SFAS No. 143, "Accounting For Asset
Retirement Obligations." This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development and/or the normal operation of
a long-lived asset, except for certain obligations of lessees. This standard
requires entities to record the fair value of a liability for an asset
retirement obligation in the period incurred. When the liability is initially
recorded, the entity capitalizes a cost by increasing the carrying amount of
the related long-lived asset. Over time, the liability is accreted to its
present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. We were required to adopt the provisions of SFAS No. 143 at
the beginning of 2002. We do not believe the adoption of this statement will
have an impact on the financial position or results of operations of any of the
entities acquired.
63
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This statement supersedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." This statement also amends ARB No. 51, "Consolidated Financial
Statements," to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. This statement requires that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. This statement also
broadens the presentation of discontinued operations to include more disposal
transactions. We were required to adopt the provisions of this statement at the
beginning of 2002. We do not believe that the adoption of this statement will
have an impact on the financial position or results of operations of any of the
entities acquired.
Market Risk
Market risk is the risk of loss arising from adverse changes in market rates
and prices, such as interest rates, foreign currency exchange rates, and
commodity prices. On February 8, 2002 we issued $125.0 million in 11 7/8%
senior secured notes due in 2009. The proceeds of these notes were used to
finance our recent acquisitions and for working capital purposes. All debt
currently bears interest at a fixed rate.
We currently do not invest in derivative financial instruments, interest
rate swaps or other similar investments to alter interest rate exposure.
64
BUSINESS
Introduction
We are a geographically diversified gaming and pari-mutuel wagering company
with properties in Colorado, Nevada, Louisiana and Virginia. We own and operate
three land-based casinos, six truck plazas featuring video gaming facilities
and a horse racing track with three off-track wagering facilities. In addition,
we are party to an agreement that entitles us to a portion of the gaming
revenue from an additional truck plaza video gaming facility and lease and
operate a fourth off-track wagering facility. We acquired all of these
properties and interests on February 22, 2002. We changed our name from Gameco,
Inc. to Jacobs Entertainment, Inc. on June 7, 2002.
All of our gaming facilities target local customers and emphasize revenues
from slot machine play or video gaming, or both. For the year ended December
31, 2001, after giving effect to the acquisitions referred to above and our
issuance of the Old Notes and use of the proceeds thereof as described under
"Use of Proceeds," our pro forma net revenues and pro forma EBITDA were
approximately $164 million and $35 million, respectively. For the fiscal
quarter ended March 31, 2002, our pro forma net revenues and pro forma EBITDA
were approximately $40 million and $10 million, respectively.
The following table sets forth certain information and property level EBITDA
(excluding corporate overhead) of our properties:
Year Ended
As of March 31, 2002 December 31, 2001
-------------------------- ----------------------------
Approximate Percentage of
Gaming Gaming Property Level
Square Gaming Table Revenue from EBITDA (1)
Property Location Facility Type Footage Machines Games Machines (in thousands)
- -------- ----------- ---------------- ----------- -------- ----- ------------- --------------
The Lodge Casino................. Black Hawk, Land-based 25,000 870 23 91% 18,095
Colorado casino
Gilpin Hotel Casino.............. Black Hawk, Land-based 16,000 460 0 99 4,732
Colorado casino
Gold Dust West Casino............ Reno, Nevada Land-based 17,500 500 0 100 4,771
casino
Louisiana Truck Plazas........... Louisiana Video gaming 13,000 334 0 100 7,954
(various
locations)
Colonial Downs Racetrack and off- Horse racing and
track wagering facilities....... Virginia pari-mutuel
(various wagering
locations) N/A N/A N/A N/A 4,223
------ ----- --- -------
Total......................... 71,500 2,170 23 $39,775
====== ===== === =======
- --------
(1) Property Level EBITDA excludes corporate overhead expense of approximately
$4.3 million in the aggregate for all of our properties. Property Level
EBITDA for the Louisiana Truck Plazas is presented on a pro forma basis.
The following table sets forth the components of Property Level EBITDA for
the year ended December 31, 2001, for each of the properties:
Colonial Downs
The Lodge Gilpin Hotel Gold Dust Louisiana and
Casino Casino West Casino Truck Plazas Off-Track Facilities
--------- ------------ ----------- ------------ --------------------
Net income (loss) for the year ended December 31,
2001............................................ $ 8,119 $2,453 $ 900 $3,466 $ (265)
Depreciation and amortization.................... 3,960 1,792 2,020 1,804 1,733
Interest......................................... 2,933 487 1,851 2,075 2,755
Management fees.................................. 3,083 609
Transaction fees and expenses.................... 624
------- ------ ------ ------ ------
Property level EBITDA for the year ended December
31, 2001........................................ $18,095 $4,732 $4,771 $7,954 $4,223
======= ====== ====== ====== ======
65
Business Strategy and Competitive Strengths
Our business strategy is to create a broad, geographically diversified base
of gaming and pari-mutuel wagering properties that provide our customers with
high quality experiences that build significant customer loyalty. We focus on
attracting and fostering repeat business from local gaming patrons at our
casino, truck plaza video gaming and pari-mutuel wagering facilities. Our local
patrons are typically experienced gaming customers who seek convenient
locations, high payouts, and a pleasant atmosphere.
We believe that there are opportunities for growth and operational
efficiencies in the markets in which we operate. Black Hawk, Colorado continues
to be one of the fastest growing gaming markets in the country, having
experienced a 20.7% compound annual growth in gaming revenue from 1998 through
2001. We believe that our two Black Hawk properties will continue to benefit
from this growth, and plan to expand our Gilpin Hotel Casino property in Black
Hawk to further capitalize on this opportunity. We believe that certain of our
Louisiana truck plaza video gaming properties have not reached their full
potential as they have only recently commenced gaming operations. In addition,
we may acquire or develop additional gaming properties catering to local gaming
patrons in the future, further expanding our geographic diversity.
Our strategy for our casino and video gaming operations is to continue to
provide our customers with a user-friendly gaming environment featuring
convenient locations, ample parking, good food at affordable prices and
promotional incentives that reward frequent play. Our business strategy for our
horse racing operations is to be a competitive participant in the industry by
capitalizing on our unique dirt and turf track facilities for live racing,
hosting marquee racing events, and expanding our off-track wagering facility
network under appropriate circumstances.
Broad Geographic and Asset Diversification. We own and operate three
land-based casinos, six truck plaza video gaming facilities and a horse racing
track with three off-track wagering facilities, in four states. In addition, we
are party to an agreement that entitles us to a portion of the gaming revenue
from an additional truck plaza video gaming facility, and lease and operate an
additional off-track wagering facility. We believe that because of our
geographic and asset diversification, we are less dependent on results at a
specific property or in a specific market to generate our cash flow. In
addition, this diversity helps mitigate our susceptibility to regional economic
downturns or weather conditions.
Strong Emphasis on Slot and Video Gaming Revenues. All of our gaming
properties emphasize slot machine or video gaming play, or both. We believe
slot machine play to be the fastest growing, most consistently profitable and
lowest risk segment of the gaming entertainment business. We offer a wide
variety of games to attract customers and encourage them to play for longer
periods of time, thereby promoting the stability of our gaming revenue. We
intend to maximize slot and video gaming revenue by continuing to invest in
appropriate markets in state-of-the art equipment and systems and replacing
older models with the most current product offerings.
Significant Barriers to Entry. There are significant regulatory and other
barriers to entry in each of the markets in which we operate. In Black Hawk,
Colorado these barriers include the limited availability of space in the
approved gaming district, which is defined in the state constitution, and the
high cost of acquiring land and constructing new gaming facilities. There are
stringent licensing requirements and substantial licensing and compliance
expenses attendant to commencing and conducting gaming operations in Nevada. In
Louisiana, the barriers to entry include restrictions that require truck plaza
video gaming facilities to meet specified minimum levels of diesel and total
fuel sales, have a specified minimum site acreage and conduct 24-hour
restaurant operations. These restrictions also prohibit the operation of more
than 50 video gaming machines at any location, and require truck plaza video
gaming facilities to be located in parishes that approved video gaming during a
one time state-wide referendum in 1996. In Virginia, in all but the county in
which we operate and one additional county, the operator of any competing horse
racing track would need to secure passage of a referendum in the locale in
which the track is to be operated. In addition, licenses are available for only
two additional off-track wagering facilities, and opening any off-track
wagering facility in any locale other than those in which we operate would
similarly require the passage of a referendum.
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Strong, Experienced Management Team. Our senior management team is an
experienced group of industry veterans. Jeffrey P. Jacobs, our Chairman and
Chief Executive Officer, has been Black Hawk Gaming's Chief Executive Officer
since November 1996 and the Chief Executive Officer of Colonial Holdings since
March 1997. Stephen R. Roark, our Chief Financial Officer and President of
Casino Operations, has been Black Hawk Gaming's President since September 1995
and its Chief Financial Officer since 1993. Ian M. Stewart, our President of
Pari-Mutuel Wagering and Video Poker Operations, has been President of Colonial
Holdings since November 1998 and its Chief Financial Officer since June 1997.
The three general managers of our casinos, who have a combined total of
approximately 45 years of casino management experience, report directly to Mr.
Roark. Reid Smith and J. Richard Gottardi oversee the day-to-day operations of
our truck plaza video gaming operations, have over 20 years of combined
experience in the gaming industry and report directly to Mr. Stewart. We
believe the expertise and experience of our management team will enable us to
enhance the operation of our existing properties and any properties we may
acquire in the future.
Our Properties
The Lodge Casino--Black Hawk, Colorado
The Lodge Casino in Black Hawk, Colorado, which commenced operations in June
1998, is one of 21 land-based casinos located in the gaming district of Black
Hawk. The Lodge services the greater Denver metropolitan area population of
approximately 2.2 million located 40 miles east of Black Hawk, as well as
customers from nearby communities such as Boulder and Fort Collins, Colorado
and Cheyenne, Wyoming. We believe that The Lodge's customers are primarily day
trip patrons, approximately 70% of whom reside in the greater Denver
metropolitan area. As of June 30, 2002, the Black Hawk market had approximately
11,300 gaming devices generating approximately $565 million in revenues for the
12 months then ended. We are one of the largest gaming facilities in the market
and strive to offer a larger average number of gaming devices, a wider variety
of amenities and more convenient free parking for patrons.
The Lodge is located on a 2.5 acre site that abuts State Highway 119, with
approximately 25,000 square feet of gaming space on two floors containing 900
slot machines and 25 table games, 50 hotel rooms, three restaurants, four bars
and onsite parking for 600 vehicles. Our property includes a buffet and The
White Buffalo Grille, an upscale dining facility. Black Hawk has no significant
lodging facilities other than our facility and the Isle of Capri, which
completed construction of a 237-room hotel at its Black Hawk casino in mid-2000.
We utilize computerized slot data tracking systems that allow us to track
individual play and payouts and develop mailing lists for special events,
contest play and promotions. The Lodge participates in busing programs with
unaffiliated transportation companies who transport patrons to Black
Hawk/Central City from the market areas described above. Black Hawk Gaming has
obtained an exemption as a common carrier from the Colorado Public Utilities
Commission and may elect to operate its own busing program in the future.
The Gilpin Hotel Casino--Black Hawk, Colorado
The Gilpin Hotel Casino, which commenced operations in October 1992, is a
37,000 square foot facility located on a one acre site in the central Black
Hawk gaming district. We expanded our facility through the acquisition of an
adjacent casino in early 1994. We were one of the first casinos opened in
Colorado following the legalization of casino gaming in 1991. We offer 460 slot
machines and four table games, two restaurants and four bars. We also offer
slot club, busing and other promotional programs, and have available to our
customers 200 surface parking spots in the heart of historic Black Hawk.
We plan to remodel and expand the Gilpin Hotel Casino beginning in the third
quarter of 2002 to place all gaming operations on a single floor and to upgrade
and renovate the overall structure. These improvements are budgeted to cost
approximately $6.0 million. While we expect construction and other disruptions
during the renovation period will temporarily adversely affect our business, we
believe completion of these renovations will enable us to continue to compete
effectively in the Black Hawk market and ultimately to improve our operating
results.
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The Gold Dust West Casino--Reno, Nevada
The Gold Dust West Casino, located on 4.6 acres in Reno's central downtown
gaming district, has been operating since 1978. The casino caters to residents
of Reno and surrounding areas and has about 17,500 square feet of gaming space,
currently accommodating 500 slot machines. We offer the Wildwood Restaurant, a
6,600 square foot dining facility, 106 motel rooms, and surface parking for 275
vehicles. We implemented a slot player tracking system in September 2001, which
is facilitating improvement of the casino's operating results. The Reno/Sparks,
Nevada market area generated approximately $1.0 billion of gaming revenues
during the year ended December 31, 2000, up 6.0% from $986.5 million of gaming
revenues in 1999. There were approximately 34 casinos in the Reno/Sparks market
area at December 31, 2001.
Louisiana Gaming Properties
Our truck plaza properties consist of six truck plaza video gaming
facilities located in Louisiana and a share in the gaming revenues from an
additional Louisiana truck plaza gaming facility. Our properties include the
Houma Truck Plaza and Casino in Houma; Winner's Choice Casino in Sulphur; Lucky
Magnolia Truck Stop and Casino in St. Helena Parish; Bayou Vista Truck Plaza
and Casino in Bayou Vista; Colonel's Truck Plaza and Casino in Thibodaux; and
Raceland Truck Plaza and Casino in Raceland. We are also party to an agreement
that entitles us to a portion of the gaming revenues from Cash's Truck Plaza
and Casino in Lobdell. Each truck plaza features a convenience store, fueling
operations, a 24-hour restaurant, and 50 video poker devices (except for Lucky
Magnolia Truck Stop and Casino and Raceland Truck Plaza and Casino, which have
40 and 44 devices respectively).
The Louisiana video gaming industry consists of video gaming in 31 of
Louisiana's 64 parishes. The industry is highly regulated and video gaming
machines can only be placed in qualifying bars, restaurants, hotels, off-track
wagering facilities and truck plazas. In order to qualify for video gaming, a
truck plaza must offer diesel fuel, gasoline, a convenience store, a restaurant
and a trucker's lounge. Our video gaming machines are located in a separate
gaming room that is designed to provide a pleasant casino-like atmosphere. As
of December 31, 2001, Louisiana had 112 licensed truck plazas.
The Louisiana truck plaza video gaming market caters primarily to local
residents, whom we believe contribute to the vast majority of truck plaza
gaming revenue. We believe that most of our video gaming customers live within
a five-mile radius of our properties.
Colonial Downs--New Kent, Virginia
Colonial Downs, which opened in 1997, is a racetrack in New Kent, Virginia,
which primarily conducts pari-mutuel wagering on thoroughbred and harness
racing. The track facility was designed to provide patrons with a pleasant
atmosphere to enjoy quality horse racing. The outside grandstand area, located
on the first floor of the track facility, has an occupancy capacity of
approximately 4,000 patrons. Also located on the first floor of the track
facility are two simulcast television amphitheaters, two covered patio-seating
areas, four bars, a large concession food court, gift shop, and wagering
locations with approximately 72 tellers. The Jockey Club, which is in the main
grandstand area located on the third floor of the track facility, includes a
full-service dining area with a seating capacity of 548 patrons, two separate
lounge areas, and additional wagering locations with 24 tellers. The Turf Club
is a private club and contains 10 luxury suites with skybox seating located on
the fourth floor of the track facility and has a wagering location with four
tellers.
The one and one-quarter mile dirt track is one of the largest tracks in the
United States and its 180-foot wide turf track is the largest turf track in
North America. These unique configurations have attracted and are expected to
continue to attract quality horses to the track. Colonial Downs has conducted
more than 80% of its thoroughbred races over the turf course for the last two
years, thereby establishing the track as a major turf racing center in the
Mid-Atlantic region. Colonial Downs is developing the Virginia Derby, a turf
race for three-year old thoroughbreds, into the marquee event of the
thoroughbred meet.
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Off-track Wagering Facilities, Virginia
In addition to our racetrack facility, we own and operate three off-track
wagering facilities and lease and operate a fourth facility in Virginia. These
facilities provide simulcast pari-mutuel wagering on thoroughbred and harness
racing from our racetrack and selected other racetracks throughout the United
States. Our off-track wagering facilities are located in Richmond, Chesapeake,
Hampton, and Brunswick. These facilities employ state of the art audio/video
technology for receiving quality import simulcast thoroughbred and harness
racing from nationally known racetracks.
The facilities are structured to accommodate the needs of various patrons,
from the seasoned handicapper to the novice wagerer, and provide patrons with a
comfortable, upscale environment including a full bar and a range of restaurant
services. In addition, self-serve automated wagering equipment is available to
patrons in order to make wagering more user-friendly to the novice and more
efficient for the expert. This equipment, with touch-screen interactive
terminals and personalized portable wagering terminals, provides patrons with
current odds information and enables them to place wagers and credit winning
tickets to their accounts without waiting in line. Under current law, before we
can open the two remaining off-track wagering facilities permitted by our
license in new municipalities, we are required to win approval through a local
referendum process in the municipalities in which the facilities will be
located.
Competition
General
We face intense competition in each of the markets in which we operate. Our
existing gaming facilities compete directly with other gaming properties and
activities in Colorado, Nevada, Louisiana and Virginia. We expect this
competition to increase as new gaming operators enter our markets, existing
competitors expand their operations, gaming activities expand in existing
jurisdictions and gaming is legalized in new jurisdictions. Several of our
competitors have significantly better name recognition and more marketing and
financial resources than we do. We cannot predict with any certainty the
effects of existing and future competition on our operating results.
We also compete with other forms of gaming and entertainment such as online
computer gaming, bingo, pull-tab games, card parlors, sports books, pari-mutuel
or telephonic betting on horse racing and dog racing, state-sponsored
lotteries, video lottery terminals, and video poker terminals. In the future,
we may compete with gaming at other venues.
We also compete with gaming operators in other gaming jurisdictions such as
Las Vegas, Nevada and Atlantic City, New Jersey. Our competition includes
casinos located on Native American reservations throughout the United States,
which have the advantage of being exempt from certain state and federal taxes.
Some Native American tribes are either establishing or are considering the
establishment of gaming at additional locations. Expansion of existing gaming
jurisdictions and the development of new gaming jurisdictions and casinos on
Native American-owned lands would increase competition for our existing and
future operations. In addition, increased competition could limit new
opportunities for us or result in the saturation of certain gaming markets.
Casino Properties. We believe the primary competitive factors in the Black
Hawk, Colorado market are location, availability and convenience of parking;
number and types of slot machines and gaming tables; and types and pricing of
amenities, including food; name recognition; and overall atmosphere. We believe
our Colorado casinos generally compete favorably based on these factors.
Our Colorado casinos are on opposite sides of Main Street in Black Hawk.
Because of their proximity, our Black Hawk casinos compete for some of the same
customers. Further, there were 21 other casinos operating in Black Hawk on
December 31, 2001. There were 10,500 gaming devices (slot machines, blackjack
and poker tables) in Black Hawk as of December 31, 2001.
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Central City is located adjacent to Black Hawk and provides the most direct
competition to the gaming establishments in Black Hawk. There were five casinos
operating in Central City with approximately 1,700 gaming devices as of
December 31, 2001. Black Hawk has historically enjoyed a competitive advantage
over Central City in large part because access by State Highway 119 (currently
the only major access to Black Hawk from the Denver metropolitan area and
Interstate 70) requires customers to drive by and, in part, through Black Hawk
to reach Central City. Central City has acquired portions of a right-of-way and
is taking steps toward formation of an entity to construct a road from I-70,
commonly referred to as the Southern Access, and it is likely that Central City
will continue pursuing financing for this route. If the Southern Access is
constructed as proposed, it would be possible for certain traffic that
currently passes through Black Hawk to proceed directly to Central City from
Interstate 70. Even if the new route were constructed, motorists driving from
the Denver metropolitan area would still have the option of choosing to go
either to Black Hawk or Central City without having to drive through the other
town.
Large, well-financed companies may enter the Black Hawk and other Colorado
markets through the purchase or expansion of existing facilities, which could
have a material adverse effect on our results of operations and financial
position. The Black Hawk Casino by Hyatt opened in December 2001. It presently
has no hotel rooms but may construct them at some point in the future. The
Black Hawk Casino by Hyatt is directly across the street from The Lodge Casino.
The facility opened with approximately 1,320 slot machines and 24 table games
on a single, ground level floor, and will have a parking garage accommodating
800 vehicles. No other casinos are currently under construction in Black Hawk
or Central City.
The casinos in Cripple Creek, located a driving distance of 110 miles to the
south of the Black Hawk and Central City markets, and two Native American
casinos located in the southwestern corner of the state, constitute the only
other casino gaming venues in the state of Colorado. We believe that Cripple
Creek, located 45 miles west of Colorado Springs, provides only limited
competition to the Black Hawk market.
In addition to competing with other gaming facilities in Colorado as
described above, Black Hawk Gaming competes to a lesser degree, for both
customers and potential future gaming sites, with gaming companies nationwide,
including casinos in Nevada and several other states, and casinos on Native
American lands in several states, many of which have substantially greater
financial resources and experience in the gaming business. The expansion of
legalized casino gaming to new jurisdictions throughout the United States may
also affect competitive conditions.
The Gold Dust West Casino encounters strong competition from large hotel and
casino facilities and smaller casinos similar in size to the Gold Dust West
Casino in the Reno area, which includes Sparks, Nevada. There is also
competition from gaming establishments in other towns and cities in Nevada and,
to a lesser extent, other jurisdictions in the United States where gaming has
been legalized (including Native American gaming establishments). There are
approximately 34 licensed casinos in the Reno/Sparks area. In Reno, we compete
with these other properties principally on the basis of location and parking
while also directly appealing to the "locals" market. Additional competition
may come from the expansion or construction of other hotel and casino
properties or the upgrading of other existing facilities in the Reno area.
In addition, we believe that the introduction of casino gaming, or the
expansion of presently conducted gaming activities (particularly at Native
American establishments) in areas in or close to Nevada, such as California,
Oregon, Washington, Arizona and western Canada, could adversely affect
operations at our Reno property.
The ability to maintain our competitive position in Reno will require the
expenditure of sufficient funds for such items as updating slot machines to
reflect changing technology, periodic refurbishing of rooms and public service
areas, and replacing obsolete equipment on an ongoing basis.
Truck Plaza Operations. Our Louisiana truck plaza operations face
competition from land-based and riverboat casinos throughout Louisiana and on
the Mississippi Gulf Coast, casinos on Native American lands and
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other non-casino gaming opportunities within Louisiana. The Louisiana Riverboat
Economic Development and Gaming Control Act limits the number of gaming casinos
in Louisiana to 15 riverboat casinos statewide and one land-based casino in New
Orleans. Fourteen of the 15 available riverboat licenses are issued and the
fifteenth is approved for issuance in Lake Charles. The newly licensed
riverboat casino will compete with Winner's Choice Casino.
Our video gaming operations also face competition from other truck plaza
video gaming facilities located in surrounding areas, as well as competition
from Louisiana horse racing facilities, some of which have been authorized to
operate video gaming machines, and restaurants and bars with video gaming
machines. As of December 31, 2001, there were 112 truck plazas in Louisiana
licensed to operate video gaming devices.
Horse Racing and Pari-mutuel Wagering Operations. We compete with
racetracks located outside Virginia (including several in Delaware, Maryland,
New Jersey, New York, Pennsylvania, and West Virginia, some of which augment
their purses with slot machine revenues) and other forms of gaming, such as
land-based casinos, including those in Atlantic City, and statewide lotteries
in Virginia and neighboring states. The possible legalization of other forms of
gaming in Virginia, such as Native American or riverboat casinos, could have an
adverse effect on our performance. Although bills for the creation of riverboat
casinos have failed in the Virginia legislature, proponents of riverboat gaming
in Virginia may continue to seek legislative approval. Additionally, certain
Native American tribes are considering seeking federal recognition.
We have competed and will compete for wagering dollars and simulcast fees
with live racing and races simulcast from racetracks in other states,
particularly racetracks in neighboring states such as Charles Town in West
Virginia, Pimlico Race Course, Laurel Park, and Rosecroft Raceway in Maryland,
and Delaware Park in Delaware. We believe that our existing management
agreement with The Maryland Jockey Club will continue to promote coordination
of thoroughbred events between Maryland and Virginia. However, if the Virginia
or Maryland Racing Commissions do not approve either party's proposed racing
days, or if the Virginia-Maryland thoroughbred racing circuit is otherwise
unsuccessful, our track may compete directly with Pimlico Race Course and
Laurel Park in Maryland.
We anticipate that we will experience adverse effects from the continued
legalization of video lottery terminals and slot machines in neighboring states
such as Delaware and West Virginia. Racetracks with video lottery terminals or
slot machines generally are required to devote a significant portion of
terminal and machine revenues to the purses for which horses race. As a result,
those racetracks may be able to offer higher purses, which can make it
difficult for us to attract horsemen to race at our track. We also are
encountering competition for patrons in Virginia that are participating in
account wagering operated outside Virginia through the ability to watch live
horse racing via home satellite television. Although this wagering may not be
legal in Virginia, patrons are establishing accounts with operators outside of
Virginia and placing wagers over the telephone while watching races at home via
satellite.
Colonial Holdings, through its subsidiaries, holds the only license to own
and operate a racetrack with off-track wagering facilities. Other temporary
licenses have been granted to operate a racetrack for up to 14 days of live
racing but the holder of such a license is not permitted by law to own or
operate any off-track wagering facilities. Nonetheless, the Virginia Racing
Commission could issue another license for a racetrack with off-track wagering
facilities following a thorough application and regulatory process, including
the passage of a local referendum approving the locating of a racetrack in such
locality. Another fully licensed racetrack would compete directly with us.
Colonial Holdings also faces competition from a wide range of entertainment
options, including live and televised sporting events and other recreational
activities such as theme parks (Kings Dominion to the northwest and Busch
Gardens to the southeast) and more recently internet-based pari-mutuel wagering
and account wagering on horse racing.
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Employees and Labor Relations
As of March 31, 2002, we have approximately 1000 full-time and part time
employees at our facilities in Black Hawk, Colorado and Reno, Nevada, 110
employees at our facilities in Virginia and 240 employees at our facilities in
Louisiana. Employees include cashiers, dealers, food and beverage service
personnel, facilities maintenance, security, valet, accounting, marketing, and
personnel services. We consider relations with our employees to be good.
None of our employees are represented by any union or other labor
organization.
Legal Proceedings
On February 27, 2001, a shareholder of Black Hawk Gaming filed a purported
shareholder class action lawsuit against Black Hawk Gaming and its directors in
Colorado District Court for the County of Gilpin under the caption Joseph
Brecher v. Timothy Knudsen, et al., Case No. 01CV13. The plaintiff alleged,
among several other things, that the price offered by us for Black Hawk Gaming
was unconscionable, unfair and grossly inadequate, that there was no adequate
process to ensure that Black Hawk Gaming's shareholders received the highest
price attainable for their shares, and that the defendants, acting in concert
and utilizing nonpublic information, were violating their fiduciary duties.
On March 1, 2001, another purported class action lawsuit was filed in the
Colorado District Court, County of Gilpin, under the caption Mary Bonsall v.
Black Hawk Gaming & Development Co. [sic], Inc., et al., Case No. 01-CV-16. The
allegations in this case were essentially the same as those in the case
described above. On May 11, 2001, this case and the case described above were
consolidated. The plaintiffs in both actions sought preliminary and permanent
injunctive relief restraining the defendants from proceeding with the
transaction and unspecified compensatory or rescissory damages, and, if the
transaction was consummated, rescinding the transaction, together with
unspecified compensatory or rescissory damages, and attorneys' fees and costs.
On May 17, 2002, plaintiffs Joseph Brecher and Mary Bonsall dismissed their
actions without prejudice.
On May 25, 2001, a lawsuit was filed in The United States District Court for
the District of Colorado (Case No. 01-D-0964) by Central City, several casino
operators located in Central City and others against the City of Black Hawk,
the Black Hawk Casino Owners Association and several casino operators located
in Black Hawk, including Black Hawk Gaming. The suit alleges that the
defendants caused economic harm to the plaintiffs by engaging in a conspiracy
and scheme to harm competition, restrain trade and monopolize the gaming
industry in the Gilpin County, Colorado market in violation of federal and
state constitutional, statutory and common law. Also, the complaint alleges
that starting in 1996 the City of Black Hawk began interfering in Central
City's plans to construct a road directly from Interstate 70 to Central City.
The plaintiffs seek compensatory, treble and exemplary damages against the
defendants in amounts to be proven at trial along with interest, costs and
attorneys' fees. Black Hawk Gaming believes that this lawsuit is without merit
and intends to contest it vigorously.
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REGULATION AND TAXATION
Regulation
Gaming Regulation and Licensing--Colorado
The State of Colorado created the Colorado Division of Gaming within the
Department of Revenue to license, implement, regulate and supervise the conduct
of limited stakes gaming. The 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 Division may inspect, without notice, premises where gaming is being
conducted; may seize, impound or remove any gaming device; may examine and copy
all of a licensee's records; may investigate the background and conduct of
licensees and their employees; and may bring disciplinary actions against
licensees and their employees. The Division may also conduct detailed
background checks of persons who lend money to or invest money in a licensee.
It is illegal to operate a gaming facility without a license issued by the
Gaming Commission. The Gaming Commission is empowered to issue five types of
gaming and gaming related licenses. The licenses are revocable and
nontransferable. Black Hawk Gaming's failure or inability to obtain and
maintain necessary gaming licenses would have a material adverse effect on its
gaming operations.
The Colorado casinos were granted retail/operator licenses concurrently with
their openings. The licenses are subject to continued satisfaction of
suitability requirements and must be renewed annually. The current licenses for
both Colorado casinos were renewed on May 14, 2001. There can be no assurance
that the Colorado casinos can successfully renew their licenses in a timely
manner from year to year.
All persons employed by Black Hawk Gaming who are involved, directly or
indirectly, in gaming operations in Colorado also are required to obtain
various forms of gaming licenses. 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 that a casino is open for
business. Messrs. Jacobs and Roark and Stanley Politano (Black Hawk Gaming's
Secretary), among others, hold key licenses.
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 Black Hawk
Gaming or any casino directly or indirectly owned by Black Hawk Gaming may be
subject to administrative action, including personal history and background
investigations. The actions of persons associated with Jacobs Entertainment,
such as its management or employees, could jeopardize any licenses held by
Black Hawk Gaming. All of Black Hawk Gaming's directors are required to be
found suitable as associated persons.
As a general rule, under the Colorado Regulations, it is a criminal
violation for any person to have a legal, beneficial, voting or equitable
interest, or right to receive profits, in more than three retail/operator
gaming licenses in Colorado. Black Hawk Gaming has an interest in two such
licenses. Any expansion opportunities that we may have in Colorado are limited
to one more license.
The Colorado Division of Gaming may require any person having an interest in
a licensee or an applicant for a license to provide background information,
information on sources of funding, and a sworn statement that the interested
person or applicant is not holding that interest for another party. The Gaming
Commission may, at its discretion, require any person having an interest in a
licensee to undergo a full background investigation and to pay for that
investigation in the same manner as an applicant for a license. A background
investigation includes an examination of one's personal history, financial
associations, character, record, and reputation, as well as the people with
whom a person has associated.
The Gaming Commission 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
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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 interest in a licensed publicly traded corporation,
(iv) any person who as agent, consultant, advisor or otherwise, exercises a
significant influence upon the management or affairs of a publicly traded
corporation, (v) all general partners and all limited partners of a licensed
partnership, (vi) all persons that 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), (vii) all persons supplying financing or
lending money to any licensee connected with the establishment or operation of
limited gaming, and (viii) all persons having a contract, lease or ongoing
financial or business arrangement with any licensee, if such contract, lease or
arrangement relates to limited gaming operations, equipment, devices or
premises.
If the Gaming Commission determines that a person or entity is not suitable
to own a direct or indirect voting interest in Black Hawk Gaming or Jacobs
Entertainment, Black Hawk Gaming may be sanctioned unless the person or entity
disposes of its voting interest. Sanctions may include the loss of the casino
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
that permit the repurchase of the voting interests of any person found to be
unsuitable. Black Hawk Gaming's Articles of Incorporation include the required
provisions.
The Gaming Commission also has the power to require Black Hawk Gaming to
suspend or dismiss its officers, directors and other key employees or sever
relationships with other persons who refuse to file appropriate applications or
who are found to be unsuitable to act in such capacities. The Commission or the
Director of the Division of Gaming may review a licensee's gaming contracts,
require changes in the contract before the licensee's application is approved
or participation in the contract is allowed, and require a licensee to
terminate its participation in any gaming contract.
The Gaming Commission has enacted Rule 4.5, which imposes requirements on
publicly traded corporations holding gaming licenses in Colorado and on gaming
licenses owned directly or indirectly by a publicly traded corporation, whether
through a subsidiary or intermediary company. The term "publicly traded
corporation" includes corporations, firms, limited liability companies, trusts,
partnerships and other forms of business organizations. Such requirements
automatically apply to any ownership interest held by a publicly traded
corporation, holding company or intermediary company thereof, when the
ownership interest directly or indirectly is, or will be upon approval of the
Gaming Commission, 5% or more of the entire licensee. In any event, if the
Gaming Commission determines that a publicly traded corporation, or a
subsidiary, intermediary company or holding company has the actual ability to
exercise influence over a licensee, regardless of the percentage of ownership
possessed by that entity, the Gaming Commission may require the entity to
comply with the disclosure regulations contained in Rule 4.5.
Under Rule 4.5, gaming licensees, affiliated companies and controlling
persons commencing a public offering of voting securities must notify the
Gaming Commission no later than ten business days after the initial filing of a
registration statement with the Securities and Exchange Commission. Licensed
publicly traded corporations are also required to send proxy statements to the
Division of Gaming within five days after their distribution. Licensees to whom
Rule 4.5 applies must include in their charter documents provisions that:
restrict the rights of the licensees to issue voting interests or securities
except in accordance with the Colorado Gaming Act and the Colorado Regulations;
void the transfer of voting securities or other voting interests issued in
violation of the Colorado Gaming Act and the Colorado Regulations until the
issuer ceases to be subject to the jurisdiction of the Gaming Commission or
until the Gaming Commission, by affirmative act, validates the transfer; and
provide that holders of voting interests or securities of licensees found
unsuitable by the Gaming Commission may, within 60 days of such finding of
unsuitability, be required to sell their interests or securities back to the
issuer at the lesser of the cash equivalent of the holders' investment or the
market price as of the date
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of the finding of unsuitability. Alternatively, the holders may, within 60 days
after the finding of unsuitability, transfer the voting interests or securities
to a person suitable to the Gaming Commission. Until the voting interests or
securities are held by suitable persons, the issuer may not pay dividends or
interest, the securities may not be voted, they may not be included in the
voting or securities of the issuer, and the issuer may not pay any remuneration
in any form to the holders of the securities.
Notification must be given to the Division of Gaming of the acquisition of
direct or indirect beneficial ownership of:
. 5% or more of any class of voting securities of a publicly traded
corporation that is required to include in its articles of organization
the Rule 4.5 charter language provisions; or
. 5% or more of the beneficial interest in a gaming licensee directly or
indirectly through any class of voting securities of any holding company
or intermediary company of a licensee, referred to as qualifying persons.
Notification must be made by persons acquiring these interests. Such persons
must submit all requested information to the Division of Gaming, are subject to
a finding of suitability as required by the Division of Gaming or the Gaming
Commission, and must be informed of these requirements by the licensee. A
person other than an institutional investor whose interest equals 10% or more
of a publicly traded corporation or a 10% beneficial interest in a gaming
licensee must apply to the Gaming Commission for a finding of suitability
within 45 days after acquiring such securities.
An institutional investor who, individually or in association with others,
acquires, directly or indirectly, the beneficial ownership of 15% or more of
any class of voting securities or 15% of the beneficial interest in a gaming
licensee must apply to the Gaming Commission for a finding of suitability
within 45 days after acquiring such interests.
Licensees must also notify any qualifying persons of these requirements.
Whether or not so notified, qualifying persons are responsible for complying
with these requirements.
The Colorado Regulations also provide for exemption from the requirements
for a finding of suitability when the Gaming Commission finds such action to be
consistent with the purposes of the Colorado Gaming Control Act. The Gaming
Commission may determine that anyone with a material relationship to, or
material involvement with, a licensee or an affiliated company must apply for a
finding of suitability or must apply for a key employee license.
Pursuant to Rule 4.5, persons found unsuitable by the Gaming Commission must
be removed from any position as an officer, director, or employee of a
licensee, or of a holding or intermediary company. Such unsuitable persons also
are prohibited from any beneficial ownership of the voting securities of any
such entities. Licensees, or affiliated entities of licensees, are subject to
sanctions for paying dividends or distributions to persons found unsuitable by
the Gaming Commission, or for recognizing voting rights of, or paying a salary
or any remuneration for services to, unsuitable persons. Licensees or their
affiliated entities also may be sanctioned for failing to pursue efforts to
require unsuitable persons to relinquish their interests.
The Gaming Commission must provide prior approval of any sale, lease,
purchase, conveyance, or acquisition of an interest in a casino licensee,
except as provided in Rule 4.5 relating to publicly traded corporations.
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 or consume alcohol in the
casino. Slot machines, black jack, poker and other approved variations of those
games and video poker are the only permitted games, with a maximum single wager
of $5.00. Colorado casinos may not extend credit to gaming patrons. The
Colorado Constitution and Regulations restrict the percentage of space a casino
may use for gaming to 50% of any floor and 35% of the overall square footage
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of the building in which the casino is located. Effective July 1 of each year,
Colorado establishes the gross gaming revenue tax rate for the ensuing 12
months. Under the Colorado Constitution, the rate can be increased to as much
as 40% of adjusted gross proceeds. Colorado has both raised and lowered gaming
tax rates since they were initially set in 1991. Currently, the maximum gaming
tax rate is 20%.
Gaming Regulation and Licensing--Nevada
The ownership and operation of casino gaming facilities in Nevada, including
Black Hawk Gaming's Gold Dust West Casino, are subject to the Nevada Gaming
Control Act and the regulations promulgated thereunder (the "Nevada Act") and
to the licensing and regulatory control of the Nevada Gaming Commission (the
"Nevada Commission"), the Nevada State Gaming Control Board (the "Nevada
Board"), and various local ordinances and regulations, including, without
limitation, those of the City of Reno (collectively, the "Nevada Gaming
Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and filing periodic reports with
the Nevada Gaming Authorities; (iv) the prevention of cheting and fraudulent
practices; and (v) providing a source of state and local revenues through
taxation and licensing fees. Change in such laws, regulations and procedures
could have an adverse effect on Black Hawk Gaming's Nevada gaming operations.
Gold Dust West Casino, Inc. ("Gold Dust West"), Black Hawk Gaming's
subsidiary that conducts gaming operations in Nevada, is required to be
licensed by the Nevada Gaming Authorities. Gaming licenses require the periodic
payment of fees and taxes and are not transferable. Black Hawk Gaming is
currently registered by the Nevada Commission as an intermediary company and
has been found suitable to own the stock of Gold Dust West, which is a
corporate licensee ("Corporate Licensee") under the terms of the Nevada Act.
Jacobs Entertainment is currently registered by the Nevada Commission as an
intermediary company and has been found suitable as the sole shareholder of
Black Hawk Gaming. Jacobs Entertainment has filed an application with the
Nevada Board and Nevada Commission for registration as a publicly traded
corporation (a "Registered Corporation") in conjunction with the exchange
offer. Registered Corporations are required periodically to submit detailed
financial and operating reports to the Nevada Commission and furnish any other
information that the Nevada Commission may require. No person may become a
stockholder of, or holder of an interest in, or receive any percentage of
profits from, a Corporate Licensee without first obtaining licenses and
approvals from the Nevada Gaming Authorities. Jacobs Entertainment, Black Hawk
Gaming, the Gold Dust West Casino and Black Hawk Gaming's controlling persons,
directors and certain officers have obtained from the Nevada Gaming Authorities
the various registrations, findings of suitability, approvals, permits and
licenses required in order to engage in gaming activities in Reno, Nevada. The
following regulatory requirements are applicable to Jacobs Entertainment, Black
Hawk Gaming and Gold Dust West.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, Jacobs Entertainment,
Black Hawk Gaming or Gold Dust West in order to determine whether that
individual is suitable or should be licensed as a business associate of a
gaming licensee. The officers, directors and shareholders of Jacobs
Entertainment must file applications with and be licensed or found suitable by
the Nevada Gaming Authorities. The officers, directors and certain key
employees of Gold Dust West must file applications with the Nevada Gaming
Authorities and may be required to be licensed or found suitable by the Nevada
Gaming Authorities. The officers, directors and key employees of Jacobs
Entertainment and Black Hawk Gaming who are actively and directly involved in
the gaming activities of Gold Dust West may be required to be licensed or found
suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may
deny an application for licensing for any cause that they deem reasonable. A
finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation.
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The applicant for licensing or a finding of suitability must pay all the costs
of the investigation. Changes in licensed positions must be reported to the
Nevada Gaming Authorities and, in addition to their authority to deny an
application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with Jacobs Entertainment, Black Hawk Gaming or Gold Dust West,
the companies involved would have to sever all relationships with that person.
In addition, the Nevada Commission may require Jacobs Entertainment, Black Hawk
Gaming or Gold Dust West to terminate the employment of any person who refuses
to file appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
Jacobs Entertainment, Black Hawk Gaming and Gold Dust West are required
periodically to submit detailed financial and operating reports to the Nevada
Commission and furnish any other information that the Nevada Commission may
require. Substantially all of Jacobs Entertainment's, Black Hawk Gaming's and
Gold Dust West's material loans, leases, sales of securities and similar
financing transactions must be reported to or approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by Jacobs
Entertainment, Black Hawk Gaming or Gold Dust West, the registrations or gaming
licenses that Jacobs Entertainment, Black Hawk Gaming and Gold Dust West hold
could be limited, conditioned, suspended or revoked, subject to compliance with
certain statutory and regulatory procedures. In addition, Jacobs Entertainment,
Black Hawk Gaming, Gold Dust West and the persons involved could be subject to
substantial fines for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could be appointed
by the Nevada Commission to operate the Gold Dust West Casino and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for reasonable rental value of the casino) could be forfeited to the
State of Nevada. Limitation, conditioning or suspension of the gaming licenses
of Gold Dust West or the appointment of a supervisor could (and revocation of
any gaming license would) have a material adverse effect on Jacobs
Entertainment's gaming operations, financial condition and results of
operations.
Any beneficial holder of a Registered Corporation's voting securities (or
rights to acquire such securities), regardless of the number of shares owned,
may be required to file an application, be investigated and have its
suitability as a beneficial holder of the Registered Corporation's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. If the beneficial holder of voting securities who must be
found suitable is a corporation, partnership, limited liability company or
trust, it must submit detailed business and financial information, including a
list of beneficial owners. The applicant must pay all costs of investigation
incurred by the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a Registered Corporation's voting securities apply
to the Nevada Commission for a finding of suitability within 30 days after the
Chairman of the Nevada Board mails the written notice requiring such filing.
Under certain circumstances, an "institutional investor," as defined in the
Nevada Act, that acquires more than 10%, but not more than 15%, of our voting
securities may apply to the Nevada Commission for a waiver of a finding of
suitability if that institutional investor holds the voting securities for
investment purposes only. An institutional investor will not be deemed to hold
voting securities for investment purposes unless the voting securities were
acquired and are held in the ordinary course of business as an institutional
investor and not for the purpose of causing, directly or indirectly, the
election of a majority of the members of our board of directors, any change in
our corporate charter, bylaws, management, policies or operations, or of any of
our gaming affiliates, or any other action that the Nevada Commission finds to
be inconsistent with holding our voting securities for investment purposes
only. Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes only include: (i) voting on all matters
voted on by stockholders; (ii) making financial and other inquiries of
management of the type normally made by
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securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identify
the beneficial owner. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the common stock beyond such period
of time as may be prescribed by the Nevada Commission may be guilty of a
criminal offense. We will be subject to disciplinary action if, after we
receive notice that a person is unsuitable to be a stockholder or to have any
other relationship with us, we (i) pay that person any dividend or interest on
our voting securities, (ii) allow that person to exercise, directly or
indirectly, any voting right conferred through securities held by that person,
(iii) pay remuneration in any form to that person for services rendered or
otherwise, or (iv) fail to pursue all lawful efforts to require that unsuitable
person to relinquish its voting securities including, if necessary, the
immediate purchase of the voting securities for cash at fair market value.
Additionally, the City of Reno has the authority to approve all persons owning
or controlling the stock of any corporation controlling a gaming licensee
operating in Reno.
The Nevada Commission may, in its discretion, require the holder of any of
our debt or similar securities, such as the Old Notes or New Notes, to file
applications, be investigated and be found suitable to own our debt securities
if the Nevada Commission has reason to believe that such ownership would
otherwise be inconsistent with the declared policies of the State of Nevada. If
the Nevada Commission determines that a person is unsuitable to own those
securities, then pursuant to the Nevada Act, we can be sanctioned, including by
revocation of our approvals, if without the prior approval of the Nevada
Commission, we (i) pay to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognize any voting right by the unsuitable
person in connection with our securities; (iii) pay the unsuitable person
remuneration in any form; or (iv) make any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
The pledge of the stock of Black Hawk Gaming and Gold Dust West ("Stock
Pledge") and of the stock of any future subsidiary that obtains a registration
or gaming license in Nevada ("Future Subsidiary"), and the restrictions on the
transfer of and agreement not to encumber the equity securities of Black Hawk
Gaming, Gold Dust West or any Future Subsidiary (collectively, "Stock
Restrictions") in respect of the Old Notes and the New Notes require the
approval of the Nevada Commission on the recommendation of the Nevada Board
before becoming effective. Such approvals have been granted. An approval of the
Stock Pledge by the Nevada Commission does not constitute approval to foreclose
on the Stock Pledge. Separate approval would be required to foreclose on the
Stock Pledge and transfer ownership of the stock and that approval would
require the licensing of the indenture trustee or other secured party ("Secured
Party"), unless that licensing is waived on application of the Secured Party.
No assurance can be given that approval to foreclose on the Stock Pledge would
be granted, or that the Secured Party would be licensed or receive a waiver of
licensing requirements. Foreclosure of the lien on collateral consisting of
gaming devices in respect of the Old Notes and the New Notes and the taking of
possession of those gaming devices may require the prior licensing of the
Secured Party as a distributor by the Nevada Commission. However, the Nevada
Act provides that in the case of foreclosure of a lien by a person holding a
security interest for which gaming devices are security in whole or part, the
Nevada Board may authorize the disposition of the gaming devices without
requiring a distributor's license. No assurance can be given that the Nevada
Board would grant such approval or that if that approval were not granted, the
Secured Party would be granted a license as a distributor.
Black Hawk Gaming and Jacobs Entertainment are required to maintain a
current stock ledger in Nevada that may be examined by the Nevada Gaming
Authorities at any time. If any securities are held in trust by an agent or by
a nominee, the record holder may be required to disclose the identity of the
beneficial owner to the Nevada Gaming Authorities. A failure to make the
required disclosure may be grounds for finding the record
78
holder unsuitable. We are also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require our stock certificates to bear a legend indicating that the
securities are subject to the Nevada Act. To date, the Nevada Commission has
not imposed such a requirement on us.
Black Hawk Gaming and Jacobs Entertainment may not make a public offering of
their securities without the prior approval of the Nevada Commission if the
securities or proceeds therefrom are intended to be used to construct, acquire
or finance gaming facilities in Nevada, or to retire or extend obligations
incurred for such purposes. The exchange offer will qualify as a public
offering under the terms of the Nevada Act and will require the prior approval
of the Nevada Commission. The following transactions must also be approved in
conjunction with approval of the exchange offer: (i) the issuance of guarantees
by Black Hawk Gaming and Gold Dust West in respect of the New Notes; and (ii)
the hypothecation of the assets of Gold Dust West as security for the New
Notes. Jacobs Entertainment must also be approved as a Registered Corporation
in conjunction with the exchange offer. Jacobs Entertainment has filed an
application requesting those approvals. However, there can be no assurance that
the approvals will be granted, or that they will be granted on a timely basis.
Changes in control of Jacobs Entertainment or Black Hawk Gaming through
merger, consolidation, stock or asset acquisitions, management or consulting
agreements, or any act or conduct by a person by which it obtains control of
Jacobs Entertainment or Black Hawk Gaming, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of us
must satisfy the Nevada Board and Nevada Commission on a variety of stringent
standards prior to assuming control of us. The Nevada Commission may also
require controlling stockholders, officers, directors and other persons having
a material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process
relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities, and corporate defense tactics
affecting Nevada corporate gaming licensees, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these business
practices on Nevada's gaming industry and to further Nevada's policy to: (i)
assure the financial stability of corporate gaming licensees and their
affiliates; (ii) preserve the beneficial aspects of conducting business in the
corporate form; and (iii) promote a neutral environment for the orderly
governance of corporate affairs. Approvals are, in certain circumstances,
required from the Nevada Commission before we can make exceptional repurchases
of voting securities above the current market price thereof and before a
corporate acquisition opposed by management can be consummated. The Nevada Act
also requires prior approval of a plan of recapitalization proposed by us in
response to a tender offer made directly to our stockholders for the purposes
of acquiring control of us.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's operations are conducted.
Depending on the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based on either (i) a
percentage of the gross revenues received; (ii) the number of gaming devices
operated; or (iii) the number of table games operated. A casino entertainment
tax is also paid by casino operations where entertainment is furnished in
connection with the selling or serving of food or refreshments or the selling
of merchandise. See "--Taxation" below.
Any person who is licensed, required to be licensed, registered, or required
to be registered, or is under common control with any such person
(collectively, "Licensees"), and who is or proposes to become involved in a
gaming venture outside of Nevada, is required to deposit with the Nevada Board,
and thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board for its participation in that
foreign gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, foreign Licensees are required
to comply with certain reporting requirements imposed by the Nevada Act. The
licensees are also subject to disciplinary action by the Nevada Commission if
79
they knowingly violate any laws of the foreign jurisdiction pertaining to the
foreign gaming operation, fail to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada
gaming operations, engage in activities or enter into associations that are
harmful to the State of Nevada or its ability to collect gaming taxes and fees,
or employ, contract with or associate with a person in the foreign operation
who has been denied a license or finding of suitability in Nevada on the
grounds of personal unsuitability.
Gaming Regulation and Licensing--Louisiana
Video gaming in Louisiana is regulated by the Louisiana Gaming Control
Board, which is part of the Department of Public Safety and Corrections. The
enforcement arm thereof in charge of licensing and criminal investigations is
the Video Gaming Division of the Louisiana State Police, likewise a part of the
Department of Public Safety and Corrections. The Gaming Section of the Attorney
General's Office provides all legal counsel and representation with respect to
all matters involving licensing actions and any other litigation issue relative
to gaming and involving either the Louisiana Gaming Control Board (hereinafter
the "Board") or the Video Gaming Division of the Louisiana State Police
(hereinafter the "Division").
The Video Draw Poker Devices Control Law, which governs our operations in
Louisiana, is contained within the Louisiana Revised Statutes at Title 27:301
et seq. (the "act") with accompanying regulations being promulgated by the
Board pursuant to the statutory authority contained within the act. The video
draw poker regulations are in Title 42 of the Louisiana Administrative Code at
Sections 2401 et seq.
The act gives the Board broad authority and discretion in the licensing of
persons for video draw poker operations within the State of Louisiana.
Generally, a person may not be licensed for video draw poker if he has been
convicted in any jurisdiction of any of the following offenses within 10 years
prior to the date of the application for a video draw poker license or less
than 10 years has elapsed between the date of application for a video draw
poker license and the successful completion or service of any sentence,
deferred adjudication, or period of probation or parole for any such offense:
(i) Any offense punishable by imprisonment for more than one year; (ii) Theft
or any crime involving false statements or declarations; or (iii) gambling, as
defined by the laws or ordinances of any municipality, any parish, any state,
or the United States. The act and its corresponding regulations further provide
that an application for a video draw poker license may be denied if it contains
any material omission of information. An applicant must also not be delinquent
in state or federal income taxes, penalties or interest or delinquent in the
payment of any sales taxes, penalties, or interest to either the state or any
local governing authority of the parish or municipality in which the
establishment is located.
There are several general suitability requirements for licensure.
Specifically, the law requires that an applicant for a video draw poker license
be: (i) a person of good character, honesty, and integrity; (ii) a person whose
prior activities, arrest or criminal record if any, reputation, habits, and
associations do not pose a threat to the public interest of Louisiana or to the
effective regulation of video draw poker, and do not create or enhance the
dangers of unsuitable, unfair, or illegal practices, methods, and operations in
the activities authorized by the act and financial arrangements incidental
thereto; and (iii) a person who is likely to conduct business as authorized by
the act in complete compliance with the act.
The suitability standards must be met by every person who has or controls
directly or indirectly more than a five percent ownership, income, or profit
interest in an entity that has or applies for a license in accordance with the
act, or who receives more than a five percent revenue interest in the form of a
commission, finder's fee, loan repayment, or any other business expense related
to the gaming operation, or who has the ability, in the opinion of the
Division, to exercise a significant influence over the activities of a licensee
authorized or to be authorized by the act. For the purposes of the act, all
gaming related associations, outstanding loans, promissory notes, or other
financial indebtedness of an applicant or licensee must be revealed to the
Division for the purposes of determining significant influence and suitability.
While significant influence is determined on a case by case basis, it has
generally been interpreted to include any person who is an officer or director
of any juridical entity
80
that is an applicant for a video draw poker license as well as the spouse of
any person having more than a five percent (5%) ownership, income, or profit
interest in an applicant as well as the spouse of any officer or director of
any juridical entity applicant.
The suitability criteria law makes an exception for institutional investors.
An institutional investor of any applicant otherwise required to be found
suitable or qualified pursuant to the act is presumed suitable or qualified
upon submitting documentation to the Board and the Division sufficient to
establish qualifications as an institutional investor as described below, and
upon certifying that: (i) it owns, holds, or controls publicly traded
securities issued by a licensee or permittee or a holding, intermediate, or
parent company of a licensee or permittee in the ordinary course of business
for investment purposes only; (ii) it does not exercise influence over the
affairs of the issuer of the securities or over any licensed or permitted
subsidiary of the issuer of the securities; and (iii) it does not intend to
exercise influence over the affairs of the issuer of the securities, or over
any licensed or permitted subsidiary of the issuer of the securities, in the
future, and that it agrees to notify the Board in writing within thirty days if
that intent should change.
The exercise of voting privileges with regard to publicly traded securities
is not deemed to constitute the exercise of influence over the affairs of a
licensee. The act also provides that this exception is not to be construed to
preclude the Board or the Division from investigating the suitability or
qualifications of an institutional investor should the Board or Division become
aware of facts or information which may result in such institutional investor
being found unsuitable or disqualified.
An institutional investor is defined in the act as: (i) a plan or trust
established and maintained by the United States Government, a state, or a
political subdivision of a state for the benefit of their respective employees;
(ii) an investment company that is registered under the Investment Company Act
of 1940; (iii) a collective investment trust registered with the United States
Securities and Exchange Commission; (iv) a mutual fund; (v) a life insurance
company or property and casualty company; (vi) a federal or state bank; or
(vii) an investment advisor registered under the Investment Advisors Act of
1940.
If any person required to be found qualified or suitable fails to provide
all or part of the documents or information required by the Board or the
Division, and if, as a result, any person holding a license issued pursuant to
the act is not or may no longer be qualified or suitable, the Board will issue,
under penalty of revocation of the license, a condition naming the person who
failed to provide all or part of the documents or information required by the
Board or the Division, and declaring that such person may not: (i) receive
dividends or interest on securities of a corporation holding a license, if the
person has or controls directly or indirectly more than a five percent
ownership, income, or profit interest in such corporation; (ii) exercise
directly, or through a trustee or nominee, a right conferred by securities of a
corporation holding a license, if the person has or controls directly or
indirectly more than a five percent ownership, income, or profit interest in
such corporation; (iii) receive remuneration or other economic benefit from any
person holding a license issued pursuant to the provisions of the act; (iv)
exercise significant influence over the activities of a person holding a
license issued pursuant to the provisions of the act; or (v) continue owning or
holding a security of a corporation holding a license if the person has or
controls directly or indirectly more than a five percent ownership, income, or
profit interest in such corporation.
In order to operate video draw poker devices in Louisiana a person must have
both an establishment license and a device owner license. The establishment
license permits the placement by a licensed device owner of video draw poker
devices on the licensed premises. A device owner license permits the licensed
entity to place and operate video draw poker devices at licensed
establishments. In many cases, an establishment licensed for the placement of
video draw poker devices will contract with a licensed device owner for video
draw poker device placement services for a percentage of the video draw poker
revenues. A licensed establishment may also, however, be a licensed device
owner. A licensed device owner entity must be majority owned by a person who
has resided within the State of Louisiana for a period of two years.
Licensed establishments in Louisiana may be a restaurant, bar, motel or
hotel, a Louisiana State Racing Commission licensed pari-mutuel wagering
facility, a Louisiana State Racing Commission licensed off-track
81
wagering facility, or a qualified truck stop facility. Generally, a licensed
establishment pays to a device owner a percentage of the net device revenues
generated by video draw poker devices placed at its business premises. There is
no law that governs the minimum amount that a device owner must be compensated
for its services.
Restaurants and bars may contain up to three video draw poker devices and a
hotel or motel may have three video draw poker devices in each of its lounges
and restaurants, up to a total of twelve for each hotel or motel. A pari-mutuel
wagering facility and a licensed off-track wagering facility may have an
unlimited number of video draw poker devices. A truck stop facility may have up
to fifty video draw poker devices, with the number being determined by the
amount of fuel sales of the truck stop facility.
A restaurant, bar, motel or hotel, pari-mutuel wagering facility, and
off-track wagering facility pays an initial non-refundable licensing and
processing fee of $1,100. A truck stop facility pays an initial licensing and
processing fee of $10,100. A license must be renewed every five years but a
renewal fee is required each year. The non-refundable annual renewal and
processing fee for a restaurant, bar, motel or hotel, pari-mutuel wagering
facility, and off-track wagering facility is $200. The non-refundable annual
renewal and processing fee for a truck stop facility is $1,100.
In addition to the licensing fee, the device owner collects all funds
deposited in each video draw poker device and is required to remit to the State
of Louisiana on a bi-weekly basis a franchise payment in an amount equal to a
percentage of the net device revenue derived from the operation of each video
draw poker device owned by him. The amount of the percentage is based on the
type of licensed establishment authorized by the Board for the placement of
video draw poker devices, as follows: (i) a restaurant, bar, tavern, cocktail
lounge, club, motel, or hotel--26%; (ii) a qualified truck stop
facility--32.5%; and (iii) a pari-mutuel wagering facility or off-track
wagering facility--22.5%.
The number of video draw poker devices permissible in a qualified truck stop
facility is based on average monthly fuel sales, as follows: (i) 100,000
gallons of fuel, of which at least 40,000 gallons are diesel--not more than 50
devices; (ii) 75,000 gallons of fuel, of which at least 30,000 gallons are
diesel--not more than 40 devices; (iii) 50,000 gallons of fuel, of which at
least 10,000 are diesel--not more than 35 devices. Once licensed, if a truck
stop facility sells less than an average of 50,000 gallons per month but more
than 25,000 gallons per month in any calendar quarter, the truck stop facility
will not be permitted to operate any video draw poker devices in the following
calendar quarter. A qualified truck stop facility that sells less than an
average of 25,000 gallons per month will be subject to revocation of its video
draw poker license. Bulk sales or transfers may not be used to calculate
monthly averages. The fuel facility is required to offer fuel for sale in the
regular course of business at retail, at a price at least six percent (6%)
above the delivered cost of the fuel.
In addition, under the act, a qualified truck stop facility is required to
have at least five developed contiguous acres and sell fuel, lubricating oil,
and other vehicular merchandise, such as batteries, tires, or vehicle parts for
eighteen-wheel tractor-trailers, and also meet all of the following criteria:
(i) it must be located adjacent to a major state or interstate highway, as
defined by the Board (within 2,000 feet of a major state highway or U.S.
interstate highway); (ii) it must have an on-site restaurant with all of the
following features: (a) provides seating for at least 50 patrons; (b) provides
full table service for sit-down meals; (c) is open 24 hours a day; and (d)
offers a varied menu; (iii) it must have parking areas with each of the
following: (a) a stable parking area for at least 50 18-wheel tractor-trailer
motor vehicles, either paved or concrete (or otherwise certified and approved),
to support 18-wheel tractor-trailer motor vehicles and their loads, constructed
according to industry specifications, subject to approval by the Board and the
Division; (b) parking of sufficient size is allowed for safe ingress and
egress; (c) parking areas for other vehicles around business entrance ways and
exits shall not constitute parking areas for 18-wheel tractor-trailer motor
vehicles; (iv) it must have diesel and gasoline fuel; (v) it must have on-site
repair service facilities for 18-wheel tractor-trailer motor vehicles; (vi) it
must have at least four of the following amenities: (a) a separate truckers'
television lounge; (b) a full-service laundry facility located in a convenient
area for truckers' use; (c) private showers for men and women, not located in
an area open to general public restroom facilities; (d) a travel store with
items commonly referred to as truckers' supplies (items commonly used only by
commercial motor vehicles); (e) truck scales; (f) separate truckers'
telephones; and (g)
82
permanent storage facilities for fuel; (vii) it must have an area separated for
adult patronage only; and (viii) it must have, if available, a Class A--General
retail permit or a Class A--Restaurant permit, as defined in Part II of Chapter
1 or Part II of Chapter 2 of Title 26 of the Louisiana Revised Statutes of
1950, to serve or sell alcoholic beverages for on-premises consumption.
All suitability information and applications required to be submitted with
respect to the six Louisiana truck plazas currently owned by our affiliates
have been submitted to the Board and the Division. As such, those facilities
may operate indefinitely until such time as the suitability of each owner is
approved. If an adverse licensing recommendation is made, our affiliates may
continue to operate the video gaming devices during the pendency of the
available appeals from that determination. Jeffrey P. Jacobs and Richard E.
Jacobs, the principals of the entities that own those two facilities, have been
approved under the Louisiana suitability criteria described above in connection
with their purchase of a Louisiana restaurant featuring video gaming devices.
However, because the Board and the Division conduct a new suitability
investigation in connection with each acquisition of a facility at which video
gaming devices are to be operated, regardless of prior approvals, there can be
no guarantee that a suitability approval will ultimately result with respect to
the six truck plazas or any of the other truck plazas that we propose to
acquire.
Gaming Regulation and Licensing--Virginia
Colonial Holdings' success is dependent upon continued government and public
acceptance of horse racing as a form of legalized gaming. Although Colonial
Holdings believes that pari-mutuel wagering on horse racing will continue to be
legal in Virginia, gaming has come under increasing scrutiny nationally and
locally. The National Gaming Commission conducted a comprehensive legal and
factual study of gambling in the United States and existing federal, state, and
local policies and practices with respect to the legalization or prohibition of
gambling activities. The commission published its findings and recommendations
in 1999. It is not possible to predict the future impact of any of these
recommendations on Colonial Holdings and its operations; however, adoption of
these recommendations could have a material adverse effect on Colonial
Holdings' business.
Opposition to the Virginia Racing Act has been unsuccessfully introduced in
the Virginia legislature in the past, but additional legislative opposition may
arise in the future. Any repeal or material amendment of the Virginia Racing
Act could have a material adverse effect on Colonial Holdings' business of
pari-mutuel wagering.
Under the Virginia Racing Act, the Virginia Racing Commission is vested with
control over all aspects of horse racing with pari-mutuel wagering and the
power to prescribe regulations and conditions under which such racing and
wagering are conducted. The Virginia Racing Commission is responsible for,
among other things, (i) conducting a review annually of the Colonial Holdings'
track and off-track wagering facility licenses, (ii) annually approving
Colonial Holdings' proposed schedule of racing days, (iii) approving new or
modified types of pari-mutuel wagering pools requested by Colonial Holdings,
(iv) issuing permits to all officers, directors, racing officials, and other
employees of Colonial Holdings, and (v) approving simulcast schedules at the
track and at the off-track wagering facilities. The Virginia Racing Commission
also has the authority to promulgate regulations pertaining to Colonial
Holdings' track facilities, equipment, safety and security measures, and
controls the issuing of licenses and permits for participants in pari-mutuel
racing, including Colonial Holdings employees at the track and at the off-track
wagering facilities. In addition, the Virginia Racing Commission must approve
any acquisition or continuing ownership of a 5% or greater interest in Colonial
Holdings. Action by the Virginia Racing Commission that is inconsistent with
the Colonial Holdings' business plan could have a material adverse effect on
Colonial Holdings.
During the 2000 session of the Virginia General Assembly, an amendment to
the Racing Act was passed that requires Colonial Holdings to enter into
contracts with each representative horsemen's group and provides for it to
contribute to the purse account of the respective breed a minimum of 5% of the
first $75 million of simulcast amounts wagered ("handle"), 6% of the next $75
million and 7% of all handle over $150 million. The existing contracts with the
Virginia Horsemen's Benevolence and Protective Association (the "VaHBPA") and
the Virginia Harness Horse Association (the "VHHA") contain these statutory
provisions. The amendment also
83
provides for the breakage generated by pari-mutuel wagering to be allocated 70%
to capital expenditures and 30% to backstretch benevolent activities. Prior to
this amendment, Colonial Holdings received all breakage. Finally, the amendment
empowers the Commission to summarily suspend Colonial Holdings' licenses if it
believes the Racing Act or the regulations have been violated. In addition, the
Interstate Horse Racing Act also requires that we secure the consent of the
VaHBPA and the VHHA to the export simulcasting of races. These consents are
usually contained in the agreement between each group and us.
The licenses issued by the Virginia Racing Commission to Colonial Holdings
are for a period of not less than 20 years, but are subject to annual review by
the Virginia Racing Commission. It is possible that such licenses will not be
renewed or that such licenses could be suspended or revoked by the Virginia
Racing Commission for violations of the Virginia Racing Act or Virginia Racing
Commission rules.
Our current agreements with the VaHBPA and the VHHA expire on December 31,
2002. Negotiations of new agreements are expected to commence in the autumn of
2002.
In the event we cannot reach agreement prior to the expiration of these
agreements, the Virginia Racing Commission has the right to suspend our
licenses to operate our racetrack and the off-track wagering facilities until
agreements are in place. We believe that we will have new agreements in place
before the expiration of the existing agreements. Although it is difficult to
the predict the likelihood of such an event, closure of the off-track wagering
facilities would be detrimental to the horsemen's groups as well as us since
each horsemen's group's primary source of purse funds is its percentage of
wagering at the off-track facilities.
Colonial Holdings, the track and the off-track wagering facilities are also
subject to a variety of other laws and regulations, including zoning,
construction, and land-use laws and the regulations of the Virginia Alcoholic
Beverage Control Board. Such laws and regulations may affect the selection of
racing center sites because of parking, traffic flow, and other similar
considerations. Any interruption or termination of Colonial Holdings' ability,
or that of its concessionaires, to serve alcoholic beverages could have a
material adverse effect on Colonial Holdings.
Gaming Regulation--Federal
Colonial Holdings' interstate simulcast operations are subject to the
Federal Interstate Horse Racing Act, which regulates interstate off-track
wagering. In order to conduct wagering on import simulcasting at the track or
any racing center, the Interstate Horse Racing Act requires Colonial Holdings
to obtain the consent of the Virginia Racing Commission, the consent of the
racing commission of the state where the horse racing meet originates, and the
consent of the representative horsemen groups in the origination state. To
conduct export simulcasting, Colonial Holdings must obtain the consent of the
Virginia Horseman's Benevolent and Protective Association or the Virginia
Harness Horse Association, and the Virginia Racing Commission. Also, in the
case of off-track wagering to be conducted at any of Colonial Holdings'
off-track wagering facilities, the Interstate Horse Racing Act requires
Colonial Holdings to obtain the approval of all currently operating horse
racetracks within 60 miles of the off-track wagering facilities or if there are
no currently operating tracks within 60 miles, the approval of the closest
operating horse racetrack, if any, in an adjoining state. Significant delay in
obtaining or failure to obtain these consents or approvals could have a
material adverse effect on Colonial Holdings.
Liquor Regulation
The sale of alcoholic beverages in Colorado is subject to licensing, control
and regulation by certain Colorado state and local agencies (the "Liquor
Agencies"). Subject to certain exceptions, all persons who directly or
indirectly own 5% or more of a company or its casino must file applications
with and are subject to investigation by the Liquor Agencies. The Liquor
Agencies also may investigate persons who, directly or indirectly, lend money
to liquor licensees. All liquor licenses are renewable, are revocable and are
not transferable. The Liquor Agencies have broad powers to limit, condition,
suspend or revoke any liquor license. Any disciplinary action by the Liquor
Agencies or any failure to renew or other revocation of any of our liquor
licenses would have a material adverse effect on our operations and Black Hawk
Gaming's Colorado casinos.
84
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. Black Hawk Gaming's
Colorado casinos have gaming tavern liquor licenses. Accordingly, our expansion
and diversification opportunities in Colorado are limited by these licensing
restrictions.
The sale of alcoholic beverages in Reno, Nevada, is subject to licensing,
control and regulation by the City of Reno. All licenses are revocable and are
not transferable. The agencies involved have full power to limit, condition,
suspend or revoke any such license, and any such disciplinary action could (and
revocation would) have a material adverse effect on the operations of the Gold
Dust West Casino.
Alcohol regulation within the State of Louisiana is performed primarily by
the Office of Alcohol and Tobacco Control (the "Board"). The Commissioner of
the Board is given broad discretion in the granting and denial of state alcohol
permits. While permits are issued on a state level, the local municipality is
also permitted to provide for concurrent local licensing. The state alcohol
regulatory scheme is contained at Title 26:1 of the Louisiana Revised Statutes
(hereinafter referred to as the "act"). Generally, no permit may be issued if
the applicable premises is located three hundred feet or less, as fixed by the
local municipal ordinance, of a public playground or of a building used
exclusively as a church or synagogue, public library, or school. Local
municipalities are also permitted to regulate the opening and closing hours of
permitted businesses as well as to prohibit the sale of alcoholic beverages
altogether by referendum vote of the people within the municipality. A local
municipality may also regulate via zoning designations the permissibility or
prohibition of the permitting of businesses that sell alcoholic beverages
within that municipality. All Louisiana video gaming truck plaza facilities are
currently licensed by the applicable state and local alcohol licensing
authorities.
The sale of alcoholic beverages in Virginia is subject to licensing, control
and regulation by the Virginia Department of Alcoholic Beverage Control (the
"Virginia ABC Board"), a Virginia state agency. The Virginia ABC Board issues
licenses based upon the type of beverage, type of establishment or place of
consumption. Virginia ABC laws include the responsibility of the licensee to
maintain complete and accurate records, certain restrictions on advertising and
certain food sale requirements.
Before receiving a Virginia ABC license, an applicant must satisfy several
requirements. The Virginia ABC Board conducts an extensive background
investigation (to include a criminal history review as well as contacts with
the local governing body of each license application) and contacts local
officials, residents and business people in the vicinity of the establishment
to ascertain if any objections exist. The background investigation is completed
for all principal owners of the proposed licensee. Administrative hearings are
available to afford all interested parties the opportunity to present any
concerns with respect to an application.
A licensee is required to maintain financial responsibility for its
business, including timely payment of all taxes, creditor obligations and other
bills, and must keep accurate records of all such transactions. Mixed beverage
licensees must record sales and purchases of all mixed beverages, food and
non-alcoholic beverages. Mixed beverage licensees must submit annual review
reports to the Virginia ABC Board showing all purchases and sales of alcoholic
beverages during the year as well as an accurate inventory. Finally, the
Virginia ABC Board imposes certain restrictions and limitations on advertising,
the use of advertising materials and promotions.
If Virginia ABC agents discover license violations, a disciplinary hearing
will typically be conducted with a Virginia ABC hearing officer. Any aggrieved
localities and members of the community may attend the hearing and present any
additional or relevant objections or complaints concerning the license. The
Virginia ABC Board has broad power to limit, condition, suspend or revoke any
license granted on discovery of any violation. Any disciplinary action by the
Virginia ABC Board or any failure to renew or any revocation of a liquor
license would likely have a material adverse effect on the operation of
Colonial Holdings' track and off-track wagering facilities.
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Taxation
Gaming operators in Colorado are subject to state and local taxes and fees
in addition to ordinary federal and state income taxes. The City of Black Hawk
has imposed an annual license fee, currently $750, for each gaming device
installed in a casino. In addition, Colorado has a gross gaming revenue tax
(gross gaming revenue (also called "adjusted gross proceeds") being generally
defined as the total amount wagered less the total amount paid out in prizes).
Currently, gaming tax rates are as follows:
Tax as Percentage of Annual Amount of Adjusted
Adjusted Gross Proceeds Gross Proceeds
----------------------- -------------------------
.25%.......... $ 0- 2,000,000
2%........... 2,000,001- 4,000,000
4%........... 4,000,001- 5,000,000
11%........... 5,000,001-10,000,000
16%........... 10,000,001-15,000,000
20%........... 15,000,001 and above
Both of Black Hawk Gaming's Colorado casinos are subject to the maximum
rate. Neither the Colorado constitution nor the gaming statutes require that
gaming tax rates be graduated, as they currently are. Under the Colorado
constitution, the Colorado Gaming Commission could increase the top rate to as
much as 40%. A more recent tax limitation amendment to the Colorado
constitution, however, states that neither the state nor any local government
may increase a tax rate without an affirmative vote of the people; therefore,
there is a question as to whether the Colorado Gaming Commission could
constitutionally increase the state tax levied on gross gaming revenues without
such a vote. The Colorado legislature rejected this argument after the top tax
rate was increased to 20% in 1996, and no court was asked to rule on the
applicability of the tax limitation amendment to gaming tax rates.
In Nevada, license fees and taxes, computed in various ways depending on the
type of gaming or activity involved, are payable to the State of Nevada and to
Washoe County. Depending upon the particular fee or tax involved, these fees
and taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling or serving of food or refreshments or
the selling of merchandise. Presently the state tax in Nevada on adjusted gross
revenue from gaming is 6.25%.
Video gaming operators in truck plazas in Louisiana are subject to state and
local taxes and fees in addition to ordinary federal and state income taxes.
The state of Louisiana has imposed a franchise tax of 32.5% of the net device
revenue from each video gaming device located at a truck plaza. The net device
revenue is the amount remaining after all winnings have been paid. This
franchise tax is collected twice per month by the Louisiana state police based
on the data that is provided directly to them from the devices. There is also
an annual state establishment license fee of $1,000. In addition, the state
imposes a device operation fee of $1,000 per year per device, which is paid
quarterly, and each parish imposes an annual occupational license tax of up to
$50 per device.
Colonial Holdings is subject to a number of federal, state and local taxes
and fees. These include fees to support the Virginia Breeders' Fund, taxes
payable to the Commonwealth of Virginia, taxes and admission charges payable to
New Kent County, where the track is located, and taxes payable to localities in
which off-track wagering facilities are located based upon the amount of monies
wagered both at the track and at the off-track wagering facilities. Colonial
Holdings believes that the public acceptance of pari-mutuel wagering on horse
races, as well as other forms of gaming, is based, in part, on the governmental
revenues it generates from taxes and fees on such activities. It is possible
that gaming activities, including horse racing, may become a target for
additional federal, state, or local taxes and fees. A significant increase in
such taxes or fees or the creation of significant additional taxes or fees
could have a material adverse effect on us.
86
MANAGEMENT
Directors, Executive Officers and Other Key Employees
The following table provides information regarding our directors and
executive officers and key employees of Black Hawk Gaming, Colonial Holdings
and the Louisiana properties as of the date of this prospectus:
Age Position
--- --------
Jeffrey P. Jacobs.. 47 Chief Executive Officer, President, Secretary,
Treasurer and Chairman of the Board
Richard E. Jacobs.. 76 Director
Stephen R. Roark... 54 Chief Financial Officer and President of Casino
Operations
Ian M. Stewart..... 47 President of Pari-Mutuel Wagering and Video
Poker Operations
Reid M. Smith...... 44 Vice President of Video Poker Operations
J. Richard Gottardi 43 Vice President of Video Poker Operations
Jeffrey P. Jacobs is our Chairman, Chief Executive Officer, President,
Secretary and Treasurer. From 1996 to present, he served as Chairman and Chief
Executive Officer of Diversified Opportunities Group Ltd., a company co-founded
by Mr. Jacobs and his father, Richard E. Jacobs, and based in Cleveland, Ohio,
that has investments in gaming companies and ventures. Diversified was acquired
by Jacobs Entertainment on February 22, 2002. From 1975 to present, Mr. Jacobs
has also served as Chairman and Chief Executive Officer of Jacobs Investments,
Inc., a company engaged in the development, construction and operation of
residential and commercial real estate projects in Ohio. He is also involved in
a variety of private equity transactions and investments. Mr. Jacobs served in
the Ohio House of Representatives from 1982 until 1986. He is also Chairman and
Chief Executive Officer of Colonial Holdings, and Chairman and Chief Executive
Officer of Black Hawk Gaming.
Richard E. Jacobs is our Director. Mr. Jacobs was Chairman of the Board,
President and Chief Executive Officer of Cleveland Indians Baseball Company,
Inc. from its inception in 1998 to February 2000. From 1986 to 1998, Mr. Jacobs
was Chairman of the Board, President and Chief Executive Officer of Cleveland
Baseball Corporation, which previously served as the general partner of the
partnership that now owns the Cleveland Indians Baseball team. Mr. Jacobs is
also Chairman of the Board and Chief Executive Officer of The Richard E. Jacobs
Group Inc., a real estate management and development company.
Stephen R. Roark is currently our Chief Financial Officer and President of
Casino Operations. He has been employed as Chief Financial Officer of Black
Hawk Gaming since August 1993. Mr. Roark became a director of Black Hawk Gaming
in 1994. He was elected President of Black Hawk Gaming in September 1995. Prior
to that time he was an independent consultant in the Denver area rendering
financial and accounting assistance to companies in the public marketplace. Mr.
Roark has 17 years of public accounting experience having served as a partner
with a local accounting firm based in Denver and as a partner with a national
accounting firm. Mr. Roark was with Hanifen, Imhoff and Prudential Securities,
Inc. for three years and is a member of the American Institute of Certified
Public Accountants and the Colorado Society of Certified Public Accountants.
Mr. Roark obtained his B.S.B.A. in Accounting from the University of Denver in
1973.
Ian M. Stewart is currently our President of Pari-Mutuel Wagering and Video
Poker Operations. He has served as President of Colonial Holdings since
November 1998 and its Chief Financial Officer since June 1997. From January
1998 through November 1998, Mr. Stewart served as Chief Operating Officer of
Colonial Holdings. Mr. Stewart was Chief Financial Officer for Barber Martin &
Associates from March 1997 to June 1997. From October 1994 to March 1997, Mr.
Stewart served as a consultant and a temporary Chief Financial Officer for
several Virginia-based businesses. From December 1989 to September 1994, Mr.
Stewart was Vice President and CFO of Hat Brands, Inc. Mr. Stewart is a
certified public accountant.
87
Reid M. Smith is currently our Vice President of Video Poker Operations. He
has served as Vice President of Operations for Jalou L.L.C. since February
2001. From July 1999 through January 2001, Mr. Smith served as Director of Food
and Beverage and Director of Guest Services for Colonial Holdings. From June
1998 through June 1999, Mr. Smith served as Director of Racing Center
Operations for Colonial Holdings. From July 1997 through May 1998, Mr. Smith
served as Director of Food and Beverage for Virginia Concessions, Inc. Mr.
Smith has over 20 years of experience in the Food and Beverage industry,
serving as Multi-unit Regional Manager and General Manager of several high
volume restaurants for T.G.I. Fridays.
J. Richard Gottardi is currently our Vice President of Video Poker
Operations. He has served as Vice President of Jalou L.L.C. since January 2001.
Mr. Gottardi has sixteen years of gaming experience and has held various
positions both in the operational and financial areas. From 1992 until 1998, he
was Vice President and General Manager of Video Services, Inc., a video poker
operation in Louisiana that is a subsidiary of Alliance Gaming Corp. He is a
graduate of Pennsylvania State University.
Summary Compensation Table
Prior to 2002, Jacobs Entertainment paid no compensation to any of its
executive officers or directors.
Because we are a subchapter "S" corporation and our stockholders, rather
than we, pay taxes on our income, we also anticipate making distributions to
our shareholders in amounts sufficient to enable them to make the required tax
payments. We expect to formulate additional incentive compensation plans for
upper management and selected middle management personnel based on Jacobs
Entertainment's achievement of multi-year financial and growth objectives. The
terms of the incentive compensation plans will be established by Jacobs
Entertainment's Board of Directors.
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The following table sets forth information regarding the compensation paid
by Jacobs Entertainment, Black Hawk Gaming and Colonial Holdings for services
rendered in all capacities since 1998:
Long-Term Compensation
---------------------------------
Annual
Compensation Awards Payouts
-------------------- ------------ --------------------
Securities
Other Annual Restricted Underlying LTIP All Other
Compensation Stock Options/SARs Payouts Compensation
Name of Officer/Director Year Salary ($) Bonus ($) ($) Award(s) ($) (#) ($) ($)
- ------------------------ ---- ---------- --------- ------------ ------------ ------------ ------- ------------
Jeffrey P. Jacobs(1).. 2001 420,000 75,000 -- -- -- -- --
2000 420,000 75,000 -- -- 45,000 -- --
1999 420,000 137,000 -- -- -- -- --
1998 320,000 50,000 -- -- -- -- --
Stephen R. Roark(2)... 2001 250,000 62,500 -- -- -- -- --
2000 250,000 62,500 -- -- -- -- --
1999 220,000 60,000 -- -- 45,000 -- --
1998 138,000 35,000 -- -- -- -- --
Ian M. Stewart(3)..... 2001 192,500 30,000 -- -- -- -- 187,500
2000 150,000 -- -- -- -- -- --
1999 135,584 -- -- -- -- -- --
1998 120,000 -- -- -- -- -- --
- --------
(1) Jeffrey P. Jacobs was Chief Executive Officer of Black Hawk Gaming and
Colonial Holdings for the years 1998, 1999 and 2000. The annual
compensation for such periods reflects the aggregate compensation he
received for his services at both Black Hawk Gaming and Colonial Holdings.
His compensation for 2001 was for services rendered to Jacobs
Entertainment. The securities referred to in 1999 are those of Black Hawk
Gaming only.
(2) Stephen R. Roark was President of Black Hawk Gaming for the periods
indicated above. The securities referred to in 1999 are those of Black Hawk
Gaming only.
(3) Ian M. Stewart was President of Colonial Holdings for the periods indicated
above. Mr. Stewart received $187,500 from Diversified Opportunities Group
Ltd. in 2001 pursuant to a consulting agreement. See "Related Party
Transactions."
We have entered into a three year employment agreement with Jeffrey P.
Jacobs effective as of February 22, 2002 that contains customary terms and
conditions and provides for a base salary of $500,000 per year. Mr. Jacobs is
also entitled to receive a bonus of up to 33% of his base salary, with the
percentage to be established by Jacobs Entertainment's Board of Directors. Mr.
Jacobs is entitled to the present value of his base salary for the unexpired
term of the agreement if he is terminated without cause, plus a pro rata
portion of the bonus to which he would be entitled for the portion of the year
in which the termination occurred.
We have entered into a three year employment agreement with Richard E.
Jacobs effective as of February 22, 2002 that contains customary terms and
conditions and provides for a base salary of $250,000 per year. Mr. Jacobs is
also entitled to receive a bonus of up to 33% of his base salary, with the
percentage to be established by Jacobs Entertainment's Board of Directors. Mr.
Jacobs is entitled to the present value of his base salary for the unexpired
term of the agreement if he is terminated without cause, plus a pro rata
portion of the bonus to which he would be entitled for the portion of the year
in which the termination occurred.
We have entered into a two year employment agreement with Stephen R. Roark
effective as of February 22, 2002 that contains customary terms and conditions
and provides for a base salary of $250,000 per year. Mr. Roark is also entitled
to receive a bonus of up to 33% of his base salary, with the percentage to be
established by Jacobs Entertainment's Board of Directors. Mr. Roark is entitled
to the present value of his base salary for the unexpired term of the agreement
if he is terminated without cause, plus a pro rata portion of the bonus to
which he would be entitled for the portion of the year in which the termination
occurred.
89
Colonial Holdings has entered into a two year employment agreement with Ian
M. Stewart effective as of February 22, 2002 that contains customary terms and
conditions and provides for a base salary of $200,000 for the first year of the
agreement and $215,000 for the second year of the agreement. Mr. Stewart is
also entitled to receive a bonus of up to 33% of his base salary, with the
percentage to be established by Colonial Holdings' Board of Directors. Mr.
Stewart is entitled to the present value of his base salary for the unexpired
term of the agreement if he is terminated without cause, plus a pro rata
portion of the bonus to which he would be entitled for the portion of the year
in which the termination occurred.
90
RELATED PARTY TRANSACTIONS
We were formed by Jeffrey P. Jacobs and the Trust to acquire Black Hawk
Gaming, the Louisiana truck plazas and Colonial Holdings. We accomplished these
acquisitions by merging an acquisition subsidiary into Black Hawk Gaming,
issuing Company stock to Jeffrey P. Jacobs and the Trust in exchange for their
interests in Diversified and the Louisiana truck plazas, and merging another
acquisition subsidiary into Colonial Holdings.
Black Hawk Gaming, the Louisiana truck plaza entities and Colonial Holdings
have had various business relationships with other entities owned and
controlled by Jeffrey P. Jacobs, Richard E. Jacobs and their affiliates. Those
relationships and transactions were terminated on the closing of the
acquisitions referred to above, except as described below.
In order to assist Black Hawk Gaming in its efforts to research, develop,
perform due diligence on and possibly acquire new gaming opportunities, it
entered into an agreement with Premier One Development Company effective
October 1, 1997. On May 9, 2000, Premier merged into Jacobs Investments
Management Co. Inc., 82% of which is owned by Jeffrey P. Jacobs and the
remaining 18% of which is owned in equal portions by two former directors of
Colonial Holdings. Black Hawk Gaming paid or accrued $225,000 for Jacobs
Investments Management Company's services during the year ended December 31,
2000, and paid or accrued $168,750 for those services through December 31,
2001. The agreement expires on December 31, 2002, but is expected to be
extended with Jacobs Entertainment at the rate of $450,000 annually until
December 31, 2009.
Virginia Concessions, L.L.C., which is beneficially owned by Jeffrey P.
Jacobs, has an agreement with Colonial Holdings to provide food and beverage
concessions at Colonial Holdings' off-track wagering facilities. Colonial
Holdings manages and administers Virginia Concessions' business in exchange for
all of the earnings (or losses) from Virginia Concessions' food and beverage
sales.
Pursuant to an agreement with Diversified Opportunities Group Ltd., Ian M.
Stewart receives compensation for consulting services to Diversified in
connection with its acquisition of the Louisiana truck plaza video gaming
facilities. Diversified paid to Mr. Stewart $187,500 in 2001 and an additional
$150,000 in 2002 for his services in connection with the acquisition of the
Louisiana truck plaza video gaming facilities acquired by Jacobs Entertainment
in February 2002. The agreement also contains a two year non-compete clause
with respect to any aspect of the operations of those truck plaza facilities.
See "Description of Other Indebtedness" for a description of certain
Louisiana properties and Colonial Holdings indebtedness payable to entities
controlled by Jeffrey P. Jacobs and Richard E. Jacobs that will remain
outstanding after the consummation of the exchange offer.
91
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2002 and after giving effect to
our recent acquisitions, for (i) each stockholder who is known by us to own
beneficially more than 5% of our common stock, (ii) each director and executive
officer, and (iii) all of our directors and executive officers as a group.
Except as otherwise indicated, we believe, based on information furnished by
the persons named in this table, that such persons have voting and investment
power with respect to all shares of common stock beneficially owned by them,
subject to community property laws, where applicable.
As of March 31, 2002, there were 1,500 shares of our common stock
outstanding.
Number
Shareholder of Shares Percentage
----------- --------- ----------
Jeffrey P. Jacobs.............................. 750 50%
1001 North U.S. Highway 2
Suite 710
Jupiter, FL 33477
Richard E. Jacobs.............................. 750 50
25425 Center Ridge Road
Cleveland, Ohio 41445
----- ---
All executive officers and directors as a group 1,500 100%
===== ===
All 750 shares beneficially owned by Richard E. Jacobs are owned by The
Richard E. Jacobs Revocable Trust, of which Richard E. Jacobs is the sole
trustee.
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DESCRIPTION OF OTHER INDEBTEDNESS
In addition to the Old Notes, we have other indebtedness that is currently
outstanding.
Revolving Credit Facility
General. On July 12, 2002, we entered into a credit agreement with Foothill
Capital Corporation (the "Credit Agreement"). The Credit Agreement provides for
a $10 million revolving credit facility with Jacobs Entertainment, Black Hawk
Gaming, Black Hawk/Jacobs Entertainment, LLC, Gilpin Hotel Venture and Gilpin
Ventures, Inc. as borrowers, with guaranties by Diversified and Gold Dust West
Casino, Inc.
Our borrowings under the revolving credit facility will be subject to
satisfaction of specific requirements and the facility will terminate on July
12, 2007.
Interest Rates. Generally, interest on outstanding borrowings under the
credit facility will be payable quarterly. Interest on borrowings will accrue
at an annual rate equal to the prime rate plus 1.75%.
Fees. We will pay, on a monthly basis, a per annum fee on the unused
commitment amount of 0.75%. In addition, we will pay a monthly servicing fee of
$4,000.
Repayments. All outstanding principal must be repaid on or before the
termination of the revolving credit facility at maturity. Prior to maturity,
funds may be borrowed, repaid and reborrowed.
Guarantee; Security. The credit facility will be jointly and severally
guaranteed by Diversified and Gold Dust West Casino, Inc. The facility will
also be secured by all of the real property owned or leased by the Company or a
subsidiary on which The Lodge Casino and the Gilpin Hotel Casino in Black Hawk,
Colorado are located, together with all equipment, machinery, furniture,
furnishings and fixtures thereon.
Covenants. The credit facility requires us to maintain compliance with the
following financial tests with respect to the Lodge Casino and the Gilpin Hotel
on a consolidated basis:
(i) Minimum EBITDA of $10 million per annum;
(ii) Maximum Capital Expenditures of $7.3 million for each of the fiscal
years 2002, 2003, and 2004;
In addition, the credit facility will limit acquisitions under certain
circumstances and will contain certain additional customary reporting and
affirmative and negative covenants.
Events of Default. The credit facility will contain customary events of
default; including:
(i) failure to pay principal, interest or fees;
(ii) breach of representations or warranties;
(iii) violation of covenants;
(iv) material adverse change in the business, affairs or condition (financial
or otherwise) of Jacobs Entertainment and its subsidiaries taken as a
whole, or their properties and assets taken as an entirety;
(v) default with respect to certain other indebtedness, including the Notes;
and
(vi) bankruptcy and insolvency.
Senior Intercreditor Agreement. Concurrently with the execution of the
Credit Agreement by Jacobs Entertainment, certain of its subsidiaries and
Foothill Capital Corporation, the Trustee, on behalf of the holders of the
Notes, entered into an intercreditor agreement with Foothill Capital
Corporation (the "Senior Intercreditor
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Agreement") substantially in the form of the intercreditor agreement attached
as an exhibit to the Indenture. Pursuant to the Senior Intercreditor Agreement,
the Trustee acknowledged that the lien on the Credit Agreement collateral
securing the Company's obligations under the Credit Agreement is senior to the
lien on such collateral securing the Company's and the applicable Guarantor's
obligations under the Notes and the Guarantees of the Guarantors. Under the
Senior Intercreditor Agreement, if the Notes become due and payable prior to
the stated maturity thereof for any reason or are not paid in full at the
stated maturity thereof at a time during which Indebtedness is outstanding
under the Credit Agreement, the Trustee will not have the right to foreclose
upon the Credit Agreement Collateral unless and until the lenders under the
Credit Agreement fail to take steps to exercise remedies with respect to or in
connection with the Credit Agreement Collateral within 180 days following
notice to such lenders of the occurrence of an Event of Default under the
Indenture.
Jacobs Entertainment Indebtedness. Jacobs Entertainment is the obligor on
notes to Jeffrey Jacobs and the Trust. The note held by Jeffrey Jacobs is in
the amount of $1.0 million, and the note held by the Trust is in the amount of
$8.0 million. Both notes are dated February 22, 2002, mature on January 31,
2010 and bear interest at a rate of 12% per annum. We must make semi-annual
interest-only payments until maturity, at which time the entire principal
balance plus any unpaid interest becomes due. These notes are unsecured and
expressly subordinated to the Old Notes and New Notes pursuant to a
subordination agreement. See "Description of the Notes--Subordination and
Intercreditor Agreements."
Black Hawk Gaming Indebtedness. Black Hawk Gaming is the beneficiary of
$6.0 million of site improvements financed by Black Hawk Business Improvement
District Special Assessment Bonds. The bonds were issued in March 1999, in one
tranche of $2.0 million and another tranche of $4.0 million. At March 31, 2002,
$1.5 million is outstanding on the $2.0 million tranche, bearing interest at a
rate of 6.25% per annum, and has a final maturity of December 1, 2004. All of
the $4.0 million tranche is outstanding as of March 31, 2002, bearing interest
at the rate of 6.5% per annum and has a final maturity of December 1, 2011.
Although Black Hawk Gaming is not the issuer of the debt, it is responsible for
payment of all principal and interest thereon through special assessment taxes.
The required payments are secured by a first priority lien on certain real
property comprising the Black Hawk Improvement District, relating to The Lodge
Casino, which ranks prior to the security for payment of the Old Notes and New
Notes.
Louisiana Properties Indebtedness. Winner's Choice Casino, Inc., an
indirect Jacobs Entertainment subsidiary that owns Winner's Choice Casino, was
the original obligor on a note in the principal amount of $1.2 million, payable
to Claude M. Penn, Jr. and George D. Lockhart, the former owners of the
facility. Jalou-Cash's L.L.C., an indirect Jacobs Entertainment subsidiary that
owns a revenue interest in Cash's Truck Plaza and Casino, was the original
obligor on a note in the principal amount of $1.7 million, payable to Seabuckle
Gaming, Inc., the former owner of the facility's gaming devices. Houma Truck
Plaza & Casino, L.L.C., an indirect Jacobs Entertainment subsidiary that owns
the Houma Truck Plaza and Casino, was the original obligor on a note in the
principal amount of $1.8 million, payable to Claude M. Penn Jr., the former
owner of the facility. All of these notes are dated February 7, 2001 and were
amended as of September 26, 2001.
Each of these notes bears interest at the rate of 8% per annum until October
1, 2001 and 8.5% per annum thereafter, payable semi-annually, with the
principal payable in one lump sum on March 31, 2009. Jacobs Entertainment has
assumed all of the obligations under these notes. Each of these notes is
secured by a second mortgage and pledge of the leasehold interest or security
interest in the revenue interest on the facility to which it relates and a lien
on the land, building and equipment. See "Description of the
Notes--Subordination and Intercreditor Agreements."
Lucky Magnolia Truck Stop and Casino, L.L.C., the Jalou L.L.C. subsidiary
that owns Lucky Magnolia Truck Stop and Casino, is the obligor on a note in the
principal amount of $0.7 million, payable to Claude M. Penn, Jr., the former
owner of the facility. Bayou Vista Truck Plaza and Casino, L.L.C., the Jalou
L.L.C. subsidiary that owns Bayou Vista Truck Plaza and Casino, is the obligor
on a note in the principal amount of $1.7 million, payable to Claude M. Penn,
Jr., the former owner of the facility. JACE, Inc., the Jalou II subsidiary
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that owns Colonel's Truck Plaza and Casino, is the obligor on a note in the
principal amount of $2.2 million, payable to Claude M. Penn, Jr., the former
owner of the facility. All of these notes are dated January 11, 2002.
Each of these notes bears interest at the rate of 8.5% per annum, payable
semi-annually, with the principal payable in one lump sum on April 30, 2009.
Jacobs Entertainment has assumed all of the obligations under these notes. Each
of these notes is secured by a second mortgage and pledge of the leasehold
interest or security interest in the revenue interest on the facility to which
it relates and a lien on the land, building and equipment. See "Description of
the Notes--Subordination and Intercreditor Agreements."
Colonial Holdings Indebtedness. Colonial Holdings has aggregate
indebtedness of approximately $1.6 million to the Maryland Jockey Club, which
is evidenced by one note dated January 15, 1999, with an outstanding principal
balance of approximately $1.2 million at March 31, 2002, bearing interest at
the rate of 7.75% per annum. The January 15, 1999 note matures in December
2005, with interest only payable quarterly until January 1, 2001, and principal
plus interest, in equal quarterly installments, payable over the remaining five
year term.
Colonial Holdings also financed the purchase of racetrack lighting equipment
by issuing a note payable to Citizens and Farmers Bank, which was refinanced on
August 21, 2001. The new note, which matures on August 21, 2002, had a
principal amount of $.12 million at December 31, 2001, bears interest at a rate
of 8.5% per annum and requires a monthly principal payment of $15,000. Citizens
and Farmers Bank has a purchase money security interest in the equipment
purchased with the proceeds of the note, which ranks prior to the security for
payment of the notes offered hereby.
Colonial Holdings and Colonial Downs, L.P. originally borrowed $25.7 million
from CD Entertainment Ltd. pursuant to a certain Amended and Restated Loan
Agreement dated August 30, 2000. The amount of the loans was reduced to $15.7
million through the forgiveness of $10.0 million in indebtedness in connection
with our February 22, 2002 acquisition of Colonial Holdings, and the Amended
and Restated Loan Agreement was amended accordingly. To evidence that
indebtedness, Jacobs Entertainment holds a note from Colonial Holdings in the
principal amount of $5.7 million and a note from Colonial Downs in the
principal amount of $10.0 million. These notes are pledged as security for the
Old Notes and the New Notes.
In addition, these notes were modified to (1) eliminate any amortization
payments and (2) extend the maturity to February 1, 2009. Colonial Holdings and
Colonial Downs will be able to elect, at their option, to pay interest in cash
or in kind.
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DESCRIPTION OF THE NOTES
You can find the definitions of certain terms used in this description under
the subheading "--Certain Definitions." In this description, the word "Company"
refers only to Jacobs Entertainment and not to any of its Subsidiaries.
The Company will issue the New Notes under an Indenture, as amended (the
"Indenture"), among itself, the Guarantors and Wells Fargo Bank Minnesota,
National Association, as trustee (the "Trustee"). References to Notes in this
section include both the New Notes and any Old Notes that remain outstanding
following the completion of the exchange offer. The terms of the Notes include
those set forth in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The Collateral Documents referred to under the caption "--Security"
define the terms of the security interests that will secure the Notes.
The following description is a summary of the material provisions of the
Indenture, the Registration Rights Agreement and the Collateral Documents, all
of which have been filed as exhibits to this registration statement. This
summary does not restate those agreements in their entirety. We urge you to
read the Indenture, the Notes and the Collateral Documents because they, and
not this description, define your rights as holders of the Notes. Certain
defined terms used in this description but not defined below under "--Certain
Definitions" have the meanings assigned to them in the Indenture.
Brief Description of the Notes and the Guarantees
The Notes
The Notes:
. are general obligations of the Company;
. are secured by a first priority Lien (subject to Permitted Liens and
certain customary encumbrances permitted by the Collateral Documents) on
substantially all of the assets of the Company, whether now owned or
hereafter acquired including, without limitation, the Capital Stock of
all of the Company's Subsidiaries (other than any Non-Guarantor
Restricted Subsidiaries, but including the Capital Stock of any
Unrestricted Subsidiary held by the Company or a Restricted Subsidiary)
and all intercompany notes for money owed to the Company by its
Subsidiaries including cash and Cash Equivalents except to the extent a
Lien cannot be perfected through the filing of a UCC-1 financing
statement or through the obtaining of "control" (as defined in the
Uniform Commercial Code) (other than proceeds from the Collateral) or
licenses (excluding gaming licenses) to the extent that such licenses can
be encumbered under applicable law;
. are pari passu in right of payment to all senior borrowings of the
Company;
. are senior in right of payment to any future subordinated Indebtedness of
the Company; and
. are unconditionally Guaranteed by the Guarantors.
The Guarantees
The Notes are Guaranteed by the Guarantors and will be Guaranteed by all of
the Company's future Restricted Subsidiaries (other than Non-Guarantor
Restricted Subsidiaries). Each Subsidiary Guarantee of the Notes:
. is secured by a first priority Lien (subject to Permitted Liens and
certain customary encumbrances permitted by the Collateral Documents) on
substantially all of the assets of the applicable Guarantor, whether now
owned or hereafter acquired including, without limitation, the Capital
Stock of all of such
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Guarantor's Subsidiaries (including, without limitation, the Capital
Stock of any Unrestricted Subsidiary held by such Guarantor or a
Restricted Subsidiary of such Guarantor) and all intercompany notes for
money owed to such Guarantor by its Subsidiaries including cash and Cash
Equivalents except to the extent a Lien cannot be perfected through the
filing of a UCC-1 financing statement or through the obtaining of
"control" (as defined in the Uniform Commercial Code) (other than
proceeds from the Collateral) and licenses (excluding gaming licenses) to
the extent that such licenses can be encumbered under applicable law;
. is pari passu in right of payment with any future senior Indebtedness of
the Guarantor; and
. is senior in right of payment with any future subordinated Indebtedness
of the Guarantor.
The following Subsidiaries are "Restricted Subsidiaries" and are Guarantors
of the Notes.
Black Hawk Gaming & Development Company, Inc.
. Black Hawk Gaming (owns Gold Dust West Casino, Inc., a Nevada corporation
("Gold Dust"), Gilpin Ventures, Inc., a Colorado corporation ("Gilpin
Ventures"), a 50% interest in Gilpin Hotel Venture, a Colorado
partnership ("Gilpin Hotel Venture"), and a 75% interest in Black
Hawk/Jacobs Entertainment LLC, a Colorado limited liability company
("Black Hawk LLC")),
. Gold Dust (owns and operates the Gold Dust West Casino in Reno, Nevada),
. Gilpin Ventures (owns a 50% interest in Gilpin Hotel Venture), and
. Gilpin Hotel Venture (owns a 100% interest in the Gilpin Hotel & Casino
in Black Hawk, Colorado),
. Black Hawk LLC (owns The Lodge Casino in Black Hawk, Colorado).
Diversified Opportunities Group Ltd.
. Diversified Opportunities Group Ltd. ("Diversified"), an Ohio limited
liability company (owns Jalou L.L.C., a Louisiana limited liability
company ("Jalou") and a 25% interest in Black Hawk LLC),
. Jalou (owns Houma Truck Plaza & Casino, L.L.C., a Louisiana limited
liability company ("Houma Truck Plaza"), Bayou Vista Truck Plaza and
Casino, L.L.C., a Louisiana limited liability company ("Bayou Vista"),
Lucky Magnolia Truck Stop and Casino L.L.C., a Louisiana limited
liability company ("Lucky Magnolia"), Jalou-Cash's L.L.C., a Louisiana
limited liability company ("Jalou-Cash's") and Raceland Truck Plaza and
Casino, L.L.C., a Louisiana limited liability company ("Raceland")),
. Houma Truck Plaza (owns the Houma Truck Plaza and Casino in Houma,
Louisiana),
. Bayou Vista (owns the Bayou Vista Truck Plaza and Casino in Bayou Vista,
Louisiana),
. Lucky Magnolia (owns the Lucky Magnolia Truck Stop and Casino in St.
Helena Parish, Louisiana),
. Jalou-Cash's (owns a revenue interest in a lease with Cash's Casino in
Port Allen, Louisiana), and
. Raceland (owns the Raceland Truck Plaza and Casino in Raceland,
Louisiana).
Jalou II
. Jalou II Inc., a Louisiana corporation ("Jalou II") (owns Winner's
Choice, Inc., a Louisiana corporation ("Winner's Choice") and JACE, Inc.,
a Louisiana corporation ("Colonel's")),
. Winner's Choice (owns Winner's Choice Casino in Sulphur, Louisiana), and
. Colonel's (owns Colonel's Truck Plaza and Casino in Thibodaux, Louisiana).
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Colonial Holdings, Inc.
. Colonial (owns Stansley Racing Corp., a Virginia corporation
("Stansley"), and Colonial Downs, L.P., a Virginia limited partnership
("Colonial Downs"),
. Stansley (holds the Virginia operators' license for racetrack and
off-track wagering facilities in Virginia),
. Colonial Downs (owns the pari-mutuel wagering facilities and a leasehold
interest in Colonial Downs Racetrack), and
We currently have no Non-Guarantor Restricted Subsidiaries. Any
Non-Guarantor Restricted Subsidiary would have no obligation to make payments
to us or in respect of the Notes. In the event of a bankruptcy, liquidation or
reorganization of any Non-Guarantor Restricted Subsidiary, the creditors of
such Subsidiary (including trade creditors) would generally be entitled to
payment of their claims from the assets of such Subsidiary before any assets
are made available for distribution to us as a stockholder. After paying its
own creditors, a Non-Guarantor Restricted Subsidiary may not have any remaining
assets available for payment to you as a holder of Notes. As a result, the
Notes would be effectively junior in right of payment to the obligations of
Non-Guarantor Restricted Subsidiaries.
In addition, under the circumstances described below under the subheading
"--Certain Covenants--Designation of Restricted and Unrestricted Subsidiaries,"
we will be permitted to designate certain of our Subsidiaries as "Unrestricted
Subsidiaries." Our Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants in the Indenture. Our Unrestricted Subsidiaries will not
Guarantee the Notes.
Principal, Maturity and Interest
If all of the Old Notes are tendered in the exchange offer, we will issue
$125.0 million aggregate principal amount of New Notes in this offering. The
Company may issue additional notes (the "Additional Notes") from time to time
after this offering (without limitation as to principal amount), provided, that
the Additional Notes may not be issued with original issue discount as
determined under Section 1271, et seq., of the Internal Revenue Code of 1986,
as amended. Any offering of Additional Notes is subject to the covenant
described below under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock." The Notes and any Additional
Notes issued under the Indenture would be treated as a single class for all
purposes under the Indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. The Company will issue New
Notes in denominations of $1,000 and integral multiples of $1,000. The New
Notes will mature on February 1, 2009.
Interest on the New Notes will accrue at the rate of 11 7/8% per annum and
will be payable semi-annually in arrears on February 1 and August 1, commencing
on August 1, 2002. The Company will make each interest payment to the Holders
of record on the immediately preceding January 15 and July 15.
Interest on the Notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
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Methods of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to the Company, the Company
will pay all principal, interest, premium and Additional Interest, if any, on
that Holder's Notes in accordance with those instructions. All other payments
on Notes will be made at the office or agency of the Paying Agent and Registrar
within the City and State of New York unless the Company elects to make
interest payments by check mailed to the Holders at their addresses set forth
in the register of Holders.
Paying Agent and Registrar for the Notes
The Trustee will initially act as Paying Agent and Registrar. The Company
may change the Paying Agent or Registrar without prior notice to the Holders,
and the Company or any of its Subsidiaries may act as Paying Agent or Registrar.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The Holder will be treated as the owner of the Notes it holds for all
purposes.
Subsidiary Guarantees
The Guarantors unconditionally jointly and severally Guarantee the Company's
obligations under the Notes (each a "Subsidiary Guarantee"). The obligations of
each Guarantor under its Subsidiary Guarantee and the grant by each Guarantor
of the Liens on the Collateral of such Guarantor to secure its obligations
under its Subsidiary Guarantee will be limited as necessary to prevent that
Subsidiary Guarantee and grant of security from constituting a fraudulent
conveyance under applicable law. Such amount could be substantially less than
the obligations under the Notes. In addition, any limitation on the amounts
payable by a Guarantor under its Subsidiary Guarantee in accordance with such
law will result in a corresponding limitation on the ability of the Trustee to
realize upon the Collateral pledged by such Guarantor. See "Risk
Factors--Federal and state statutes allow courts, under specific circumstances,
to void guarantees, subordinate claims in respect of indebtedness and require
debt holders to return payments received from guarantors."
Security
Pursuant to the Collateral Documents, the Notes and the Subsidiary
Guarantees are secured by a first priority Lien (subject to Permitted Liens
(including, without limitation, Liens on the Credit Agreement Collateral
securing the Obligations under the Credit Agreement) and certain customary
encumbrances permitted by the Collateral Documents) on the Collateral. The
Company and each of the Guarantors assigned, granted and pledged as Collateral
to the Trustee for the benefit of the Trustee and the Holders a first priority
Lien (subject to Permitted Liens (including, without limitation, Liens on the
Credit Agreement Collateral securing the Obligations under the Credit
Agreement) and certain customary encumbrances permitted by the Collateral
Documents) on each of the following items or types of Collateral whether now
owned or hereafter acquired:
. all right, title and interest (including, without limitation, fee and
leasehold estates) of the Company and the Guarantors in and to any and
all parcels of real property, together with all easements, hereditaments
and appurtenances relating thereto, and all other improvements,
accessions, alterations, replacements and repairs thereto and all leases
and rents and other income, issues or profits derived from the foregoing
interests;
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. all right, title and interest of the Company and the Guarantors in and to
any and all equipment, machinery, furniture, furnishings and fixtures,
together with all additions, accessions, improvements, alterations,
replacements and repairs thereto;
. all Capital Stock (other than the Capital Stock of any Non-Guarantor
Restricted Subsidiaries) owned and intercompany notes (including, without
limitation, the Pledged Colonial Notes) held by the Company or any of the
Guarantors;
. all intellectual property including, without limitation, all trademarks,
service marks, patents, copyrights, trade secrets and other proprietary
information;
. all inventory, supplies and other personal property (including cash and
Cash Equivalents except to the extent a Lien cannot be perfected through
the filing of a UCC-1 financing statement or through the obtaining of
"control" (as defined in the Uniform Commercial Code) (other than
proceeds from the Collateral);
. all general intangibles and contract rights relating to any and all of
the foregoing including, without limitation, all material agreements,
licenses and permits entered into by, or granted to, the Company and the
Guarantors in connection with the development, construction, maintenance,
ownership and operation of the Company's or such Guarantor's properties;
. the Collateral Account and all Trust Monies; and
. all proceeds and products of any and all of the foregoing including,
without limitation, proceeds of insurance, condemnation awards, tax
refunds and other similar property or claims with respect to any and all
of the foregoing.
The personal property Collateral is pledged pursuant to a security agreement
by and among the Company, the Guarantors and the Trustee (the "Security
Agreement"). The real property Collateral is secured pursuant to mortgages (the
"Mortgages") made in favor of the Trustee, as mortgagee and assignee.
The Trustee, on behalf of the Holders, entered into an intercreditor
agreement (the "Senior Intercreditor Agreement") substantially in the form of
the intercreditor agreement attached as an exhibit to the Indenture. Pursuant
to the terms of the Senior Intercreditor Agreement, the Trustee acknowledged
that the Lien on the Credit Agreement Collateral securing the Company's
obligations under the Credit Agreement is senior to the Lien on such collateral
securing the Company's and the applicable Guarantor's obligations under the
Notes and the Guarantees of the Guarantors. Under the Senior Intercreditor
Agreement, if the Notes become due and payable prior to the stated maturity
thereof for any reason or are not paid in full at the stated maturity thereof
at a time during which Indebtedness is outstanding under the Credit Agreement,
the Trustee will not have the right to foreclose upon the Credit Agreement
Collateral unless and until the lenders under the Credit Agreement fail to take
steps to exercise remedies with respect to or in connection with the Credit
Agreement Collateral within 180 days following notice to such lenders of the
occurrence of an Event of Default under the Indenture.
The Collateral release provisions of the Indenture permit the release of
items of Collateral which are the subject of an Asset Sale and in other
circumstances upon compliance with certain conditions. See "--Possession, Use
and Release of Collateral." In addition, the Indenture permits the Company and
the Guarantors to create Liens arising pursuant to Purchase Money Obligations
and Capital Lease Obligations, and the Notes and the Guarantees are effectively
subordinated to such Purchase Money Obligations and Capital Lease Obligations
and other obligations secured by such Liens to the extent of any assets serving
as collateral for such Indebtedness. See the definition of "Permitted Liens"
under "--Certain Definitions." As a result, the assets subject to such Liens
are available to pay Obligations in respect of the Notes, if at all, only after
such Purchase Money Obligation and Capital Lease Obligation has been paid in
full. Cash and Cash Equivalents, to the extent a Lien can be perfected through
the filing of a UCC-1 financing statement or through the obtaining of "control"
(as defined in the Uniform Commercial Code) (other than proceeds from the
Collateral), are included within the
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Collateral. In addition, certain of the Company's and the Guarantors'
intangible assets that may be significant to their operations, such as computer
software licenses, Gaming Licenses and other related licenses and permits, by
their terms can not be encumbered and, accordingly, are not included in the
property subject to the Lien of the Collateral Documents so long as the
prohibition on encumbering them exists.
If an Event of Default occurs under the Indenture, the Trustee, on behalf of
the Holders, in addition to any rights or remedies available to it under the
Indenture, may take such actions as it deems advisable to protect and enforce
its rights in the Collateral, including, without limitation, the institution of
foreclosure proceedings in accordance with the Collateral Documents and
applicable law. The proceeds received by the Trustee from any foreclosure will
be applied by the Trustee, first, to pay the expenses of such foreclosure and
fees and other amounts then payable to the Trustee under the Indenture and the
Collateral Documents, and thereafter, to pay the principal of, premium, if any,
and accrued interest on the Notes.
The Indenture permits the release of Collateral without the substitution of
additional Collateral under certain circumstances, as described under
"--Repurchase at the Option of Holders--Asset Sales" and "--Repurchase at the
Option of Holders--Events of Loss." See "--Possession, Use and Release of
Collateral." The Collateral will also be released as security for the Notes and
the Subsidiary Guarantees upon the release of any Guarantor as described under
"--Certain Covenants--Merger, Consolidation or Sale of Assets."
The proceeds of any sale of the Collateral following an Event of Default may
not be sufficient to satisfy payments due on the Notes. No appraisals of the
Collateral have been prepared in connection with the offering of the Old Notes
or the Exchange Offer. Moreover, the amount to be received upon the sale of
Collateral will be dependent upon numerous factors, including the condition,
age and useful life of the Collateral at the time of the sale, as well as the
timing and manner of the sale. In addition, the ability of the Holders to
realize upon the Collateral may be limited pursuant to applicable laws,
including gaming, bankruptcy or securities laws.
By its nature, some or all of the Collateral will be illiquid and may have
no readily ascertainable market value. Likewise, there can be no assurance that
the Collateral will be saleable, or, if saleable, that there will not be
substantial delays in its liquidation. To the extent that Liens, rights or
easements granted to third parties encumber assets located on property owned by
the Company or the Guarantors, such third parties have or may exercise rights
and remedies with respect to the property subject to such Liens that could
adversely affect the value of the Collateral and the ability of the Trustee or
the Holders to realize or foreclose on Collateral.
Certain Gaming Law Limitations
The Trustee's ability to foreclose upon the Collateral will be limited by
relevant gaming laws, which generally require that Persons who own or operate a
casino or purchase or sell gaming equipment hold a valid Gaming License or
permit and require the approval of the applicable Gaming Authorities for any
transfer of a Gaming License. No Person can hold an owner's license unless the
Person is found qualified or suitable by the relevant Gaming Authorities. In
order for the Trustee to be found qualified or suitable, such Gaming
Authorities would have discretionary authority to require the Trustee and any
or all of the Holders to file applications, be investigated and be found
qualified or suitable as an owner or operator of gaming establishments. The
applicant for qualification, a finding of suitability or licensing must pay an
application fee and all costs of such investigation. If the Trustee is unable
or chooses not to qualify, be found suitable, or be licensed to own, operate or
sell such assets, it would have to retain another entity that could obtain the
appropriate license to own, operate or sell such assets. This licensing process
could be lengthy, taking several months at a minimum. In addition, in any
foreclosure sale or subsequent resale by the Trustee, licensing requirements
under the relevant gaming laws may limit the number of potential bidders and
may delay any sale, either of which events could have an adverse effect on the
sale price of such Collateral. Therefore, the practical value of realizing on
the Collateral may, without the appropriate approvals, be limited.
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Certain Bankruptcy Limitations
The right of the Trustee to repossess and dispose of the Collateral upon the
occurrence of an Event of Default is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or
against the Company prior to the Trustee having repossessed and disposed of the
Collateral. Under the Bankruptcy Code, a secured creditor is prohibited from
repossessing its security from a debtor in a bankruptcy case, or from disposing
of security repossessed from such debtor, without bankruptcy court approval.
Moreover, the Bankruptcy Code permits the debtor in certain circumstances to
continue to retain and to use collateral owned as of the date of the bankruptcy
filing (and the proceeds, products, offspring, rents or profits of such
collateral to the extent provided by the Collateral Documents and by applicable
nonbankruptcy law) even though the debtor is in default under the applicable
debt instruments; provided, that the secured creditor is given "adequate
protection." The meaning of the term "adequate protection" may vary according
to circumstances. In view of the lack of a precise definition of the term
"adequate protection" and the broad discretionary powers of a bankruptcy court,
it is impossible to predict how long payments under the Notes could be delayed
following commencement of a bankruptcy case, whether or when the Trustee could
repossess or dispose of the Collateral or whether or to what extent Holders
would be compensated for any delay in payment or loss of value of the
Collateral through the requirement of "adequate protection." Furthermore, if a
bankruptcy court determines the value of the Collateral is not sufficient to
repay all amounts due on the Notes, the Holders would hold secured claims to
the extent of the value of the Collateral to which the Holders are entitled,
and would hold unsecured claims with respect to such shortfall. Applicable
Federal bankruptcy laws do not permit the payment or accrual of post-petition
interest, costs and attorneys' fees during a debtor's bankruptcy case unless
the claims are oversecured or the debtor is solvent at the time of
reorganization. In addition, if the Company becomes the subject of a bankruptcy
case, the bankruptcy court, among other things, may avoid certain transfers
made by the entity that is the subject of the bankruptcy filing, including,
without limitation, transfers held to be fraudulent conveyances or preferences.
Subordination and Intercreditor Agreements
The Trustee, on behalf of the Holders, has entered into (i) an intercreditor
agreement (the "Seller Intercreditor Agreement") with the holders of the
Louisiana Properties Seller Notes and (ii) a separate subordination and
intercreditor agreement (the "Jacobs Subordination and Intercreditor Agreement"
and, together with the Seller Intercreditor Agreement, the "Intercreditor
Agreements") with certain affiliates of the Principals that are holders of the
Jacobs Subordinated Louisiana Properties Notes, each of which was acknowledged
by the Company and the Subsidiaries that are parties to the Louisiana
Properties Notes. The Jacobs Subordination and Intercreditor Agreement provides
that:
(1) the Obligations of the Company and each Subsidiary under the Jacobs
Subordinated Louisiana Properties Notes are expressly subordinated and
junior in right of payment to all Obligations of the Company and such
Subsidiary under the Indenture and the Notes;
(2) the Holders are entitled to indefeasibly receive payment in full in cash
of all amounts due on or in respect of all Obligations of the Company or
any such Subsidiary under the Indenture and the Notes before the holders
of the Jacobs Subordinated Louisiana Properties Notes are entitled to
receive or retain any payment of any kind on the Jacobs Subordinated
Louisiana Properties Notes in the event of any distribution to creditors
of the Company or any Subsidiary in any (a) bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company
or any Subsidiary or to their respective assets; (b) liquidation or
dissolution or other winding-up of the Company or any Subsidiary; (c)
assignment for the benefit of creditors of the Company or any
Subsidiary; or (d) marshaling of assets or liabilities of the Company or
any Subsidiary; and
(3) for so long as the Notes remain outstanding, and provided that no
Default or Event of Default shall have occurred and be continuing, the
Company or such Subsidiary may make regular scheduled payments of
interest (but not principal) in respect of the Jacobs Subordinated
Louisiana Properties Notes, provided that no such payment may be made if:
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(a) a payment Default on the Notes occurs and is continuing; or
(b) any non-payment Default on the Notes occurs and is continuing and the
holders of the Jacobs Subordinated Louisiana Properties Notes receive
a notice of such non-payment Default (a "Payment Blockage Notice")
from the Trustee or any Holder.
Payments on the Jacobs Subordinated Louisiana Properties Notes may be
resumed:
(i) in the case of a payment Default, upon the date on which such payment
Default is cured, waived in writing or otherwise ceases to exist; and
(ii) in case of a non-payment Default, the earlier of the date on which such
non-payment Default is cured, waived in writing or otherwise ceases to
exist or 180 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of the Notes has been
accelerated.
Notwithstanding clause (ii) above, the Company will not be prohibited from
making payments on the Jacobs Subordinated Louisiana Properties Notes for more
than an aggregate of 180 days within any period of 360 consecutive days.
The Jacobs Subordination and Intercreditor Agreement further provides that
for so long as any of the Notes are outstanding, no holder of a Jacobs
Subordinated Louisiana Properties Note may take any enforcement action with
respect to the Obligations of the Company or any Subsidiary under such Jacobs
Subordinated Louisiana Properties Note until the earlier of the acceleration of
the Notes or the passage of 180 days from the delivery of notice to the Trustee
by such holder of a Jacobs Subordinated Louisiana Properties Note of the
occurrence of any event that entitles such holder to accelerate the Company's
or such Subsidiary's Obligations under the Jacobs Subordinated Louisiana
Properties Note held by such holder.
In addition, the Seller Intercreditor Agreement provides for the allocation
of rights between the Trustee and the holders of the Louisiana Properties
Seller Notes with respect to the Mortgaged Louisiana Property and the
enforcement provisions with respect thereto. So long as the Notes remain
outstanding, the Holders will have the exclusive right to determine the
circumstances and manner in which Mortgaged Louisiana Property shall be
disposed of, including but not limited to, the determination of whether to
release all or any portion of the Mortgaged Louisiana Property from the Lien
created by the Collateral Documents and whether to foreclose on the Mortgaged
Louisiana Property following an Event of Default.
The Seller Intercreditor Agreement also provides, among other things, that
so long as the Notes remain outstanding (i) the Trustee has a security interest
in the Mortgaged Louisiana Property senior and prior to the security interest
of the holders of the Louisiana Properties Seller Notes therein, (ii) all
decisions with respect to the Mortgaged Louisiana Property, including the time
and method of any disposition thereof, will be made by the Trustee, (iii) as
between the Obligations under the Indenture and the Obligations under the
Louisiana Properties Seller Notes, proceeds of the Mortgaged Louisiana Property
will be applied first, to the outstanding Obligations under the Notes, with any
remaining proceeds to be paid to the holders of the Louisiana Properties Seller
Notes for application in accordance with the provisions of Louisiana Properties
Seller Notes, (iv) the Trustee and the holders of the Louisiana Properties
Seller Notes will not contest each other's security interest in and Liens on
their respective collateral or contest the validity of the documents governing
the Notes or the Louisiana Properties Seller Notes, respectively, (v) the
Trustee and the holders of the Louisiana Properties Seller Notes each agree not
to take any action or vote inconsistent with the Seller Intercreditor
Agreement, (vi) the holders of the Louisiana Properties Seller Notes agree that
the Trustee will have the sole and exclusive right to adjust settlement for
insurance coverage on collateral securing the Notes and that the proceeds of
insurance or condemnation proceedings with respect to such collateral will be
paid to the Trustee, (vii) if any holder of the Louisiana Properties Seller
Notes receives proceeds of Mortgaged Louisiana Property other than as expressly
permitted by the Seller Intercreditor Agreement, such proceeds will be received
by such Person in trust and turned over to the Trustee, (viii) subject to
certain exceptions, if the Trustee releases or agrees to release its Lien
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on any Mortgaged Louisiana Property, and sends the holders of the Louisiana
Properties Seller Notes notice thereof in writing, which notice states that the
Mortgaged Louisiana Property will be sold free and clear of the Liens of the
Trustee and the holders of the Louisiana Properties Seller Notes, the holders
of the Louisiana Properties Seller Notes will be deemed to have consented to
such sale and the Lien of the holders of the Louisiana Properties Seller Notes
on such Mortgaged Louisiana Property shall be automatically released and
terminated, (ix) the holders of the Louisiana Properties Seller Notes waive any
right to marshaling of the collateral securing the Notes and (x) the holders of
the Louisiana Properties Seller Notes will not directly or indirectly seek to
foreclose or realize upon, judicially or non-judicially, any Mortgaged
Louisiana Property or take any other enforcement action against or in respect
of the Mortgaged Louisiana Property unless and until the Obligations under the
Notes have been indefeasibly paid in full in cash.
Optional Redemption
At any time prior to February 1, 2005, the Company may on one occasion
redeem up to 35% of the aggregate principal amount of Notes issued under the
Indenture at a redemption price of 111.875% of the principal amount thereof,
plus accrued and unpaid interest and Additional Interest, if any, to the
redemption date, with the net cash proceeds of any Equity Offering; provided
that:
(1) at least $81.25 million (65%) in aggregate principal amount of the Notes
remains outstanding immediately after the occurrence of such redemption
(excluding Notes held by the Company and its Subsidiaries); and
(2) the redemption occurs within 45 days after the date of the closing of
such Equity Offering.
Except pursuant to the preceding paragraph, the Notes will not be redeemable
at the Company's option prior to February 1, 2006.
After February 1, 2006, the Company may redeem all or a part of the Notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Additional Interest, if any, thereon, to the applicable
redemption date, if redeemed during the 12-month period beginning on February 1
of the years indicated below:
Year Percentage
---- ----------
2006 105.938%
2007 102.969%
2008 100.000%
Mandatory Disposition in Accordance with Gaming Laws
Each Holder, by accepting the Notes, is deemed to have agreed (to the extent
permitted by applicable law) that if the Gaming Authority of any jurisdiction
in which the Company or any of its Subsidiaries conducts or proposes to conduct
gaming requires that a Person who is a Holder or a beneficial owner of any of
the Notes must be licensed or found suitable under applicable Gaming Laws, such
holder shall apply for a license or a finding of suitability within the
required time period. If such Person fails to apply or become licensed or is
found unsuitable, the Company shall have the right, at its option, (i) to
require such Person to dispose of its Notes or beneficial interest therein
within 30 days of receipt of notice of the Company's election or such earlier
date as may be ordered by such Gaming Authority, or (ii) to redeem such Notes
at a price of the lesser of (a) such Person's cost and (b) 100% of the
principal amount thereof, plus accrued and unpaid interest and Additional
Interest, if any, to the earlier of the date of redemption and the date of the
finding of unsuitability, which may be less than 30 days following the notice
of redemption if so ordered by the Gaming Authority. The Holder or beneficial
owner applying for a license or finding of suitability must pay all costs of
the licensure or investigation for such finding.
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Mandatory Redemption
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each Holder will have the right to require
the Company to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of that Holder's Notes on the terms set forth in the
Indenture (a "Change of Control Offer"). In the Change of Control Offer, the
Company will offer to repurchase each Holder's Notes at a purchase price equal
to 101% of the aggregate principal amount of Notes repurchased plus accrued and
unpaid interest and Additional Interest, if any, thereon, to the date of
purchase (the "Change of Control Payment"). Within ten days following any
Change of Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes on the date specified in such notice (the "Change of
Control Payment Date"), which date shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed, pursuant to the
procedures required by the Indenture and described in such notice. The Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the Change of Control provisions
of the Indenture, the Company will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations under
the Change of Control provisions of the Indenture by virtue of such compliance.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an officers' certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by the Company.
The Paying Agent will promptly mail to each Holder so tendered the Change of
Control Payment for such Notes, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a new Note equal
in principal amount to any unpurchased portion of the Notes surrendered, if
any; provided that each such new Note will be in a principal amount of $1,000
or an integral multiple thereof.
The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
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The definition of Change of Control includes a phrase relating to the direct
or indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of the Company and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder to require the Company to repurchase such Notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the assets
of the Company and its Subsidiaries taken as a whole to another Person or group
may be uncertain.
Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Capital Stock issued or sold or otherwise
disposed of;
(2) such fair market value is determined by the Company's Board of Directors
and evidenced by a resolution of the Board of Directors set forth in an
officers' certificate delivered to the Trustee;
(3) at least 85% of the consideration therefor received by the Company or
such Restricted Subsidiary is in the form of cash or Cash Equivalents.
For purposes of this provision, each of the following shall be deemed to
be cash:
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet), of the Company or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any
Subsidiary Guarantee) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by the Company or
any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted
by the Company or such Restricted Subsidiary into cash (to the extent
of the cash received in that conversion);
(4) if such Asset Sale involves the disposition of Collateral, subject to
the terms of the Senior Intercreditor Agreement with respect to the
Credit Agreement Collateral, the Company or such Subsidiary has complied
with the provisions described under "--Possession, Use and Release of
Collateral"; and
(5) if such Asset Sale involves the disposition of Collateral, subject to
the terms of the Senior Intercreditor Agreement with respect to the
Credit Agreement Collateral, the Net Proceeds thereof shall be paid
directly by the purchaser of the Collateral to the Trustee for deposit
into the Collateral Account, and, if any property other than cash or
Cash Equivalents is included in such Net Proceeds, such property shall
be made subject to the Lien of the Indenture and the applicable
Collateral Documents.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company (or the Restricted Subsidiary, as the case may be) may apply such
Net Proceeds to (1) make capital expenditures, (2) the acquisition of all or
substantially all of the assets or, or a majority of the Voting Stock of
another Permitted Business, (3) the acquisition of other long-term assets in
another Permitted Business (each of clauses (1), (2) and (3) above, either
individually or in the aggregate, "Replacement Assets"), (4) to the extent that
such Asset Sale relates to Credit Agreement Collateral, retire and permanently
reduce Indebtedness incurred under the Credit Agreement; provided, that in the
case of a revolver or similar arrangement that makes credit available, such
commitment is permanently reduced by such amount, and (5) to the extent such
Asset Sale relates to assets which constitute collateral securing other pari
passu Indebtedness incurred in compliance with the terms of the Indenture, to
repay such pari passu Indebtedness in accordance with the terms thereof;
provided, that any
106
Replacement Assets acquired with any Net Proceeds shall be owned by the Company
or by the Restricted Subsidiary that made the Asset Sale and shall not be
subject to any Liens (and the Company or such Restricted Subsidiary, as the
case may be, shall execute and deliver to the Trustee such Collateral Documents
or other instruments as shall be reasonably necessary to cause such Replacement
Assets to become subject to a Lien in favor of the Trustee, for its benefit and
for the benefit of the holders of the Notes, securing its obligations under the
Notes or its Subsidiary Guarantee, as the case may be, and otherwise shall
comply with the provisions of the Indenture applicable to After-Acquired
Property) other than Permitted Liens.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will make
an Asset Sale Offer to all Holders to purchase the maximum principal amount of
Notes that may be purchased out of the Excess Proceeds. The offer price in any
Asset Sale Offer will be equal to 100% of principal amount plus accrued and
unpaid interest and Additional Interest, if any, to the date of purchase, and
will be payable in cash. To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
remaining Excess Proceeds solely to the extent such Excess Proceeds do not
arise out of any Asset Sale involving Collateral shall be released to the
Company and may be used free and clear of the Lien of the Collateral Documents
for general corporate purposes. If the aggregate principal amount of Notes
tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis based on the
principal amount of Notes tendered. Upon completion of each Asset Sale Offer,
the amount of Excess Proceeds shall be reset at zero.
Subject to the terms of the Senior Intercreditor Agreement with respect to
the Credit Agreement Collateral, all Net Proceeds of any Collateral shall,
pending their application in accordance with this covenant or the release
thereof in accordance with the provisions described under "--Possession, Use
and Release of Collateral" and "--Use of Trust Monies," be deposited in the
Collateral Account under the Indenture.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with each
repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the Indenture by virtue of such
compliance.
Events of Loss
In the event of an Event of Loss, the Company or the affected Restricted
Subsidiary of the Company, as the case may be, may apply the Net Loss Proceeds
from such Event of Loss to the rebuilding, repair, replacement or construction
of improvements to the property affected by such Event of Loss (the "Subject
Property"), with no concurrent obligation to offer to purchase any of the
Notes; provided, however, that:
(1) the Company delivers to the Trustee within 90 days of such Event of Loss
a written opinion from a reputable contractor that the Subject Property
can be rebuilt, repaired, replaced or constructed in, and operated in,
substantially the same condition as it existed prior to the Event of
Loss within 360 days of the Event of Loss; and
(2) an officers' certificate certifying that the Company has available from
Net Loss Proceeds or other sources sufficient funds to complete the
rebuilding, repair, replacement of construction described in clause (1)
above.
Any Net Loss Proceeds that are not reinvested or not permitted to be
reinvested as provided in the first sentence of this covenant will be deemed
"Excess Loss Proceeds." When the aggregate amount of Excess Loss Proceeds
exceeds $5.0 million, the Company will make an offer (an "Event of Loss Offer")
to all holders to purchase or redeem with the proceeds of Events of Loss the
maximum principal amount of Notes that may be
107
purchased out of the Excess Loss Proceeds. The offer price in any Event of Loss
Offer will be equal to 100% of the principal amount plus accrued and unpaid
interest and Additional Interest, if any, to the date of purchase, and will be
payable in cash. If any Excess Loss Proceeds remain after consummation of an
Event of Loss Offer, the Company may use such Excess Loss Proceeds for any
purpose not otherwise prohibited by the Indenture and the Collateral Documents;
provided that any remaining Excess Loss Proceeds shall remain subject to the
Lien of the Collateral Documents. If the aggregate principal amount of Notes
tendered pursuant to an Event of Loss Offer exceeds the Excess Loss Proceeds,
the trustee will select the Notes to be purchased on a pro rata basis based on
the principal amount of Notes tendered.
Subject to the terms of the Senior Intercreditor Agreement with respect to
the Credit Agreement Collateral, all Net Loss Proceeds shall, pending their
application in accordance with this covenant or the release thereof in
accordance with the provisions described under "--Possession, Use and Release
of Collateral" and "--Use of Trust Monies," be deposited in the Collateral
Account under the Indenture.
With respect to any Event of Loss pursuant to clause (4) of the definition
of "Event of Loss" that has a fair market value (or replacement cost, if
greater) in excess of $5.0 million, the Company (or the affected Guarantor, as
the case may be), shall be required to receive consideration (i) at least equal
to the fair market value (evidenced by a resolution of the Board of Directors
set forth in an officers' certificate delivered to the Trustee) of the assets
subject to the Event of Loss and (ii) at least 85% of which is in the form of
cash or Cash Equivalents.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the
repurchase of the Notes pursuant to an Event of Loss Offer. To the extent that
the provisions of any applicable securities laws or regulations conflict with
the Event of Loss provisions of the Indenture, the Company will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the Event of Loss provisions of the Indenture by
virtue of such compliance.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, the Trustee
will select Notes for redemption as follows:
(1) if the Notes are listed, in compliance with the requirements of the
principal national securities exchange on which the Notes are listed; or
(2) if the Notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate, provided that
(x) no Notes of $1,000 or less shall be redeemed in part; and
(y) if a partial redemption is made with the proceeds of any Equity
Offering, selection of the Notes or portions thereof for redemption
shall be made by the Trustee only on a pro rata basis or on as nearly
a pro rata basis as is practicable (subject to the procedures of the
Depository Trust Company), unless such method is otherwise prohibited.
Notices of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each Holder to be redeemed at
its registered address. Notices of redemption may not be conditional.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion of
the original Note will be issued in the name of the Holder thereof upon
cancellation of the original
108
Note. Notes called for redemption become due on the date fixed for redemption.
On and after the redemption date, interest ceases to accrue on Notes or
portions of them called for redemption.
Certain Covenants
Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on
account of the Company's or any of its Restricted Subsidiaries' Capital
Stock (including, without limitation, any payment in connection with any
merger or consolidation involving the Company or any of its Restricted
Subsidiaries) or to the direct or indirect holders of the Company's or
any of its Restricted Subsidiaries' Capital Stock in their capacity as
such (other than (x) dividends or distributions payable in Capital Stock
(other than Disqualified Stock) of the Company or (y) dividends or
distributions payable to the Company or a Wholly Owned Restricted
Subsidiary of the Company that is a Guarantor);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving the Company) any Capital Stock of the Company;
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any unsecured Indebtedness that is
pari passu in right of payment with the Notes or the Subsidiary
Guarantees or any Indebtedness that is subordinated to the Notes or the
Subsidiary Guarantees, except a payment of interest or principal at the
Stated Maturity thereof; or
(4) make any Restricted Investment,
(all such payments and other actions set forth in clauses (1) through (4)
above being collectively referred to as "Restricted Payments") unless, at the
time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted
by clauses (2), (3) and (5) of the next succeeding paragraph), is less
than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the date of the Indenture to
the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus
(b) 100% of the aggregate net cash proceeds received by the Company since
the date of the Indenture as a contribution to its common equity
capital or from the issue or sale of Capital Stock of the Company
(other than Disqualified Stock) or from the issue or sale of
convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities of the Company that have been converted
into or exchanged for such Capital Stock (other than Capital Stock
(or Disqualified Stock or debt securities) sold to a Subsidiary of
the Company), plus
109
(c) to the extent that any Restricted Investment that was made after the
date of the Indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (i) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition,
if any) and (ii) the initial amount of such Restricted Investment,
plus
(d) $2.0 million.
So long as no Default or Event of Default has occurred and is continuing or
would be caused thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied
with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness or any unsecured, pari passu
Indebtedness of the Company or Wholly Owned Restricted Subsidiary that
is a Guarantor or of any Capital Stock of the Company in exchange for,
or out of the net cash proceeds of the substantially concurrent sale
(other than to a Restricted Subsidiary of the Company) of Capital Stock
of the Company (other than Disqualified Stock); provided that the amount
of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (3) (b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
unsecured, pari passu Indebtedness or subordinated Indebtedness of the
Company or any Wholly Owned Restricted Subsidiary that is a Guarantor
with the net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness;
(4) the repurchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company or any Restricted Subsidiary of the
Company held by any member of the Company's (or any of its Restricted
Subsidiaries') management (excluding the Principals and Related Parties)
pursuant to any management equity subscription agreement or stock option
agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Capital Stock shall not
exceed $500,000 in any 12-month period; and
(5) with respect to each tax year that the Company qualifies as a Flow
Through Entity, the distribution by the Company to the holders of
Capital Stock of the Company of an amount equal to the product of (i)
the amount of aggregate net taxable income allocated by the Company to
the holders of Capital Stock of the Company for such period (computed by
netting net losses allocated to the Company for such period against net
income allocated to the Company for such period and by reducing such net
income by any net losses allocated to the Company in any prior period to
the extent such losses (x) have not previously been deducted in
determining such holder's tax liability for any prior year and (y) may
be used by such holder against such net income) and (ii) the Presumed
Tax Rate for such period. The amount distributable under this paragraph
(5) shall be adjusted to take into account the effect of alternative
minimum tax, if applicable. The distributions described in this
paragraph (5) are referred to as "Tax Distributions." The payment of the
Tax Distributions is subject to (A) the Company providing an officers'
certificate and opinion of counsel to the effect that the Company and
each Subsidiary in respect of which the Tax Distributions are being made
qualify as Flow Through Entities for Federal income tax purposes and for
the states and localities in respect of which the Tax Distributions are
being made, prior to the first payment of Tax Distributions in a
calendar year and (B) at the time of the Tax Distribution, the most
recent audited financial statements of the Company provided to the
Trustee pursuant to the covenant described under the caption
"--Reports," provide that the Company and each such Subsidiary were
treated as Flow Through Entities for the period of the financial
statements.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the assets or securities
proposed to be transferred or issued to or by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors
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whose resolution with respect thereto shall be delivered to the Trustee. The
Board of Directors' determination must be based upon an opinion or appraisal
issued by an independent accounting, appraisal or investment banking firm if
the fair market value exceeds $2.0 million. Not later than the date of making
any Restricted Payment, the Company shall deliver to the Trustee an officers'
certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to (collectively, "incur") any Indebtedness (including Acquired Debt),
and the Company will not permit any of its Restricted Subsidiaries to issue any
shares of Preferred Stock; provided, however, that if no Default or Event of
Default has occurred and is continuing at the time of or as a consequence of
the incurrence of such Indebtedness, the Company and any Guarantor may incur
Indebtedness (including Acquired Debt) if the Fixed Charge Coverage Ratio for
the Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred is at least 2.0 to 1, determined on a pro
forma basis (including a pro forma application of the net proceeds therefrom),
as if the additional Indebtedness had been incurred at the beginning of such
four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any
of the following items of Indebtedness (collectively, "Permitted Indebtedness"):
(1) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness under the Credit Agreement in an aggregate principal
amount not to exceed $10.0 million at any time outstanding, less the
amount of any such Indebtedness retired with the Net Proceeds from any
Asset Sale applied to permanently reduce the outstanding amounts or
commitments referred to in clause (4) of the second paragraph under
"Repurchase at the Option of Holders--Asset Sales";
(2) the incurrence by the Company and any Wholly Owned Restricted
Subsidiary of Indebtedness represented by Purchase Money Obligations
and Capital Lease Obligations in an aggregate principal amount or
accreted value, as applicable, not to exceed the greater of (x) $5.0
million and (y) 15% of Consolidated EBITDA of the Company and its
Restricted Subsidiaries for the most recently ended four full fiscal
quarters for which internal financial statements are available
immediately preceding the date on which such Indebtedness is incurred;
(3) the incurrence by the Company and its Restricted Subsidiaries of the
(a) Existing Indebtedness and (b) Acquired Pending Acquisitions
Indebtedness;
(4) the incurrence by the Company and the Guarantors of Indebtedness
represented by $125.0 million aggregate principal amount of the Old
Notes and the related Subsidiary Guarantees to be issued on the date of
the Indenture and the New Notes and the related Subsidiary Guarantees
to be issued pursuant to the Registration Rights Agreement;
(5) the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other
than intercompany Indebtedness) that was permitted by the Indenture to
be incurred under the first paragraph of this covenant or clauses (2),
(3), (4), (5), or (10) of this paragraph;
(6) the incurrence by the Company or any of its Wholly Owned Restricted
Subsidiaries of intercompany Indebtedness solely between or among the
Company and any Wholly Owned Restricted Subsidiary; provided, however,
that:
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(a) such Indebtedness must be expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the
Notes, in the case of the Company, or the Subsidiary Guarantee, in
the case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Capital Stock that
results in any such Indebtedness being held by a Person other than
the Company or a Wholly Owned Restricted Subsidiary thereof and (ii)
any sale or other transfer of any such Indebtedness to a Person that
is not either the Company or a Wholly Owned Restricted Subsidiary
thereof, shall be deemed, in each case, to constitute an incurrence
of such Indebtedness by the Company or such Wholly Owned Restricted
Subsidiary, as the case may be, that was not permitted by this
clause (6);
(7) the incurrence by the Company or any Restricted Subsidiary of Hedging
Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that
is permitted by the terms of this Indenture to be outstanding; provided
that the notional principal amount of each such Hedging Obligation does
not exceed the principal amount of the Indebtedness to which such
Hedging Obligation relates;
(8) the guarantee by the Company or any of the Restricted Subsidiaries of
Indebtedness (other than Non-Recourse Indebtedness of an Unrestricted
Subsidiary) of the Company or a Guarantor that was permitted to be
incurred by another provision of this covenant;
(9) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form
of additional Indebtedness with the same terms, and the payment of
dividends on Disqualified Stock in the form of additional shares of the
same class of Disqualified Stock; provided, in each such case, that the
amount thereof is included in Fixed Charges of the Company as accrued;
(10) the incurrence by the Company or any of its Wholly Owned Restricted
Subsidiaries of additional Indebtedness in an aggregate principal
amount (or accreted value, as applicable) at any time outstanding,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause
(10), not to exceed $5.0 million at any one time outstanding, provided,
that the amount of Indebtedness incurred pursuant to this clause (10)
by Non-Guarantor Restricted Subsidiaries shall not exceed $1.0 million
in the aggregate for all such Non-Guarantor Restricted Subsidiaries at
any one time outstanding; and
(11) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Indebtedness; provided, however, that if any such
Indebtedness ceases to be Non-Recourse Indebtedness of an Unrestricted
Subsidiary, such event shall be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of the Company that was not
permitted by this clause (11).
The Company will not incur any Indebtedness (including Permitted
Indebtedness) that is contractually subordinated in right of payment to any
other Indebtedness of the Company unless such Indebtedness is also
contractually subordinated in right of payment to the Notes on substantially
identical terms; provided, however, that no Indebtedness of the Company shall
be deemed to be contractually subordinated in right of payment to any other
Indebtedness of the Company solely by virtue of being unsecured.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Indebtedness described in clauses (1) through (11) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company will be permitted to classify such item of Indebtedness on the date of
its incurrence, in any manner that complies with this covenant.
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Liens
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
of any kind on any property or asset now owned or hereafter acquired or on any
income or profits therefrom or assign any right to receive income therefrom,
except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
the Company or any of its Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by, its profits, or
pay any Indebtedness owed to the Company or any of its Restricted
Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the Indenture and any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in such Existing Indebtedness,
as in effect on the date of the Indenture;
(2) the Indenture, the Notes and the Subsidiary Guarantees;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, so acquired, provided
that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of the Indenture to be incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(6) Purchase Money Obligations or Capital Lease Obligations for property
acquired or leased in the ordinary course of business that impose
restrictions of the nature described in clause (2) of the first
paragraph above of this covenant on the property so acquired;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien; and
(10) restrictions imposed by Gaming Authorities on the payment of dividends
by entities holding Gaming Licenses.
113
Merger, Consolidation or Sale of Assets
The Company may not, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not the Company is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole (without giving effect to any property
or assets of any Unrestricted Subsidiary), in one or more related transactions,
to another Person; unless:
(1) either: (a) the Company is the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, conveyance or
other disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia (the "Surviving Entity");
(2) the Surviving Entity (if other than the Company) or the Person to which
such sale, assignment, transfer, conveyance or other disposition shall
have been made assumes all the obligations of the Company under the
Notes, the Indenture, the Registration Rights Agreement and the
Collateral Documents pursuant to agreements reasonably satisfactory to
the Trustee;
(3) immediately after such transaction no Default or Event of Default exists;
(4) the transaction would not result in the loss, suspension or material
impairment of any Gaming License unless a comparable replacement Gaming
License is effective prior to or simultaneously with the loss,
suspension or material impairment;
(5) the Surviving Entity:
(a) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction; and
(b) will, on the date of such transaction after giving pro forma effect
thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock";
(6) the Surviving Entity causes such amendments, supplements or other
instruments to be filed and recorded in such jurisdictions as may be
required by applicable law to preserve and protect the Lien of the
Collateral Documents on the Collateral owned by or transferred to the
Surviving Entity, together with such financing statements as may be
required to perfect any security interests in such Collateral which
maybe perfected by the filing of a financing statement under the Uniform
Commercial Code of the relevant states;
(7) the Collateral owned by or transferred to the Surviving Entity shall:
(a) continue to constitute Collateral under the Indenture and the
Collateral Documents,
(b) be subject to the Lien in favor of the Trustee for its benefit and
for the benefit of the Holders of the Notes, and
(c) not be subject to any Lien other than Permitted Liens;
(8) the property and assets of the Person which is merged or consolidated
with or into the Surviving Entity, to the extent that they are property
or assets of the types which would constitute Collateral under the
Collateral Documents, shall be treated as After-Acquired Property and
the Surviving Entity shall take such action as may be reasonably
necessary to cause such property and assets to be made subject to the
Lien of the Collateral Documents in the manner and to the extent
required in the Indenture; and
(9) such transaction would not require any Holder or Beneficial Owner of
Notes to obtain a Gaming License or be qualified or found suitable under
the law of any applicable gaming jurisdiction; provided
114
that such Holder or Beneficial Owner would not have been required to
obtain a Gaming License or be qualified or found suitable under the laws
of any applicable gaming jurisdiction in the absence of such transaction.
No Guarantor may, directly or indirectly, consolidate or merge with or into
another Person (whether or not such Guarantor is the surviving corporation)
unless:
(1) either: (a) the Guarantor is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if other
than the Guarantor) is a corporation organized or existing under the
laws of the United States, any state thereof or the District of Columbia
(the "Surviving Guarantor Entity");
(2) the Surviving Guarantor Entity (if other than the Guarantor) assumes all
the obligations of the Guarantor under its Subsidiary Guarantee, the
Indenture, the Registration Rights Agreement and the Collateral
Documents pursuant to agreements reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default exists;
(4) the transaction would not result in the loss, suspension or material
impairment of any Gaming License unless a comparable replacement Gaming
License is effective prior to or simultaneously with the loss,
suspension or material impairment;
(5) the Company:
(a) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction; and
(b) will, on the date of such transaction after giving pro forma effect
thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock";
(6) the Surviving Guarantor Entity causes such amendments, supplements or
other instruments to be filed and recorded in such jurisdictions as may
be required by applicable law to preserve and protect the Lien of the
Collateral Documents on the Collateral owned by or transferred to the
Surviving Guarantor Entity, together with such financing statements as
may be required to perfect any security interests in such Collateral
which may be perfected by the filing of a financing statement under the
Uniform Commercial Code of the relevant states;
(7) the Collateral owned by or transferred to the Surviving Guarantor Entity
shall:
(a) continue to constitute Collateral under the Indenture and the
Collateral Documents,
(b) be subject to the Lien in favor of the Trustee for the benefit of the
Holders, and
(c) not be subject to any Lien other than Permitted Liens;
(8) the property and assets of the Person which is merged or consolidated
with or into the Surviving Guarantor Entity, to the extent that they are
property or assets of the types which would constitute Collateral under
the Collateral Documents, shall be treated as After-Acquired Property
and the Surviving Guarantor Entity shall take such action as may be
reasonably necessary to cause such property and assets to be made
subject to the Lien of the Collateral Documents in the manner and to the
extent required in the Indenture; and
(9) such transaction would not require any Holder or Beneficial Owner of
Notes to obtain a Gaming License or be qualified or found suitable under
the law of any applicable gaming jurisdiction; provided that such Holder
or Beneficial Owner would not have been required to obtain a Gaming
License or be qualified or found suitable under the laws of any
applicable gaming jurisdiction in the absence of such transaction.
115
The Indenture will provide that in the event of:
(x) a sale or other disposition of all or substantially all of the assets
of any Guarantor, by way of merger, consolidation or otherwise; or
(y) a sale or other disposition of all of the Capital Stock of any
Guarantor, in each case to a Person which is not the Company or a
Restricted Subsidiary (other than a Non-Guarantor Restricted
Subsidiary) or an Affiliate of the Company;
then such Guarantor (in the event of a sale or other disposition, by way of
such a merger, consolidation or otherwise, of all of the Capital Stock of
such Guarantor) or the Person acquiring the property (in the event of a sale
or other disposition of all or substantially all of the assets of such
Guarantor) will be released and relieved of any obligations under its
Subsidiary Guarantee, the Indenture and the Collateral Documents; provided
that:
(1) the Net Proceeds of such sale or other disposition are applied in
accordance with the provisions described under "--Repurchase at the
Option of Holders--Asset Sales"; and
(2) all obligations of such Guarantor under all of its Guarantees of, and
under all of its pledges of assets or other Liens which secure,
Indebtedness of the Company or any of its Subsidiaries, shall also
terminate.
This "Merger, Consolidation or Sale of Assets" covenant will not apply to a
sale, assignment, transfer, conveyance or other disposition of assets solely
between or among the Company and any of its Wholly Owned Restricted
Subsidiaries that is a Guarantor.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would be in compliance with the
conditions set forth in the definition of "Unrestricted Subsidiary"; provided
that in no event shall any business regulated by any Gaming Authority be
transferred to or held by an Unrestricted Subsidiary. If a Restricted
Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair
market value of all outstanding Investments owned by the Company and its
Restricted Subsidiaries in the Subsidiary so designated will be deemed to be an
Investment made as of the time of such designation and will either reduce the
amount available for Restricted Payments under the first paragraph of the
covenant described above under the caption "--Restricted Payments" or reduce
the amount available for future Investments under one or more clauses of the
definition of Permitted Investments, as the Company shall determine in a manner
which complies with the requirements of such covenant or definition, as
applicable. That designation will only be permitted if such Restricted Payment
or Investment would be permitted at that time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary
shall be evidenced to the Trustee by filing with the Trustee a certified copy
of the resolution of the Board of Directors giving effect to such designation
and an officers' certificate certifying that such designation complied with the
conditions set forth in the definition of "Unrestricted Subsidiary" and was
permitted by the covenant described above under the caption "--Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
conditions for continued designation as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date and, if such Indebtedness
is not permitted to be incurred as of such date under the covenant described
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock," the Company shall be in default of such covenant. The Board of
Directors may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if the redesignation would not cause a Default.
Upon the redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary, such Restricted Subsidiary (unless such Restricted Subsidiary is a
Non-Guarantor Restricted Subsidiary) shall execute a supplemental indenture to
become a Guarantor and shall become a party to all applicable Collateral
Documents.
116
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or Guarantee with, or for the benefit of, any
Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$500,000, a resolution of the Board of Directors set forth in an
officers' certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions (i) involving aggregate consideration in
excess of $2.0 million or (ii) to which clause (a) above applies and
in respect of which there are no disinterested directors, an opinion
as to the fairness to the Holders of such Affiliate Transaction from
a financial point of view issued by an independent accounting,
appraisal or investment banking firm.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the immediately preceding
paragraph:
(1) subject to clause (2) of this paragraph, any employment agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary;
(2) any employment, consulting or other similar compensation agreements with
the Principals, so long as the annual compensation paid under all such
agreements with the Principals by the Company and its Restricted
Subsidiaries does not exceed $1.0 million in the aggregate in any
12-month period;
(3) transactions solely between or among the Company and/or its Wholly Owned
Restricted Subsidiaries that are Guarantors;
(4) payment of reasonable directors fees to Persons who are not otherwise
Affiliates of the Company;
(5) sales of Capital Stock of the Company (other than Disqualified Stock) to
Affiliates of the Company;
(6) fees paid to Premier One Development for the provision of casino
property development advisory services rendered to the Company not to
exceed $450,000 in any 12-month period plus an amount equal to the
documented out-of-pocket expenses of Premier One Development incurred in
connection with rendering such services; and
(7) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "--Restricted Payments."
Additional Subsidiary Guarantees
If the Company or any of its Restricted Subsidiaries (other than a
Non-Guarantor Restricted Subsidiary) acquires or creates another Subsidiary
after the date of the Indenture, then that newly acquired or created Subsidiary
must become a Guarantor and execute a supplemental indenture and deliver an
opinion of counsel to the Trustee within ten business days of the date on which
it was acquired or created (except all Subsidiaries that have been properly
designated as Unrestricted Subsidiaries in accordance with the Indenture for so
long as they continue to constitute Unrestricted Subsidiaries).
117
Additional Collateral; Acquisition of Assets or Property
Concurrently with the (i) designation of a Non-Guarantor Restricted
Subsidiary as a Guarantor or (ii) acquisition by the Company or any Restricted
Subsidiary of any assets or property of the type which constitutes Collateral
with a fair market value (as determined by the Board of Directors of the
Company) in excess of $100,000 individually or $250,000 in the aggregate, to
the extent not prohibited by Gaming Authorities or applicable Gaming Laws, the
Company shall, or shall cause the applicable Restricted Subsidiary to, among
other things:
(1) in the case of personal property, execute and deliver to the Trustee
such Uniform Commercial Code financing statements or take such other
actions as shall be necessary or (in the opinion of the Trustee)
desirable to perfect and protect the Trustee's lien on and security
interest in such assets or property and the first priority thereof
(subject only to Permitted Liens and to such other exceptions as shall
be acceptable to the Trustee);
(2) in the case of real property, execute and deliver to the Trustee:
(a) a mortgage, deed of trust or deed to secure debt or a leasehold
mortgage, deed of trust or deed to secure debt, as appropriate, in
form and substance reasonably acceptable to the Trustee under which
the Company or such Restricted Subsidiary shall grant to the Trustee
a first priority lien on and security interest in such real property
and any related fixtures (subject only to Permitted Liens and such
other exceptions as shall be acceptable to the Trustee); and
(b) title insurance (in form and substance as required by the Indenture)
covering such real property in an amount at least equal to the
purchase price of such real property; and
(3) promptly deliver to the trustee such opinions of counsel as the Trustee
may reasonably require with respect to the foregoing (including opinions
as to enforceability and perfection of security interests).
Further Assurances
The Company will, and will cause each of its Restricted Subsidiaries to,
execute and deliver such additional instruments, certificates or documents, and
take all such actions as may be reasonably required from time to time in order
to:
(1) carry out more effectively the purposes of the Collateral Documents;
(2) create, grant, perfect and maintain the validity, effectiveness and
priority of any of the Collateral Documents and the Liens created, or
intended to be created, by the Collateral Documents; and
(3) ensure the protection and enforcement of any of the rights granted or
intended to be granted to the Trustee under any other instrument
executed in connection therewith.
Upon the exercise by the Trustee or any Holder of any power, right,
privilege or remedy under the Indenture or any of the Collateral Documents
which requires any consent, approval, recording, qualification or authorization
of any governmental authority (including any Gaming Authority), the Company
will, and will cause each of its Restricted Subsidiaries to, execute and
deliver all applications, certifications, instruments and other documents and
papers that may be required from the Company or any of its Restricted
Subsidiaries for such governmental consent, approval, recording, qualification
or authorization.
Impairment of Security Interests
The Company will not, and will not permit any of its Restricted Subsidiaries
to, (i) take or omit to take any action with respect to the Collateral that
might or would have the result of affecting or impairing the security interest
in the Collateral in favor of the Trustee for its benefit and for the benefit
of the Holders or (ii) grant to any Person (other than the Trustee for its
benefit and for the benefit of the Holders) any interest whatsoever in the
Collateral, in each case except as expressly provided for in the Indenture or
the Collateral Documents.
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Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted Subsidiaries
to, enter into any sale and leaseback transaction; provided that the Company or
any Guarantor may enter into a sale and leaseback transaction if:
(1) the Company or such Guarantor could have incurred Indebtedness in an
amount equal to the Attributable Debt relating to such sale and
leaseback transaction under the Fixed Charge Coverage Ratio test in the
first paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock";
(2) the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by the
Board of Directors and set forth in an officers' certificate delivered
to the Trustee, of the property that is the subject of that sale and
leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and the Company applies the proceeds of such transaction
in compliance with, the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales."
Limitation on Issuances and Sales of Capital Stock in Wholly Owned Restricted
Subsidiaries
The Company will not, and will not permit any of its Restricted Subsidiaries
to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock in
any Wholly Owned Restricted Subsidiary of the Company to any Person (other than
the Company or a Wholly Owned Restricted Subsidiary of the Company), unless:
(1) such transfer, conveyance, sale, lease or other disposition is of all
the Capital Stock in such Wholly Owned Restricted Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant described
above under the caption "--Repurchase at the Option of Holders--Asset
Sales."
In addition, the Company will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Capital Stock (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary of the Company.
Business Activities
The Company will not, and will not permit any Subsidiary to, engage in any
business other than Permitted Businesses, except to such extent as would not be
material to the Company and its Subsidiaries taken as a whole.
Payments for Consent
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the Notes
unless such consideration is offered to be paid and is paid to all Holders that
consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Insurance
The Company will, and will cause its Restricted Subsidiaries to, maintain
insurance with carriers against such risks and in such amounts as is
customarily carried by similar businesses with such deductibles, retentions,
self insured amounts and coinsurance provisions as are customarily carried by
similar businesses of similar size, including, without limitation, property and
casualty and, in the case of Collateral, will comply with the provisions of the
Collateral Documents relating thereto.
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Reports
Whether or not required by the Commission, so long as any Notes are
outstanding, the Company will furnish to the Holders, within the time periods
specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if
the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
on the annual financial statements by the Company's certified
independent accountants;
(2) if the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information
required by the preceding paragraph shall include a reasonably detailed
presentation, either on the face of the financial statements or in the
footnotes thereto, and in Management's Discussion and Analysis of
Financial Condition and Results of Operations, of the financial
condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of the Company; and
(3) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports.
In addition, following the consummation of the exchange offer contemplated
by the Registration Rights Agreement, whether or not required by the
Commission, the Company will file a copy of all of the information and reports
referred to in clauses (1), (2) and (3) above with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company and the Subsidiary Guarantors have agreed
that, for so long as any Notes remain outstanding, they will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Additional Interest with respect to, the Notes;
(2) default in payment when due of the principal of, or premium, if any, on
the Notes;
(3) failure by the Company or any of its Subsidiaries to comply with the
provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control," "--Repurchase at the Option of
Holders--Asset Sales," "--Repurchase at the Option of Holders--Events of
Loss," "--Certain Covenants--Restricted Payments," "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock"
or "--Certain Covenants--Merger, Consolidation or Sale of Assets;"
(4) failure by the Company or any of its Subsidiaries for 30 days after
notice from the Trustee or Holders of not less than 25% in aggregate
principal amount of the Notes then outstanding to comply with any of the
other covenants or agreements contained in the Indenture;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or any of its Subsidiaries (or the payment
of which is Guaranteed by the Company or any of its Subsidiaries)
whether such Indebtedness or Guarantee now exists, or is created after
the date of the Indenture, if that default:
(a) is caused by a failure to pay principal of, or interest or premium,
if any, on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
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(b) results in the acceleration of such Indebtedness prior to its express
maturity,
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so accelerated,
aggregates $5.0 million or more;
(6) failure by the Company or any of its Subsidiaries to pay final judgments
aggregating in excess of $5.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days;
(7) breach by the Company or any Guarantor of any representation or warranty
or agreement in the Collateral Documents, the repudiation by the Company
or any Guarantor of any of its obligations under the Collateral
Documents or the unenforceability or invalidity of the Collateral
Documents against the Company or any Guarantor for any reason;
(8) any revocation, suspension, expiration without any previous or
concurrent renewal, or loss of any Gaming License of the Company or any
of its Restricted Subsidiaries for more than 60 days (other than any
voluntary relinquishment of a Gaming License if such relinquishment, in
the reasonable good faith judgment of the Board of Directors of the
Company, evidenced by a resolution of such Board, is both desirable in
the conduct of the business of the Company and its Restricted
Subsidiaries, taken as a whole, and would not in any material respect
impair the Company's ability to pay principal and interest on the Notes
or materially impair the value of the Collateral);
(9) the cessation or suspension of any gaming operations of the Company or
any of its Restricted Subsidiaries for more than 30 days that,
individually or in the aggregate, represent in excess of 5% of the
Company's consolidated net revenues for its most recently completed four
fiscal quarters for which financial statements are available (other than
any voluntary cessation of gaming operations if such cessation, in the
reasonable good faith judgment of the Board of Directors of the Company,
evidenced by a resolution of such Board, is both desirable in the
conduct of the business of the Company and its Restricted Subsidiaries,
taken as a whole, and would not in any material respect impair the
Company's ability to pay principal and interest on the Notes or
materially impair the value of the Collateral);
(10) except as permitted by the Indenture, any Subsidiary Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or
any Person acting on behalf of any Guarantor, shall deny or disaffirm
its obligations under its Subsidiary Guarantee;
(11) any failure to perform or comply with the provisions of the Indenture or
the Escrow Agreement described under "--Special Mandatory Redemption"
above; and
(12) certain events of bankruptcy or insolvency with respect to the Company
or any of the Restricted Subsidiaries described in the Indenture.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to the Company, any Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of the then outstanding Notes may declare all
the Notes to be due and payable immediately.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest or Additional Interest, if
any) if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its
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consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest or Additional Interest, if any, on, or the
principal of, the Notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture. Upon becoming aware of any Default or
Event of Default, the Company is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
Possession, Use and Release of Collateral
Unless an Event of Default shall have occurred and be continuing, the
Company will have the right to remain in possession and retain exclusive
control of the Collateral (other than any cash, securities, obligations and
Cash Equivalents constituting part of the Collateral and deposited with the
Trustee and other than as set forth in the Collateral Documents), to freely
operate the Collateral and to collect, invest and dispose of any income thereon.
Release of Collateral. The Company and the Guarantors, as the case may be,
will have the right to obtain a release of items of Collateral (other than
certain Trust Monies) (the "Released Collateral") subject to a sale or other
disposition, and the Trustee will release the Released Collateral from the Lien
of the relevant Collateral Document and reconvey the Released Collateral to the
Company or any such Guarantor upon compliance with the condition that the
Company deliver to the Trustee, among other things, the following:
(a) a notice from the Company requesting the release of Released Collateral,
(i) specifically describing the proposed Released Collateral, (ii)
specifying the fair market value of such Released Collateral on a date
within 60 days of such notice (the "Valuation Date"), (iii) stating that
the consideration to be received in respect of the Released Collateral
is at least equal to the fair market value of the Released Collateral,
(iv) stating that the release of such Released Collateral will not
impair the value of the remaining Collateral or interfere with the
Trustee's ability to realize such value and will not impair the
maintenance and operation of the remaining Collateral, (v) confirming
the sale of, or an agreement to sell, such Released Collateral in a bona
fide sale to a person that is not an Affiliate of the Company or, if
such sale is to a person that is an Affiliate, confirming that such sale
is made in compliance with the provisions described in "--Certain
Covenants--Transactions with Affiliates," (vi) certifying that if the
sale of such Released Collateral constitutes an Asset Sale, such Asset
Sale complies with the terms and conditions of the Indenture with
respect thereto, including, without limitation, the provisions set forth
in "--Repurchase at the Option of Holders--Asset Sales," and (vii) if
there is to be a substitution of property for the Released Collateral
subject to the Asset Sale, specifying the property intended to be
substituted for the Released Collateral to be disposed of;
(b) an officers' certificate of the Company stating that (i) such sale
covers only the Released Collateral, (ii) all Net Proceeds, if any, from
the sale of any of the Released Collateral will be applied pursuant to
the provisions of the Indenture in respect of Asset Sales, (iii) there
is no Default or Event of Default in effect or continuing on the date
thereof or the Valuation Date, (iv) the release of the Collateral will
not result in a Default or Event of Default under the Indenture, and (v)
all conditions precedent in the Indenture relating to the release have
been complied with; and
(c) all documentation required by the Trust Indenture Act, if any, prior to
the release of the Released Collateral by the Trustee and, if there is
to be a substitution of property for the Released Collateral subject to
the Asset Sale, all documentation necessary to effect the substitution
of such new Collateral and to subject such new Collateral to the Lien of
the relevant Collateral Documents.
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The Company also shall be entitled, subject to compliance with the
conditions set forth therein, to obtain the release of Collateral which has
been taken by eminent domain, condemnation or in similar circumstances.
The Company shall be entitled to obtain a full release of all of the
Collateral following legal defeasance or covenant defeasance of the Indenture
as described above under "--Legal Defeasance and Covenant Defeasance."
Disposition of Collateral Without Release. Notwithstanding the provisions
of "Release of Collateral" above, so long as no Default or Event of Default
shall have occurred and be continuing or would result therefrom, the Company
and the Guarantors may, among other things, without any release or consent by
the Trustee, conduct ordinary course activities with respect to Collateral in
accordance with the provisions of the Indenture, including selling or otherwise
disposing of, in any transaction or series of related transactions, any
property subject to the Lien of the Collateral Documents which has become worn
out or obsolete and which either has an aggregate fair market value of $50,000
or less, or which is replaced by property of substantially equivalent or
greater value which becomes subject to the Lien of the Collateral Documents as
After-Acquired Property; abandoning, terminating, cancelling, releasing or
making alterations in or substitutions of any leases or contracts subject to
the Lien of the Indenture or any of the Collateral Documents; surrendering or
modifying any franchise, license or permit subject to the Lien of the Indenture
or any of the Collateral Documents which it may own or under which it may be
operating; altering, repairing, replacing, changing the location or position of
and adding to its structures, machinery, systems, equipment, fixtures and
appurtenances; demolishing, dismantling, tearing down, scrapping or abandoning
any Collateral if, in the good faith opinion of the Board of Directors of the
Company, such demolition, dismantling, tearing down, scrapping or abandonment
is in the best interest of the Company; granting a nonexclusive license of any
intellectual property; and abandoning intellectual property which has become
obsolete and not used in the business.
Use of Trust Monies
All Trust Monies (including, without limitation, all Net Proceeds and Net
Loss Proceeds) shall, subject to the terms of the Senior Intercreditor
Agreement with respect to the Credit Agreement Collateral, be held by the
Trustee as a part of the Collateral securing the Notes and, so long as no Event
of Default shall have occurred and be continuing, may, subject to certain
conditions set forth in the Indenture, at the direction of the Company be
applied by the Trustee from time to time to the payment of the principal of,
premium, if any, and interest on any Notes at maturity or upon redemption or
retirement, or to the purchase of Notes upon tender or in the open market or
otherwise, in each case in compliance with the Indenture.
The Trustee shall be entitled to apply any Trust Monies held by the Trustee
to cure any Event of Default. Trust Monies deposited with the Trustee shall be
invested in Cash Equivalents pursuant to the direction of the Company and, so
long as no Default or Event of Default shall have occurred and be continuing,
the Company shall be entitled to any interest or dividends accrued, earned or
paid on such Cash Equivalents.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company
or of any Guarantor, as such, shall have any liability for any obligations of
the Company or of the Guarantors under the Notes, the Indenture, the Subsidiary
Guarantees, the Collateral Documents or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
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Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and all
obligations of the Guarantors discharged with respect to their Subsidiary
Guarantees ("Legal Defeasance") except for:
(1) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, or interest or premium and Additional
Interest, if any, on such Notes when such payments are due from the
trust referred to below;
(2) the Company's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
the Company's and the Guarantor's obligations in connection therewith;
and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company and the Guarantors released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants shall not constitute
a Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, and interest
and premium and Additional Interest, if any, on the outstanding Notes on
the stated maturity or on the applicable redemption date, as the case
may be, and the Company must specify whether the Notes are being
defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel reasonably acceptable to the Trustee
confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the
date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit (other than a Default or Event
of Default resulting from the borrowing of funds to be applied to such
deposit); or (b) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach
or violation of, or constitute a default under any material agreement or
instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
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(6) the Company must have delivered to the Trustee an opinion of counsel to
the effect that, assuming no intervening bankruptcy of the Company
between the date of deposit and the 91st day following the deposit and
assuming that no Holder is an "insider" of the Company under applicable
bankruptcy law, after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(7) the Company must deliver to the Trustee an officers' certificate stating
that the deposit was not made by the Company with the intent of
preferring the Holders over the other creditors of the Company with the
intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and
(8) the Company must deliver to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent relating
to the Legal Defeasance or the Covenant Defeasance have been complied
with.
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the Indenture,
the Collateral Documents or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes),
and any existing default or compliance with any provision of the Indenture or
the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes (other
than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
Note;
(4) waive a Default or Event of Default in the payment of principal of, or
interest or premium, or Additional Interest, if any, on the Notes
(except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver
of the payment default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of the Indenture relating to waivers
of past Defaults or the rights of Holders to receive payments of
principal of, or interest or premium or Additional Interest, if any, on
the Notes;
(7) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders");
(8) release any Guarantor from any of its obligations under its Subsidiary
Guarantee or the Indenture, except in accordance with the terms of the
Indenture;
(9) make any change to the provisions of the Indenture relating to the
special mandatory redemption described under the caption "--Special
Mandatory Redemption" in a way that would adversely effect the rights of
any of the Holders;
(10) adversely affect the ranking of the Notes; or
(11) make any change in the preceding amendment and waiver provisions.
125
Notwithstanding the foregoing, Collateral may be released with the consent
of the Holders of at least 75% in aggregate principal amount of the then
outstanding Notes in addition to the release of Collateral expressly permitted
by the Indenture and the Collateral Documents.
Notwithstanding the preceding, without the consent of any Holder, the
Company, the Guarantors and the Trustee may amend or supplement the Indenture
or the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(3) to provide for the assumption of the Company's obligations to Holders in
the case of a merger or consolidation or sale of all or substantially
all of the Company's assets;
(4) to make any change that would provide any additional rights or benefits
to the Holders or that does not adversely affect the legal rights under
the Indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture
Act.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as
to all Notes issued thereunder, when:
(1) either:
(a) all Notes that have been authenticated (except lost, stolen or
destroyed Notes that have been replaced or paid and Notes for whose
payment money has theretofore been deposited in trust and thereafter
repaid to the Company) have been delivered to the Trustee for
cancellation; or
(b) all Notes that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the making of a
notice of redemption or otherwise or will become due and payable
within one year and the Company or any Guarantor has irrevocably
deposited or caused to be deposited with the Trustee as trust funds
in trust solely for the benefit of the Holders, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient without consideration of any
reinvestment of interest, to pay and discharge the entire
indebtedness on the Notes not delivered to the Trustee for
cancellation for principal, premium and Additional Interest, if any,
and accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or shall occur as a result of such deposit and
such deposit will not result in a breach or violation of, or constitute
a default under, any other instrument to which the Company or any
Guarantor is a party or by which the Company or any Guarantor is bound;
(3) the Company or any Guarantor has paid or caused to be paid all sums
payable by it under the Indenture; and
(4) the Company has delivered irrevocable instructions to the Trustee under
the Indenture to apply the deposited money toward the payment of the
Notes at maturity or the redemption date, as the case may be.
In addition, the Company must deliver an officers' certificate and an
opinion of counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
Concerning the Trustee
If the Trustee becomes a creditor of the Company or any Guarantor, the
Indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as
126
security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
Holder, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the Indenture and
the Collateral Documents without charge by writing to the Company at 240 Main
Street, Black Hawk, Colorado 80422, Attention: Chief Financial Officer.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Black Hawk Indebtedness" means Indebtedness represented by,
collectively, (1) $1.5 million in aggregate principal amount at maturity of
6.25% Series 1999A Black Hawk Business Improvement District, Gilpin, Colorado,
Special Improvement District No. 1997-2 Special Assessment Bonds due December
1, 2004 and (2) $4.0 million in aggregate principal amount at maturity of 6.50%
Series 1999B Black Hawk Business Improvement District, Gilpin, Colorado,
Special Improvement District No. 1997-2 Special Assessment Bonds due December
1, 2011, which bonds are secured by a first priority Prior Lien on certain real
property comprising the Black Hawk Business Improvement District relating to
The Lodge Casino in favor of the Black Hawk Business Improvement District
Special Assessment Bonds.
"Acquired Colonial Holdings Indebtedness" means
(1) $15.7 million in principal amount of Indebtedness incurred pursuant to a
certain Amended and Restated Loan Agreement, dated August 30, 2000, as
amended to the date of issuance of the Notes by and among Colonial
Downs, Colonial and CD Entertainment which is secured by a Lien on
substantially all of the assets of Colonial and its Subsidiaries (other
than its off-track wagering facilities);
(2) a note payable to Citizens and Farmers Bank in the principal amount of
$120,000 as of December 31, 2001, less any repayments thereof, bearing
interest at the rate of 8.5%, maturing in August 2002, and secured by a
first priority Lien on the racetrack lighting equipment purchased with
the proceeds of the note;
(3) a note payable to the Maryland Jockey Club in the principal amount of
$1,245,148 as of December 31, 2001, less any repayments thereof, bearing
interest at the rate of 7.75%, maturing in December 2005; and
(4) a note payable to the Maryland Jockey Club in the principal amount of
$300,308 as of December 31, 2001, less any repayments thereof, bearing
interest at the prime rate and maturing in January 2002.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in
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connection with, or in contemplation of, such other Person merging with
or into, or becoming a Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Acquired Louisiana Properties Indebtedness" means, collectively,
(1) a certain promissory note maturing at March 31, 2009, in the principal
amount of $1,208,571.40, dated February 7, 2001, as amended on September
26, 2001, between Winner's Choice Casino, Inc. as borrower, and Claude
M. Penn, Jr. and George D. Lockhart, as creditors, accruing interest in
the amount of 8.0% until October 1, 2001 and 8.5% thereafter, secured by
a second mortgage on the property comprising Winner's Choice in the
parish of Calcasieu, city of Sulphur, Louisiana in favor of Claude M.
Penn, Jr. and George D. Lockhart;
(2) a certain promissory note maturing at March 31, 2009, in the principal
amount of $1,809,160, dated February 7, 2001, as amended on September
26, 2001, between Houma Truck Plaza & Casino, L.L.C., as borrower, and
Claude M. Penn, Jr., as creditor, accruing interest in the amount of
8.0% until October 1, 2001 and 8.5% thereafter;
(3) a certain promissory note maturing at March 31, 2009, in the principal
amount of $1,718,857.10, dated February 7, 2001, as amended on September
26, 2001, between Jalou-Cash's L.L.C., as borrower and Seabuckle Gaming,
Inc., as creditor, accruing interest in the amount of 8.0% until October
1, 2001 and 8.5% thereafter, secured by a second security interest in
the revenue accruing under a certain Video Draw Poker Device Agreement
dated April 24, 1998 by and between Cash's Casino, Inc. and Southern
Trading Corporation, as successor to Seabuckle Gaming Inc.;
(4) a certain promissory note maturing at April 30, 2009, in the principal
amount of $788,000, dated January 11, 2002, between Lucky Magnolia Truck
Stop and Casino, L.L.C., as borrower and Claude M. Penn, Jr., as
creditor, accruing interest in the amount of 8.5%, secured by a second
mortgage on the property comprising the Lucky Magnolia Truck Stop and
Casino, which is located in the parish of St. Helena, city of Denham
Springs, Louisiana in favor of Claude M. Penn, Jr.;
(5) a certain promissory note maturing at April 30, 2009, in the principal
amount of $1,679,142.86, dated January 11, 2002, between Bayou Vista
Truck Plaza and Casino, L.L.C., as borrower and Claude M. Penn, Jr., as
creditor, accruing interest in the amount of 8.5%, secured by a second
mortgage on the property comprising the Bayou Vista Truck Plaza and
Casino, which is located in the parish of St. Mary, city of Bayou Vista,
Louisiana in favor of Claude M. Penn, Jr.;
(6) a certain promissory note maturing at April 30, 2009, in the principal
amount of $2,171,428.57, dated January 11, 2002, between JACE, Inc., as
borrower and Claude M. Penn, Jr., as creditor, accruing interest in the
amount of 8.5%, secured by a second mortgage on the property comprising
the Colonel's Truck Plaza and Casino, which is located in the parish of
Terribonne, city of Thibodaux, Louisiana in favor of Claude M. Penn, Jr.;
(7) a certain promissory note maturing 7.25 years from the date of issuance,
in the principal amount not to exceed $1,200,000, to be dated the date
of the acquisition of the property, between Raceland Truck Plaza and
Casino, as borrower and Claude M. Penn, Jr., as creditor, accruing
interest in the amount of 8.5%, secured by a second mortgage on the
property comprising the Raceland Truck Plaza and Casino, which is
located in the parish of Lafourche, city of Raceland, Louisiana in favor
of Claude M. Penn, Jr.;
(8) a certain unsecured subordinated promissory note, maturing January 31,
2010, in the principal amount of $1.0 million to be dated on or after
the date of the issuance of the Notes between the Company as borrower
and Jeffrey P. Jacobs as creditor, accruing interest in the amount of
12% until maturity; and
(9) a certain unsecured subordinated promissory note, maturing January 31,
2010, in the principal amount of $8.0 million to be dated on or after
the date of the issuance of the Notes between the Company as
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borrower and The Richard E. Jacobs Revocable Trust as creditor, accruing
interest in the amount of 12% until maturity.
As of February 22, 2002, each of the promissory notes described in clauses
(1) through (7) above was assumed by and became an obligation of the Company
and is subject to the Seller Intercreditor Agreement. Each of the promissory
notes described in clauses (8) and (9) above is subject to the Jacobs
Subordination and Intercreditor Agreement.
"Acquired Pending Acquisitions Indebtedness" means, collectively, the
Acquired Black Hawk Indebtedness, the Acquired Colonial Holdings Indebtedness
and the Acquired Louisiana Properties Indebtedness.
"Additional Interest" has the meaning assigned to such term under
"Registration Rights."
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the Voting Stock of a Person shall be deemed to be control. For purposes of
this definition, the terms "controlling," "controlled by" and "under common
control with" shall have correlative meanings.
"After-Acquired Property" means assets or property acquired after the date
of the Indenture which are required to constitute Collateral pursuant to the
provisions of the Indenture.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights; provided that the sale, conveyance or other disposition of all
or substantially all of the assets of the Company and its Subsidiaries
taken as a whole will be governed by the provisions of the Indenture
described above under the caption "--Repurchase at the Option of
Holders--Change of Control" and/or the provisions described above under
the caption "--Certain Covenants--Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Capital Stock in any of the Company's Restricted
Subsidiaries or the sale of Capital Stock in any of its Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that involves
assets having a fair market value of less than $500,000;
(2) a transfer of assets solely between or among the Company and its Wholly
Owned Restricted Subsidiaries that are Guarantors; provided that such
assets (to the extent constituting Collateral) shall remain subject to
the Lien of the Collateral Documents;
(3) an issuance of Capital Stock by a Wholly Owned Restricted Subsidiary
that is a Guarantor to the Company or to another Wholly Owned Restricted
Subsidiary that is a Guarantor; provided that such Capital Stock shall
constitute After-Acquired Property and shall be made subject to the Lien
of the Collateral Documents in accordance with the provisions of the
Indenture;
(4) the sale or lease of equipment, accounts receivable or other assets in
the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents in the
ordinary course of business; and
(6) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "--Certain
Covenants--Restricted Payments."
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"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Bankruptcy Code" means Title 11, U.S. Code or any similar federal or state
law for relief of debtors.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire by
conversion or exercise of other securities, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition. The terms "Beneficially Owns" and "Beneficially Owned" shall have a
corresponding meaning.
"Black Hawk Permitted Liens" means the Liens securing the Acquired Black
Hawk Indebtedness to the extent and in the manner such Liens exist on the date
of the Indenture.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the corporation;
(2) with respect to a partnership, the Board of Directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such Person
serving a similar function.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at that time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person;
and, in the case of each of the foregoing, all warrants, options or rights
to acquire the foregoing.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully Guaranteed or insured by the
United States government or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged
in support thereof) having maturities of not more than six months from
the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits, in
each case, with any domestic commercial bank having capital and surplus
in excess of $500.0 million;
130
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper maturing within six months after the date of
acquisition and having a rating of at least A-1 from Moody's Investors
Service, Inc. or P-1 from Standard & Poor's (a division of The
McGraw-Hill Companies, Inc.); and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) any Person or group of related Persons for purposes of Section 13(d) of
the Exchange Act (a "Group"), other than the Principals and Related
Parties, becomes the Beneficial Owner of more than 33 1/3% of the total
voting power of the Company's Voting Stock, and the Principals and
Related Parties Beneficially Own, in the aggregate, a lesser percentage
of the total voting power of the Voting Stock of the Company than such
other Person or Group and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Company;
(2) there is consummated any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially
all of the assets of the Company and its Subsidiaries, taken as a whole,
to any Person or Group, together with any Affiliates thereof (whether or
not otherwise in compliance with the provisions of the Indenture) other
than to the Principals and Related Parties;
(3) the adoption of a plan relating to the liquidation or dissolution of the
Company;
(4) there is consummated any consolidation or merger of the Company in which
the Company is not the continuing or surviving Person or pursuant to
which the Common Stock of the Company would be converted into cash,
securities or other property, other than a merger or consolidation of
the Company in which the holders of the Capital Stock of the Company
outstanding immediately prior to the consolidation or merger hold,
directly or indirectly, at least a majority of the voting power of the
surviving corporation immediately after such consolidation or merger; or
(5) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors.
"Code" means the Internal Revenue Code, as amended.
"Collateral" means, collectively, all of the property and assets described
in the first paragraph under "--Security," together with all other property and
assets that are from time to time subject to the Lien of the Collateral
Documents.
"Collateral Account" means the collateral account established pursuant to
the Indenture.
"Collateral Documents" means, collectively, the Mortgages, the Security
Agreement, the Intercreditor Agreements, the Senior Intercreditor Agreement,
the Escrow Agreement and all other mortgages, deeds of trust, pledge
agreements, collateral assignments, security agreements, fiduciary transfers,
debentures, fiduciary assignments or other instruments evidencing or creating
any security interests or Liens in favor of the Trustee on behalf of itself and
the Holders (whether directly or by assignment) in all or any portion of the
Collateral, in each case, as amended, amended and restated, extended, renewed,
supplemented or otherwise modified from time to time, in accordance with the
terms thereof.
"Colonial Holdings Permitted Liens" means the Liens securing the
Indebtedness described in clause (2) of the definition of "Acquired Colonial
Holdings Indebtedness," to the extent and in the manner such Liens exist on the
date of the Indenture.
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"Commission" means the Securities and Exchange Commission.
"Consolidated EBITDA" means, with respect to any specified Person for any
period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss realized by
such Person or any of its Restricted Subsidiaries in connection with an
Asset Sale, to the extent such losses were deducted in computing such
Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period (including, without limitation,
any Tax Distributions taken into account in calculating Consolidated Net
Income), to the extent that such provision for taxes was deducted in
computing such Consolidated Net Income; plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated
Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any
such non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person and
its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; plus
(5) without duplication of any items described above, to the extent such
amounts were deducted in computing Consolidated Net Income, the costs
and expenses of the Company incurred in connection with (i) the
consummation of the issuance and sale of the Notes to the initial
purchasers and (ii) the consummation of the Pending Acquisitions; minus
(6) non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business, in
each case, on a consolidated basis and determined in accordance with
GAAP.
Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash
expenses of, a Subsidiary of the Company shall be added to Consolidated Net
Income to compute Consolidated EBITDA of the Company only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior governmental
approval (that has not been obtained), and without direct or indirect
restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Wholly Owned
Restricted Subsidiary thereof;
132
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall
be excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded;
(5) any net gain (but not loss) resulting from an Asset Sale by the Person
in question or any of its Restricted Subsidiaries other than in the
ordinary course of business shall be excluded;
(6) extraordinary gains and losses shall be excluded; and
(7) in the case of any Person that is a Flow Through Entity during such
period, an amount equal to the maximum amount of Tax Distributions made
or which may be made to the holders of Capital Stock of such Person in
respect of the net taxable income allocated by such Person to such
holders for such period shall be included as though such amounts had
been paid as income taxes directly by the Company.
"Consolidated Net Worth" means, with respect to any specified Person as of
any date, the sum of:
(1) the consolidated equity of the common stockholders of such Person and
its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of Preferred Stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but
only to the extent of any cash received by such Person upon issuance of
such Preferred Stock.
"Contested Collateral Lien Conditions" shall mean, with respect to any
Permitted Lien of the type described in clauses (1), (2) and (6) of the
definition of Permitted Lien, the following conditions:
(1) any proceeding instituted contesting such Lien shall conclusively
operate to stay the sale or forfeiture of any portion of the Collateral
on account of such Lien;
(2) at the option and upon request of the Trustee, the Company or any
Guarantor, as applicable, shall maintain cash reserves in an amount
sufficient to pay and discharge such Lien and the Trustee's reasonable
estimate of all interest and penalties related thereto; and
(3) such Lien shall in all respects be subject and subordinate in priority
to the Lien and security interest crated and evidenced by the Collateral
Documents, except if and to the extent that the law or regulation
creating, permitting or authorizing such Lien provides that such Lien is
or must be superior to the Lien and security interest created and
evidenced by the Collateral Documents.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the date of the Indenture; or
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election.
"Credit Agreement" means (a) any credit agreement, dated on or after the
date of the Indenture, by and among the Company, one or more of its
Subsidiaries and the financial institutions acting as lenders and/or agents
133
thereunder (including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith) and (b) any
amendment, modification, supplement, refunding, refinancing or replacement
thereof) that has terms and conditions (including with respect to applicable
interest rates and fees) customary for similar facilities extended to borrowers
comparable to the Company, in each case, that does not permit the Company and
such Subsidiaries to incur Indebtedness in an aggregate principal amount at any
time outstanding in excess of $10.0 million.
"Credit Agreement Collateral" means all of the real property owned or leased
by the Company or a Subsidiary on which The Lodge Casino and the Gilpin Hotel
Casino in Black Hawk, Colorado are located, together with all easements, right,
title and interest (including, without limitation, fee and easehold estates) of
the Company and the Subsidiaries in and to any and all parcels of real
property, together with all easements, hereditaments and appurtenances relating
thereto, and all other improvements, accessions, alterations, replacements and
repairs thereto and all leases and rents and other income, issues or profits
derived from the foregoing interests and all right, title and interest of the
Company and the Subsidiaries in and to any and all equipment, machinery,
furniture, furnishings and fixtures, together with all additions, accessions,
improvements, alterations, replacements and repairs thereto.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such
Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall
not constitute Disqualified Stock if the terms of such Capital Stock provide
that the Company may not repurchase or redeem any such Capital Stock pursuant
to such provisions unless such repurchase or redemption complies with the
covenant described above under the caption "--Certain Covenants--Restricted
Payments."
"Equity Offering" means any public offering or private sale of Capital Stock
(other than Disqualified Stock) of the Company pursuant to which the Company
receives net proceeds of at least $10.0 million.
"Event of Loss" means, with respect to any property or asset (tangible or
intangible, real or personal) constituting Collateral, any of the following:
(1) any loss, destruction or damage of such property or asset;
(2) any institution of any proceedings for the condemnation or seizure of
such property or asset or for the exercise of any right of eminent
domain;
(3) any actual condemnation, seizure or taking by exercise of the power of
eminent domain or otherwise of such property or asset, or confiscation
of such property or asset or the requisition of the use of such property
or asset; or
(4) any settlement in lieu of clauses (2) or (3) above.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of the Indenture until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any specified Person for
any period, the ratio of the Consolidated EBITDA of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of
134
such Person and its Restricted Subsidiaries for such period. In the event that
the specified Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, repays, repurchases or redeems any Indebtedness (other than
ordinary working capital borrowings) or issues, repurchases or redeems
Preferred Stock subsequent to the commencement of the period for which the
Fixed Charge Coverage Ratio is being calculated and on or prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio is
made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee,
repayment, repurchase or redemption of Indebtedness, or such issuance,
repurchase or redemption of Preferred Stock, and the use of the proceeds
therefrom as if the same had occurred at the beginning of the applicable
four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior
to the Calculation Date shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Consolidated EBITDA for such reference period shall be calculated on a
pro forma basis in accordance with Regulation S-X under the Securities
Act, but without giving effect to clause (3) of the proviso set forth in
the definition of Consolidated Net Income;
(2) the Consolidated EBITDA attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior
to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted
Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including,
without limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect
to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net of the effect of all payments made or received
pursuant to Hedging Obligations; plus
(2) the consolidated interest of such Person and its Restricted Subsidiaries
that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(4) the amount of all dividends, whether paid or accrued and whether or not
in cash, on any series of Preferred Stock of such Person or any of its
Restricted Subsidiaries, other than dividends on Capital Stock payable
solely in Capital Stock of the Company (other than Disqualified Stock)
or to the Company or a Restricted Subsidiary of the Company.
"Flow Through Entity" means an entity that:
(1) for Federal income tax purposes constitutes
(a) an "S corporation", as defined in Section 1361(a) of the Code,
(b) a "qualified subchapter S subsidiary", as defined in Section
1361(b)(3)(B) of the Code,
135
(c) a "partnership", within the meaning of Section 7701(a)(2) of the
Code, other than a "publicly traded partnership", as defined in
Section 7704 of the Code, or
(d) an entity that is disregarded as an entity separate from its owner
under the Code, the Treasury regulations or any published
administrative guidance of the Internal Revenue Service; and
(2) for state and local jurisdictions in respect of which Tax Distributions
are being made, is subject to treatment on a basis under applicable
state or local income tax law substantially similar to a Federal Flow
Through Entity.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Gaming Authorities" means any agency, authority, board, bureau, commission,
department, office or instrumentality of any nature whatsoever of the United
States or foreign government, any state, province or city or other political
subdivision, whether now or hereafter existing, or any officer or official
thereof, including, without limitation, the gaming commission and any other
agency with authority to regulate any gaming operation or proposed gaming
operation owned, managed or operated by the Company or any of its Restricted
Subsidiaries.
"Gaming Law" means any gaming laws or regulations of any jurisdictions to
which the Company or any of its Subsidiaries is or may at any time after the
date of the Indenture be subject.
"Gaming Licenses" means every material license, material franchise, material
registration, material qualification, findings of suitability or other material
approval or authorization required to own, lease, operate or otherwise conduct
or manage riverboat, dockside or land-based gaming activities in any state or
jurisdiction in which the Company or any of its Restricted Subsidiaries
conducts business, and all applicable liquor licenses.
"Government Securities" means direct obligations of, or obligations
Guaranteed by, the United States of America for the payment of which Guarantee
or obligations the full faith and credit of the United States is pledged and
which are not callable or redeemable at the option of the issuer thereof.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors" means each Restricted Subsidiary that executes a Subsidiary
Guarantee in accordance with the Indenture and their respective successors and
assigns.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Indebtedness" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
136
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) in respect of the balance deferred and unpaid of the purchase price of
any property, except any such balance that constitutes an accrued
expense or trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
the specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes (i) all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person), (ii) to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person, and (iii) all
Disqualified Stock issued by such Person with the amount of such Disqualified
Stock being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding accrued
dividends, if any.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount; and
(2) the principal amount thereof, together with any interest thereon that is
more than 30 days past due, in the case of any other Indebtedness.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were purchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, and if such price is based
upon, or measured by, the fair market value of such Disqualified Stock, such
fair market value shall be determined reasonably and in good faith by the Board
of Directors of the issuer of such Disqualified Stock.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the form
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers
and employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Capital Stock or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Restricted Subsidiary of the Company sells or otherwise disposes of any
Capital Stock of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Wholly Owned Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Capital Stock of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments." The acquisition by the Company or any
Subsidiary of the Company of a Person that holds an Investment in a third
Person shall be deemed to be an Investment by the Company or such Subsidiary in
such third Person in an amount equal to the fair market value of the Investment
held by the acquired Person in such third Person in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "--Certain Covenants--Restricted Payments."
"Jacobs Subordinated Louisiana Properties Notes" means the notes referred to
in clauses (8) and (9) of the definition of "Acquired Louisiana Properties
Indebtedness," as the same may be amended or otherwise modified from time to
time in accordance with the terms of the Indenture and the Jacobs Subordination
and Intercreditor Agreement.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under
137
applicable law, including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction.
"Louisiana Properties Notes" means, collectively, the Jacobs Subordinated
Louisiana Properties Notes and the Louisiana Properties Seller Notes.
"Louisiana Properties Permitted Junior Liens" means the Liens securing the
Indebtedness described in clauses (1) through (7) inclusive of the definition
of "Acquired Louisiana Properties Indebtedness", to the extent and in the
manner such Liens exist on the date of the Indenture (except in the case of
clause (7) which shall be to the extent and in the manner such Liens exist on
the date such indebtedness is incurred), which Liens are junior in right of and
subject to the prior rights of the Lien securing the Notes in the manner
provided for in the Seller Intercreditor Agreement.
"Louisiana Properties Seller Notes" means the notes referred to in clauses
(1) through (7) inclusive of the definition of "Acquired Louisiana Properties
Indebtedness," as the same may be amended or otherwise modified from time to
time in accordance with the terms of the Indenture and the Seller Intercreditor
Agreement.
"Mortgaged Louisiana Property" means the property and assets secured by the
Louisiana Properties Permitted Junior Liens.
"Net Income" means, with respect to any specified Person for any period the
net income (loss) of such Person, determined in accordance with GAAP and before
any reduction in respect of Preferred Stock dividends to the extent such
Preferred Stock dividends do not reduce net income as determined in accordance
with GAAP.
"Net Loss Proceeds" means the aggregate cash proceeds received by the
Company or any Guarantor in respect of any Event of Loss, including, without
limitation, insurance proceeds, condemnation awards or damages awarded by any
judgment, net of the direct costs in recovery of such Net Loss Proceeds
(including, without limitation, legal, accounting, appraisal and insurance
adjuster fees and any relocation expenses incurred as a result thereof),
amounts required to be applied to the repayment of Indebtedness secured by a
Prior Lien (including, without limitation, any Permitted Lien which is a Prior
Lien) on the asset or assets that were the subject of such Event of Loss, and
any taxes paid or payable as a result thereof.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, sales commissions, and any relocation expenses
incurred as a result thereof, and taxes paid or payable as a result thereof, in
each case, after taking into account any available tax credits or deductions
and any tax sharing arrangements, amounts required to be applied to the
repayment of Indebtedness by a Prior Lien (including, without limitation, any
Permitted Lien that is a Prior Lien) on the asset or assets that were the
subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets established in accordance with GAAP.
"Non-Guarantor Restricted Subsidiary" means any Restricted Subsidiary to the
extent not otherwise required to be a Guarantor under the Indenture. (Colonial
Holdings, Stansley and Colonial Downs) became Guarantors on June 14, 2002 and
are no longer Non-Guarantor Restricted Subsidiaries).
"Non-Recourse Indebtedness" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
138
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder
of any other Indebtedness of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated
maturity; and
(3) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Notes" means the 11 7/8% Senior Secured Notes due 2009 to be issued by the
Company, and any Additional Notes.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Paying Agent" means an office or agency maintained by the Company within
the City and State of New York where Notes may be presented for payment.
"Pending Acquisitions" means:
(1) the acquisition of Black Hawk Gaming pursuant to the Agreement and Plan
of Merger, dated as of April 25, 2001, as amended on November 12, 2001,
among Black Hawk Gaming, the Company and BH Acquisition;
(2) the acquisition of Diversified and its Subsidiaries which collectively
own and operate the Louisiana truck plaza video gaming properties
(including, without limitation, the acquisition of Raceland) described
in the Company's Offering Memorandum dated February 1, 2002 pursuant to
an Exchange Agreement dated February 22, 2002 on or after the date of
the issuance of the Notes among the Company, Jeffrey P. Jacobs and The
Richard E. Jacobs Revocable Trust; and
(3) the acquisition of Colonial pursuant to the Agreement and Plan of
Merger, dated as of June 11, 2001, as amended on November 16, 2001,
among Colonial, the Company and Gameco Acquisition. (These acquisitions
were consummated on February 22, 2002).
"Permitted Business" means the ownership and operation of one or more gaming
or pari-mutuel businesses, including without limitation, casinos, hotels,
racetracks and video poker truck stops, in the United States of America.
"Permitted Investments" means:
(1) any Investment in the Company or in a Wholly Owned Restricted Subsidiary
of the Company that is a Guarantor;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Subsidiary of the Company in a
Person, if as a result of such Investment:
(a) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company and a Guarantor; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Restricted Subsidiary
of the Company that is a Guarantor;
(4) any Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "--Repurchase at the Option
of Holders--Asset Sales";
139
(5) any acquisition of assets solely in exchange for the issuance of Capital
Stock (other than Disqualified Stock) of the Company; and
(6) Hedging Obligations.
"Permitted Liens" means:
(1) inchoate Liens for taxes, assessments or governmental charges or levies
not yet due and payable or delinquent and Liens for taxes, assessments
or governmental charges or levies, which (i) are being contested in good
faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, which proceedings (or orders
entered in connection with such proceedings) have the effect of
preventing the forfeiture or sale of the property or assets subject to
any such Lien, or (ii) in the case of any such charge or claim which has
or may become a Lien against any of the Collateral, such Lien and the
contest thereof shall satisfy the Contested Collateral Lien Conditions;
(2) Liens in respect of property of the Company or any Restricted Subsidiary
imposed by law, which were incurred in the ordinary course of business
and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's, landlord's and mechanics' liens and other
similar Liens arising in the ordinary course of business, and (i) which
do not in the aggregate materially detract from the value of the
property or assets of the Company and its Restricted Subsidiaries, taken
as a whole, and do not materially impair the use thereof in the
operation of the business of the Company and its Restricted
Subsidiaries, taken as a whole, (ii) which are being contested in good
faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, which proceedings (or orders
entered in connection with such proceedings) have the effect of
preventing the forfeiture or sale of the property or assets subject to
any such Lien, and (iii) in the case of any such Lien which has or may
become a Lien against any of the Collateral, such Lien and the contest
thereof shall satisfy the Contested Collateral Lien Conditions;
(3) (a) Liens on property and assets of the Company existing on the date of
the Indenture other than Liens of third parties on the Collateral and
(b) upon consummation of the Pending Acquisitions, the Louisiana
Properties Permitted Junior Liens the Black Hawk Permitted Liens and the
Colonial Holdings Permitted Liens;
(4) easements, rights-of-way, restrictions (including zoning restrictions),
covenants, encroachments, protrusions and other similar charges or
encumbrances, and minor title deficiencies on or with respect to any
real property, in each case whether now or hereafter in existence, not
(i) securing Indebtedness, (ii) individually or in the aggregate
materially impairing the value or marketability of such real property
and (iii) individually or in the aggregate materially interfering with
the conduct of the business of the Company or any Restricted Subsidiary
at such real property;
(5) Liens arising out of judgments or awards not resulting in a Default and
in respect of which the Company or any Restricted Subsidiary shall in
good faith be prosecuting an appeal or proceedings for review in respect
of which there shall be secured a subsisting stay of execution pending
such appeal or proceedings; provided that the aggregate amount of all
such judgments or awards (and any cash and the fair market value of any
property subject to such Liens) does not exceed $5.0 million at any time
outstanding;
(6) Liens (other than any Lien imposed by the United States Employee
Retirement Income Security Act of 1974, as amended) (i) imposed by law
or deposits made in connection therewith in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security or public utility
obligations, (ii) incurred in the ordinary course of business to secure
the performance of tenders, statutory obligations (other than excise
taxes), surety, stay, customs and appeal bonds, statutory bonds, bids,
leases, government contracts, trade contracts, performance and return of
money bonds and other similar obligations (exclusive of obligations for
the payment of borrowed money) or (iii) arising by virtue of deposits
made in the ordinary course of business to secure liability
140
for premiums to insurance carriers; provided that (x) with respect to
clauses (i), (ii) and (iii) hereof such Liens are set amounts not yet
due and payable or delinquent or, to the extent such amounts are so
due and payable, such amounts are being contested in good faith by
appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, which proceedings (or orders
entered in connection with such proceedings) have the effect of
preventing the forfeiture or sale of the property or assets subject to
any such Lien, (y) to the extent such Liens are not imposed by law,
such Liens shall in no event encumber any property other than cash and
Cash Equivalents and (z) in the case of any such Lien against any of
the Collateral, such Lien and the contest thereof shall satisfy the
Contested Collateral Lien Conditions; provided, further that the
aggregate amount of deposits at any time pursuant to clause (ii) and
clause (iii) shall not exceed $1.0 million in the aggregate;
(7) leases with respect to the assets or properties of the Company or any
Restricted Subsidiary or its respective Subsidiaries, in each case
entered into in the ordinary course of the Company or any Restricted
Subsidiary business so long as such leases are subordinate in all
respects to the Liens granted and evidenced by the Collateral
Documents and do not, individually or in the aggregate, (i) interfere
in any material respect with the ordinary conduct of the business of
the Company or any Restricted Subsidiary and (ii) materially impair
the use (for its intended purposes) or the value of the property
subject thereto;
(8) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by the Company
or any Restricted Subsidiary in the ordinary course of business in
accordance with the past practices of the Company or any Restricted
Subsidiary;
(9) Liens arising pursuant to Purchase Money Obligations or Capital Lease
Obligations incurred pursuant to the covenant described above under
"--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock"; provided that (i) the Indebtedness secured by any
such Lien (including refinancings thereof) does not exceed 100% of the
cost of the property being acquired or leased at the time of the
incurrence of such Indebtedness and (ii) any such Liens attach only to
the property being financed pursuant to such Purchase Money
Obligations or Capital Lease Obligations and do not encumber any other
property of the Company or any Subsidiary (it being understood that
all Indebtedness to a single lender shall be considered to be a single
Purchase Money Obligation, whether drawn at one time or from time to
time);
(10) bankers' Liens, rights of setoff and other similar Liens existing
solely with respect to cash and Cash Equivalents on deposit in one or
more accounts maintained by the Company or any Restricted Subsidiary,
in each case granted in the ordinary course of business in favor of
the bank or banks with which such accounts are maintained, securing
amounts owing to such bank with respect to cash management and
operating account arrangements, including those involving pooled
accounts and netting arrangements; provided that in no case shall any
such Liens secure (either directly or indirectly) the repayment of any
Indebtedness;
(11) other than in connection with the Pending Acquisitions, Liens on
assets of a Person existing at the time such Person is acquired or
merged with or into or consolidated with the Company or any Restricted
Subsidiary (and not created in anticipation or contemplation thereof)
in accordance with the provisions of the Indenture; provided that such
Liens were in existence prior to the contemplation of the merger or
consolidation and do not extend to assets not subject to such Liens at
the time of acquisition (other than improvements thereon) and are no
more favorable to the lienholders than the existing Lien;
(12) Liens (other than with respect to the property or assets constituting
Collateral) incurred in the ordinary course of business of the Company
or any Restricted Subsidiary with respect to obligations (other than
Indebtedness) that do not in the aggregate exceed $2.0 million at any
time outstanding;
(13) Liens securing obligations under the Indenture, the Notes, the
Subsidiary Guarantees and the Collateral Documents;
141
(14) Liens securing Acquired Debt (and any Permitted Refinancing
Indebtedness which refinances such Acquired Debt) incurred in
accordance with the covenant described under "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock";
provided that (a) such Liens secured the Acquired Debt at the time of
and prior to the incurrence of such Acquired Debt by the Company or a
Restricted Subsidiary and were not granted in connection with, or in
anticipation of the incurrence of such Acquired Debt by the Company or
a Restricted Subsidiary and (b) such Liens do not extend to or cover
any property or assets of the Company or of any of the Restricted
Subsidiaries other than the property or assets that secured the
Acquired Debt prior to the time such Indebtedness became Acquired Debt
of the Company or a Restricted Subsidiary;
(15) licenses of the patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, trade names,
copyrights, trade-secrets, know-how and processes, granted by the
Company or any Restricted Subsidiary in the ordinary course of business
and not interfering in any material respect with the ordinary conduct
of the business of the Company or any Restricted Subsidiary;
(16) Liens arising under applicable Gaming Laws; provided that no such Lien
constitutes a Lien securing repayment of Indebtedness;
(17) Liens in favor of the Company or any Guarantor; provided that such
Liens shall be subject to the Lien of the Collateral Documents; and
(18) Liens on the Credit Agreement Collateral securing the Company's or any
Restricted Subsidiary's Obligation under the Credit Agreement;
provided, that the Company and its Subsidiaries shall have granted a
Lien in favor of the Trustee on all assets securing such Credit
Agreement as provided for in the Indenture and the Senior Intercreditor
Agreement;
provided, however, that no Liens shall be permitted to exist, directly or
indirectly, on any Capital Stock, intercompany notes or other securities
constituting Collateral.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
(or accreted value, if applicable) of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus all accrued
interest thereon and the amount of all expenses and premiums incurred in
connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date the
same as or later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders as those
contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Company or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
142
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Premier One Development" means Premier One Development Company, an Ohio
corporation, and its successors and assigns.
"Presumed Tax Rate", for any holder of Capital Stock of the Company or any
Guarantor with respect to any period, means (i) with respect to the excess, if
any, of ordinary income over ordinary loss (as determined for U.S. federal
income tax purposes and, for this purpose, including items taxable at the same
rate as ordinary income, such as net short-term capital gain) allocated to such
holder for such period, the sum of the maximum marginal individual (or
corporate, if such holder is taxed as a corporation) U.S. federal, state and
local income tax rates applicable to such income taking into account the
deductibility of state and local income taxes for U.S. federal income tax
purposes, and (ii) with respect to the net capital gain (as determined for U.S.
federal income tax purposes) allocated to such holder for such period, the sum
of the maximum marginal individual (or corporate, if such holder is a
corporation) U.S. federal, state and local income tax rates applicable to such
income taking into account the deductibility of state and local income taxes
for U.S. federal income tax purposes. For purposes of the definition of
"Presumed Tax Rate", the maximum marginal individual (or corporate, if
applicable) U.S. federal, state or local income tax rate for each holder of
capital Stock shall be the highest such marginal individual (or corporate, if
applicable) U.S. federal, state or local income tax rate applicable to any
holder of Capital Stock.
"Principals" means Jeffrey P. Jacobs and Richard E. Jacobs.
"Prior Lien" shall have the meaning assigned to such term in the applicable
Collateral Documents.
"Purchase Money Obligations" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
purchase, or the cost of construction or improvement, of real or personal
property to be used in the business of such Person or any of its Subsidiaries
in an amount that is not more than 100% of the cost, or fair market value, as
appropriate, of such property, and incurred within 90 days after the date of
such acquisition (excluding accounts payable to trade creditors incurred in the
ordinary course of business).
"Registrar" means the agent appointed as security registrar for the purpose
of registering Notes and transfers of Notes.
"Registration Rights Agreement" means the Registration Rights Agreement
among Gameco and the Initial Purchasers dated February 8, 2002 relating to,
among other things, a registered exchange offer relating to the Old Notes.
"Related Party" means:
(1) any parent, spouse, sibling or lineal descendant of any Principal; or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or
more controlling interest of which consist of any one or more Principals
and/or such other Persons referred to in the immediately preceding
clause (1).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
143
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Trust Monies" means all cash and Cash Equivalents received by the Trustee:
(1) upon the release of Collateral from the Lien of the Indenture or the
Collateral Documents, including all Net Proceeds and Net Loss Proceeds
and all moneys received in respect of the principal of all purchase
money, governmental and other obligations;
(2) pursuant to the Collateral Documents;
(3) as proceeds of any sale or other disposition of all or any part of the
Collateral by or on behalf of the Trustee or any collection, recovery,
receipt, appropriation or other realization of or from all or any part
of the Collateral pursuant to the Indenture or any of the Collateral
Documents or otherwise; or
(4) for application as provided in the relevant provisions of the Indenture
or any Collateral Document or which disposition is not otherwise
specifically provided for in the Indenture or in any Collateral Document;
provided, however, that Trust Monies shall in no event include any property
deposited with the Trustee for any redemption, legal defeasance or covenant
defeasance of Notes, for the satisfaction and discharge of the Indenture or to
pay the purchase price of Notes pursuant to a Change of Control Offer or Asset
Sale Offer.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a resolution of the Board of Directors, but only to the extent that such
Subsidiary:
(1) has no Indebtedness other than Non-Recourse Indebtedness;
(2) is not party to any agreement, contract, arrangement or understanding
with the Company or any Restricted Subsidiary of the Company unless the
terms of any such agreement, contract, arrangement or understanding are
no less favorable to the Company or such Restricted Subsidiary than
those that might be obtained at the time from Persons who are not
Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Capital Stock or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results;
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(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries; and
(5) has at least one director on its Board of Directors that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any specified Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person and/or by one or more Wholly Owned
Restricted Subsidiaries of such Person.
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BOOK ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will be issued in registered,
global form in minimum denominations of $1,000 and integral multiples of $1,000
in excess of $1,000. New Notes will be issued at the closing of the exchange
offer only upon tender of Old Notes in accordance with the procedures set forth
in this prospectus and the letter of transmittal.
The New Notes initially will be represented by one or more notes in
registered, global form without interest coupons (collectively, the "Global
Notes"). The Global Notes will be deposited upon issuance with the trustee as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole but
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
notes in certificated form except in the limited circumstances described below.
See "--Exchange of Global Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of notes in
certificated form.
So long as the Global Note Holder is the registered owner of the New Notes,
the Global Note Holder will be considered the sole Holder under the indenture
of any notes evidenced by the Global Notes. Beneficial Owners of notes
evidenced by the Global Notes will not be considered the owners or Holders of
the notes under the indenture for any purpose, including with respect to the
giving of any directions, instructions or approvals to the trustee thereunder.
Neither Jacobs Entertainment nor the trustee will have any responsibility or
liability for any aspect of the records of DTC or for maintaining, supervising
or reviewing any records of DTC relating to the notes.
Depository Procedures
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them. Jacobs Entertainment takes no responsibility for these
operations and procedures and urges investors to contact the system or their
participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers
and dealers (including the initial purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's system
is also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own
securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
DTC has also advised us that, pursuant to procedures established by it,
ownership of these interests in the Global Notes will be shown on, and the
transfer of ownership of these interests will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants and
the Indirect Participants (with respect to other owners of beneficial interest
in the Global Notes).
Investors in the Global Notes who are Participants in DTC's system may hold
their interests therein directly through DTC. Investors in the Global Notes who
are not Participants may hold their interests therein indirectly through
organizations which are Participants in such system. All interests in a Global
Note may be subject to the procedures and requirements of DTC. The laws of some
states require that certain Persons take physical delivery
146
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such Persons will be limited
to that extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants, the ability of a Person having
beneficial interests in a Global Note to pledge such interests to Persons that
do not participate in the DTC system, or otherwise take actions in respect of
such interests, may be affected by the lack of a physical certificate
evidencing such interests.
Except as described below, owners of interests in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
"Holders" thereof under the indenture for any purpose.
Payments in respect of the principal of, and interest and premium and
liquidated damages, if any, on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the indenture. Under the terms of the indenture, DTC, Jacobs
Entertainment and the trustee will treat the Persons in whose names the notes,
including the Global Notes, are registered as the owners of the notes for the
purpose of receiving payments and for all other purposes. Consequently, neither
Jacobs Entertainment the trustee nor any agent of Jacobs Entertainment or the
trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants.
DTC has advised us that its current practice, upon receipt of any payment in
respect of securities such as the New Notes (including principal and interest),
is to credit the accounts of the relevant Participants with the payment on the
payment date unless DTC has reason to believe it will not receive payment on
such payment date. Each relevant Participant is credited with an amount
proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the Beneficial Owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will
not be the responsibility of DTC, the trustee or Jacobs Entertainment. Neither
Jacobs Entertainment nor the trustee will be liable for any delay by DTC or any
of its Participants in identifying the Beneficial Owners of the notes, and
Jacobs Entertainment and the trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
DTC has advised us that it will take any action permitted to be taken by a
Holder of New Notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the New Notes as to which
such Participant or Participants has or have given such direction. However, if
there is an Event of Default under the New Notes, DTC reserves the right to
exchange the Global Notes for legended notes in certificated form, and to
distribute such notes to its Participants.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among Participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and may
discontinue such procedures at any time. Neither Jacobs Entertainment nor the
trustee nor any of their respective agents will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
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Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for definitive New Notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies Jacobs Entertainment that it is unwilling or unable to
continue as depositary for the Global Notes or (b) has ceased to be a
clearing agency registered under the Exchange Act, and, in either case,
Jacobs Entertainment fails to appoint a successor depositary;
(2) Jacobs Entertainment, at its option, notifies the trustee in writing
that it elects to cause the issuance of the Certificated Notes; or
(3) there has occurred and is continuing a Default or Event of Default with
respect to the Notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated
Notes delivered in exchange for any Global Note or beneficial interests in
Global Notes will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures) and will bear the applicable restrictive legend
referred to in the Indenture (which is attached as Exhibit 4. to this
registration statement) unless that legend is not required by applicable law.
Same Day Settlement and Payment
Jacobs Entertainment will make payments in respect of the New Notes
represented by the Global Notes (including principal, premium, if any, interest
and Liquidated Damages, if any) by wire transfer of immediately available funds
to the accounts specified by the Global Note Holder. Jacobs Entertainment will
make all payments of principal, interest and premium and liquidated damages, if
any, with respect to Certificated Notes, by mailing a check to the registered
address of each Holder thereof. The notes represented by the Global Notes are
expected to trade in DTC's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such New Notes will, therefore, be
required by DTC to be settled in immediately available funds.
148
REGISTRATION RIGHTS
We have entered into a Registration Rights Agreement pursuant to which we
have agreed, for the benefit of the holders of the Old Notes, that we will, at
our cost,
(1) within 120 days after the date of the indenture, file a registration
statement (the "Exchange Offer Registration Statement") with the
Securities and Exchange Commission, or the Commission, with respect to a
registered offer to exchange (the "Exchange Offer") the Old Notes for
New Notes that will have terms substantially identical in all material
respects to the Old Notes, except that the New Notes will not contain
terms with respect to transfer restrictions, and will be guaranteed by
the guarantors on terms substantially identical in all material respects
to the guarantees,
(2) within 210 days after the date of the indenture, use our best efforts to
cause the Exchange Offer Registration Statement to be declared effective
under the Securities Act. Upon the Exchange Offer Registration Statement
being declared effective, we will offer the New Notes in exchange for
surrender of the Old Notes, and
(3) keep the Exchange Offer open for not less than 30 business days (or
longer if required by applicable law) after the date notice of the
Exchange Offer is mailed to the holders of the Old Notes. For each Old
Note surrendered to us pursuant to the Exchange Offer, the holder of
such note will receive a New Note having a principal amount equal to
that of the surrendered note.
Under existing Commission interpretations, the New Notes would in general be
freely transferable after the Exchange Offer without further registration under
the Securities Act, so long as, in the case of broker-dealers, a prospectus
meeting the requirements of the Securities Act is delivered as required. We
have agreed for a period of 180 days after consummation of the Exchange Offer
to make available a prospectus meeting the requirements of the Securities Act
to any broker-dealer for use in connection with any resale of any such New
Notes acquired as described below. A broker-dealer that delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act, and will be
bound by the provisions of the Exchange Offer Registration Rights Agreement
(including certain indemnification rights and obligations).
Each holder of Old Notes that wishes to exchange such notes for New Notes in
the Exchange Offer will be required to make certain representations including
representations that
(1) any New Notes to be received by it will be acquired in the ordinary
course of its business;
(2) it has no arrangement with any person to participate in the distribution
of the New Notes; and
(3) it is not an "affiliate," as defined in Rule 405 of the Securities Act,
of us or any of the guarantors, or if it is an affiliate, it will comply
with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
New Notes. If the holder is a broker-dealer that will receive New Notes for its
own account in exchange for notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit us to effect such an Exchange Offer, or if for any other reason
the Exchange Offer is not consummated within 255 days of the issue date of the
Old Notes or, under certain circumstances, if the initial purchasers shall so
request, we will, at our own expense,
(1) as promptly as practicable, file a shelf registration statement covering
resales of the Old Notes (the "Shelf Registration Statement");
149
(2) use our best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act; and
(3) use our best efforts to keep effective the Shelf Registration Statement
until the earlier of the disposition of the Old Notes covered by the
Shelf Registration Statement or two years after the original issue date
of the Old Notes.
We will, if a Shelf Registration Statement is filed and declared effective,
provide to each holder of the Old Notes copies of the prospectus which is a
part of the Shelf Registration Statement, notify each such holder when the
Shelf Registration Statement for the Old Notes has become effective and take
certain other actions as are required to permit unrestricted resales of the Old
Notes. A holder of the Old Notes that sells such notes pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification rights and obligations).
Although we intend to file one of the registration statements described
above there can be no assurance that such registration statement will be filed
or, if filed, that it will become effective. If we fail to comply with the
requirements described above or if such registration statement fails to become
effective, then, as liquidated damages, additional interest shall become
payable in respect of the notes as follows:
(1) If (a) the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 120 days after the date of the indenture
or (b) notwithstanding that we have consummated or will consummate an
Exchange Offer, we are required to file a Shelf Registration Statement
and such Shelf Registration Statement is not filed on or prior to the
date required by the Registration Rights Agreement;
(2) If (a) an Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 210 days after the date of
the indenture or (b) notwithstanding that we have consummated or will
consummate an Exchange Offer, we are required to file a Shelf
Registration Statement and such Shelf Registration Statement is not
declared effective by the Commission on or prior to the 90th day
following the date on which such Shelf Registration Statement was filed;
or
(3) If either (a) we have not exchanged the New Notes for all notes validly
tendered in accordance with the terms of the Exchange Offer on or prior
to the 255th day after the date of the indenture or (b) the Exchange
Offer Registration Statement ceases to be effective at any time prior to
the time that the Exchange Offer is consummated or (c) if applicable,
the Shelf Registration Statement ceases to be effective at any time
prior to the second anniversary of the date of the indenture;
(each such event referred to in clauses (1) through (3) above, a "Registration
Default"), the sole remedy available to holders of the Old Notes will be the
immediate assessment of additional interest ("Additional Interest") as follows:
the per annum interest rate on the Old Notes will increase by 1.0%, and the per
annum interest rate will increase by an additional 0.50% for each subsequent
90-day period during which the Registration Default remains uncured, up to a
maximum additional interest rate of 2.0% per annum in excess of the interest
rate on the cover of this prospectus. All Additional Interest will be payable
to holders of the Old Notes in cash on each interest payment date, commencing
with the first such date occurring after any such Additional Interest commences
to accrue, until such Registration Default is cured. After the date on which
such Registration Default is cured, the interest rate on the Old Notes will
revert to the interest rate originally borne by the Old Notes (as shown on the
cover of this prospectus).
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which will be available upon request to the Company.
150
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Scope of Discussion
The following general discussion summarizes certain material United States
federal income tax consequences that apply to beneficial owners of the notes
who acquire the notes at their original issue price for cash and hold the notes
as a "capital asset," generally, for investment, under Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code"). This summary, however,
does not consider state, local or foreign tax laws. In addition, it does not
include all of the rules which may affect the United States tax treatment of
your investment in the notes. For example, special rules not discussed here may
apply to you if you are:
. a broker-dealer, a dealer in securities or a financial institution;
. an S corporation;
. a bank;
. a thrift;
. an insurance company;
. a tax-exempt organization;
. a partnership or other pass-through entity;
. subject to the alternative minimum tax provisions of the Code;
. holding the notes as part of a hedge, straddle or other risk reduction or
constructive sale transaction;
. a person with a "functional currency" other than the U.S. dollar; or
. United States expatriate.
This discussion only represents our best attempt to describe certain United
States federal income tax consequences that may apply to you based on current
United States federal tax law. We have not sought and will not seek any rulings
from the Internal Revenue Service regarding the matters discussed below. This
discussion may in the end inaccurately describe the federal income tax
consequences which are applicable to you because the law may change, possibly
retroactively, and because the IRS or any court may disagree with this
discussion. If you are a partner in a partnership, you should consult your own
tax advisor regarding special rules that may apply.
This summary may not cover your particular circumstances because it does not
consider foreign, state or local tax rules, disregards certain federal tax
rules such as the estate and gift taxes, and does not describe future changes
in federal tax rules. Please consult your tax advisor rather than relying on
this general description.
Exchange of Old Notes Pursuant to the Exchange Offer
The exchange of Old Notes for New Notes pursuant to the exchange offer will
not be a taxable event for United States federal income tax purposes. You will
not recognize gain or loss upon the receipt of New Notes. If you are not exempt
from United States federal income tax, you will be subject to such tax on the
same amount, in the same manner and at the same time as you would have been as
a result of holding the Old Notes. If you are a cash-basis holder who is
exchanging Old Notes for New Notes, you will not recognize in income any
accrued and unpaid interest on the Old Notes by reason of the exchange. The
basis and holding period of the New Notes will be the same as the basis and
holding period of the corresponding Old Notes.
United States Holders
If you are a "United States Holder," as defined below, this section applies
to you. Otherwise, the section "Non-United States Holders," applies to you.
151
Definition of United States Holder. You are a "United States Holder" if you
are the beneficial owner of a note and you are, for United States federal
income tax purposes:
. a citizen or resident of the United States, including an alien individual
who is a lawful permanent resident of the United States or meets the
"substantial presence" test under Section 7701(b) of the Code;
. a corporation created or organized in the United States or under the laws
of the United States or of any political subdivision of the United States;
. an estate, the income of which is subject to United States federal income
tax regardless of its source;
. a trust, if a United States court can exercise primary supervision over
the administration of the trust and one or more United States persons can
control all substantial decisions of the trust, or if the trust was in
existence on August 20, 1996 and has elected to continue to be treated as
a United States person.
Taxation of Stated Interest. Generally, you must include the interest on
the notes in ordinary income:
. when it accrues, if you use the accrual method of accounting for United
States federal income tax purposes; or
. when you receive it, if you use the cash method of accounting for United
States federal income tax purposes.
Original Issue Discount. The notes were issued with original issue discount
("OID") for United States federal income tax purposes. The amount of OID on a
note is the excess of a note's "stated redemption price at maturity" over its
"issue price." Generally, the "stated redemption price at maturity" of a note
is the amount payable at maturity (other than qualified stated interest). The
"issue price" is the first price at which a substantial amount of notes are
sold for money (excluding sales to bond houses, brokers or similar persons or
organizations acting as underwriters, placement agents or wholesalers).
U.S. Holders generally must include OID in gross income for United States
federal income tax purposes on an annual basis under a constant yield accrual
method regardless of their regular method of tax accounting. As a result, U.S.
Holders will include OID in income in advance of the receipt of cash
attributable to such income. However, U.S. Holders of the notes generally will
not be required to include separately in income cash payments received on such
notes, to the extent such payments constitute payments of OID which were
previously accrued and included in income.
The amount of OID includible in income by a U.S. Holder of a note is the sum
of the "daily portions" of OID with respect to the note for each day during the
taxable year or portion thereof in which such U.S. Holder holds such note. A
daily portion is determined by allocating to each day in any "accrual period" a
pro rata portion of the OID that accrued in such period. The "accrual period"
of a note may be of any length and may vary in length over the term of the
note, provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs either on the first or last
day of an accrual period. The amount of OID that accrues with respect to any
accrual period is the product of the note's "adjusted issue price" at the
beginning of such accrual period and its yield to maturity (determined on the
basis of compounding at the close of each accrual period and properly adjusted
for the length of such period) less any qualified stated interest allocable to
the accrual period. The "adjusted issue price" of a note at the start of any
accrual period is equal to its issue price, increased by OID previously
includible in income for each prior accrual period and decreased by any
payments made on such note (other than payments of qualified stated interest).
Market Discount. The market discount rules discussed below apply to any
note purchased after original issue at a price less than its "revised issue
price." Generally the "revised issued price" of a note is equal to the issue
price of the note, plus the aggregate amount of OID includible in the gross
income of all prior holders of such note for all periods prior to such
purchase, less the amount of any payments made on such note other than payments
of qualified stated interest.
152
If a United States Holder of a note, other than a holder who purchased the
note upon original issuance, acquires the note for an amount that is less than
its principal amount (i.e., at a market discount), and such difference exceeds
a statutorily-defined DE MINIMIS amount, and the United States Holder
thereafter recognizes gain upon a disposition or retirement of the note, then
the United States Holder will recognize ordinary income at the time of the
disposition in the amount of the lesser of the gain recognized and the portion
of the market discount that accrued on a ratable basis (or, if elected, on a
constant interest rate basis). In addition, market discount with respect to a
note may be taxable to a United States Holder to the extent of appreciation in
the value of the note at the time of certain otherwise nontaxable transactions
(i.e., gifts). Absent an election to include market discount in income as it
accrues, a United States Holder of a market discount note may be required to
defer a portion of any interest expense that may otherwise be deductible on any
indebtedness incurred or maintained to purchase or carry such note until the
United States Holder disposes of the note in a taxable transaction.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the note, unless the
United States Holder elects to accrue the market discount using a constant
interest method. A United States Holder may elect to include market discount in
income currently as it accrues (on either a ratable or constant interest
method), in which case the rule described above regarding deferral of interest
deductions will not apply. This election to include market discount in income
currently, once made, applies to all market discount obligations acquired after
the first taxable year to which the election applies and may not be revoked
without the consent of the Internal Revenue Service.
Amortizable Bond Premium. If a U.S. Holder's initial tax basis in a note
exceeds its stated redemption price at maturity, such holder generally will be
considered to have acquired the note with "amortizable bond premium" and will
not have to include any OID in income with respect to such note. The amount of
amortizable bond premium is computed based on the redemption price on an
earlier call date if such computation results in a smaller amortizable bond
premium attributable to the period of such earlier call date. A U.S. Holder
generally may elect to amortize such premium using the constant yield to
maturity method. The amount amortized in any year generally will be treated as
a reduction of a holder's interest income on the note. If the amortizable bond
premium allocable to a year exceeds the amount of interest allocable to that
year, the excess would be allowed as a deduction for that year but only to the
extent that a holder's prior interest inclusions exceed bond premium deductions
on the note. The election to amortize the premium on a constant yield to
maturity method, once made, generally applies to all bonds held or subsequently
acquired by a U.S. Holder on or after the first day of the first taxable year
to which the election applies. A U.S. Holder may not revoke this election
without the consent of the IRS.
Acquisition Premium. If a U.S. Holder purchases a note for an amount that is
in excess of its adjusted issue price but less than or equal to its stated
redemption price at maturity, such U.S. Holder will generally be considered to
have purchased the note with "acquisition premium" in an amount equal to the
excess of the holder's adjusted basis in the note immediately after it is
acquired over the adjusted issue price of the note. The "daily portion" of OID
that would otherwise accrue with respect to a note will be reduced by an amount
equal to such daily portion of OID multiplied by a fraction, the numerator of
which is the excess of the holder's adjusted basis in the note immediately
after it is acquired over the adjusted issue price of the note, and the
denominator of which is the remaining OID to be accrued on the note.
Alternatively, a U.S. Holder purchasing a note with acquisition premium may
elect to compute OID accruals by treating the purchase as a purchase at
original issue and apply the mechanics of the constant yield method.
Sale or Other Taxable Disposition of the Notes. You must recognize taxable
gain or loss on the sale, exchange, redemption, retirement or other taxable
disposition of a note. The amount of your gain or loss equals the difference
between the amount you receive for the note (in cash or other property, valued
at fair market value), except to the extent amounts received are attributable
to accrued interest on the note, minus your adjusted tax basis in the note.
Your tax basis in the note equals the price you paid for the note increased by
any OID included in your income.
153
Your gain or loss will generally be a long-term capital gain or loss if you
have held the note for more than one year. Otherwise, it will be a short-term
capital gain or loss. Long-term capital gains of certain non-corporate holders
are generally taxed at lower rates than items of ordinary income. The use of
capital losses is subject to limitations. Payments attributable to accrued
interest which you have not yet included in income will be taxed as ordinary
interest income.
Liquidated Damages/Exchange with New Notes. We intend to take the position
that the likelihood of our failing to exchange New Notes for Old Notes pursuant
to the registration rights agreement and this exchange offer is remote.
However, if we fail to exchange the notes, you must include the payment of
additional interest as ordinary income only when such payment is accrued or
paid, in accordance with your own method of accounting. The exchange of Old
Notes for New Notes pursuant to the exchange offer and the registration rights
agreement will not be a taxable event. Your basis in the Old Notes will carry
over to the registered notes received and the holding period of the registered
notes will include the holding period of the Old Notes surrendered.
Information Reporting and Backup Withholding. We will report to holders of
the notes and to the IRS the amount of any interest paid and OID accrued on the
notes in each calendar year and the amounts of tax withheld, if any, with
respect to such payments. You may be subject to a backup withholding tax when
you receive interest payments on a note or proceeds upon the sale or other
disposition of the note. Certain holders (including, among others,
corporations, financial institutions and certain tax-exempt organizations) are
generally not subject to backup withholding. In addition, the backup
withholding tax will not apply to you if you provide to us or our paying agent
your correct social security or other taxpayer identification number, or TIN,
in the prescribed manner unless:
. the IRS notifies us or our paying agent that the TIN you provided is
incorrect;
. you underreport interest and dividend payments that you receive on your
tax return and the IRS notifies us or our paying agent that withholding
is required;
. you fail to certify under penalties of perjury that you are not subject
to backup withholding.
The backup withholding tax rate is 30% for payments made during the years
2002 and 2003, 29% for payments made during the years 2004 and 2005, and 28%
for payments made during the years 2006 through 2009.
If the backup withholding tax does apply to you, you may use the amounts
withheld as a refund or credit against your United States federal income tax
liability as long as you provide certain information to the IRS.
United States Holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedures for
obtaining such exemption.
Non-United States Holders
The following general discussion is limited to the United States federal
income tax consequences relevant to a "Non-United States Holder." A "Non-United
States Holder" is any beneficial owner of a note that is for United States
federal income tax purposes a nonresident alien, or a corporation, estate, or
trust that is not a United States Holder.
Interest.
Portfolio Interest Exemption. You will generally not have to pay United
States federal income tax on interest (including OID) paid on the notes because
of the "portfolio interest exemption" if either:
. you represent that you are not a United States person for United States
federal income tax purposes and you provide your name and address to us
or our paying agent on a properly executed IRS Form W-8BEN (or a suitable
substitute form) signed under penalties of perjury; or
154
. a securities clearing organization, bank, or other financial institution
that holds customers' securities in the ordinary course of its business
holds the note on your behalf, certifies to us or our paying agent under
penalties of perjury that it has received IRS Form W-8BEN (or a suitable
substitute form) from you or from another qualifying financial
institution intermediary, and provides a copy of the Form W-8BEN (or a
suitable substitute form) to us or our paying agent.
You will not, however, qualify for the portfolio interest exemption
described above if:
. you own, actually or constructively, 10% or more of the total combined
voting power of all classes of our capital stock entitled to vote;
. you are a controlled foreign corporation with respect to which we are a
"related person" within the meaning of Section 864(d)(4) of the Code;
. you are a bank receiving interest described in Section 881(c)(3)(A) of
the Code; or
. the interest received in connection with the Notes constitutes (or the
IRS determines that such interest constitutes) contingent interest as
described in Section 871(h)(4) of the Code.
Withholding Tax if the Interest Is Not Portfolio Interest. If you do not
claim, or do not qualify for, the benefit of the portfolio interest exemption,
you may be subject to a 30% withholding tax on the gross amount received,
unless reduced or eliminated by an applicable income tax treaty.
However, if the payments of interest on a note are effectively connected
with the conduct by you of a trade or business in the United States, such
payments will be subject to United States federal income tax on a net basis at
the rates applicable to United States persons generally (and, if paid to
corporate holders, may also be subject to a 30% branch profits tax). If
payments are subject to United States federal income tax on a net basis in
accordance with the rules described in the preceding sentence, such payments
will not be subject to United States withholding tax so long as you provide us
or our paying agent with a properly executed IRS Form W-8ECI.
Non-United States Holders should consult any applicable income tax treaties,
which may provide for a lower rate of withholding tax, exemption from or
reduction of the branch profits tax, or other rules different from those
described above. Generally, in order to claim any treaty benefits you must
submit a properly executed IRS Form W-8BEN.
Reporting. We may report annually to the IRS and to you the amount of
interest (including OID) paid to you, and the tax withheld, if any, with
respect to you.
Sale or Other Disposition of Notes. You will generally not be subject to
United States federal income tax or withholding tax on gain recognized on a
sale, exchange, redemption, retirement, or other disposition of a note unless:
. such gain is effectively connected with the conduct by you of a trade or
business within the United States, in which case such gain will be
subject to United States federal income tax on a net basis at the rates
applicable to United States persons generally;
. you are an individual who is present in the United States for 183 days or
more in the taxable year of that disposition, and certain other
conditions are met; or
. you are subject to Internal Revenue Code provisions applicable to certain
United States expatriates.
Backup Withholding and Information Reporting.
Payments From United States Office. If you receive payments of interest or
principal directly from us or through the United States office of a custodian,
nominee, agent or broker, you may be subject to both backup withholding and
information reporting.
155
With respect to interest payments made on the notes, however, backup
withholding and information reporting will not apply if you certify, generally
on a Form W-8BEN (or Form W-8ECI) or substitute form, that you are not a United
States person in the manner described above under the heading "Non-United
States Holders--Interest."
Moreover, with respect to proceeds received on the sale, exchange,
redemption, or other disposition of a note, backup withholding or information
reporting generally will not apply if you properly provide, generally on Form
W-8BEN (or Form W-8ECI) (or a suitable substitute form), a statement that you
are an "exempt foreign person" for purposes of the broker reporting rules, and
other required information. If you are not subject to United States federal
income or withholding tax on the sale or other disposition of a note, as
described above under the heading "Non-United States Holders--Sale or Other
Disposition of Notes," you will generally qualify as an "exempt foreign person"
for purposes of the broker reporting rules.
Payments From Foreign Office. If payments of principal and interest are
made to you outside the United States by or through the foreign office of your
foreign custodian, nominee or other agent, or if you receive the proceeds of
the sale of a note through a foreign office of a "broker," as defined in the
pertinent United States Treasury Regulations, you will generally not be subject
to backup withholding or information reporting. You will, however, be subject
to backup withholding and information reporting if the foreign custodian,
nominee, agent or broker has actual knowledge or reason to know that you are a
United States person. You will also be subject to information reporting, but
not backup withholding, if the payment is made by a foreign office of a
custodian, nominee, agent or broker that has certain relationships to the
United States unless the broker has in its records documentary evidence that
you are a Non-United States Holder and certain other conditions are met.
Refunds. Any amounts withheld under the backup withholding rules may be
refunded or credited against the Non-United States Holder's United States
federal income tax liability, if the required information is furnished to the
IRS.
The information reporting requirements may apply regardless of whether
withholding is required. Copies of the information returns reporting interest
and withholding also may be made available to the tax authorities in the
country in which a Non-United States Holder is a resident under the provisions
of an applicable income tax treaty or other agreement.
This summary does not completely describe the withholding regulations.
Please consult your tax advisor to determine how the withholding regulations
apply to your particular circumstances.
156
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for private notes if
such private notes were acquired as a result of market-making activities or
other trading activities. We have agreed that, for at least 180 days after the
exchange offer is completed, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
We will not receive any proceeds from any sale of New Notes by
broker-dealers or any other person. New Notes received by broker-dealers for
their own account pursuant to the exchange offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale,
at prices related to such prevailing market prices or negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of any such notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the exchange offer is completed, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to
the exchange offer (including the expenses of one counsel for the holder of
private notes) other than commissions or concessions of any brokers or dealers
and the fees of any advisors or experts retained by holders of Old Notes, and
will indemnify the holders of the private notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
157
LEGAL MATTERS
The validity of the notes offered hereby will be passed upon for us by Baker
& Hostetler LLP, Cleveland, Ohio.
EXPERTS
The financial statements of Jacobs Entertainment, Inc. as of December 31,
2001 and 2000, and for each of the three years in the period ended December 31,
2001 included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, which report
expresses an unqualified opinion and includes an explanatory paragraph to
describe the issuance of debt on February 8, 2002 and certain acquisitions
occurring on February 22, 2002, and is included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The financial statements of Black Hawk Gaming & Development Company, Inc.
and subsidiaries as of December 31, 2001 and 2000, and for each of the three
years in the period ended December 31, 2001 included in this prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, which report expresses an unqualified opinion and
includes explanatory paragraphs on the adoption of SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" and the acquisition of the
Company on February 22, 2002, and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The financial statements of Jalou as of December 31, 2001 and 2000, and for
the years then ended included in this prospectus have been audited by BDO
Seidman, LLP, independent public accountants, as stated in their report
appearing herein, and are included in reliance upon such reports given upon the
authority of said firm as experts in auditing and accounting.
158
INDEX TO FINANCIAL STATEMENTS
Page
----
JACOBS ENTERTAINMENT, INC.
Independent Auditors' Report......................................... F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000......... F-3
Consolidated Statements of Income for the Years Ended December 31,
2001, 2000 and 1999................................................ F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2001, 2000 and 1999................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December
31, 2001, 2000 and 1999............................................ F-6
Notes to Consolidated Financial Statements for the Years Ended
December 31, 2001, 2000 and 1999................................... F-7
Unaudited Consolidated Balance Sheets as of March 31, 2002, and
December 31, 2001.................................................. F-26
Unaudited Consolidated Statements of Operations for the Three Months
Ended March 31, 2002 and 2001...................................... F-27
Unaudited Consolidated Statements of Changes in Stockholders' Equity
for the Three Months Ended March 31, 2002.......................... F-28
Unaudited Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2002 and 2001...................................... F-29
Notes to the Unaudited Consolidated Financial Statements for the
Three Months Ended March 31, 2002 and 2001......................... F-30
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
Independent Auditors' Report......................................... F-37
Consolidated Balance Sheets December 31, 2001 and 2000............... F-38
Consolidated Statements of Income for the Years Ended December 31,
2001, 2000 and 1999................................................ F-39
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2001, 2000 and 1999................................... F-40
Consolidated Statements of Cash Flows for the Years Ended December
31, 2001, 2000 and 1999............................................ F-41
Notes to Consolidated Financial Statements for the Years Ended
December 31, 2001, 2000 and 1999................................... F-42
Unaudited Consolidated Balance Sheets as of March 31, 2002, and
December 31, 2001.................................................. F-57
Unaudited Consolidated Statements of Income for the Periods from
January 1, 2002 Through February 22, 2002 and February 23, 2002
Through March 31, 2002 and the Three Months Ended March 31, 2001... F-58
Unaudited Consolidated Statements of Changes in Stockholders' Equity
for the Three Months Ended March 31, 2002.......................... F-59
Unaudited Consolidated Statements of Cash Flows for the Periods from
January 1, 2002, Through February 22, 2002 and February 23, 2002
Through March 31, 2002 and the Three Months Ended March 31, 2001... F-60
Notes to the Unaudited Consolidated Financial Statements for the
Three Months Ended March 31, 2002 and 2001......................... F-61
JALOU
Report of Independent Certified Public Accountants................... F-66
Combined Balance Sheets.............................................. F-67
Combined Statements of Income and Owners' Equity..................... F-68
Combined Statements of Cash Flows.................................... F-69
Summary of Accounting Policies....................................... F-70
Notes to Combined Financial Statements............................... F-73
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Jacobs Entertainment, Inc.
We have audited the accompanying consolidated balance sheets of Jacobs
Entertainment, Inc. (formerly Gameco, Inc.) as of December 31, 2001 and 2000,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. The consolidated financial statements give retroactive effect to
the merger of Jacobs Entertainment, Inc., Diversified Opportunities Group, Ltd.
and Jalou II Inc., which, as a combination of entities under common control,
has been accounted for similar to a pooling of interests as described in Note 1
to the consolidated financial statements.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Jacobs Entertainment, Inc. as
of December 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001,
in conformity with accounting principles generally accepted in the United
States of America.
As more fully described in Note 7 to the consolidated financial statements,
on February 8, 2002, Jacobs Entertainment, Inc. completed a $125,000,000
private placement that was used to fund the February 22, 2002 acquisitions
described in Notes 1 and 5.
DELOITTE & TOUCHE LLP
Denver, Colorado
July 31, 2002
F-2
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(Dollars in thousands)
2001 2000
-------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 3,171 $ 1,162
Restricted cash.................................................... 806 602
Accounts receivable................................................ 676 108
Inventory.......................................................... 299 34
Prepaid expenses and other current assets.......................... 196 103
-------- -------
Total current assets........................................... 5,148 2,009
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements.............................................. 16,588 15,640
Buildings and improvements......................................... 52,189 48,586
Equipment, furniture and fixtures.................................. 4,857 2,982
Leasehold improvements............................................. 1,109 1,124
-------- -------
Total.......................................................... 74,743 68,332
Less accumulated depreciation and amortization..................... 7,420 5,442
-------- -------
PROPERTY, PLANT AND EQUIPMENT--Net.................................... 67,323 62,890
OTHER ASSETS:
Equity method investments.......................................... 20,443 20,424
Goodwill, net...................................................... 5,140
Identifiable intangible assets, net................................ 6,447 703
Other assets....................................................... 1,491 92
-------- -------
TOTAL ASSETS.......................................................... $105,992 $86,118
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.............................. $ 9,496 $ 5,412
Current maturities of long-term debt and capital lease obligations. 737 936
-------- -------
Total current liabilities...................................... 10,233 6,348
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS.......................... 5,692 1,160
LONG-TERM DEBT--RELATED PARTIES....................................... 9,000
-------- -------
Total liabilities.............................................. 24,925 7,508
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST..................................................... 17,308 18,567
-------- -------
STOCKHOLDERS' EQUITY:
Common stock $.01 par value; 1,500 shares authorized;
1,500 shares issued and outstanding
Additional paid-in capital......................................... 27,992 23,969
Retained earnings.................................................. 35,767 36,074
-------- -------
Total stockholders' equity..................................... 63,759 60,043
======== =======
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................ $105,992 $86,118
======== =======
See notes to consolidated financial statements.
F-3
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars in thousands)
2001 2000 1999
------- ------- -------
REVENUES:
Gaming:
Pari-mutuel...................................... $27,781 $27,366 $27,285
Truck stop video poker........................... 6,666
Fuel............................................... 5,688
Convenience store and restaurant................... 3,113 1,188 1,219
Other.............................................. 3,405 3,242 3,212
------- ------- -------
Total revenues................................. 46,653 31,796 31,716
COSTS AND EXPENSES:
Gaming:
Pari-mutuel...................................... 22,585 22,052 20,982
Truck stop video poker........................... 1,875
Fuel............................................... 5,229
Convenience store and restaurant................... 2,189 1,067 895
Marketing, general and administrative.............. 7,385 5,691 5,023
Transaction fees and expenses...................... 624
Depreciation and amortization...................... 2,681 1,698 1,841
------- ------- -------
Total costs and expenses....................... 42,568 30,508 28,741
------- ------- -------
OPERATING INCOME...................................... 4,085 1,288 2,975
Interest income.................................... 100 123 65
Interest expense................................... 4,230 2,519 2,905
------- ------- -------
(LOSS) INCOME BEFORE EQUITY IN EARNINGS OF INVESTMENTS
AND MINORITY INTEREST IN LOSS......................... (45) (1,108) 135
EQUITY IN EARNINGS OF INVESTMENTS--
BLACK HAWK AND THE LODGE.............................. 3,377 3,833 3,528
MINORITY INTEREST IN LOSS--COLONIAL................... 1,258 1,566 615
------- ------- -------
NET INCOME............................................ $ 4,590 $ 4,291 $ 4,278
======= ======= =======
See notes to consolidated financial statements.
F-4
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars in thousands)
Common Stock
-------------
Additional
Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ---------- -------- -------
BALANCES, JANUARY 1, 1999.... 1,500 $ $23,969 $32,473 $56,442
Net income................ 4,278 4,278
Stockholder distributions. (2,468) (2,468)
----- -- ------- ------- -------
BALANCES, DECEMBER 31, 1999.. 1,500 23,969 34,283 58,252
Net income................ 4,291 4,291
Stockholder distributions. (2,500) (2,500)
----- -- ------- ------- -------
BALANCES, DECEMBER 31, 2000.. 1,500 23,969 36,074 60,043
Net income................ 4,590 4,590
Capital contributions..... 4,023 4,023
Stockholder distributions. (4,897) (4,897)
----- -- ------- ------- -------
BALANCES, DECEMBER 31, 2001.. 1,500 $ $27,992 $35,767 $63,759
===== == ======= ======= =======
See notes to consolidated financial statements.
F-5
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars in thousands)
2001 2000 1999
-------- ------- -------
OPERATING ACTIVITIES:
Net income...................................................................... $ 4,590 $ 4,291 $ 4,278
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in earnings of investments........................................... (3,377) (3,833) (3,528)
Minority interest........................................................... (1,258) (1,566) (615)
Depreciation and amortization............................................... 2,681 1,698 1,841
Changes in operating assets and liabilities, net of the effect of acquisitions:
Restricted cash............................................................. (191) 181 (485)
Accounts receivable......................................................... (871) (23) 44
Inventory................................................................... (187)
Prepaid expenses and other current assets...................................
Accounts payable and accrued expenses....................................... 2,050 (1,379) (675)
-------- ------- -------
Net cash provided by (used in) operating activities...................... 3,437 (631) 860
-------- ------- -------
INVESTING ACTIVITIES:
Equipment purchases and additions to property, plant, and equipment............. (723) (399) (500)
Distributions received on investments........................................... 3,356 1,435 1,194
Acquisitions, net of cash acquired.............................................. (12,522)
-------- ------- -------
Net cash (used in) provided by investing activities...................... (9,889) 1,036 694
-------- ------- -------
FINANCING ACTIVITIES:
Proceeds from related party loans............................................... 9,000
Contributions from stockholders................................................. 4,023
Distributions to stockholders................................................... (4,897) (2,500) (2,468)
Proceeds from long-term debt.................................................... 700 1,944 2,375
Payments on long-term debt...................................................... (365) (1,303)
-------- ------- -------
Net cash provided by (used in) financing activities...................... 8,461 (556) (1,396)
-------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................... 2,009 (151) 158
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR....................................... 1,162 1,313 1,155
-------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR............................................. $ 3,171 $ 1,162 $ 1,313
======== ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION--
Cash paid for interest.......................................................... $ 2,700 $ 2,320 $ 2,083
======== ======= =======
See notes to consolidated financial statements.
F-6
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars in Thousands)
1. BUSINESS AND ORGANIZATION
Jacobs Entertainment, Inc. ("JEI" or the "Company") was formed on April 17,
2001, as an S-Corporation to become a geographically diversified gaming and
pari-mutuel wagering company with properties in Colorado, Nevada, Louisiana,
and Virginia. The Company's sole shareholders, who each own 50% of JEI's common
stock, are Jeffrey P. Jacobs and the Richard E. Jacobs Revocable Trust, of
which Richard E. Jacobs is the sole trustee (collectively, "Jacobs"). As a
result of the transactions on February 22, 2002, described below, JEI owns and
operates three land-based casinos, six truck plaza video gaming facilities, and
a horse racing track with three off-track wagering facilities. In addition, the
Company receives a percentage of gaming revenue from an additional truck plaza
video gaming facility and leases and operates a fourth off-track wagering
facility.
On June 7, 2002, the Company changed its name from Gameco, Inc. to Jacobs
Entertainment, Inc.
On February 22, 2002, JEI simultaneously completed the acquisition of a 100%
interest in entities in which Jacobs owned either a full, majority, or minority
interest. The entities involved in the transaction, and the accounting
treatment for the components of the acquisitions are described below and in
Note 5.
Diversified Opportunities Group Ltd. ("Diversified") and Jalou L.L.C. and
Jalou II (collectively, "Jalou")--On February 22, 2002, Jacobs contributed
substantially all of its interests in Diversified and its 100% interest in
Jalou II in exchange for 100% of the common stock of JEI. On this transaction
date, immediately prior to the acquisition of the remaining shares of the
entities described below, Diversified owned 100% of Jalou L.L.C., approximately
44% of Colonial Holdings, Inc. ("Colonial"), approximately 32% of Black Hawk
Gaming & Development Company, Inc. ("Black Hawk"), and a 25% interest in the
Lodge Casino at Black Hawk (the "Lodge"), located in Black Hawk, Colorado, of
which the remaining 75% is owned by Black Hawk. The exchange of JEI shares for
the interests of Diversified and Jalou II on February 22, 2002, was accounted
for as a combination of entities under common control, which is similar to the
pooling of interests method of accounting for business combinations.
Accordingly, the consolidated financial statements give retroactive effect to
this transaction, and therefore, JEI's results from January 1, 1999, through
December 31, 2001, include 100%, 44%, 32%, and 25% of the operations of Jalou,
Colonial, Black Hawk, and the Lodge, respectively.
Jalou--Jalou owns and operates six truck plaza video gaming facilities, and
receives a percentage of gaming revenue from an additional truck plaza video
gaming facility in Louisiana. The ownership interest of the Jalou entities and
the acquisition dates for each property are as follows:
Jalou LLC--Houma Truck Plaza and Casino ("Houma") and an interest in the
gaming revenues of Cash's Truck Plaza and Casino ("Cash's") were acquired on
February 7, 2001. Bayou Vista Truck Plaza and Casino ("Bayou") and Lucky
Magnolia Truck Stop and Casino ("Lucky") were acquired on January 11, 2002,
and Raceland Truck Plaza and Casino ("Raceland") was acquired on February
22, 2002.
Jalou II Inc.--Winner's Choice Casino ("Winner's") was acquired on
February 7, 2001, and Colonel's Truck Plaza and Casino ("Colonel's") was
acquired on January 11, 2002.
These acquisitions were recorded using the purchase method of accounting for
business combinations. See Note 4 for a further description of the Houma,
Cash's, and Winner's acquisitions in 2001, and Note 5 for a further description
of the Bayou, Lucky, Raceland, and Colonel's acquisitions occurring in 2002.
The aggregate purchase price for the 2002 and 2001 acquisitions of the Jalou
entities was approximately $20,282 and $17,300, respectively.
F-7
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
Colonial--Colonial owns and operates a horse racing track with three
off-track wagering facilities, and leases and operates a fourth off-track
wagering facility, in Virginia. On February 22, 2002, JEI acquired the
remaining 56% of Colonial's common stock and all outstanding options for
approximately $4,820, which was recorded using the purchase method of
accounting for business combinations, and accordingly, 100% of Colonial's
operations will be included in JEI's results for the period subsequent to the
acquisition date. Prior to the acquisition date, Colonial's operations are
consolidated due to Jacobs' ownership in the majority of the voting rights (see
Note 6).
Black Hawk--Black Hawk owns a 75% interest in the Lodge and a 100% interest
in both the Gilpin Hotel and Casino and the Gold Dust West Casino, located in
Black Hawk, Colorado, and Reno, Nevada, respectively. On February 22, 2002, JEI
acquired the remaining 68% of Black Hawk's common stock and all outstanding
options for approximately $36,980 and assumed and refinanced approximately
$59,950 of Black Hawk's outstanding debt. This transaction was recorded using
the purchase method of accounting for business combinations, and accordingly,
100% of Black Hawk's operations will be included in JEI's results for the
period subsequent to the acquisition date. Prior to the acquisition date, JEI
accounted for its ownership interest in Black Hawk and the Lodge using the
equity method of accounting (see Note 6).
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation--The accompanying consolidated balance sheets as of December
31, 2001 and 2000, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2001, are presented to reflect the accounts of JEI,
Diversified and Jalou II, similar to the pooling of interests method of
accounting for business combinations. All inter-company transactions and
balances have been eliminated in consolidation. The Company also records
minority interest, which reflects the portion of the equity and earnings of
Colonial which are applicable to the minority interest owners of Colonial.
Cash and Cash Equivalents--The Company considers all demand deposits and
time deposits with original maturities of three months or less to be cash
equivalents.
Restricted Cash--Amounts due under agreements with the Virginia Horsemen's
Benevolent and Protective Association, Inc. ("VaHBPA") and the Virginia Harness
Horse Association ("VHHA") are accrued based on the terms of the agreements.
Funds for purses for future live race meets are held in restricted cash
accounts.
Inventory--Inventory consists of fuel, convenience store, and restaurant
items at Jalou's truck stop operations, and is recorded at the lower of cost
(first-in, first-out method) or market.
Property, Plant and Equipment--Property, plant and equipment are stated at
historical cost. Depreciation is computed using the straight-line method over
the estimated useful lives of the related assets. Leasehold improvements are
depreciated, using the straight-line method, over the shorter of the lease term
or the useful life of the asset. Estimated useful lives used are as follows:
Land and improvements............ 20 to 40 years
Buildings and improvements....... 5 to 40 years
Equipment, furniture and fixtures 2 to 20 years
Leasehold improvements........... 7 to 40 years
Costs of major improvements are capitalized, while costs of normal repairs
and maintenance are charged to expense as incurred. Gains or losses on disposal
of assets are recognized as incurred.
F-8
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
Investments--The Company accounts for its investments in Black Hawk and the
Lodge under the equity method of accounting. Under this method, the Company
records its share of the income attributable to its share of Black Hawk and the
Lodge as an increase to the investment and reduces its investment for actual
distributions received.
Goodwill--Goodwill represents the excess purchase price over the fair value
of the net identifiable assets acquired related to the Jalou truck stops.
Amortization of goodwill is provided using the straight-line method over 15
years.
Identifiable Intangible Assets--Identifiable intangible assets are comprised
of licensing costs incurred associated with Colonial's racetrack and racing
centers, and revenue rights and device use rights associated with the 2001
Jalou truck stop acquisitions. Amortization of the Company's identifiable
intangible assets is provided using the straight-line method. The licensing
costs are being amortized over the license period of 20 years, while the
revenue rights and device use rights are being amortized over 50 years and five
years, respectively.
Debt Issue Costs--Debt issue costs are capitalized and amortized, using the
effective interest method, over the life of the related loan, and are included
as a component of other assets in the accompanying consolidated balance sheets.
Revenue - Pari-Mutuel--Pari-mutuel revenue includes the Company's share of
pari-mutuel wagering on live races after payments of amounts returned on
winning wagers, and the Company's share of wagering from import and export
simulcasting at its racing centers.
Revenue - Truck Stop Video Poker--Video poker revenue is the net winnings
from gaming activities, which is the difference between gaming wins and losses.
Revenue - Fuel, Convenience Store and Restaurant--The Company recognizes
revenue at the time of sale for fuel, convenience-store items, and restaurant
sales at its Jalou facilities.
Revenue - Other--Other revenue consists of admission charges, program and
concession sales at Colonial's live racing events, and is recognized at the
time services are provided to patrons.
Transaction Fees and Expenses--Costs incurred by Colonial in relation to the
acquisition of its remaining shares on February 22, 2002, described in Notes 1
and 5, primarily consisting of legal and accounting fees, are expensed in the
accompanying 2001 consolidated statement of income.
Income Taxes--The Company has elected for income tax purposes to be treated
as an S Corporation and, consequently, no current or deferred income taxes have
been reflected in the accompanying consolidated financial statements as these
taxes are the responsibility of the stockholders.
No provision for income taxes has been made for Colonial's operations since
it has operated in a net loss position (see Note 8).
Long-Lived Assets--The Company periodically evaluates the value of
long-lived assets, including property, plant and equipment, goodwill and
identifiable intangibles, for potential impairment. If an impairment is
indicated, based on estimated undiscounted future cash flows that are less than
the carrying value of the asset, such impaired assets are written down to their
estimated fair value. As of December 31, 2001 and 2000, management determined
that there was no impairment of the Company's long-lived assets.
F-9
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
Minority Interest--The Company records minority interest, which reflects the
portion of the equity and earnings of Colonial which are applicable to the
interests of the owners of Colonial other than Jacobs.
Employee Stock Compensation Plans--The Company uses the intrinsic value
method to account for its stock option plan. The exercise price of stock
options issued to employees equals the market price of the stock on the
measurement date, and therefore, the Company does not record compensation
expense on stock options granted to employees. See Note 13 for discussion of
the Company's stock option plan.
Operating Segments--The Company has three reportable segments (Colonial,
Jalou and Black Hawk), as defined by SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information (see Note 14).
Use of Estimates--The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amount 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 periods. Management periodically
evaluates the Company's policies, and the estimates and assumptions related to
such policies. All of JEI's subsidiary companies operate in a highly regulated
industry. The Colonial, Jalou and Black Hawk operations are subject to
regulations that describe and regulate operating and internal control
procedures. The majority of gaming revenue is in the form of cash which by
nature does not require complex estimations. Management estimates certain
liabilities with payment periods that extend for longer than several months.
Such estimates include the pari-mutuel ticket liability, self-insured medical
and workers compensation liabilities, and litigation costs. JEI believes that
these estimates are reasonable based on past experience with the business and
based upon assumptions related to possible outcomes in the future. Actual
results could differ from those estimates.
New Accounting Standards--In July 2001, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 141, Business Combinations ("SFAS No. 141").
SFAS No. 141 improves the transparency of the accounting and reporting for
business combinations by requiring that all business combinations be accounted
for under the purchase method. This Statement is effective for all business
combinations initiated after June 30, 2001. The Company adopted SFAS No. 141 on
July 1, 2001, and the adoption of SFAS No. 141 did not have a material impact
on the Company's financial position or results of operations. The Company's
2001 acquisitions were accounted for using the purchase method of accounting
for business combinations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets ("SFAS No. 144"). SFAS No. 144 supersedes
current accounting guidance relating to impairment of long-lived assets and
provides a single accounting methodology for long-lived assets to be disposed
of, and also supercedes existing guidance with respect to reporting the effects
of the disposal of a business. SFAS No. 144 was adopted January 1, 2002,
without a material impact on the Company's financial position or results of
operations.
In July 2001, FASB issued SFAS No. 142, Goodwill and Other Intangible Assets
("SFAS No. 142") (see Note 3).
3. GOODWILL AND OTHER INTANGIBLE ASSETS
SFAS No. 142 applies to intangibles and goodwill acquired after June 30,
2001, as well as goodwill and intangibles previously acquired. Under SFAS No.
142, goodwill as well as other intangibles determined to have
F-10
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
an indefinite life will no longer be amortized; however, these assets will be
reviewed for impairment on a periodic basis. The Company adopted SFAS No. 142
on January 1, 2002, has completed its transitional impairment test, and has
determined that no impairment of its goodwill balances exists. In addition, the
Company has reassessed the useful lives of its identifiable intangible assets
without any change to the previously established amortization periods of such
assets.
The amortization expense and net income of JEI for the three years in the
period ended December 31, 2001, are as follows:
Year ended December 31,
-----------------------
2001 2000 1999
------ ------ ------
Reported net income............ $4,590 $4,291 $4,278
Add back: Goodwill amortization 280
------ ------ ------
Adjusted net income............ $4,870 $4,291 $4,278
====== ====== ======
The revenue rights and device use rights resulted from the three truck stop
acquisitions discussed further in Note 4. There has been no change in the
useful lives of the Company's identifiable intangible assets on adoption of
SFAS No. 142 (see Note 4).
4. ACQUISITIONS--2001
The acquisitions of Houma, Cash's, and Winner's on February 7, 2001,
described in Note 1, were accounted for under the purchase method of accounting
for business combinations and accordingly, the consolidated financial
statements include the results of operations of the acquired entities from the
date of acquisition to December 31, 2001. A summary of the acquisitions is as
follows:
Fair value of assets acquired, net of liabilities assumed:
Property and equipment................................. $ 5,543
Revenue rights......................................... 6,000
Device use rights...................................... 682
Inventory and other, net............................... 314
-------
Net assets acquired.................................... 12,539
Acquisition cost....................................... 17,301
-------
Goodwill.................................................. $ 4,762
=======
Identifiable intangible assets resulting from these acquisition are
comprised of $6,000 in revenue rights associated with the acquisition of Cash's
and $682 in device use rights associated with the acquisition of Houma and
Winner's. The revenue rights and the device use rights are being amortized over
50 years and five years, respectively, representing the initial terms of the
related agreements. Goodwill resulting from the transactions is attributable to
anticipated future cash flows associated with the acquired entities.
Assuming the transactions had occurred at the beginning of each period
presented, pro forma revenue and net income would have been as follows:
Year ended December 31,
-----------------------
2000 1999
------- -------
Net revenue $42,981 $38,531
Net income. 5,023 5,010
F-11
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
The pro forma information is not necessarily indicative of the results of
operations that would have occurred had the acquisitions occurred at the
beginning of each period presented, nor are they indicative of future operating
results.
5. ACQUISITIONS--2002
The following table summarizes the values assigned to assets acquired and
liabilities assumed as of February 22, 2002, for the transactions occurring on
that date as described in Note 1. JEI is in the process of obtaining
third-party valuations of its tangible assets and third party identification
and valuation of its intangible assets; thus, the allocation of purchase price
is subject to refinement. However, JEI does not anticipate material changes
from the amounts presented below:
Black
Colonial Jalou Hawk Totals
-------- ------- -------- --------
Current assets................. $ 3,327 $ 5,825 $ 15,577 $ 24,729
Property and equipment, net.... 49,491 15,302 87,700 152,493
Other assets................... 728 262 1,684 2,674
Goodwill....................... 11,876 28,338 40,214
Identifiable intangible assets. 8,046 8,046
------- ------- -------- --------
Total assets acquired....... 53,546 41,311 133,299 228,156
------- ------- -------- --------
Current liabilities............ 8,282 2,033 9,184 19,499
Long-term debt................. 7,767 35,004 103,802 146,573
------- ------- -------- --------
Total liabilities assumed... 16,049 37,037 112,986 166,072
------- ------- -------- --------
Net assets acquired..... $37,497 $ 4,274 $ 20,313 $ 62,084
======= ======= ======== ========
Identifiable intangible assets is comprised of $1,364 in device use rights
associated with the acquisitions of Bayou, Lucky, Raceland, and Colonel's and
the intangibles described in Note 4. The device use rights will be amortized
over five years, representing the initial term of the related agreements.
Goodwill resulting from the transactions is attributable to anticipated future
cash flows associated with the acquired entities.
F-12
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
6. INVESTMENTS
Colonial--During 1996, the Company acquired a 50% interest in Colonial
Downs, L.P., ("Colonial Downs") a Virginia limited partnership, for a $2,000
cash investment.
In March 1997, the Company's partnership investment in Colonial Downs was
exchanged for 1,500,000 shares of Class B common shares of Colonial, which then
conducted an initial public offering ("IPO") of its stock that resulted in a
total of 7,250,000 shares outstanding (Class A shares 5,000,000; Class B shares
2,250,000). As a result of the IPO, the Company retained approximately a 22%
equity interest and a 46% voting interest in Colonial.
In September 1998, the Company purchased 1,140,000 Class A common shares of
Colonial in the open market for $1,409. As a result, the Company increased its
equity and voting interests to approximately 36% and 53%, respectively.
In July 1999, the Company received 510,000 Class B and 15,000 Class A shares
of Colonial common stock at the agreed-upon value of $2.50 per share as full
payment on a note receivable. As a result the Company increased its equity and
voting interests to approximately 44% and 69%, respectively.
In September 2001, the Company converted 790,000 shares of Colonial Class B
common stock to Class A common stock. As a result of the conversion, the
Company's equity and voting interests changed to approximately 44% and 61%,
respectively.
Investment in Black Hawk--During 1996, the Company acquired 190,476 shares
at $5.25 per share, and during 1997 acquired 1,333,333 shares in settlement of
a convertible note for the agreed value of $5.25 per share of common stock of
Black Hawk, representing approximately a 32% ownership share of Black Hawk.
F-13
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
The Company accounts for its interest in Black Hawk under the equity method
of accounting. Under this method, the Company records its share of the income
attributable to its share of Black Hawk as an increase to the investment and
reduces its investment for actual distributions received. In January 2001,
Black Hawk acquired Gold Dust West Casino, which was accounted for under the
purchase method of accounting for business combinations, resulting in the
recording of goodwill of approximately $15,000. Condensed data for Black Hawk
is as follows:
December 31,
----------------
2001 2000
-------- -------
Balance Sheets
Assets:
Cash.............................. $ 15,677 $ 8,518
Gaming facilities................. 69,307 62,637
Land.............................. 18,974 15,239
Accounts receivable............... 117 741
Goodwill.......................... 19,016 5,374
Other assets...................... 6,603 4,967
-------- -------
Total......................... $129,694 $97,476
======== =======
Liabilities and Stockholders' Equity:
Accounts payable and accruals..... $ 10,327 $10,223
Bonds payable and other........... 5,299 6,082
Bank notes payable................ 58,800 29,900
Other liabilities................. 2,613 470
-------- -------
Total liabilities.................... 77,039 46,675
Minority interest.................... 7,413 8,739
Stockholders' equity................. 45,242 42,062
-------- -------
Total......................... $129,694 $97,476
======== =======
Year ended December 31,
-------------------------
2001 2000 1999
------- ------- -------
Statements of Income
Revenues, net..................... $98,549 $78,875 $79,606
Operating expenses................ 84,144 65,240 65,146
------- ------- -------
Operating income.................. 14,405 13,635 14,460
Interest expense, net............. 5,089 3,139 4,340
------- ------- -------
Income before minority interest... 9,316 10,496 10,120
Minority interest................. (2,030) (2,060) (1,768)
Income taxes...................... (3,117) (2,975) (2,929)
------- ------- -------
Net income................. $ 4,169 $ 5,461 $ 5,423
======= ======= =======
Equity in net income of investment $ 1,347 $ 1,773 $ 1,760
======= ======= =======
F-14
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
As discussed in Notes 1 and 5, the outstanding shares of Black Hawk were
acquired on February 22, 2002. For the period from January 1, 2002, through
February 21, 2002, the Company recorded a $1,980 equity in net loss on its
investment in Black Hawk which was primarily related to charges incurred by
Black Hawk associated with the acquisition. Specifically, Black Hawk terminated
its interest rate swap, wrote off of its existing debt issue costs, and
incurred a charge related to the redemption of outstanding stock options
resulting in charges of approximately $7,319.
Investment in the Lodge--During 1996, the Company acquired an approximately
25% interest in the Lodge (the other 75% is owned by Black Hawk). The Company
accounts for its interest in the Lodge under the equity method of accounting.
Under this method, the Company records its share of the income attributable to
its share of the Lodge as an increase to the investment, and reduces its
investment for actual distributions received.
Condensed data for the Lodge is as follows:
December 31,
---------------
2001 2000
------- -------
Balance Sheets
Assets:
Cash.......................... $ 8,134 $ 5,503
Gaming facilities............. 50,227 52,239
Land.......................... 11,471 11,471
Accounts receivable........... 70 276
Other assets.................. 2,293 2,181
------- -------
$72,195 $71,670
======= =======
Liabilities and Members' Equity:
Accounts payable and accruals. $ 6,539 $ 6,945
Notes payable................. 36,004 29,766
------- -------
Total liabilities................ 42,543 36,711
Members' equity.................. 29,652 34,959
------- -------
Total..................... $72,195 $71,670
======= =======
Year Ended December 31,
-----------------------
2001 2000 1999
------- ------- -------
Statements of Income
Revenues, net..................... $59,631 $56,957 $55,659
Operating expenses................ 48,677 46,377 45,566
------- ------- -------
Operating income.................. 10,954 10,580 10,093
Interest expense, net............. 2,835 2,341 3,022
------- ------- -------
Net income................. $ 8,119 $ 8,239 $ 7,071
======= ======= =======
Equity in net income of investment $ 2,030 $ 2,060 $ 1,768
======= ======= =======
F-15
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
7. LONG-TERM DEBT, NOTES PAYABLE-RELATED PARTIES, AND CAPITAL LEASES
Long-term debt, notes payable-related parties, and capital leases, consists
of the following as of December 31:
2001 2000
------- ------
Indebtedness of Colonial:
Note payable to Maryland Jockey Club, maturing December 2005, bearing interest at a
rate of 7.75% payable quarterly for the first two years, and equal installments of
interest and principal to be paid quarterly over the remaining five year term of the
note, beginning in the first quarter of 2001............................................ $ 1,246 $1,450
Note payable to Maryland Jockey Club, bearing interest at the prime rate (4.75% at
December 31, 2001), maturing in January 2002............................................ 300 300
Note payable to a bank, maturing August 2002, bearing interest at the prime rate plus
1% (5.75% at December 31, 2001), with monthly principal payment of $15,
collateralized by certain fixed assets.................................................. 120 300
Notes payable to an insurance company, maturing in 2002, bearing interest at 7.52%........ 27 46
------- ------
1,693 2,096
------- ------
Indebtedness of Jalou:
Note payable to an individual maturing March 2009, with interest at 8.5%, secured by
the land, buildings, and related improvements of Houma.................................. 1,811
Note payable to an individual maturing March 2009 with interest at 8.5% payable semi-
annually, secured by the land, buildings and related improvements of Winner's........... 1,208
Note payable to an individual maturing March 2009, with interest at 8.5%, secured by
the land, buildings, and related improvements of Cash's................................. 1,717
------- ------
4,736
------- ------
Indebtedness of Jalou-Related Party:
Notes payable to affiliates, maturing January 31, 2010, semi-annual payments of interest
only at 12%, beginning March 31, 2002, secured by a mortgage on certain real
property................................................................................ 6,703
Note payable to affiliates with interest at 15% and four quarterly interest only payments
beginning May 1, 2001 and monthly payments of principal and interest of $30
beginning March 1, 2002 until maturity on January 31, 2006, collateralized by land,
buildings and related improvements...................................................... 2,297
------- ------
9,000
------- ------
Total indebtedness........................................................................... 15,429 2,096
Less current indebtedness.................................................................... 737 936
------- ------
Total long-term indebtedness.......................................................... $14,692 $1,160
======= ======
F-16
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
On February 8, 2002, JEI completed a $125,000 private placement of 11 7/8%
Senior Secured Notes (the "Notes") due 2009, with interest payable on each
February 1, and August 1, with payments beginning August 1, 2002. The Notes
were issued at a 3.96% discount from their principal amount, resulting in a
discount of $4,950, which is being amortized using the effective interest
method over the expected life of the Notes. The proceeds of the Notes were
primarily used to fund the acquisition of the common stock of the entities
described in Note 5, and to refinance certain debt of these entities in
connection with the acquisitions. The Notes are secured by the assets and stock
of the acquired entities. JEI has no independent assets or operations, the
guarantees on the Notes are full and unconditional and joint and several. As of
December 31, 2001, debt issue costs of $1,334 have been incurred related to the
issuance of the Notes. These costs, along with additional debt issue costs of
$5,298 incurred in 2002 related to the Notes, are being amortized over the life
of the related debt, using the effective interest method.
Scheduled principal payments adjusted to reflect additional debt in 2002,
are as follows:
Total
As of JEI Scheduled
December 31, 11 7/8% Black Hawk Jalou Line of Principal
2001, Notes Debt [A] Debt [B] Credit [C] Payment
------------ -------- ---------- -------- ---------- ---------
2002......... $ 737 $ 387 $ 1,124
2003......... 312 413 725
2004......... 316 441 757
2005......... 320 472 792
2006......... 2,287 504 2,791
Thereafter... 11,457 $125,000 3,082 $5,795 $4,014 149,348
------- -------- ------ ------ ------ --------
Total..... $15,429 $125,000 $5,299 $5,795 $4,014 $155,537
======= ======== ====== ====== ====== ========
[A] As a result of the acquisition of the remaining shares of Black Hawk on
February 22, 2002, the Company assumed $5,299 in Black Hawk Business
Improvement District Special Assessment Bonds. The bonds are issued in two
series with interest payments varying between 6.25% and 6.50%. Principal
and interest payments approximating $360,000 are due semi-annually
beginning in June 2000, continuing until December 2011, and are secured by
a first priority lien on certain real property comprising the Business
Improvement District relating to the Lodge. Although Black Hawk is not the
issuer of the debt, it is responsible for payment of all principal and
interest thereon through special assessment taxes.
[B] As a result of the acquisitions of the Jalou properties in 2002, the
Company incurred the following debt which is due to the Seller of the
following truck stop properties:
[1] Bayou.... $1,679
[2] Lucky.... 788
[3] Colonel's 2,214
[4] Raceland. 1,114
------
$5,795
======
The notes bear interest at 8.5% per annum, mature April 2009, and are
secured by the land, buildings and related improvements of the truck stops.
F-17
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
[C] Effective July 12, 2002, the Company entered into a $10,000 line of credit
("LOC") agreement with Foothill Capital Corporation, expiring July 12,
2007. The LOC bears interest at the prime rate published by Wells Fargo
Bank, plus 1.75%. The LOC is collateralized by the land, buildings and
related improvements of the Lodge and the Gilpin Hotel and Casino, the
Company's Colorado casino properties. The security interests under the
terms of the LOC are contractually senior to the Notes.
8. INCOME TAXES
Deferred income tax assets (liabilities) of Colonial consist of the
following as of December 31:
2001 2000
------- -------
Assets:
Net operating loss............. $ 6,285 $ 5,131
Liabilities:
Depreciation and amortization.. (1,674) (1,374)
------- -------
Net deferred tax asset........... 4,611 3,757
Valuation allowance.............. (4,611) (3,757)
------- -------
Deferred tax asset............... $ $
======= =======
As of December 31, 2001, Colonial has net operating loss carryforwards of
approximately $16.5 million for income tax purposes that expire in years 2012
through 2020. A valuation allowance has been recognized to reduce the deferred
tax assets by the entire amount. As described in Notes 1 and 5, on February 22,
2002, Colonial completed a merger with an affiliate of the principal
shareholder, which repurchased all outstanding common stock not owned by the
principal shareholder and his affiliates. As a result of these transactions,
utilization of the net operating loss carryforwards may be significantly
limited, thereby resulting in the expiration of a portion of the carryforwards
prior to offsetting future taxable income.
9. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value of the Company's financial
instruments has been determined by the Company using available market
information and generally accepted valuation methodologies. However,
considerable judgment is required to interpret market data in order to develop
the estimates of fair value. Accordingly, the estimates herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The amounts for the Company's financial instruments are as follows:
2001 2000
------------------ ------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
Liabilities--Debt $14,982 $17,803 $1,450 $1,444
F-18
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
The estimation methodologies utilized by the Company are summarized as
follows:
Debt --The fair value of variable-rate debt is estimated to be equal to its
carrying amount. The fair value of fixed rate debt is estimated based on a
discounted cash flow analysis, using the prevailing market interest rates for
debt of similar dollar amount, maturity and risk.
The estimated fair value of the Company's other financial instruments, such
as cash and cash equivalents, accounts receivable, inventory and accounts
payable, have been determined to approximate carrying value based on the
short-term nature of those financial instruments.
10. EMPLOYEE BENEFIT PLANS
In June 1998, Colonial implemented a 401(k) Plan in which all full time and
part time employees are eligible to participate after six months of employment.
Employees may elect to make pre-tax contributions up to 15% of their annual
salary or the applicable statutory maximum limits to the 401(k) Plan. Colonial
makes discretionary matching contributions (subject to statutory limits) in an
amount equal to 20% of the first 6% of the employee's contribution. Colonial
contributions are fully vested after three years of employment. The Company's
contributions to the 401(k) Plan were approximately $9, $9 and $10 for 2001,
2000 and 1999, respectively.
11. RELATED PARTY TRANSACTIONS
Upon consummation of Colonial's initial public offering in 1997, Colonial
entered into a five year consulting agreement at $75 per year with the Vice
Chairman of the Board of Directors of Colonial.
Black Hawk Gaming paid or accrued $225,000 for Jacobs Investments Management
Company's services during the year ended December 31, 2000, and paid or accrued
$168,750 for those services through December 31, 2001. The agreement expires on
December 31, 2002, but is expected to be extended with Jacobs Entertainment at
the rate of $450,000 annually until December 31, 2009.
During 2001, the Company entered into a consulting agreement with the
President of Colonial, which provides for compensation related to the
acquisition of certain Louisiana truck plaza video poker gaming facilities.
Amounts paid under the agreement as of December 31, 2001, were $188. Under the
terms of the contract, up to an additional $150 was paid in 2002 upon the
successful acquisition of certain other truck plaza video gaming facilities.
The Company and Black Hawk share a management fee of 5% of adjusted gross
gaming proceeds for the gaming operations of the Lodge. For the first year of
operations, the sharing ratio of this management fee was disbursed 40% to the
Company and 60% to Black Hawk. For all subsequent years of operations, the
management fee is disbursed 50% to the Company and 50% to Black Hawk. This
arrangement was terminated on February 22, 2002. During the years ended
December 31, 2001, 2000 and 1999, the Company was paid $1,541, $1,453 and
$1,274, respectively, for management fees from the Lodge.
12. COMMITMENTS AND CONTINGENCIES
Colonial has entered into an agreement with a totalisator company which
provides wagering services and designs, programs, and manufactures totalisator
systems for use in wagering applications. The basic terms of the agreement
state that the totalisator company shall provide totalisator services to
Colonial for all wagering held at Colonial's facilities through 2004 at a rate
of .365% of the gross amounts wagered.
F-19
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
Colonial has entered into agreements with a company which provides
broadcasting and simulcasting equipment and services. These agreements expire
at various times through 2002. During 2002, the Company commenced preliminary
negotiations to purchase the broadcasting and simulcasting equipment. Total
expense incurred for totalisator and broadcasting and simulcasting equipment
was approximately $1,421, $1,755 and $1,604 for the years ended December 31,
2001, 2000 and 1999, respectively.
Colonial leases automobiles, building space, and certain equipment under
operating leases expiring at various dates. Total rental expense under these
non-cancelable leases was approximately $240, $243 and $230 for the years ended
December 31, 2001, 2000 and 1999, respectively.
The following are the future estimated minimum commitments relating to
non-cancelable operating agreements and leases:
Broadcasting,
Simulcasting
and
Year ended December 31, Totalisator Other Total
----------------------- ------------- -------- ----------
2002.............. $690,000 $186,000 $ 876,000
2003.............. 163,000 163,000
2004.............. 118,000 118,000
2005.............. 58,000 58,000
-------- -------- ----------
Total......... $690,000 $525,000 $1,215,000
======== ======== ==========
The Company is also involved in routine litigation arising in the ordinary
course of business. These matters are believed by the Company to be covered by
appropriate insurance policies.
F-20
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
13. STOCK OPTIONS
Colonial implemented a stock option plan on March 31, 1997. Options granted
under the plan may be either Incentive Stock Options or Non-qualified Stock
Options, based on the discretion of the Board of Directors. The maximum
aggregate number of shares which may be optioned and sold under the plan is
395,000 shares of Colonial's Class A Common Stock. The exercise price per share
for Incentive Options will be no less than the fair value of the stock at the
grant date. The exercise of Non-qualified Options is determined by the Board of
Directors on the grant date. The term of the plan is ten years. On June 14,
1999, 20,000 granted and outstanding options were repriced from $10.45 to
$1.7875 per share. On December 15, 1998, 118,000 granted and outstanding
options were repriced from $9.50 per share to $1.00 per share. The following
tables summarize activity of the Stock Option Plan and the stock options
outstanding at December 31, 2001:
Weighted
Average
Exercise Available
Price for Options
Per Share Grant Outstanding
--------- --------- -----------
Outstanding at January 1, 1999.. $2.93 55,000 245,000
Granted...................... 1.50 (15,000) 15,000
Forfeited.................... 1.00 21,200 (21,200)
Shares added to plan......... 95,000
------- -------
Outstanding at December 31, 1999 2.28 156,200 238,800
Granted...................... 1.06 (2,500) 2,500
Forfeited.................... 1.00 3,200 (3,200)
------- -------
Outstanding at December 31, 2000 2.29 156,900 238,100
Granted......................
Forfeited.................... 1.00 1,600 (1,600)
------- -------
Outstanding at December 31, 2001 $2.30 158,500 236,500
======= =======
Options Outstanding Options Exercisable
-------------------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Number Contractual Price Per Number Price Per
of Shares Life (Years) Share of Shares Share
Range of Exercise Prices --------- ------------ --------- --------- ---------
$1.00--1.79....... 206,500 1.42 $ 1.11 154,340 $ 1.10
$10.45............ 30,000 0.23 10.45 30,000 10.45
------- -------
236,500 1.38 $ 2.30 184,340 $ 2.62
======= =======
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 establishes alternative methods of
accounting and disclosure for employee stock-based compensation arrangements.
The Company has elected to use the intrinsic value method of accounting as
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations, for stock options granted to
the Company's employees. This method does not result in the recognition of
compensation expense when employee stock options are granted if the exercise
price of the option equals or exceeds the fair market value of the stock at the
date of grant.
F-21
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
In conjunction with the acquisition of the remaining shares of Colonial
discussed in Notes 1 and 5, all options outstanding on that date became 100%
vested, and Colonial recognized a $21 charge to operations on February 22,
2002, representing the difference between the respective options' strike price
and the per share acquisition price of $1.12.
If the accounting provisions of SFAS 123 had been adopted, the effect on
2001, 2000 and 1999 income would have been approximately $153 of additional
expense in each year.
For purposes of computing the proforma amounts indicated above, the fair
value of each option on the date of grant is estimated using the Black-Scholes
option pricing model with the following assumptions for the years ended
December 31, 2001, 2000 and 1999, respectively: no dividend yield, expected
volatility of 64%, 64%, and 63%, risk-free interest rate of 6.62% and 6.08%,
and 6.74% and expected lives of two to five years. Substantially all options
become vested and exercisable evenly over a five-year period. The weighted
average fair value of options granted during the years ended December 31, 2000
and 1999, are $.76 and $1.38 per share, respectively. There were no options
granted in 2001.
14. SEGMENT DISCLOSURES
JEI has three reportable segments (Colonial, Jalou and Black Hawk). The
Black Hawk operations consist of the Lodge, Gilpin and Gold Dust West casinos,
which are collectively accounted for on the equity method. The Colonial
operations consist of the pari-mutuel operations and the Jalou operations
consist of the truck plaza/video poker facilities. Each segment is managed
separately because of the unique characteristics of revenue stream and customer
base. The accounting policies of the segments are the same as those described
in Note 2. The Corporate operations represent all other revenues and expenses,
and they are also shown. The following segment information is presented after
the elimination of inter-segment transactions.
As described in Note 1, the Company acquired the remaining shares of Black
Hawk on February 22, 2002. As a result of its 100% ownership interest in Black
Hawk, subsequent to December 31, 2001, the Company has expanded the Black Hawk
segment into its two geographic regions, Colorado and Nevada, representing the
components that are separately managed.
Segment financial information as of December 31, 2001 and 2000, and for each
of the three years in the period ended December 31, 2001, is presented as
follows. Segment financial information as of and for the years ended December
31, 2000 and 1999, is not presented for the Jalou segment as the Company did
not operate in that segment prior to January 2001.
F-22
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
Year Ended December 31, 2001
(Dollars in Thousands)
------------------------------------
Colonial Jalou Black Hawk Total
-------- ------- ---------- --------
Total revenues:
Gaming:
Pari-mutuel.............................................. $27,781 $ 27,781
Truck stop video poker................................... $ 6,666 6,666
Fuel......................................................... 5,688 5,688
Convenience store and restaurant............................. 1,370 1,743 3,113
Other........................................................ 2,147 92 2,239
------- ------- ------ --------
Total revenues........................................ 31,298 14,189 45,487
------- ------- ------
Corporate adjustments and eliminations....................... 1,166
--------
Consolidated total revenues..................................... $ 46,653
========
Depreciation and amortization................................... 1,734 947 2,681
Operating income................................................ 309 2,235 2,544
------- ------- ------
Corporate adjustments and eliminations....................... 1,541
--------
Consolidated operating income................................... $ 4,085
========
Interest income................................................. 90 10 100
Interest expense................................................ 2,755 1,555 4,310
------- ------- ------
Corporate adjustments and eliminations....................... (80)
--------
Consolidated total interest expense............................. $ 4,230
========
(Loss) income before equity in earnings of investments and
minority interest in loss..................................... $(2,356) $ 690 $ (1,666)
======= ======= ======
Corporate adjustments and eliminations....................... 1,621
--------
Consolidated total loss before equity in earnings of investments
and minority interest in loss................................. $ (45)
========
Equity in earnings of investments--Black Hawk and The Lodge..... $ $ $3,377 $ 3,377
======= ======= ====== ========
Minority interest in loss--Colonial............................. $ 1,258 $ $ $ 1,258
======= ======= ====== ========
Net (loss) income............................................... $(1,098) $ 690 $3,377 2,969
======= ======= ======
Corporate adjustments and eliminations....................... 1,621
--------
Consolidated net income......................................... $ 4,590
========
Goodwill amortization........................................... 280
--------
Adjusted net income............................................. $ 4,870
========
Goodwill, net................................................... $ $ 5,140 $ $ 5,140
======= ======= ====== ========
Identifiable intangible assets, net............................. $ 656 $ 5,791 $ $ 6,447
======= ======= ====== ========
Property, plant and equipment, net.............................. $61,926 $ 5,397 $ $ 67,323
======= ======= ====== ========
Total assets.................................................... 66,409 19,385 85,794
------- ------- ------ --------
Corporate adjustments and eliminations....................... 20,198
--------
Consolidated total assets....................................... $105,992
========
Long-term debt.................................................. $ 1,693 $13,736 $ $ 15,429
======= ======= ====== ========
F-23
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
Year Ended December 31, 2000
(Dollars in Thousands)
---------------------------
Colonial Black Hawk Total
-------- ---------- -------
Total revenues:
Gaming:...................................................................
Pari-mutuel........................................................... $27,366 $27,366
Convenience store and restaurant...................................... 1,188 1,188
Other..................................................................... 1,789 1,789
------- ------ -------
Total revenues............................................................... 30,343 30,343
------- ------
Corporate adjustments and eliminations.................................... 1,453
-------
Consolidated total revenues.................................................. $31,796
-------
Depreciation and amortization................................................ 1,698 1,698
Operating loss............................................................... (165) (165)
------- ------ -------
Corporate adjustments and eliminations.................................... 1,453
-------
Consolidated operating income................................................ $ 1,288
=======
Interest income.............................................................. 123 123
Interest expense............................................................. 2,519 2,519
------- ------ -------
Loss before equity in earnings of investments and minority interest in loss.. $(2,561) $ $(2,561)
======= ======
Corporate adjustments and eliminations.................................... 1,453
-------
Consolidated total loss before equity in earnings of investments and minority
interest in loss........................................................... $(1,108)
=======
Equity in earnings of investments--Black Hawk and The Lodge.................. $ $3,833 $ 3,833
======= ====== =======
Minority interest in loss--Colonial.......................................... $ 1,566 $ $ 1,566
======= ====== =======
Net (loss) income............................................................ (995) 3,833 2,838
Corporate adjustments and eliminations.................................... 1,453
-------
Consolidated net income...................................................... $ 4,291
=======
Identifiable intangible assets, net.......................................... $ 703 $ $ 703
======= ====== =======
Property, plant and equipment, net........................................... $62,890 $ $62,890
======= ====== =======
Total assets................................................................. 65,937 65,937
------- ------ -------
Corporate adjustments and eliminations.................................... 20,181
-------
Consolidated total assets.................................................... $86,118
=======
Long-term debt............................................................... $ 2,096 $ $ 2,096
======= ====== =======
F-24
JACOBS ENTERTAINMENT, INC.
(formerly Gameco, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999--(Continued)
(Dollars in Thousands)
Year Ended December 31, 1999
(Dollars in Thousands)
---------------------------
Black
Colonial Hawk Total
-------- ------ -------
Total revenues:
Gaming:
Pari-mutuel............................................................. $27,285 $27,285
Convenience store and restaurant............................................ 1,219 1,219
Other....................................................................... 1,938 1,938
------- ------ -------
Total revenues................................................................. 30,442 30,442
------- ------
Corporate adjustments and eliminations...................................... 1,274
-------
Consolidated total revenues.................................................... $31,716
=======
Depreciation and amortization.................................................. 1,841 1,841
Operating loss................................................................. 1,701 1,701
------- ------
Corporate adjustments and eliminations...................................... 1,274
-------
Consolidated operating income.................................................. $ 2,975
=======
Interest income................................................................ 65 65
Interest expense............................................................... 2,905 2,905
------- ------ -------
Loss before equity in earnings of investments and minority interest in loss.... $(1,139) $ (1,139)
======= ======
Corporate adjustments and eliminations...................................... 1,274
-------
Consolidated total income before equity in earnings of investments and minority
interest in loss............................................................. $ 135
=======
Equity in earnings of investments--Black Hawk and The Lodge.................... $ $3,528 $ 3,528
======= ====== =======
Minority interest in loss--Colonial............................................ $ 615 $ $ 615
======= ====== =======
Net (loss) income.............................................................. (524) 3,528 3,004
Corporate adjustments and eliminations...................................... 1,274
-------
Consolidated net income........................................................ $ 4,278
=======
F-25
JACOBS ENTERTAINMENT, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
March 31, 2002 and December 31, 2001
(Dollars In Thousands)
March 31,
2002 December 31,
(Unaudited) 2001
----------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 19,083 $ 3,171
Prepaid and other assets.............................. 7,003 1,977
-------- --------
Total current assets.............................. 26,086 5,148
PROPERTY, PLANT AND EQUIPMENT
Land and improvements................................. 36,480 16,588
Building and improvements............................. 103,945 52,189
Equipment, furniture and fixtures..................... 24,266 5,966
ACCUMULATED DEPRECIATION................................. (12,840) (7,420)
-------- --------
Property, plant and equipment, net.................... 151,851 67,323
OTHER ASSETS:
Equity method investments............................. 20,443
Goodwill.............................................. 36,807 5,140
Identifiable intangible assets........................ 8,046 6,447
Other assets.......................................... 9,566 1,491
-------- --------
TOTAL ASSETS............................................. $232,356 $105,992
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses................. $ 22,842 $ 9,496
Current portion of long-term debt..................... 763 737
-------- --------
Total current liabilities......................... 23,605 10,233
Long term debt........................................ 136,435 5,692
Long term debt--related parties....................... 9,000 9,000
-------- --------
Total long-term debt.............................. 145,435 14,692
Total liabilities................................. 169,040 24,925
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST........................................ 17,308
STOCKHOLDERS' EQUITY
Common stock $.01 par value; 1,500 shares authorized;
1,500 shares issued and outstanding
Additional paid in capital............................ 27,992 27,992
Retained earnings..................................... 35,324 35,767
-------- --------
Total stockholders' equity........................ 63,316 63,759
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $232,356 $105,992
======== ========
See notes to unaudited consolidated financial statements
F-26
JACOBS ENTERTAINMENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2002 and 2001
(Dollars In Thousands)
Three Months Ended
March 31,
-----------------
2002 2001
------- ------
REVENUES:
Gaming:
Casino......................................................... $ 9,841
Truck stop..................................................... 5,042 $1,129
Pari-mutuel.................................................... 6,390 6,929
Food and beverage................................................ 1,534 128
Convenience store................................................ 3,502 919
Hotel............................................................ 136
Other............................................................ 820 830
------- ------
Total revenues............................................. 27,265 9,935
Promotional allowances..................................... (1,579) --
------- ------
Net revenues............................................... 25,686 9,935
COSTS & EXPENSES:
Gaming:
Casino......................................................... 2,980
Truck stop..................................................... 2,160 441
Pari-mutuel.................................................... 4,985 5,416
Food and beverage................................................ 1,413 99
Convenience store................................................ 3,416 888
Hotel............................................................ 94
Marketing, general and administrative............................ 4,216 1,191
Privatization and other non-recurring costs...................... 455
Depreciation and amortization.................................... 1,403 558
------- ------
Total costs and expenses................................... 21,122 8,593
------- ------
OPERATING INCOME.................................................. 4,564 1,342
Interest income.................................................. 88 24
Interest expense................................................. (3,288) (944)
------- ------
INCOME BEFORE EQUITY IN INVESTMENTS
AND MINORITY INTEREST......................................... 1,364 422
Equity in (loss) earnings of investments--Black Hawk and The Lodge (1,980) 893
Minority interest in loss--Colonial............................... 173 47
------- ------
NET (LOSS) INCOME................................................. $ (443) $1,362
======= ======
See notes to unaudited consolidated financial statements
F-27
JACOBS ENTERTAINMENT, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2002
(Dollars In Thousands)
Common Stock
-------------
Additional
Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ---------- -------- -------
BALANCES,
JANUARY 1, 2002 -- $-- $27,992 $35,767 $63,759
Net loss........ (443) (443)
--- --- ------- ------- -------
BALANCES,
MARCH 31, 2002. -- $-- $27,992 $35,324 $63,316
=== === ======= ======= =======
See notes to unaudited consolidated financial statements
F-28
JACOBS ENTERTAINMENT, INC
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2002 and 2001
(Dollars In Thousands)
Three Months Ended
March 31,
-------------------
2002 2001
--------- --------
OPERATING ACTIVITIES:
Net (loss) income............................................................... $ (443) $ 1,362
Adjustments to reconcile net (loss) income to net cash provided by operating
activites:
Equity loss (income)........................................................ 1,980 (893)
Minority Interest........................................................... (173) (47)
Depreciation and amortization............................................... 1,403 558
Deferred financing cost amortization........................................ 141
Bond issue discount amortization............................................ 101
Changes in operating assets and liabilities, net of the effects of acquisition:
Accounts receivable......................................................... (291)
Inventories................................................................. (41)
Prepaid expenses and other assets........................................... (887) (787)
Accounts payable and accrued expenses....................................... 5,675 1,819
--------- --------
Net cash provided by operating activies.................................. 7,465 2,012
--------- --------
INVESTING ACTIVITIES:
Equipment purchases and additions to property, plant, and equipment............. (243) (190)
Costs associated with acquisitions.............................................. (1,305)
Acquisitions, net of cash acquired:
Black Hawk Gaming........................................................... (85,428)
Colonial Downs.............................................................. (4,644)
Truck stops................................................................. (19,682) (15,969)
--------- --------
Net cash used in investing activities....................................... (111,302) (16,159)
--------- --------
FINANCING ACTIVITIES:
Net proceeds from bond issuance................................................. 120,050
Proceeds from truck stop seller notes........................................... 5,753 4,737
Proceeds from related party truck stop loans.................................... 9,000
Payments to obtain financing.................................................... (5,568)
Contribution from stockholders.................................................. 2,516
Proceeds from long term debt.................................................... 335
Payments on long term debt...................................................... (434) (216)
--------- --------
Net cash provided by financing activities................................... 119,801 16,372
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.......................................... 15,964 2,225
CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR................................... 3,119 1,721
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................................... $ 19,083 $ 3,946
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.......................................................... $ 1,029 $ 1,458
See notes to unaudited consolidated financial statements
F-29
JACOBS ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(DOLLARS IN THOUSANDS)
1. BUSINESS AND ORGANIZATION
Gameco, Inc. ("Gameco" or the "Company") was formed on April 17, 2001, as an
S-Corporation, to become a geographically diversified gaming and pari-mutuel
wagering company with properties in Colorado, Nevada, Louisiana, and Virginia.
The Company's sole shareholders, who each own 50% of Gameco's common stock, are
Jeffrey P. Jacobs and the Richard E. Jacobs Revocable Trust, of which Richard
E. Jacobs is the sole trustee (collectively, "Jacobs"). As a result of the
transactions described in Notes 4 and 5, effective February 22, 2002, Gameco
owns and operates three land based casinos, six truck plaza video gaming
facilities, and a horse racing track with three off-track wagering facilities.
In addition, the Company receives a percentage of gaming revenue from an
additional truck plaza video gaming facility and leases and operates a fourth
off-track wagering facility. Until these acquisitions were completed, the
Company had not conducted any operations.
2. SIGNIFICANT ACCOUNTING POLICES
Unaudited Consolidated Financial Statements--In the opinion of management,
the accompanying unaudited consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, which are necessary for
the fair presentation of the financial position of the Company as of March 31,
2002 and December 31, 2001 and the results of its operations and cash flows for
the three month periods ended March 31, 2002 and 2001. The accompanying
unaudited consolidated financial statements include the various accounts of the
Company after giving effect to the February 22, 2002 acquisitions as more fully
described in Note 5. All significant inter-company transactions and balances
have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto of
the acquired entities for the year ended December 31, 2001 contained in this
registration statement. The results of interim periods are not necessarily
indicative of the results to be expected for the year ended December 31, 2002.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations," which is effective July 1, 2001. SFAS 141 requires the purchase
method of accounting for business combinations initiated after June 30, 2001
and eliminates the pooling-of-interests method. We are currently in the process
of evaluating the impact of SFAS 141 on the February 22, 2002 acquisitions.
Specifically, we are in the process of obtaining third party valuations of our
tangible assets and third party identification and valuation of intangible
assets associated with these acquisitions. However, we do not believe the
implementation of SFAS 141 will have a material impact on our financial
position or results of operations.
In July 2001, the FASB issued SFAS No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets," (see Note 3).
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This statement supersedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and the accounting and reporting provisions of Accounting Principles Board
Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of
F-30
JACOBS ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." This statement also amends
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. This statement requires that one accounting model be
used for long-lived assets to be disposed of by sale, whether previously held
and used or newly acquired. This statement also broadens the presentation of
discontinued operations to include more disposal transactions. We adopted the
provisions of this statement at the beginning of 2002 without an impact on our
financial position or results of operations.
3. GOODWILL AND OTHER INTANGIBLE ASSETS
SFAS No. 142 applies to intangibles and goodwill acquired after June 30,
2001, as well as goodwill and intangibles previously acquired. Under SFAS No.
142, goodwill as well as other intangibles determined to have an indefinite
life will no longer be amortized; however, these assets will be reviewed for
impairment on a periodic basis. The Company adopted SFAS No. 142 on January 1,
2002, has completed its transitional impairment test, and has determined that
no impairment of its goodwill balance exits. In addition, the Company has
reassessed the useful lives of its identifiable intangible assets without any
change to the previously established amortization periods of such assets.
The amortization expense and net income of JEI for the three months ended
March 31, 2001, is as follows:
Three Months
Ended March 31,
2001
- ---------------
Reported net income............................... $1,362
Add back: Goodwill amortization................... 51
------
Adjusted net income............................... $1,413
======
The revenue rights and device use rights resulted from the three truck stop
acquisitions discussed further in Note 5. There has been no change in the
useful lives of the Company's identifiable intangible assets on adoption of
SFAS No. 142 (see Note 5).
4. LONG TERM DEBT
On February 8, 2002, Gameco completed a $125,000 private placement of
11 7/8% Senior Secured Notes (the "Notes") due 2009, with interest payable on
each February 1 and August 1, with payments beginning August 1, 2002. The Notes
were issued at a 3.96% discount from their principal amount, resulting in a
discount of $4,950, which is being amortized using the effective interest
method over the expected life of the Notes. The proceeds of the Notes were
primarily used to fund the acquisition of the common stock of the entities
described in Note 4, and to refinance certain debt of these entities in
connection with the acquisitions. The Notes are secured by the assets and stock
of the acquired entities.
5. ACQUISITIONS
On February 22, 2002, Gameco simultaneously completed the acquisition of a
100% interest in entities in which Jacobs owned either a full, majority, or
minority interest. The entities involved in the transaction, and the accounting
treatment for the components of the acquisitions are described below.
Diversified Opportunities Group, Ltd. ("Diversified") and Jalou L.L.C. and
Jalou II (collectively, "Jalou")--Jacobs contributed substantially all of its
interests in Diversified and its 100% interest in Jalou II in exchange for 100%
of the common stock of Gameco. On the acquisition date, prior to the
acquisition of the remaining shares of the entities described below,
Diversified owned 100% of Jalou L.L.C., approximately 44% of Colonial Holdings,
Inc. ("Colonial"), approximately 32% of Black Hawk Gaming & Development Company,
F-31
JACOBS ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inc. ("Black Hawk"), and a 25% interest in the Lodge Casino at Black Hawk (the
"Lodge"), located in Black Hawk, Colorado, of which the remaining 75% is owned
by Black Hawk. The exchange of Gameco shares for the interests of Diversified
and Jalou II on February 22, 2002, was accounted for as a combination of
entities under common control, which is similar to the pooling of interests
method of accounting for business combinations. Accordingly, Gameco's results
from January 1, 2002, through February 22, 2002, include 44%, 32%, and 25% of
the operations of Colonial, Black Hawk, and the Lodge, respectively, and 100%
of the operations of these entities thereafter as a result of the acquisition
of the remaining shares of these entities on February 22, 2002. Furthermore,
December 31, 2001 balance sheet of Gameco has been restated to reflect the
pooled financial position of Gameco, Diversified, and Jalou II as a result of
the combination of entities under common control on February 22, 2002.
Jalou--Jalou owns and operates six truck plaza video gaming facilities, and
receives a percentage of gaming revenue from an additional truck plaza video
gaming facility in Louisiana. The ownership interest of the Jalou entities and
the acquisition dates for each property is as follows.
Jalou LLC--Houma Truck Plaza and Casino and an interest in the gaming
revenues of Cash's Truck Plaza and Casino were acquired on February 7, 2001.
Bayou Vista Truck Plaza and Casino and Lucky Magnolia Truck Stop and Casino
were acquired on January 11, 2002, and Raceland Truck Plaza and Casino was
acquired on February 22, 2002.
Jalou II--Winner's Choice Casino was acquired on February 7, 2001, and
Colonels Truck Plaza and Casino was acquired on January 11, 2002.
These acquisitions were recorded using the purchase method of accounting for
business combinations, and the total purchase price for these properties
acquired in 2002 was approximately $20,282.
Colonial--Colonial owns and operates a horseracing track with three
off-track wagering facilities, and leases and operates a fourth off-track
wagering facility in Virginia. On February 22, 2002, Gameco acquired the
remaining 56% of Colonial's common stock for approximately $4,644, which was
recorded using the purchase method of accounting for business combinations, and
accordingly, 100% of Colonial's operations are included in Gameco's results for
the period subsequent to the acquisition date.
Black Hawk--Black Hawk owns a 75% interest in the Lodge and a 100% interest
in both the Gilpin Hotel and Casino and the Gold Dust West Casino, located in
Black Hawk, Colorado, and Reno, Nevada, respectively. On February 22, 2002,
Gameco acquired the remaining 68% of Black Hawk's common stock for
approximately $36,980 and assumed and refinanced approximately $59,950 of Black
Hawk's outstanding debt. This transaction was recorded using the purchase
method of accounting for business combinations, and accordingly, 100% of Black
Hawk's operations are included in Gameco's results for the period subsequent to
the acquisition date.
Identifiable intangible assets resulting from these acquisitions are
comprised of $6,000 in revenue rights associated with the acquisition of Cash's
Truck Plaza and Casino, and $2,046 in device use rights associated with the
acquisitions of Houma Truck Plaza and Casino, Bayou Vista Truck Plaza and
Casino, Lucky Magnolia Truck Stop and Casino, Raceland Truck Plaza and Casino,
Winner's Choice Casino and Colonels Truck Plaza and Casino. The revenue rights
and the device use rights will be amortized over 50 years and 5 years,
respectively, representing the initial terms of the related agreements.
Goodwill resulting from the transactions is attributable to anticipated future
cash flows associated with the acquired entities.
F-32
JACOBS ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Assuming the transactions occurred at the beginning of each period
presented, pro forma revenue and net (loss) income would have been as follows:
March 31, March 31,
2002 2001
--------- ---------
Net revenue...... $40,343 $40,638
Net (loss) income $(3,834) $ 3,587
The pro forma information is not necessarily indicative of the results of
operations that would have occurred had the acquisitions occurred at the
beginning of each period presented. The March 31, 2002 pro forma results
include non-recurring charges related to stock options, derivative termination,
and write-off of unamortized debt issuance costs at Black Hawk of $3,165,
$2,655, and $1,543, respectively.
6. SEGMENT DISCLOSURES
As defined by SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information", the following segment information is presented after the
elimination of inter-segment transactions. Gameco has four reportable segments
(Colorado, Nevada, Colonial, and Jalou) representing the states in which we
operate. The Colorado operations consist of the Lodge and Gilpin casinos, and
the Nevada operations consist of the Gold Dust West casino. The Virginia
operations consist of the pari-mutuel operations and the Louisiana operations
consist of the truck plaza/video poker facilities. Each segment is managed
separately because of the unique characteristics of geographic location,
revenue stream, and customer base. The accounting policies of the segments are
the same as those described in Note 2.
Quarter Ended March 31, 2001
(Balance Sheet data as of December 31, 2001)
(Dollars In Thousands)
Colorado Nevada Colonial Jalou Total
-------- ------ -------- ------- --------
Revenue:
Gaming:
Casino............................. -- -- -- -- --
Truck stop......................... -- -- -- $ 1,129 $ 1,129
Pari-mutuel........................ -- -- $ 6,929 -- 6,929
Food and beverage...................... -- -- 27 101 128
Convenient store....................... -- -- 362 557 919
Other.................................. -- -- 449 14 463
------- ------ ------- ------- --------
Total revenue................... -- -- 7,767 1,801 9,568
------- ------ ------- -------
Corporate adjustments and eliminations. 367
--------
Consolidated total revenue......... $ 9,935
========
Operating income.......................... -- -- 542 434 976
------- ------ ------- -------
Corporate adjustments and eliminations. 366
--------
Consolidated total revenue......... 1,342
--------
Equity in earnings of investments......... $ 741 $ 152 -- -- $ 893
------- ------ ------- ------- ========
Goodwill.................................. -- -- -- $ 5,140 $ 5,140
======= ====== ======= ======= ========
Identifiable Intangible Assets............ 6,447 6,447
======= ========
Total assets.............................. 15,537 4,906 65,064 19,151 104,658
------- ------ ------- -------
Corporate adjustments and eliminations. 1,334
--------
Consolidated total assets.......... $105,992
========
F-33
JACOBS ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Quarter Ended March 31, 2002
(Dollars In Thousands)
Colorado Nevada Colonial Jalou Total
-------- ------- -------- ------- --------
Revenue:
Gaming:
Casino............................. $ 8,037 $ 1,804 -- -- $ 9,841
Truck stop......................... -- -- -- $ 5,042 5,042
Pari-mutuel........................ -- -- $ 6,390 -- 6,390
Food and beverage...................... 790 298 83 363 1,534
Convenient store....................... -- -- 315 3,187 3,502
Hotel.................................. 94 42 -- -- 136
Other.................................. 55 7 719 39 820
------- ------- ------- ------- --------
Total Revenue................... 8,976 2,151 7,507 8,631 27,265
Pomotional allowance............ (1,336) (243) -- -- (1,579)
------- ------- ------- ------- --------
Net revenue..................... 7,640 1,908 7,507 8,631 25,686
------- ------- ------- ------- --------
Operating income.......................... 1,689 422 837 1,874 4,822
------- ------- ------- -------
Corporate adjustments and eliminations. (258)
--------
Consolidated operating income...... $ 4,564
========
Equity in loss of investments............. $(1,584) $ (396) -- -- $ (1,980)
======= ======= ======= ======= ========
Goodwill.................................. $19,328 $ 6,103 -- $11,376 $ 36,807
======= ======= ======= ======= ========
Identifiable Intangible Assets............ $ 8,046 $ 8,046
======= ========
Total assets.............................. 97,048 30,649 53,589 42,470 223,756
------- ------- ------- -------
Corporate adjustments and eliminations. 8,600
--------
Consolidated total assets.......... $232,356
========
F-34
JACOBS ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. SIGNIFICANT SUBSIDIARY INFORMATION
For the period prior to the acquisition of Black Hawk on February 22, 2002,
the Company accounted for its 32% interest in Black Hawk and its 25% in the
Lodge using the equity method. Condensed data for the three month period ended
March 31, 2001 is as follows:
Three Months Ended
March 31, 2001
----------------
BHWK LODGE
------- -------
REVENUES:
Casino....................................... $24,236 $14,614
Food and beverage............................ 2,838 1,595
Hotel........................................ 310 216
Other........................................ 766 412
------- -------
Total revenues........................... 28,150 16,837
Promotional allowances................... (4,063) (2,497)
------- -------
Net revenues............................. 24,087 14,340
COSTS AND EXPENSES:
Casino....................................... 7,729 5,034
Food and beverage............................ 2,524 1,442
Hotel........................................ 216 166
Marketing, general and administrative........ 7,593 4,083
Depreciation and amortization................ 1,909 973
------- -------
Total costs and expenses................. 19,971 11,698
------- -------
OPERATING INCOME................................ 4,116 2,642
Interest income.............................. 75 33
Interest expense............................. (1,571) (918)
------- -------
INCOME BEFORE MINORITY INTEREST AND INCOME TAXES 2,620 1,757
MINORITY INTEREST............................... (439)
------- -------
INCOME BEFORE INCOME TAXES...................... 2,181 1,757
INCOME TAXES.................................... (785)
------- -------
NET INCOME...................................... $ 1,396 $ 1,757
======= =======
8. COMMITMENTS AND CONTINGENCIES
On February 27, 2001, a stockholder of Black Hawk filed a class action
lawsuit against Black Hawk and its Board of Directors in Colorado District
Court for the County of Gilpin. The plaintiff alleges, among other things, that
the buyout proposal is being dictated by Mr. Jacobs, Black Hawk's principal
stockholder, at a price which is grossly unfair and unconscionable to other
stockholders and is designed to serve only his best interests. Further, the
plaintiff alleges than an adequate process is not in place to seek other bids
or to achieve the highest price attainable for the public's shares. The
plaintiff alleges that Mr. Jacobs has proprietary corporate information and
economic power which is unfair to public stockholders. Finally, the plaintiff
alleges that the individual defendants are acting in concert with Mr. Jacobs
and therefore breaching their fiduciary duties to the stockholders. The
plaintiff seeks to enjoin the transaction, rescind the transaction if it is
consummated, and recover unspecified compensatory or recissory damages and
legal fees and costs.
F-35
JACOBS ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On March 1, 2001, another purported class action lawsuit was filed in the
Colorado District Court, County of Gilpin against Black Hawk and its Board of
Directors. The allegations in this case are, in essence, the same as those
described immediately above. The relief sought by the plaintiffs is also
essentially the same.
Black Hawk's Board of Directors believes that it and the Special Committee
it appointed have met their respective fiduciary obligations. Black Hawk
believes both suits are without merit, will be vigorously contested, and
neither suit will result in a material liability; however, no assurance can be
given in this regard.
On June 25, 1999, a complaint against the Lodge and John Does 1-3 was filed
by a casino operating downstream from these casinos. The complaint alleges,
among other things, that the plaintiff is being damaged by subsurface water
flows onto its property from the Lodge property and the properties of John Does
1-3. The Lodge has denied all liability and has turned the matter over to its
insurance carrier for defense. The Lodge does not believe the suit has merit
and will continue to defend against the allegations alleged by the plaintiff.
The Lodge does not believe the suit will result in any material liability;
however, no assurance can be given in this regard.
The Company is also involved in routine litigation arising in the ordinary
course of business. These matters are believed by the Company to be covered by
appropriate insurance policies.
F-36
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Black Hawk Gaming & Development Company, Inc.
Black Hawk, Colorado
We have audited the accompanying consolidated balance sheets of Black Hawk
Gaming & Development Company, Inc. and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Black Hawk Gaming &
Development Company, Inc. and subsidiaries as of December 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, on January
1, 2001, the Company adopted Statement of Financial Accounting Standards No.
133 Accounting for Derivative Instruments and Hedging Activities.
As discussed in Note 1 to the consolidated financial statements, on February
22, 2002, Black Hawk Gaming & Development Company, Inc. was acquired by an
entity formed by its principal stockholder.
DELOITTE & TOUCHE LLP
Denver, Colorado
March 22, 2002
(July 12, 2002, as to Note 3)
F-37
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
2001
------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................................................. $ 15,676,901
Accounts receivable.................................................................................... 116,985
Inventories............................................................................................ 551,944
Prepaid expenses....................................................................................... 1,511,111
Deferred income tax.................................................................................... 546,906
------------
Total current assets................................................................................. 18,403,847
LAND..................................................................................................... 18,973,620
GAMING FACILITIES:
Building and improvements.............................................................................. 63,573,285
Equipment.............................................................................................. 24,766,407
Accumulated depreciation............................................................................... (19,032,468)
------------
Total gaming facilities.............................................................................. 69,307,224
OTHER ASSETS:
Goodwill, net of accumulated amortization of $2,825,759 and $1,369,615 for 2001 and 2000, respectively. 19,016,410
Other assets........................................................................................... 3,215,432
Deferred income tax.................................................................................... 777,922
------------
TOTAL.................................................................................................... $129,694,455
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.................................................................. $ 4,635,700
Income taxes payable................................................................................... 665,723
Accrued payroll........................................................................................ 556,149
Gaming taxes payable................................................................................... 2,766,977
Property taxes payable................................................................................. 753,656
Slot club liability.................................................................................... 949,375
Current portion of long-term debt...................................................................... 387,354
------------
Total current liabilities............................................................................ 10,714,934
LONG-TERM DEBT AND OTHER LIABILITIES:
Reducing and revolving credit facility................................................................. 58,800,000
Bonds payable.......................................................................................... 4,911,708
------------
Total long-term debt................................................................................. 63,711,708
Interest rate swap liability........................................................................... 1,910,897
Deferred income tax liability.......................................................................... 701,967
------------
Total liabilities.................................................................................... 77,039,506
COMMITMENTS AND CONTINGENCIES............................................................................
MINORITY INTEREST........................................................................................ 7,412,971
STOCKHOLDERS' EQUITY:
Preferred stock; $.001 par value; 10,000,000 shares authorized; none issued and outstanding............
Common stock; $.001 par value; 40,000,000 shares authorized; 4,154,400 and 4,126,757 shares issued and
outstanding, respectively............................................................................... 4,154
Additional paid-in capital............................................................................. 18,753,219
Accumulated other comprehensive loss................................................................... (1,172,725)
Retained earnings...................................................................................... 27,657,330
------------
Total stockholders' equity........................................................................... 45,241,978
------------
TOTAL.................................................................................................... $129,694,455
============
2000
------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................................................. $ 8,518,464
Accounts receivable.................................................................................... 740,804
Inventories............................................................................................ 535,231
Prepaid expenses....................................................................................... 671,546
Deferred income tax.................................................................................... 440,470
------------
Total current assets................................................................................. 10,906,515
LAND..................................................................................................... 15,413,619
GAMING FACILITIES:
Building and improvements.............................................................................. 58,109,038
Equipment.............................................................................................. 18,487,936
Accumulated depreciation............................................................................... (14,134,293)
------------
Total gaming facilities.............................................................................. 62,462,681
OTHER ASSETS:
Goodwill, net of accumulated amortization of $2,825,759 and $1,369,615 for 2001 and 2000, respectively. 5,374,461
Other assets........................................................................................... 3,318,973
Deferred income tax....................................................................................
------------
TOTAL.................................................................................................... $ 97,476,249
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.................................................................. $ 5,095,255
Income taxes payable................................................................................... 225,000
Accrued payroll........................................................................................ 526,931
Gaming taxes payable................................................................................... 2,673,927
Property taxes payable................................................................................. 940,655
Slot club liability.................................................................................... 760,297
Current portion of long-term debt...................................................................... 783,587
------------
Total current liabilities............................................................................ 11,005,652
LONG-TERM DEBT AND OTHER LIABILITIES:
Reducing and revolving credit facility................................................................. 29,900,000
Bonds payable.......................................................................................... 5,298,624
------------
Total long-term debt................................................................................. 35,198,624
Interest rate swap liability...........................................................................
Deferred income tax liability.......................................................................... 469,920
------------
Total liabilities.................................................................................... 46,674,196
COMMITMENTS AND CONTINGENCIES............................................................................
MINORITY INTEREST........................................................................................ 8,739,694
STOCKHOLDERS' EQUITY:
Preferred stock; $.001 par value; 10,000,000 shares authorized; none issued and outstanding............
Common stock; $.001 par value; 40,000,000 shares authorized; 4,154,400 and 4,126,757 shares issued and
outstanding, respectively............................................................................... 4,127
Additional paid-in capital............................................................................. 18,569,538
Accumulated other comprehensive loss...................................................................
Retained earnings...................................................................................... 23,488,694
------------
Total stockholders' equity........................................................................... 42,062,359
------------
TOTAL.................................................................................................... $ 97,476,249
============
See notes to consolidated financial statements.
F-38
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
2001 2000 1999
------------ ------------ ------------
REVENUES:
Casino revenue.......................... $100,698,614 $ 81,987,862 $ 81,902,996
Food and beverage revenue............... 11,930,869 9,152,795 8,827,171
Hotel revenue........................... 1,392,179 1,047,558 1,106,287
Other................................... 1,626,413 744,190 740,369
------------ ------------ ------------
Total revenues...................... 115,648,075 92,932,405 92,576,823
Promotional allowances.............. (17,099,049) (14,057,615) (12,970,296)
------------ ------------ ------------
Net revenues........................ 98,549,026 78,874,790 79,606,527
------------ ------------ ------------
COSTS AND EXPENSES:
Casino operations.......................... 31,367,788 26,014,337 25,260,708
Food and beverage operations............... 10,745,009 8,210,397 8,624,562
Hotel operations........................... 639,701 469,011 416,642
Marketing, general and administrative...... 32,093,399 24,800,259 25,400,938
Privatization and other non-recurring costs 1,509,344
Depreciation and amortization.............. 7,788,636 5,746,136 5,443,119
------------ ------------ ------------
Total costs and expenses............ 84,143,877 65,240,140 65,145,969
------------ ------------ ------------
OPERATING INCOME........................... 14,405,149 13,634,650 14,460,558
Interest income......................... 182,038 285,255 244,682
Interest expense........................ (5,271,324) (3,423,609) (4,585,725)
------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST AND INCOME
TAXES.................................... 9,315,863 10,496,296 10,119,515
MINORITY INTEREST.......................... (2,029,731) (2,059,744) (1,767,717)
------------ ------------ ------------
INCOME BEFORE INCOME TAXES................. 7,286,132 8,436,552 8,351,798
------------ ------------ ------------
PROVISION FOR INCOME TAXES:
Current................................. 3,097,724 2,574,652 2,696,104
Deferred................................ 19,772 400,942 232,896
------------ ------------ ------------
3,117,496 2,975,594 2,929,000
------------ ------------ ------------
NET INCOME................................. $ 4,168,636 $ 5,460,958 $ 5,422,798
============ ============ ============
See notes to consolidated financial statements.
F-39
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Common Stock
----------------
Accumulated
Additional Other
Paid-in Comprehensive Retained
Shares Amount Capital Loss Earnings Total
---------------- ----------- ------------- ----------- -----------
BALANCES,
JANUARY 1, 1999.............. 4,087,346 $4,087 $18,216,385 $12,604,938 $30,825,410
Exercise of stock options.... 22,863 23 139,252 139,275
Compensation under
nonqualified stock
options.................... 111,068 111,068
Net income................... 5,422,798 5,422,798
--------- ------ ----------- ----------- ----------- -----------
BALANCES,
DECEMBER 31, 1999............ 4,110,209 4,110 18,466,705 18,027,736 36,498,551
Stock issued for
compensation............... 1,548 2 9,998 10,000
Exercise of stock options.... 15,000 15 92,835 92,850
Net income................... 5,460,958 5,460,958
--------- ------ ----------- ----------- ----------- -----------
BALANCES,
DECEMBER 31, 2000............ 4,126,757 4,127 18,569,538 23,488,694 42,062,359
Stock issued for
compensation............... 3,476 4 25,996 26,000
Exercise of stock options.... 24,167 23 157,685 157,708
Comprehensive income:
Transition adjustment as
a result of the adoption
of Statement of
Financial Accounting
Standards No. 133, net
of income taxes.......... $ 367,941 367,941
Reclassification
adjustment for
amortization of
cumulative transition
adjustment, included in
net income, net of
income taxes (157,691) (157,691)
Unrealized loss on
interest rate swap, net
of income taxes.......... (1,382,975) (1,382,975)
Net income................... 4,168,636 4,168,636
--------- ------ ----------- ----------- ----------- -----------
Total comprehensive
income................... 2,995,911
-----------
BALANCES,
DECEMBER 31, 2001............ 4,154,400 $4,154 $18,753,219 $(1,172,725) $27,657,330 $45,241,978
========= ====== =========== =========== =========== ===========
See notes to consolidated financial statements.
F-40
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
------------ ------------ ------------
OPERATING ACTIVITIES:
Net income.............................................................. $ 4,168,636 $ 5,460,958 $ 5,422,798
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 7,788,636 5,746,136 5,443,119
Change in fair value of interest rate swap, net...................... 74,815
Minority interest.................................................... 2,029,731 2,059,744 1,767,717
Loss on sale of equipment............................................ 133,333 146,535 85,185
Noncash compensation................................................. 26,000 12,500 121,068
Deferred taxes....................................................... 19,772 400,942 232,896
Changes in operating assets and liabilities, net of the impact of
acquisition:
Accounts receivable.................................................. 623,819 (550,760) (25,967)
Inventories.......................................................... 30,412 21,951 (2,689)
Prepaid expenses and other assets.................................... (1,340,602) (21,999) (2,533,117)
Accounts payable, accrued expenses and other
current liabilities................................................. 116,554 (325,191) 1,498,983
------------ ------------ ------------
Net cash provided by operating activities......................... 13,671,106 12,950,816 12,009,993
------------ ------------ ------------
INVESTING ACTIVITIES:
Construction and equipping of gaming facility........................... (4,966,906) (2,407,334) (3,260,592)
Acquisition costs related to the Gold Dust West......................... (2,384) (696,411)
Deposit related to the Gold Dust West................................... (500,000)
Acquisition of the Gold Dust West, net of cash acquired................. (26,000,000)
Proceeds from the sale of equipment..................................... 109,766 91,534 51,519
------------ ------------ ------------
Net cash used in investing activities............................. (30,859,524) (3,512,211) (3,209,073)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from GHC revolving line of credit.............................. 6,573,122
Proceeds from bonds..................................................... 6,000,000
Proceeds from reducing and revolving credit facility.................... 36,500,000 47,940,534
Proceeds from the City of Black Hawk for public improvements............ 380,000
Payments on bonds....................................................... (362,239) (339,137)
Payment to retire construction loan..................................... (32,317,500)
Payment to retire GHC revolving line of credit.......................... (12,706,000)
Payment to refinance pre-existing debt.................................. (2,222,015)
Payment to amend reducing and revolving credit facility................. (571,247)
Payments on long-term debt and GHC revolving line of credit............. (420,913) (378,252) (8,874,275)
Payments on reducing and revolving credit facility...................... (7,600,000) (9,100,000) (13,167,977)
Distributions to minority interest owner................................ (3,356,454) (1,435,337) (1,193,951)
Exercise of stock options............................................... 157,708 92,850 139,275
------------ ------------ ------------
Net cash provided by (used in) financing
activities....................................................... 24,346,855 (11,159,876) (9,448,787)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................ $ 7,158,437 $ (1,721,271) $ (647,867)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................................ 8,518,464 10,239,735 10,887,602
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR...................................... $ 15,676,901 $ 8,518,464 $ 10,239,735
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:.........................................
Cash paid for interest.................................................. $ 5,387,720 $ 3,392,236 $ 4,550,322
============ ============ ============
Cash paid for income taxes.............................................. $ 2,357,000 $ 2,893,334 $ 2,453,299
============ ============ ============
See notes to consolidated financial statements.
F-41
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
1. BUSINESS
Black Hawk Gaming & Development Company, Inc. and subsidiaries (the
"Company" or "BHWK") is an owner, developer and operator of gaming properties
in Black Hawk, Colorado. Through April 23, 1998, the Company owned a 50%
interest in the Gilpin Hotel Venture ("GHV"), which owned the Gilpin Hotel
Casino, which the Company developed and has managed since 1992. On April 24,
1998, the Company acquired the other 50% interest in GHV and related land for
$10 million (see Note 4).
In November 1996, the Company entered into an Amended and Restated Purchase
Agreement and an Operating Agreement to form Black Hawk/Jacobs Entertainment
LLC (the "LLC") for the purpose of developing and managing a
casino/hotel/parking complex in Black Hawk, Colorado, The Lodge Casino at Black
Hawk (the "Lodge"). During the second quarter of 1998, the Company completed
the development of the casino portion of the Lodge, which opened for business
on June 24, 1998. On August 17, 1998, the hotel portion of the project opened,
and on November 6, 1998, the parking garage opened. The total cost of the
casino/hotel/parking complex was approximately $74 million (see Note 5).
On January 4, 2001, the Company purchased the assets and operating business
of the Gold Dust Motel, Inc. d/b/a Gold Dust West (the "GDW"), located in Reno,
Nevada, for $26.5 million (see Note 6).
In addition, included within the Company is BHWK corporate ("Corporate").
Generally, Corporate operations are not a profit center, but rather a
managerial entity which directs the overall operations of the Company.
On February 22, 2002, an entity formed by the Company's principal
stockholder, Chairman of the Board and Chief Executive Officer, Jeffrey P.
Jacobs, acquired all of the outstanding shares of the Company that he did not
already own, for $12.00 per share resulting in a total aggregate purchase price
of $36,980,000. The Company's stockholders approved this transaction on January
4, 2002. During 2001, the Company incurred $1,374,344 in connection with this
transaction, and has recorded these costs in privatization and other
non-recurring costs in the accompanying 2001 consolidated statement of income.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation--The accompanying consolidated balance sheets as of December
31, 2001 and 2000, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2001, include the accounts of the Company, the GHV, and
beginning on January 4, 2001, the Company's 100% ownership interest in the GDW.
All inter-company transactions and balances have been eliminated in
consolidation. The Company also records minority interest, which reflects the
portion of the equity and earnings of the LLC which are applicable to the 25%
minority interest owners of the LLC.
Cash Equivalents--The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
Inventory--Inventory consists of food and beverages, chips and tokens and
uniforms and are recorded at the lower of cost (first-in, first-out method) or
market.
F-42
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Gaming Facilities--Building and improvements and equipment are depreciated
using the straight-line method over the estimated useful lives of the assets
(39 years for building and improvements, and 5 to 7 years for equipment). Costs
of major improvements are capitalized, while costs of normal repairs and
maintenance are charged to expense as incurred. Gains or losses on disposal of
assets are recognized as incurred.
Goodwill--Goodwill represents the excess purchase price over the fair value
of the net identifiable assets acquired related to the Company's acquisition of
the 50% interest in GHV and related land, the Company's 50% share of
pre-existing goodwill of GHV, and the Company's acquisition of the GDW.
Amortization of goodwill is provided using the straight-line method over 15
years.
Debt Issue Costs--Debt issue costs are capitalized and amortized, using the
straight-line method (which approximates the effective interest method), over
the life of the related loan.
Slot Club Liability--The Company's casinos offer customers the ability to
become members in their respective slot clubs. Once a member, the customer can
insert a special card into slot and video poker machines while playing in the
Company's casinos to earn "points." Based on their point totals, members
receive various cash rewards and gift prizes. The Company accrues the cost of
points as they are earned by the members of the slot clubs.
Outstanding Gaming Chip and Token Liability--When customers exchange cash
for gaming chips and tokens, the Company has a liability as long as those chips
and tokens are not redeemed or won by the house. That liability is established
by determining the difference between the total chips and tokens placed in
service and the actual inventory of chips and tokens in custody or under the
control of the casinos. The chip and token liability is adjusted periodically
to reflect an estimate of chips and tokens that will never be redeemed, such as
chips and tokens that have been lost or taken as souvenirs.
Casino Revenues--Casino revenues are the net winnings from gaming
activities, which is the difference between gaming wins and losses.
Hotel, Food and Beverage, and Other Revenue--The Company recognizes hotel,
food and beverage and other revenue at the time that goods or services are
provided.
Promotional Allowances--Gross revenues include the retail amount of hotel
and food and beverages provided gratuitously to customers which amounted to
$8,125,376, $6,556,640 and $6,079,643 for the years ended December 31, 2001,
2000 and 1999, respectively. When computing net revenues, the retail amount of
hotel and food and beverages gratuitously provided to customers is deducted
from gross revenues as promotional allowances. The estimated cost of such
complimentary services is charged to casino operations and was $4,148,760,
$3,273,000 and $3,123,000 for the years ended December 31, 2001, 2000 and 1999,
respectively. (See additional discussion of amounts affecting promotional
allowance in the EITF 00-14 and EITF 00-22 paragraphs below).
Income Taxes--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes. SFAS No. 109 requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
Long-Lived Assets--The Company periodically evaluates the value of
long-lived assets, including goodwill, for potential impairment. If an
impairment is indicated, based on estimated undiscounted future cash flows that
are less than the carrying value of the asset, such impaired assets are written
down to their estimated fair value. As of December 31, 2001 and 2000,
management determined that there was no impairment of the Company's long-lived
assets.
F-43
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Minority Interest--The Company records minority interest, which reflects the
portion of the equity and earnings of the LLC which are applicable to the
minority interest owners of the LLC.
Stock Issued for Services--Common stock was issued, or accrued for issuance,
to directors in 2001, 2000, and 1999 for services, and was valued at the market
value as of the date awarded. Included in marketing, general and administrative
expenses in the consolidated statements of income for the years ended December
31, 2001, 2000 and 1999 is $13,500, $12,500 and $10,000, respectively, of
expenses related to stock issued or accrued for services.
Employee Stock Compensation Plans--The Company uses the intrinsic value
method to account for stock options and similar stock-based employee
compensation plans. The exercise price of stock options issued to employees
equals the market price of the stock on the measurement date, and therefore,
the Company does not record compensation expense on stock options granted to
employees. Options granted to non-employees are valued at estimated fair value
and charged to operations as earned. See Note 10 for discussion of the
Company's stock options plans.
Operating Segments--As of January 4, 2001, the Company acquired the GDW (see
Note 6). This acquisition expanded the Company's operations into a second
gaming jurisdiction other than Black Hawk, Colorado creating a new operating
segment as defined by SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information ("SFAS No. 131") (see Note 14).
Derivative Financial Instruments--The Company uses derivative instruments to
manage exposures to interest rate risk. The Company's primary objective for
holding derivatives is to minimize the risks associated with the impact of
interest rate exposure. Specifically, the Company uses interest rate swaps, as
cash flow hedging instruments, to manage its exposure to interest rate risk on
its variable-rate debt. The Company does not enter into derivative transactions
for trading purposes, or for fixed rate debt.
Derivative financial instruments taken alone may expose the Company to
varying degrees of market and credit risk in excess of amounts recognized in
the financial statements. However, when used for hedging purposes, these
instruments typically reduce overall interest rate risk. The Company controls
the credit risk of its financial contracts through credit approvals, limits,
and monitoring procedures. As the Company enters into derivative transactions
only with high quality institutions, no losses associated with non-performance
on its derivative financial instrument have occurred or are expected to occur.
Effective January 1, 2001 the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133,
as amended and interpreted, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. All derivatives, whether
designated in hedging relationships or not, are required to be recorded on the
balance sheet at fair value. If the derivative has been designated in a
fair-value hedge, the changes in the fair value of the derivative and the
hedged item are recognized in earnings. If the derivative has been designated
in a cash-flow hedge, changes in the fair value of the derivative are recorded
in other comprehensive income net of taxes, and recognized in the income
statement when the hedged item affects earnings. SFAS No. 133 defines new
requirements for designation and documentation of hedging relationships as well
as ongoing effectiveness assessments in order to use hedge accounting. For a
derivative that does not qualify as a hedge, changes in fair value are
recognized in current earnings.
F-44
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The adoption of SFAS No. 133 resulted in the Company recording a $367,941
gain (net of $200,059 in taxes) in accumulated other comprehensive loss as a
transition adjustment for its derivative instrument which had been designated
in a hedging relationship that addressed the variable cash flow exposure of a
forecasted transaction prior to adopting SFAS No. 133. (See Note 8).
Use of Estimates--The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
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 periods. Significant estimates used
by the Company include the estimated useful lives for depreciable and
amortizable assets and estimated cash flows in assessing the recoverability of
long-lived assets. Actual results could differ from those estimates.
Reclassifications--Certain reclassifications have been made in the 2000 and
1999 financial statements to conform with the classifications used in 2001.
These reclassifications had no effect on the Company's financial position or
net income.
Recently Issued Accounting Standards--In July 2001, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 141, Business Combinations ("SFAS No.
141"). SFAS No. 141 improves the transparency of the accounting and reporting
for business combinations by requiring that all business combinations be
accounted for under the purchase method. This Statement is effective for all
business combinations initiated after June 30, 2001. The Company adopted SFAS
No. 141 on July 1, 2001, and the adoption of SFAS No. 141 did not have a
material impact on the Company's financial position or results of operations.
In July 2001, FASB issued SFAS No. 142, Goodwill and Other Intangible Assets
("SFAS No. 142") (see Note 3).
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets ("SFAS No. 144"). SFAS No. 144 supercedes
current accounting guidance relating to impairment of long-lived assets and
provides a single accounting methodology for long-lived assets to be disposed
of, and also supercedes existing guidance with respect to reporting the effects
of the disposal of a business. SFAS No. 144 was adopted January 1, 2002,
without a material impact on the Company's financial position or results of
operations.
In January 2001, FASB announced that the Emerging Issues Task Force ("EITF")
had reached a final consensus on EITF 00-22, Accounting for 'Points' and
Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for
Free Products or Services to Be Delivered in the Future ("EITF 00-22"). EITF
00-22 requires that certain sales incentives provided by vendors that entitle a
customer to receive a reduction in the price of a product or service based on a
specified cumulative level of transactions be recognized as a reduction in
revenue. This issue is scoped broadly to include all industries that utilize
point or other loyalty programs, including the hospitality and gaming
industries. During 2001, the Company adopted this standard and reflected
$4,829,838 of player point redemption expenses as a component of promotional
allowances. The Company also reclassified $4,390,958 and $4,235,787 of similar
costs incurred during 2000 and 1999, respectively, from marketing, general and
administrative expenses to promotional allowances to conform with the 2001
presentation of such expenses.
In March 2001, the FASB announced that the EITF had reached a final
consensus on EITF 00-14, Accounting for Certain Sales Incentives ("EITF
00-14"). EITF 00-14 requires when recognized, the reduction in or refund of the
selling price of the product or service resulting from any cash sales incentive
should be classified
F-45
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as a reduction of revenue. The consensus reached should be applied no later
than in financial statements for the period beginning after December 15, 2001,
with earlier adoption encouraged. During 2001, the Company adopted this
standard and reflected $4,143,835 of coupon expenses as a component of
promotional allowances. The Company also reclassified $3,110,017 and $2,654,866
of similar costs incurred during 2000 and 1999, respectively, from marketing,
general and administrative expenses to promotional allowances to conform with
the 2001 presentation of such expense.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB
No. 101"), as amended. SAB No. 101 clarifies existing accounting principles
related to revenue recognition in financial statements. The Company adopted SAB
No. 101 during the fourth quarter of 2000. The adoption of SAB No.101 did not
affect the Company's revenue recognition practices.
3. GOODWILL AND OTHER INTANGIBLE ASSETS
SFAS No. 142 applies to intangibles and goodwill acquired after June 30,
2001, as well as goodwill and intangibles previously acquired. Under SFAS No.
142, goodwill as well as other intangibles determined to have an indefinite
life will no longer be amortized; however, these assets will be reviewed for
impairment on a periodic basis. The Company adopted SFAS No. 142 on January 1,
2002, has completed its transitional impairment test, and has determined that
no impairment of its goodwill balances exits. In addition, the Company has
reassessed the useful lives of its identifiable intangible assets without any
change to the previously established amortization periods of such assets.
The amortization expense and net income of the Company for the three years
in the period ended December 31, 2001, is as follows:
Year ended December 31,
--------------------------------
2001 2000 1999
---------- ---------- ----------
Reported net income............ $4,168,636 $5,460,958 $5,422,798
Add back: Goodwill amortization 1,456,144 437,886 562,023
---------- ---------- ----------
Adjusted net income............ $5,624,780 $5,898,844 $5,984,821
========== ========== ==========
4. GILPIN HOTEL VENTURE
In May 1991, the Company entered into an agreement to purchase a one-half
interest in undeveloped land and an historic hotel property known as the Gilpin
Hotel, both located in Black Hawk, Colorado. Simultaneously, the Company
entered into a joint venture agreement (the "Agreement") to form GHV with
Gilpin Ventures, Inc. ("GVI"), the owners of the remaining one-half interest in
the properties, for the purpose of developing and operating a limited-stakes
gaming and restaurant facility, the Gilpin Hotel Casino (the "Gilpin"). The
Gilpin opened for business in October 1992. Each party owned 50% of GHV. Under
the terms of the Agreement, the Company was the manager of the joint venture.
On April 24, 1998, the Company acquired the other 50% interest in GHV and
related land for $10,000,000. The acquisition was accounted for by the Company
under the purchase method of accounting and accordingly, 100% of GHV's results
of operations are included in the accompanying financial statements.
F-46
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. BLACK HAWK/JACOBS ENTERTAINMENT LLC
In December 1994, the Company signed a joint venture agreement with Jacobs
Entertainment, Inc. ("Jacobs") of Cleveland, Ohio, to develop a major
casino/hotel/parking structure complex in Black Hawk, Colorado, named The Lodge
Casino at Black Hawk. Construction of the 250,000 square foot project began in
January 1997. The casino portion of the project was completed and opened for
business on June 24, 1998. As a result of the refinements during the
development process, it was decided to incorporate a three-story overflow
parking structure into the Lodge project. Two stories of the overflow parking
structure provide parking for the Lodge, and the third-story of the structure
provides a portion of the parking for the Gilpin Hotel Casino. The hotel
portion of the project and the garage were completed during August 1998 and
November 1998, respectively.
On November 12, 1996, the Company entered into an agreement with Diversified
Opportunities Group, Inc. ("Diversified") and BH Entertainment Ltd. ("BH")
(both affiliates of Jacobs) whereby Diversified, BH and the Company created the
LLC in which the Company is a 75% member and the Jacobs' affiliates are a 25%
member.
6. GOLD DUST WEST CASINO--ACQUISITION
On January 4, 2001, the Company purchased the assets and operating business
of the GDW, a casino and motel located in Reno, Nevada, for $26,500,000. This
transaction was recorded using the purchase method of accounting for business
combinations, and accordingly, 100% of the GDW's operations are included in the
Company's results for the period subsequent to the acquisition date.
The Company obtained an appraisal of the assets of the GDW at the date of
acquisition, and the total purchase price, including approximately $698,000 of
transaction costs, was allocated to the GDW assets as follows:
Cash....................................... $ 45,000
Land....................................... 3,560,000
Building, furniture, fixtures and equipment 7,701,000
Other assets............................... 96,000
Acquisition costs.......................... 698,000
Goodwill................................... 15,098,000
-----------
Total purchase price....................... $27,198,000
===========
Assuming the GDW acquisition had occurred on January 1, 2000, for the year
ended December 31, 2000, net revenues would have been $97,899,205, and net
income would have been $6,295,331. The pro forma financial information is not
necessarily indicative of either the results of operations that would have
occurred had this agreement been effective on January 1, 2000, or of future
operations.
F-47
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
2001 2000
----------- -----------
Reducing and revolving credit facility amended January 4, 2001, upon acquisition
of GDW; a four year reducing and revolving facility totaling $75 million;
interest accrues at either the prime rate published by Wells Fargo Bank or the
LIBOR rate plus an applicable margin based upon financial ratios maintained by
the Company (approximately 8.94% for the quarter ended December 31, 2001);
two quarterly reductions in availability commence January 2002 at $1,875,000
each, the next four quarterly reductions in availability commencing July 2002 of
$2,812,500 each, with the following four quarterly reductions in availability
commencing July 2003 of $3,750,000 each, until April 16, 2004, when the
balance of the facility is due. Substantially all of the assets of the Company,
GHV, the LLC and the GDW are pledged as collateral under the facility........... $58,800,000 $29,900,000
Bonds payable; issued in two series with interest payments varying between 6.25%
and 6.50%; principal and interest payments approximating $360,000 are due
semi-annually beginning in June 2000 continuing until December 2011; secured
by the street and other infrastructure improvements made by the LLC............. 5,298,624 5,660,863
Note payable; payments of $40,863, including principal and interest at 11.66% per
annum due monthly through 2001, when the remaining principal and interest
balance is due; secured by GHV equipment........................................ 420,910
Other............................................................................. 438 438
----------- -----------
64,099,062 35,982,211
Less current portion.............................................................. 387,354 783,587
----------- -----------
Total............................................................................. $63,711,708 $35,198,624
=========== ===========
On December 21, 2000, the Company entered into the first amendment to its
existing reducing and revolving credit facility with an effective date of
January 4, 2001, the acquisition date of the assets and operating business of
the GDW. On January 4, 2001, the Company borrowed $30,500,000 on this credit
facility, of which $27,198,000 was used to fund the acquisition. The first
amendment to the Company's credit agreement increased the aggregate reducing
and revolving credit facility to $75,000,000. Debt issue costs of $483,000 were
incurred on this transaction and are being amortized over the life of the
related debt, in accordance with the Company's accounting policy.
In conjunction with the Company's acquisition on February 22, 2002,
discussed in Note 1, $1,543,264 in capitalized debt issue costs related to the
Company's Wells Fargo reducing and revolving credit facility were charged to
operations during the first quarter of 2002.
The reducing and revolving credit facility contains a number of affirmative
and negative covenants, which among other things require the Company to
maintain certain financial ratios and refrain from certain actions without the
approval of the bank syndicate group's concurrence. As of December 31, 2001,
the Company is in compliance with all such debt covenants.
F-48
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Scheduled principal payments as of December 31, 2001, are as follows:
2002...... $ 387,354
2003...... 6,713,273
2004...... 52,941,427
2005...... 471,498
2006...... 503,617
Thereafter 3,081,893
-----------
Total..... $64,099,062
===========
In conjunction with the Company's acquisition discussed in Note 1, the
Company's reducing and revolving credit facility was paid.
8. DERIVATIVE FINANCIAL INSTRUMENT
As discussed in Note 2, the Company is a party to an interest rate swap
agreement with off-balance-sheet risk. This derivative transaction is used to
hedge interest rate risk in the Company's variable rate debt. Prior to its
termination on February 16, 2001, the interest rate swap agreement ("IRS No.
1") provided that, on a quarterly basis, the Company paid a fixed rate of 5.18%
on the notional amount of $35,000,000 and received a payment based on LIBOR
applied to the notional amount. Gains or losses on the interest rate exchange
were included in interest expense as realized or incurred. From January 1, 2001
through February 16, 2001, the Company recorded a $318,000 charge to interest
expense due to the devaluation of IRS No. 1. Although the transition adjustment
was reflected in other comprehensive loss, subsequent changes in the value of
IRS No. 1 are reflected in the income statement because the swap was not
designated as a hedging instrument as defined by SFAS No. 133. As a result of
terminating IRS No. 1, the Company reclassified $157,691 (net of $85,921 in
taxes) of the transition gain from other comprehensive loss to interest expense
representing the amortization over its original term.
On February 16, 2001, the Company terminated IRS No. 1 and simultaneously
entered into a new interest rate swap agreement ("IRS No. 2"), with the same
counterparty, with an initial notional amount of $50,000,000 including
scheduled reductions of $10,000,000 each at December 31, 2002 and December 31,
2003, until final maturity on April 16, 2004. IRS No. 2 provides that, on a
quarterly basis, the Company pays a fixed rate of 5.46% on the notional amount
of $50,000,000 and receives a payment based on LIBOR applied to the notional
amount. IRS No. 2 has been documented and designated as a cash flow hedge as
defined by SFAS No. 133. Derivative losses included in other comprehensive loss
for the year ended December 31, 2001 amounted to $1,382,975 net of $777,922 in
taxes reflecting the decline in market value of IRS No. 2.
Derivative losses included in accumulated other comprehensive loss are
charged to earnings at the time interest expense is recognized on the Wells
Fargo Bank debt. Derivative losses of $426,351 net of $239,823 in taxes on IRS
No. 2 were reclassified to interest expense in 2001.
In conjunction with the Company's acquisition on February 22, 2002,
discussed in Note 1, the Company terminated its $50,000,000 interest rate swap
with a charge to operations of $2,655,000.
9. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value of the Company's financial
instruments has been determined by the Company using available market
information and generally accepted valuation
F-49
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
methodologies. However, considerable judgment is required to interpret market
data in order to develop the estimates of fair value. Accordingly, the
estimates herein are not necessarily indicative of the amounts the Company
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. The asset (liability) amounts for the Company's
financial instruments are as follows:
2001 2000
-------------------------- --------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ ------------ ------------ ------------
Liabilities--Debt............... $(64,099,062) $(64,099,062) $(35,982,000) $(35,982,000)
Interest Rate Swap Agreement. (1,910,897) (1,910,897) 568,000
The estimation methodologies utilized by the Company are summarized as
follows:
Debt--The fair value of variable-rate debt is estimated to be equal to its
carrying amount. The fair value of fixed rate debt is estimated to be equal to
its carrying amount, based on the prevailing market interest rates for debt of
similar dollar amount, maturity and risk.
Interest Rate Swap Agreement--The fair value of the interest rate swap
agreement is based on the present value of estimated payments that would be
received or paid by the Company over the term of the swap, based on the forward
interest rate swap curve as of December 31, 2001 and 2000, respectively.
The estimated fair value of the Company's other financial instruments, such
as cash and cash equivalents, accounts receivable and accounts payable, have
been determined to approximate carrying value based on the short-term nature of
those financial instruments.
F-50
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. STOCK OPTIONS
The Company currently has two stock option plans: the 1994 Employees'
Incentive Stock Option Plan ("1994 Plan") and the 1996 Incentive Stock Option
Plan ("1996 Plan"). The 1994 Plan provides for the grant of incentive stock
options to officers, directors and employees of the Company for 300,000 shares
of common stock. The 1996 Plan provides for the grant of stock options,
including incentive stock options and non-qualified stock options for 500,000
shares of common stock. At December 31, 2001, there were 25,483 shares
available for future grants under the 1994 Plan, and 100,600 shares were
available for future grants under the 1996 Plan. Stock option transactions are
summarized as follows:
Weighted
Average
Number of Exercise Exercise Price
Shares Price Per Share Per Share
--------- --------------- --------------
Outstanding at January 1, 1999.. 545,913 $5.63 - $8.38 $5.86
Granted...................... 93,000 $6.25 - $8.38 $7.23
Exercised.................... (22,863) $6.19 $6.19
Forfeited.................... (25,750) $5.63 - $8.38 $5.71
Outstanding at December 31, 1999 590,300 $5.63 - $8.38 $6.07
Granted...................... 45,000 $ 6.46 $6.46
Exercised.................... (15,000) $ 6.19 $6.19
Forfeited.................... (4,250) $ 8.38 $8.38
Outstanding at December 31, 2000 616,050 $5.63 - $8.38 $6.08
Exercised.................... (24,167) $6.19 - $8.38 $6.53
Forfeited.................... (77,633) $5.63 - $8.38 $6.93
Outstanding at December 31, 2001 514,250 $5.63 - $8.38 $5.93
Options granted under the 1994 Plan generally vest proportionately over
three years on June 30 following the grant date. Options granted under the 1996
Plan generally vest proportionately over three years on each of the first,
second, and third anniversary dates of the grant. The number of stock option
shares exercisable at December 31, 2001 was 449,250. These stock options have a
weighted average exercise price of $5.84 per share.
F-51
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As discussed in Note 2, the Company follows the intrinsic value method to
account for stock options issued to employees, resulting in no compensation
expense since options are granted at market price. Had compensation cost for
the Company's plans been determined based on the fair value of the options at
the grant date, the Company's net income would have been reduced to the pro
forma amounts indicated below:
2001 2000 1999
---------- ---------- ----------
Net income--as reported $4,168,636 $5,460,958 $5,422,798
Net income--pro forma.. $4,088,125 $5,322,587 $5,233,447
The weighted average fair value of the stock options granted was $0 in 2001,
$4.06 in 2000 and $4.60 in 1999. The fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions used for grants in 2000 and 1999: risk-free
interest rate of 5.11%, and 5.50%, respectively; expected dividend yield of 0%;
expected life of three years; and expected volatility of 124.07% and 98.613%,
respectively. The outstanding stock options at December 31, 2001 have a
weighted average remaining contractual life of 4.69 years.
On November 12, 1996, the Company issued options for 85,000 shares of common
stock to non-employees, which vest one-third on each anniversary date of the
grant. The fair value of the options was $333,200, which was amortized to
operations over the vesting period. The consolidated financial statements for
the years ended December 31, 2001, 2000 and 1999 reflect compensation expense
of $0, $0 and $111,068, respectively, related to the vesting of the
non-qualified options.
In conjunction with the Company's acquisition discussed in Note 1, all
options outstanding on that date became 100% vested, and the Company recognized
a $3,121,346 charge to operations on February 22, 2002 representing the
difference between the respective options' strike price and the per share
acquisition price of $12.00.
11. INCOME TAXES
Income tax expense includes the following current and deferred provisions
for the years ended December 31:
2001 2000 1999
---------- ---------- ----------
Current. $3,097,724 $2,574,652 $2,696,104
Deferred 19,772 400,942 232,896
---------- ---------- ----------
Total... $3,117,496 $2,975,594 $2,929,000
========== ========== ==========
Income tax expense includes the following federal and state components for
the years ended December 31:
2001 2000 1999
---------- ---------- ----------
Federal $2,783,338 $2,730,107 $2,562,875
State.. 334,158 245,487 366,125
---------- ---------- ----------
Total.. $3,117,496 $2,975,594 $2,929,000
========== ========== ==========
F-52
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's income tax expense for the years ended December 31, 2001, 2000
and 1999 varies from the amount expected by applying the federal tax rate due
to the following items:
2001 2000 1999
---------- ---------- ----------
Expected federal income tax expense....... $2,477,285 $2,868,428 $2,839,611
State income taxes, net of federal benefit 188,711 258,158 258,906
Non-deductible privatization costs........ 406,125
Other, net................................ 45,375 (150,992) (169,517)
---------- ---------- ----------
Total..................................... $3,117,496 $2,975,594 $2,929,000
========== ========== ==========
The Company's deferred income taxes at December 31, 2001 and 2000, are
comprised of the following:
2001 2000
---------- --------
Deferred income tax assets:
Accrued expenses............................. $ 546,906 $440,470
Derivative financial instrument.............. 777,922
---------- --------
Total gross deferred income tax assets....... 1,324,828 440,470
Deferred income tax liabilities:
Land and gaming facilities basis differences. 171,899 295,973
Start-up costs and intangible assets......... 424,229 173,947
Derivative financial instrument.............. 105,839
---------- --------
Total gross deferred income tax liabilities.. 701,967 469,920
---------- --------
Net deferred income tax asset (liability)....... $ 622,861 $(29,450)
========== ========
Net deferred income tax expense allocated to stockholders' equity was
$(672,083), $0 and $0 for the years ended December 31, 2001, 2000 and 1999,
respectively.
Although realization is not assured, management has evaluated the available
evidence about future taxable income and other possible sources of realization
of deferred income tax assets. A valuation allowance against deferred income
tax assets at December 31, 2001 and 2000, is not considered necessary because
management believes it is more likely than not the deferred income tax asset
will be fully realized.
On March 11, 2002, the Company and the LLC received notice from the Internal
Revenue Service asserting deficiencies in federal corporate income taxes for
the Company's 1998 tax year. The proposed adjustment indicates an increase to
taxable ordinary income for the 1998 tax year of $1,192,762, and relates to the
deductibility of depreciation taken against certain costs incurred by the LLC
to build and improve public assets. The Company and the LLC have analyzed these
matters and believe it has meritorious defenses to the deficiencies asserted by
the Internal Revenue Service. The Company and the LLC will contest the asserted
deficiencies through the administrative appeals process. The Company and the
LLC believe that any amounts assessed for the 1998 and future tax years will
not have a material effect on the Company's financial position or results of
operations. Due to the preliminary nature of this proceeding, management is
unable to reasonably estimate the amount, or range of amounts, of any potential
income tax liability associated with the notice.
F-53
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In conjunction with the Company's acquisition on February 22, 2002,
discussed in Note 1, during 2002 the Company filed an election to change its
tax status as a C-Corporation to an S-Corporation. Upon conversion to an
S-Corporation, no provision for federal income taxes will be reflected in the
Company's financial statements as the stockholders will report any taxable
income or loss of the Company on their personal tax returns. In addition, upon
conversion to an S-Corporation the Company will charge net deferred tax assets
to operations, as a component of income tax expense. The Company will also
record a deferred income tax liability related to built-in gains based on the
tax effect of the difference between the fair market value and tax basis of any
assets for which management does not have the ability and intent to hold for 10
years after the Company's election to convert to an S-Corporation. The amount
of the deferred income tax liability has not yet been determined. Management's
preliminary assessment is that recognition of any deferred income tax liability
will not have a material impact on the Company's financial position or results
of operations.
12. RELATED PARTIES
The Company and Diversified share a management fee of 5% of adjusted gross
gaming proceeds for the gaming operations of the LLC. For the first year of
operations, the sharing ratio of this management fee was disbursed 60% to the
Company and 40% to Diversified. For all subsequent periods of operations, the
management fee is disbursed 50% to the Company and 50% to Diversified. During
the periods ended December 31, 2001, 2000 and 1999, Diversified was paid
$1,541,229, $1,453,473 and $1,274,033, respectively, for management fees from
the LLC.
An officer, director and significant stockholder of the Company and certain
of his affiliates received an annual credit enhancement fee of 2% of the amount
guaranteed, as defined, for personally guaranteeing the Company's construction
loan used in the development of the Lodge. Total credit enhancement fees paid
during the years ended December 31, 2001, 2000 and 1999 were $0, $0 and
$226,693, respectively.
Effective October 1, 1997, the Company entered into an agreement with an
affiliate of an officer, director and significant stockholder of the Company to
assist the Company in its efforts to research, develop, perform due diligence
and possibly acquire new gaming opportunities. The agreement, as amended,
expires December 31, 2002. The annual cost to the Company under the agreement
was $225,000 in 2001, 2000, and 1999.
13. COMMITMENTS AND CONTINGENCIES
On February 27, 2001, a stockholder of the Company filed a class action
lawsuit against the Company and its Board of Directors in Colorado District
Court for the County of Gilpin. The plaintiff alleges, among other things, that
the buyout proposal is being dictated by Mr. Jacobs, the Company's principal
stockholder, at a price which is grossly unfair and unconscionable to other
stockholders and is designed to serve only his best interests. Further, the
plaintiff alleges than an adequate process is not in place to seek other bids
or to achieve the highest price attainable for the public's shares. The
plaintiff alleges that Mr. Jacobs has proprietary corporate information and
economic power which is unfair to public stockholders. Finally, the plaintiff
alleges that the individual defendants are acting in concert with Mr. Jacobs
and therefore breaching their fiduciary duties to the stockholders. The
plaintiff seeks to enjoin the transaction, rescind the transaction if it is
consummated, and recover unspecified compensatory or recissory damages and
legal fees and costs.
On March 1, 2001, another purported class action lawsuit was filed in the
Colorado District Court, County of Gilpin against the Company and its Board of
Directors. The allegations in this case are, in essence, the same as those
described immediately above. The relief sought by the plaintiffs is also
essentially the same.
F-54
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's Board of Directors believes that it and the Special Committee
it has appointed have met and will continue to meet their respective fiduciary
obligations. The Company believes both suits are without merit, will be
vigorously contested, and neither suit will result in a material liability;
however, no assurance can be given in this regard.
Along with the Company, the LLC and other LLC members were named as
defendants in an action for trespass brought in late January 1998. The action
was dismissed without prejudice on January 3, 1999. A trustee was appointed by
the court on December 22, 1998 to represent the purported interests of the
former plaintiff, if any. The trustee filed a similar action in September 1999
against the previous defendants, including the Company, containing essentially
the same allegations as the previous case. Subsequent to year end, the Company
settled this action for $58,000. The full amount of the settlement has been
accrued as of December 31, 2001, and is included as a component of accounts
payable and accrued expenses, and marketing, general and administrative
expenses, in the accompanying consolidated financial statements.
On June 25, 1999, a complaint against the LLC and John Does 1-3 was filed by
a casino operating downstream from these casinos. The complaint alleges, among
other things, that the plaintiff is being damaged by subsurface water flows
onto its property from the LLC property and the properties of John Does 1-3.
The LLC has denied all liability and has turned the matter over to its
insurance carrier for defense. The Company does not believe the suit has merit
and will continue to defend against the allegations alleged by the plaintiff.
The Company does not believe the suit will result in any material liability;
however, no assurance can be given in this regard.
The Company is also involved in routine litigation arising in the ordinary
course of business. These matters are believed by the Company to be covered by
appropriate insurance policies.
On January 1, 1997, the Gilpin Hotel Casino Employees' 401(k) Plan (re-named
Black Hawk Gaming & Development Company's 401(k) Plan on March 31, 1999) (the
"Plan") was organized and began accepting contributions on September 1, 1997.
The Plan is a defined contribution plan covering eligible employees of the
Company. The Plan allows eligible employees to make tax-deferred contributions
that are matched by the Company up to a specified level. The Company
contributed approximately $273,809, $237,000 and $161,000 to the Plan for the
years ended December 31, 2001, 2000 and 1999, respectively.
14. SEGMENT INFORMATION
As defined by SFAS No. 131, the Company has two geographically defined
reportable segments comprised of (1) the Gilpin and the Lodge, in Black Hawk,
Colorado and (2) the GDW, in Reno, Nevada. The Corporate operations represent
all other revenues and expenses, and they are also shown. All inter-segment and
inter-company transactions and balances have been eliminated.
The casinos in Black Hawk, Colorado, primarily serve the residents of
metropolitan Denver, Colorado. As such, the Company believes that significantly
all revenues are derived from within 150 miles of that geographic area.
The casino in Reno, Nevada, caters to the "locals" market. The Company
believes that significantly all revenues are derived from Reno, Nevada and
surrounding areas.
The accounting policies of these segments are the same as those described in
Note 2.
F-55
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Segment financial information as of and for the years ended December 31,
2001, 2000 and 1999 is presented as follows. Segment financial information as
of and for the years ended December 31, 2000 and 1999 is not presented for the
Reno, Nevada segment as the Company did not operate in that segment prior to
January 2001.
2001 2000 1999
----------- ----------- -----------
Net revenues:
Black Hawk, Colorado............... $80,038,394 $78,874,790 $79,606,527
Reno, Nevada....................... 18,510,632
----------- ----------- -----------
Total net revenues................... $98,549,026 $78,874,790 $79,606,527
=========== =========== ===========
Depreciation and amortization:
Black Hawk, Colorado............... $ 5,752,538 $ 5,736,113 $ 5,435,206
Reno, Nevada....................... 2,020,209
Corporate.......................... 15,889 10,023 7,913
----------- ----------- -----------
Total depreciation and amortization.. $ 7,788,636 $ 5,746,136 $ 5,443,119
=========== =========== ===========
Operating income:
Black Hawk, Colorado............... $15,397,279 $15,767,484 $16,799,975
Reno, Nevada....................... 2,730,756
Corporate.......................... (3,722,886) (2,132,834) (2,339,417)
----------- ----------- -----------
Total operating income............... 14,405,149 13,634,650 14,460,558
=========== =========== ===========
Interest income:
Black Hawk, Colorado............... $ 136,266 $ 261,431 $ 210,764
Reno, Nevada....................... 20,135
Corporate.......................... 25,637 23,824 33,918
----------- ----------- -----------
Total interest income................ $ 182,038 $ 285,255 $ 244,682
=========== =========== ===========
Interest expense:
Black Hawk, Colorado............... $(3,420,550) $(3,423,609) $(4,585,725)
Reno, Nevada....................... (1,850,774)
----------- ----------- -----------
Total interest expense............... $(5,271,324) $(3,423,609) $(4,585,725)
=========== =========== ===========
Income before minority interest
and income taxes:
Black Hawk, Colorado............... $12,112,995 $12,605,306 $12,425,014
Reno, Nevada....................... 900,117
Corporate.......................... (3,697,249) (2,109,010) (2,305,499)
----------- ----------- -----------
Total income before minority interest
and income taxes.................... $ 9,315,863 $10,496,296 $10,119,515
=========== =========== ===========
Provision for income taxes, Corporate $ 3,117,496 $ 2,975,594 $ 2,929,000
=========== =========== ===========
December 31, 2001 December 31, 2000
----------------- -----------------
Total assets:
Black Hawk, Colorado................ $ 96,033,561 $ 94,375,942
Reno, Nevada........................ 30,089,875
Corporate........................... 23,782,897 27,408,707
------------ ------------
Total assets....................... 149,906,333 121,784,649
------------ ------------
Corporate adjustments and eliminations (20,211,878) (24,308,400)
------------ ------------
Consolidated total assets............. $129,694,455 $ 97,476,249
============ ============
Additions to long lived assets:
Black Hawk, Colorado................ $ 2,766,121 $ 2,379,568
Reno, Nevada........................ 2,125,999
Corporate........................... 74,786 27,766
------------ ------------
Total additions to long lived assets.. $ 4,966,906 $ 2,407,334
============ ============
Long-term debt:
Black Hawk, Colorado................ $ 41,411,708 $ 35,198,624
Reno, Nevada........................ 22,300,000
------------ ------------
Total long-term debt.................. $ 63,711,708 $ 35,198,624
============ ============
F-56
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
(Dollars In Thousands)
March 31, December 31,
2002 2001
--------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 12,995 $ 15,677
Due from parent....................................................... 970
Prepaid and other assets.............................................. 2,407 2,727
-------- --------
Total current assets.............................................. 16,372 18,404
LAND..................................................................... 18,950 18,974
GAMING FACILITIES:
Building and improvements............................................. 59,820 63,573
Equipment............................................................. 17,390 24,766
Accumulated depreciation.............................................. (8,980) (19,032)
-------- --------
Total gaming facilities........................................... 68,230 69,307
OTHER ASSETS:............................................................
Goodwill.............................................................. 23,366 19,016
Other assets.......................................................... 1,750 3,993
-------- --------
TOTAL.................................................................... $128,668 $129,694
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses................................. $ 8,872 $ 10,328
Current portion of long-term debt..................................... 387 387
-------- --------
Total current liabilities......................................... 9,259 10,715
LONG-TERM DEBT AND OTHER LIABILITIES
Long Term Debt........................................................ 95,783 58,800
BID Bonds payable..................................................... 4,912 4,912
-------- --------
Total long-term debt.............................................. 100,695 63,712
Interest rate swap liability.......................................... 1,911
Deferred tax liability................................................ 702
-------- --------
Total liabilities................................................. 109,954 77,040
-------- --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST........................................................ 7,527 7,413
STOCKHOLDERS' EQUITY:
Preferred stock; $.001 par value; 10,000,000 shares authorized;
none issued and outstanding.........................................
Common stock; $.001 par value; 40,000,000 shares authorized;
4,155,150 and 4,154,400 shares issued and outstanding, respectively. 4 4
Additional paid-in capital............................................ 4,170 18,753
Accumulated other comprehensive loss.................................. (1,173)
Retained earnings..................................................... 7,013 27,657
-------- --------
Total stockholders' equity........................................ 11,187 45,241
-------- --------
TOTAL.................................................................... $128,668 $129,694
======== ========
See notes to unaudited consolidated financial statements
F-57
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS FROM JANUARY 1, 2002 THROUGH FEBRUARY 22, 2002,
AND FEBRUARY 23, 2002 THROUGH MARCH 31, 2002,
AND THE THREE MONTHS ENDED MARCH 31, 2001
(Dollars In Thousands)
Period From Period From
January 1, 2002 February 23, 2002
Through Through Three Months Ended
February 22, 2002 March 31, 2002 March 31, 2001
----------------- ----------------- ------------------
REVENUES:
Casino...................................... $14,523 $ 9,841 $24,236
Food and beverage........................... 1,624 1,088 2,838
Hotel....................................... 189 137 310
Other....................................... 96 61 766
------- ------- -------
Total revenues.......................... 16,432 11,127 28,150
Promotional allowances.................. 2,462 1,579 4,063
------- ------- -------
Net revenues............................ 13,970 9,548 24,087
------- ------- -------
COSTS AND EXPENSES:
Casino...................................... 4,333 2,980 7,729
Food and beverage........................... 1,512 973 2,524
Hotel....................................... 130 94 216
Marketing, general and administrative....... 4,778 2,745 7,593
Privatization and other non-recurring costs. 3,882
Depreciation and amortization............... 2,510 619 1,909
------- ------- -------
Total costs and expenses................ 17,145 7,411 19,971
------- ------- -------
OPERATING (LOSS) INCOME........................ (3,175) 2,137 4,116
Interest income............................. 13 4 75
Interest expense............................ (2,881) (1,800) (1,571)
------- ------- -------
(LOSS) INCOME BEFORE MINORITY INTEREST
AND INCOME TAXES............................. (5,924) 341 2,620
MINORITY INTEREST.............................. (127) 306 439
------- ------- -------
(LOSS) INCOME BEFORE INCOME TAXES.............. (5,797) 35 2,181
INCOME TAXES................................... 785
------- ------- -------
NET (LOSS) INCOME.............................. $(5,797) $ 35 $ 1,396
======= ======= =======
See notes to unaudited consolidated financial statements
F-58
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(In Thousands)
Accumulated
Other
Common Stock Additional Comprehensive
------------- Paid-in Retained Income
Shares Amount Capital Earnings (Loss) Total
------ ------ ---------- -------- ------------- --------
BALANCES,
JANUARY 1, 2002......................... 4,154 $4 $ 18,753 $ 27,657 $(1,173) $ 45,241
Stock options Exercised.................. 6 6
Push down of Gameco basis:
Elimination of retained earnings
applicable to shares acquired on
February 22, 2002.................... 14,882 (14,882)
Effect of recording goodwill and debt
resulting from the February 22, 2002
acquisition.......................... (29,471) (29,471)
Comprehensive income:
Realized loss on interest rate swap.... 1,173 1,173
Net income................................ (5,762) (5,762)
----- -- -------- -------- ------- --------
Total Comprehensive Income............... (4,589)
--------
BALANCES,
MARCH 31, 2002.......................... 4,154 $4 $ 4,170 $ 7,013 $ $ 11,187
===== == ======== ======== ======= ========
See notes to unaudited consolidated financial statements
F-59
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS FROM JANUARY 1, 2002 THROUGH FEBRUARY 22, 2002,
AND FEBRUARY 23, 2002 THROUGH MARCH 31, 2002,
AND THE THREE MONTHS ENDED MARCH 31, 2001
(Dollars In Thousands)
Period From Period From
January 1, 2002 February 23, 2002
Through Through Three Months Ended
February 22, 2002 March 31, 2002 March 31, 2001
----------------- ----------------- ------------------
OPERATING ACTIVITIES:
Net income...................................................... $(5,797) $ 35 $ 1,396
Adjustments to reconcile net (loss) income to net cash (used
in) provided by operating activities:
Depreciation and amortization................................. 2,510 619 1,909
Change in fair value of interest rate swap, net............... 257
Gain on sale of land.......................................... (119)
Minority interest............................................. (127) 306 439
Deferred Taxes................................................ (75)
Due from Parent............................................... (2,764)
Changes in operating assets and liabilities, net of the effects
of acquisition:
Accounts receivable........................................... 1,831 (65) (489)
Inventories................................................... 2 10 23
Prepaid expenses and other assets............................. (28) (339) (769)
Accounts payable and accrued expenses......................... (1,339) (116) 374
------- ------- --------
Net cash (used in) provided by operating activities.......... (3,142) (2,314) 3,140
------- ------- --------
INVESTING ACTIVITIES:
Equipment purchases and additions to gaming facilities.......... (340) (91) (361)
Proceeds from sale of land...................................... 142
Acquisition of the Gold Dust West, net of cash acquired......... (26,000)
------- ------- --------
Net cash used in investing activities........................ (198) (91) (26,361)
------- ------- --------
FINANCING ACTIVITIES:
Proceeds from reducing and revolving credit facility............ 36,500
Payments on bonds............................................... (178)
Payments on long term debt and note payable..................... (6,421)
Payments to amend reducing and revolving credit facility........ (571)
Proceeds from parent............................................ 3,121
Distributions to minority interest owner........................ (64) (2,000)
Exercise of stock options....................................... 6 13
------- ------- --------
Net cash provided by financing activities.................... 6 3,057 27,343
------- ------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS...................................................... $(3,334) $ 652 $ 4,122
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD........................................................... 15,677 12,343 8,518
------- ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................... $12,343 $12,995 $ 12,640
======= ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.......................................... $ 524 $ $ 1,415
Cash paid for income tax........................................ $ 470 $ $
Non-cash financing.............................................. $ $95,783 $
See notes to unaudited consolidated financial statements
F-60
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(DOLLARS IN THOUSANDS)
1. BUSINESS AND ORGANIZATION
Black Hawk Gaming & Development Company, Inc. ("Black Hawk") was
incorporated on January 10, 1991. Black Hawk is a holding company, which owns,
develops and operates gaming properties. Currently Black Hawk operates the
Gilpin Hotel Casino ("GHC") and The Lodge Casino at Black Hawk ("the Lodge"),
both located in Black Hawk, Colorado, and The Gold Dust West Casino ("GDW")
located in Reno, Nevada.
GHC is a 37,000 square foot facility located in the Black Hawk gaming
district and was Black Hawk's first casino project. Originally built in the
1860's, the Gilpin Hotel was one of the oldest in Colorado; however, due to
space limitations, the casino offers no hotel or lodging facilities. The Gilpin
Hotel Casino commenced operations in October 1992, and was expanded through the
acquisition of an adjacent casino in late 1994. It now offers customers
approximately 460 slot machines, 4 table games, two restaurants, four bars and
parking for approximately 200 cars.
The Lodge is a hotel/casino/parking complex and is one of Colorado's largest
casinos. The 250,000 square foot facility which opened on June 24, 1998,
presently offers customers 877 slot machines, 27 table games, 50 hotel rooms,
three restaurants, four bars and parking for approximately 600 cars.
On January 4, 2001, Black Hawk purchased the assets and operating business
of GDW for $26,000. The 24,000 square foot gaming and dining facility is
located on 4.6 acres, a few blocks west of Reno's downtown gaming district. The
GDW has been catering to the "locals" market for the past 23 years and
currently offers customers 500 slot machines, 106 motel rooms, one restaurant,
four bars and parking for 277 cars.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited Consolidated Financial Statements--In the opinion of management,
the accompanying unaudited consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, which are necessary for
the fair presentation of the financial position of Black Hawk at March 31, 2002
and December 31, 2001, and the results of its operations and cash flows for the
three months ended March 31, 2002 and 2001. The accompanying unaudited
consolidated financial statements include the accounts of Black Hawk, its
wholly owned subsidiaries Gilpin Ventures, Inc. ("GVI") and GDW, and its 75%
owned subsidiary, Black Hawk/Jacobs Entertainment, LLC. All significant
inter-company transactions and balances have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto of
Black Hawk for the year ended December 31, 2001 contained in the Gameco, Inc.
Form S-4 filed with the U.S. Securities Exchange Commission. The results of
interim periods are not necessarily indicative of results to be expected for
the year.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142 ("SFAS 142"),
"Goodwill and Other Intangible Assets," (see Note 3).
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This statement supersedes FASB Statement No. 121, "Accounting for the
Impairment of Long-
F-61
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting
and reporting provisions of Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." This statement also amends Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. This statement requires that one accounting model be used for
long-lived assets to be disposed of by sale, whether previously held and used
or newly acquired. This statement also broadens the presentation of
discontinued operations to include more disposal transactions. We adopted the
provisions of this statement at the beginning of 2002 without an impact on our
financial position or results of operations.
3. GOODWILL AND OTHER INTANGIBLE ASSETS
SFAS No. 142 applies to intangibles and goodwill acquired after June 30,
2001, as well as goodwill and intangibles previously acquired. Under SFAS No.
142, goodwill as well as other intangibles determined to have an indefinite
life will no longer be amortized; however, these assets will be reviewed for
impairment on a periodic basis. Black Hawk adopted SFAS No. 142 on January 1,
2002, has completed its transitional impairment test, and has determined that
no impairment of its goodwill balances exits. In addition, Black Hawk has
reassessed the useful lives of its identifiable intangible assets without any
change to the previously established amortization periods of such assets.
The amortization expense and net income of Black Hawk for the three months
ended March 31, 2001, is as follows:
Three Months
Ended
March 31, 2001
--------------
Reported net income............ $1,396
Add back: Goodwill amortization 364
------
Adjusted net income............ $1,760
======
4. ACCOUNTING CHANGE
Effective January 1, 2001 Black Hawk adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as
amended and interpreted, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. All derivatives, whether
designated in hedging relationships or not, are required to be recorded on the
balance sheet at fair value. If the derivative has been designated in a
fair-value hedge, the changes in the fair value of the derivative and the
hedged item are recognized in earnings. If the derivative has been designated
in a cash-flow hedge, changes in the fair value of the derivative are recorded
in other comprehensive income net of taxes, and recognized in the income
statement when the hedged item affects earnings. SFAS 133 defines new
requirements for designation and documentation of hedging relationships as well
as ongoing effectiveness assessments in order to use hedge accounting. For a
derivative that does not qualify as a hedge, changes in fair value are
recognized in current earnings.
Black Hawk uses derivative instruments to manage exposures to interest rate
risk. Black Hawk's primary objective for holding derivatives is to minimize the
risks associated with the impact of interest rate exposure. Specifically, Black
Hawk uses interest rate swaps, as cash flow hedging instruments, to manage its
exposure to interest rate risk on its variable-rate debt. Black Hawk does not
enter into derivative transactions for trading purposes, or for fixed rate debt.
F-62
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Derivative financial instruments taken alone may expose Black Hawk to
varying degrees of market and credit risk in excess of amounts recognized in
the financial statements. However, when used for hedging purposes, these
instruments typically reduce overall interest rate risk. Black Hawk controls
the credit risk of its financial contracts through credit approvals, limits,
and monitoring procedures. As Black Hawk enters into derivative transactions
only with high quality institutions, no losses associated with non-performance
on its derivative financial instrument have occurred or are expected to occur.
The adoption of SFAS 133 resulted in Black Hawk recording a $368 gain (net
of $200 in taxes) in accumulated other comprehensive income (loss) ("OCI") as a
transition adjustment for its derivative instrument which had been designated
in a hedging relationship that addressed the variable cash flow exposure of a
forecasted transaction prior to adopting SFAS 133.
During the three months ended March 31, 2001, Black Hawk terminated an
interest rate swap agreement designated as a hedging instrument and
simultaneously entered into a new interest rate swap agreement designated as a
cash-flow hedge. As a result of this transaction, effective February 16, 2001
(date of swap termination), Black Hawk recorded a $318 charge to interest
expense due to the devaluation of the original interest rate swap over the
period January 1, 2001 through February 16, 2001. In addition, Black Hawk
reclassified $39 (net of $21 in taxes) of gain from OCI to interest expense for
the amortization of the cumulative transition adjustment gain recorded January
1, 2001 (see above). Derivative losses included in OCI of the three months
ended March 31, 2001 amounted to $599, net of $337 in taxes. In conjunction
with Black Hawk's acquisition discussed below, Black Hawk terminated its
interest rate swap with a charge to operations of $2,655, which has been
included in interest expense in the accompanying unaudited consolidated
statement of income for the three months ended March 31, 2002.
5. BUYOUT OF BLACK HAWK
On February 22, 2002, Gameco, Inc., an entity formed by Black Hawk's
principal stockholder, Chairman of the Board and Chief Executive Officer,
Jeffrey P. Jacobs, completed the acquisition of a 100% interest in Black Hawk,
in which prior to the acquisition Jeffrey P. Jacobs owned a minority interest.
The accounting treatment for the acquisition is described below.
Diversified Opportunities Group, Ltd. ("Diversified")--Jeffrey P. Jacobs and
the Richard E. Jacobs Revocable Trust contributed substantially all of their
respective interests in Diversified in exchange for 100% of the common stock of
Gameco, Inc. On the acquisition date, prior to the acquisition of the remaining
shares of Black Hawk, Diversified owned approximately 32% of Black Hawk, and a
25% interest in the Lodge, of which Black Hawk owned the remaining 75%.
In addition, on February 22, 2002, Gameco acquired the remaining 68% of
Black Hawk's outstanding common stock for approximately $36,980 and assumed and
refinanced approximately $59,950 of Black Hawk's outstanding debt. This
transaction was recorded using the purchase method of accounting for business
combinations, and the principles of push-down accounting were applied to Black
Hawk.
6. PRIVATIZATION AND OTHER NON-RECURRING COSTS
During the three months ended March 31, 2002, in conjunction with the
acquisition described in Note 4, Black Hawk incurred privatization costs of
$717 consisting primarily of attorney, accounting, and investment banking fees
to close the Black Hawk acquisition. In addition, Black Hawk incurred $3,165 in
costs related to the redemption of stock options upon consummation of the Black
Hawk acquisition.
F-63
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. SEGMENT DISCLOSURE
As defined by SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information", the following segment information is presented after the
elimination of inter-segment transactions. Black Hawk has two reportable
segments (Colorado and Nevada) representing the states in which we operate. The
Colorado operations consist of the Lodge and the GHC, and the Nevada operations
consist of the GDW. Each segment is managed separately because of the unique
characteristics of geographic location, revenue stream, and customer base. The
accounting policies of the segments are the same as those described in Note 2.
UNAUDITED SEGMENT INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Dollars In Thousands)
Three Months Ended
March 31,
------------------------
2002 2001
------------ ------------
NET REVENUE
Black Hawk, Colorado................................................ $ 18,856 $ 19,752
Reno, Nevada........................................................ 4,662 4,335
-------- --------
Total net revenue............................................... 23,518 24,087
-------- --------
EBITDA
Black Hawk, Colorado................................................ 5,451 5,334
Reno, Nevada........................................................ 1,165 1,236
Net corporate overhead.............................................. (643) (545)
-------- --------
EBITDA.......................................................... 5,973 6,025
-------- --------
EBITDA MARGIN
Black Hawk, Colorado................................................ 29% 27%
Reno, Nevada........................................................ 25% 29%
EBITDA MARGIN................................................... 25% 25%
Operating Income
Black Hawk, Colorado................................................ 3,005 3,912
Reno, Nevada........................................................ 487 753
Net corporate overhead, privatization and other non-recurring costs. (4,530) (549)
-------- --------
Operating Income................................................ $ (1,038) $ 4,116
======== ========
December 31, December 31,
2001 2001
------------ ------------
Assets:
Black Hawk, Colorado................................................ $ 93,051 $ 93,668
Reno, Nevada........................................................ 30,276 30,090
Corporate........................................................... 5,341 5,936
-------- --------
Total Assets.................................................... $128,668 $129,694
======== ========
F-64
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. COMMITMENTS AND CONTINGENCIES
On February 27, 2001, a stockholder of Black Hawk filed a class action
lawsuit against Black Hawk and its Board of Directors in Colorado District
Court for the County of Gilpin. The plaintiff alleges, among other things, that
the buyout proposal is being dictated by Mr. Jacobs, Black Hawk's principal
stockholder, at a price which is grossly unfair and unconscionable to other
stockholders and is designed to serve only his best interests. Further, the
plaintiff alleges than an adequate process is not in place to seek other bids
or to achieve the highest price attainable for the public's shares. The
plaintiff alleges that Mr. Jacobs has proprietary corporate information and
economic power which is unfair to public stockholders. Finally, the plaintiff
alleges that the individual defendants are acting in concert with Mr. Jacobs
and therefore breaching their fiduciary duties to the stockholders. The
plaintiff seeks to enjoin the transaction, rescind the transaction if it is
consummated, and recover unspecified compensatory or recissory damages and
legal fees and costs.
On March 1, 2001, another purported class action lawsuit was filed in the
Colorado District Court, County of Gilpin against Black Hawk and its Board of
Directors. The allegations in this case are, in essence, the same as those
described immediately above. The relief sought by the plaintiffs is also
essentially the same.
Black Hawk's Board of Directors believes that it and the Special Committee
it appointed have met their respective fiduciary obligations. Black Hawk
believes both suits are without merit, will be vigorously contested, and
neither suit will result in a material liability; however, no assurance can be
given in this regard.
On June 25, 1999, a complaint against the Lodge and John Does 1-3 was filed
by a casino operating downstream from these casinos. The complaint alleges,
among other things, that the plaintiff is being damaged by subsurface water
flows onto its property from the Lodge property and the properties of John Does
1-3. The Lodge has denied all liability and has turned the matter over to its
insurance carrier for defense. The Lodge does not believe the suit has merit
and will continue to defend against the allegations alleged by the plaintiff.
The Lodge does not believe the suit will result in any material liability;
however, no assurance can be given in this regard.
The Company is also involved in routine litigation arising in the ordinary
course of business. These matters are believed by the Company to be covered by
appropriate insurance policies.
F-65
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Jalou
We have audited the accompanying combined balance sheets of Jalou as of
December 31, 2001 and 2000, and the related combined statements of income and
owners' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform our 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 combined financial position of Jalou at December
31, 2001 and 2000, and the combined results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
During the first quarter of 2002, all of the Jalou entities not acquired as
of December 31, 2001 were acquired by Diversified or its affiliates.
BDO Seidman, LLP
Richmond, Virginia
March 29, 2002
F-66
Jalou
Combined Balance Sheets
December 31,
-----------------------
2001 2000
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents.................................................... $ 824,904 $ 1,586,175
Accounts receivable (Note 4)................................................. 296,931 692,375
Inventory.................................................................... 409,093 570,523
Prepaid and other............................................................ 99,151 106,463
----------- -----------
Total Current Assets............................................................ 1,630,079 2,955,536
----------- -----------
Property and Equipment (Notes 1 and 2)
Land......................................................................... 1,448,000 2,075,930
Buildings and improvements................................................... 6,123,954 9,191,386
Equipment, furniture and fixtures............................................ 2,508,057 3,975,701
----------- -----------
10,080,011 15,243,017
Less accumulated depreciation................................................ 1,208,184 1,124,047
----------- -----------
Property and Equipment, net..................................................... 8,871,827 14,118,970
----------- -----------
Other Assets
Goodwill, net of amortization of $100,440 and $66,958, respectively (Note 1). 401,752 435,234
Deferred costs............................................................... -- 12,630
----------- -----------
Total Other Assets.............................................................. 401,752 447,864
----------- -----------
$10,903,658 $17,522,370
=========== ===========
LIABILITIES AND OWNERS' EQUITY
Current Liabilities
Advances from affiliates, net (Note 4)....................................... $ 1,048,063 $ 4,548,138
Advances from owners (Note 4)................................................ 1,062,166 503,995
Accounts payable............................................................. 255,208 283,143
Accrued liabilities.......................................................... 89,129 105,319
Current maturities of long-term debt (Note 2)................................ 3,104,130 1,350,289
----------- -----------
Total Current Liabilities....................................................... 5,558,696 6,790,884
Long-Term Debt, less current maturities (Note 2)................................ 3,246,156 9,778,331
----------- -----------
Total Liabilities............................................................... 8,804,852 16,569,215
----------- -----------
Commitments and Contingencies (Note 3)
Owners' Equity.................................................................. 2,098,806 953,155
----------- -----------
$10,903,658 $17,522,370
=========== ===========
See accompanying summary of accounting policies and notes to combined financial
statements.
F-67
Jalou
Combined Statements of Income and Owners' Equity
Year ended December 31,
------------------------
2001 2000
----------- -----------
Revenues
Fuel............................. $10,917,795 $14,437,824
Video poker, net (Note 4)........ 6,244,644 6,650,011
Other............................ 3,904,980 3,383,643
----------- -----------
Total revenues...................... 21,067,419 24,471,478
Cost of Sales (Note 4).............. 12,714,870 15,707,995
----------- -----------
Gross profit........................ 8,352,549 8,763,483
Operating Expenses.................. 6,243,123 5,310,314
----------- -----------
Income from operations.............. 2,109,426 3,453,169
Interest Expense, net............... 520,136 811,185
----------- -----------
Net Income.......................... 1,589,290 2,641,984
Owners' Equity, at beginning of year 953,155 974,449
Contributions....................... 2,355,469 --
Withdrawals......................... (2,799,108) (2,663,278)
----------- -----------
Owners' Equity, at end of year...... $ 2,098,806 $ 953,155
=========== ===========
See accompanying summary of accounting policies and notes to combined financial
statements.
F-68
Jalou
Combined Statements of Cash Flows
Year Ended December 31,
------------------------
2001 2000
----------- -----------
Reconciliation of Net Income to Cash Provided by Operating Activities
Net Income........................................................ $ 1,589,290 $ 2,641,984
Depreciation and amortization..................................... 855,899 940,295
Bad debt expense.................................................. 327,575 --
Changes in assets and liabilities
Increase in accounts receivable............................... (22,751) (647,774)
Increase in inventories....................................... (7,239) (362,289)
Increase in other assets...................................... (28,645) (81,149)
Increase in accounts payable.................................. 31,459 183,917
Increase in accrued liabilities............................... 14,597 69,400
----------- -----------
Cash provided by operating activities................................ 2,760,185 2,744,384
----------- -----------
Investing Activities
Disposal of net assets............................................ 387,087 --
Purchases of property and equipment............................... (263,450) (9,494,722)
----------- -----------
Cash provided (absorbed) by investing activities..................... 123,637 (9,494,722)
----------- -----------
Financing Activities
Increase (decrease) in advances from owners'......................
and affiliates, net............................................... (924,945) 2,322,287
Proceeds from notes payable and long-term debt.................... -- 7,070,822
Payments on notes payable and long-term debt...................... (806,548) (649,585)
Owner withdrawals................................................. (1,913,600) (579,735)
----------- -----------
Cash provided (absorbed) by financing activities..................... (3,645,093) 8,163,789
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents................. $ (761,271) $ 1,413,451
Cash and Cash Equivalents, at beginning of of year................... 1,586,175 172,724
----------- -----------
Cash and Cash Equivalents, at end of year............................ $ 824,904 $ 1,586,175
=========== ===========
Supplemental Disclosures of Cash Flow
Cash paid for interest............................................ $ 500,000 $ 811,000
Noncash distributions to owners................................... 885,508 2,083,543
Noncash contributions by owners................................... 2,355,469 --
See accompanying summary of accounting policies and notes to combined financial
statements.
F-69
Jalou
Summary of Accounting Policies
Nature of Business
Jalou (the "Company") owns and operates truck stop facilities each of which
consist of a restaurant, a convenience store with fuel pumps and a video poker
casino.
Basis of Presentation
The entities included in the combined financial statements are those that
have been or will be acquired by Diversified Opportunities Group, Ltd.
("Diversified") or its affiliates. The combined financial statements have been
prepared as if the following entities had operated as a single group which were
under common control prior to acquisitions by Diversified. All significant
intercompany accounts and transactions have been eliminated. See Note 1 to the
combined financial statements for further discussion.
Winner's Choice Truck Stop, Inc. ("Winners') (presented for historical
periods prior to February 7, 2001)
Houma Truck Plaza and Casino, LLC (owner and operator of Pelican Palace
Casino) ("Houma") (presented for historical periods prior to February 7,
2001)
JACE, Inc. (owner and operator of Colonels Truck Plaza and Casino)
Lucky Magnolia Truck Plaza and Casino, LLC ("Lucky Magnolia")
Bayou Vista Truck Plaza and Casino, LLC ("Bayou Vista")
Raceland Truck Plaza and Casino, LLC ("Raceland")
Cash's Casino (40% of net video poker revenue) ("Cash's") (presented for
historical periods prior to February 7, 2001)
Regulation
The Company's video gaming operations are regulated by the Louisiana Gaming
Control Board (the "LGCB"). The Louisiana State Police's Video Gaming Division
(the "Division") serves under the jurisdiction of the LGCB. The Division's
primary functions are to conduct investigations of applicants and submit
application findings to the LGCB for licensing determination, enforce all
applicable video gaming regulations and monitor licensees and gaming devices
statewide.
For truck stop video gaming enterprises, such as the Company's, up to a
maximum of 50 gaming devices may operate per facility determined by quarterly
fuel sales. A decline in fuel sales could negatively impact operating results
by reducing the number of machines operating.
Cash and cash Equivalents
For the purposes of preparing the Company's financial statements,
investments with maturities of less than three months are considered to be cash
equivalents.
F-70
Jalou
Summary of Accounting Policies--(Continued)
Inventories
Inventories are stated at the lower of FIFO cost (first-in, first-out
method) or market. Inventories consist of fuel, convenience and restaurant
items.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
accelerated methods based on the estimated useful lives of the assets. The
estimated useful lives are as follows:
Years
-----
Buildings and improvements........ 15-39
Equipment, furniture, and fixtures 5-15
Goodwill
Goodwill is stated at the excess amount of the purchase price over net
assets acquired. Goodwill was being amortized over 15 years on a straight-line
basis through 2001.
Long-Lived Assets
The carrying amount of long-lived assets and certain intangibles is reviewed
for possible impairment whenever there are events or changes in circumstances
that indicate the carrying amount of assets may not be recoverable based on
undiscounted future operating cash flows. The Company has determined no
impairment has occurred.
Income Taxes
The Companies are partnerships or subchapter S corporations for income tax
filing purposes and, consequently, no income tax provision has been provided.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets 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.
Revenue Recognition
The Company recognizes revenue at the time of sale for convenience store
items, fuel and restaurant sales. Video poker income is recorded net of state
taxes and operating fees, and fees for the use of video poker devices owned by
a related party (Note 4).
F-71
Jalou
Summary of Accounting Policies--(Continued)
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, "Business Combinations" ("SFAS 141), and No. 142, "Goodwill
and Other Intangible Assets" (SFAS 142"). SFAS 141 requires the use of the
purchase method of accounting and prohibits the use of the pooling-of-interests
method of accounting for business combinations initiated after June 30, 2001.
SFAS 141 also requires that the Company recognize acquired intangible assets
apart from goodwill if the acquired intangible assets meet certain criteria.
SFAS 141 applies to all business combinations initiated after June 30, 2001 and
for purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within
the first interim quarter after adoption of SFAS 142.
As of December 31, 2001, the net carrying amount of goodwill from prior
acquisitions is approximately $402,000. Amortization expense during each of the
years ended December 31, 2001 and 2000 was approximately $34,000. The impact of
SFAS 141 and SFAS 142 on the financial position and results of operations of
the entities included in the combined Company will be assessed subsequent to
the acquisitions in 2002 by Diversified and affiliates.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement supersedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of", and the accounting and reporting provisions of APB Opinion
No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions". This statement also amends ARB No. 51,
"Consolidated Financial Statements", to eliminate the exception to
consolidation for a subsidiary for which control is likely to be temporary.
This statement requires that one accounting model be used for long-lived assets
to be disposed of by sale, whether previously held and used or newly acquired.
This statement also broadens the presentation of discontinued operations to
include more disposal transactions. SFAS 144 is effective for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal
years. SFAS 144 is not expected to impact the financial position and results of
operations of the entities included in the combined Company.
F-72
Jalou
Notes to Combined Financial Statements
1. Acquisitions
The combined financial statements of the Company have been prepared as if
the net assets and operations of the entities named in the "Summary of
Accounting Policies" had operated as a single group. A summary of financial
data included in the combined financial statements for acquisitions completed
in 2001 and entities acquired in 2002 in order to bring the entities under
common control is included in the table below. The 2001 financial statements
exclude the operations and cash flows from the acquisition date of the entities
acquired by Diversified Opportunities Group Ltd. ("Diversified"), through its
subsidiary, and Jalou II, Inc. on February 7, 2001. Entities purchased by
Diversified were Houma and Cash's. Jalou II, Inc., an affiliate of Diversified,
purchased Winner's. The acquisitions were completed by Diversified and
affiliates during the first quarter of 2002 for the remaining entities.
Year ended
December 31,
-----------------------
2001 2000
----------- -----------
Acquisition--completed during 2001
Revenues........................ $ 1,191,641 $11,570,855
Net income...................... 231,429 2,845,404
Assets.......................... -- 5,735,831
Acquisitions--completed during 2002
Revenues........................ $19,875,778 $12,900,623
Net income (loss)............... 1,357,861 (203,420)
Assets.......................... 10,903,658 11,786,539
2. Long-Term Debt
Long-term debt consists of the following:
December 31,
---------------------
2001 2000
---------- ----------
Note payable to a bank due on demand, with interest
at 8.75% payable monthly, collateralized by building
and related improvements.................................... $ 229,770 $ 255,043
Note payable to a bank maturing February 2003, with interest
at prime (4.75% at December 31, 2001), collateralized by
building and related improvements........................... 1,747,863 2,000,000
Mortgage note payable with interest beginning to accrue at
prime plus 1.5% on July 1, 2001 until maturity in June 2003,
secured by a deed of trust on certain real property......... 600,000 600,000
Note payable to a bank with interest at prime (4.75% at
December 31, 2001) and monthly payments of principal and
interest of $50,580 until maturity in December 2002,
collateralized by building and related improvements......... 2,445,718 2,862,749
F-73
Jalou
Notes to Combined Financial Statements--(Continued)
December 31,
----------------------
2001 2000
---------- -----------
Installment loans with interest rates at 9.00%, payable
in monthly installments through February 2005,
collateralized by equipment........................................ $ 20,195 $ 25,582
Note payable to a bank maturing January 2005, with
interest at 8.5%, collateralized by a building and
related improvements............................................... 1,306,740 1,413,460
Note payable to a bank with interest at 7.75% and monthly
payments of principal and interest of $18,001 until maturity
in November 2004, collateralized by building and related
improvements (satisfied February 7, 2001).......................... -- 1,396,903
Note payable to bank with interest at 7.68% and monthly payments
of principal and interest of $30,000 until maturity in April 2004,
collateralized by building and related improvements (satisfied
February 7, 2001).................................................. -- 2,220,793
Note payable to an individual with interest at 7.68% and monthly
payments of principal and interest of $10,062 until maturity
in April 2004, secured by a deed of trust on on certain real estate
(satisfied February 7, 2001)....................................... -- 354,090
---------- -----------
Total................................................................ 6,350,286 11,128,620
Less current maturities.............................................. 3,104,130 1,350,289
---------- -----------
Long-term debt....................................................... $3,246,156 $ 9,778,331
========== ===========
F-74
Jalou
Notes to Combined Financial Statements--(Continued)
The aggregate amounts of long-term debt maturing in each of the next five
years and thereafter are as follows:
December 31, Amount
------------ ----------
2002..... $3,104,130
2003..... 2,185,240
2004..... 145,000
2005..... 915,916
----------
Total.... $6,350,286
==========
3. Commitments and Contingencies
The Company leases certain property and equipment under operating leases
expiring at various dates. Future minimum lease payments under these operating
leases having initial or remaining noncancellable lease terms in excess of one
year at December 31, 2001 were approximately $15,000 per year through 2009.
Total rent expense was approximately $25,000 and $56,000 for the years ended
December 31, 2001 and 2000, respectively.
Lucky Magnolia has an obligation to pay an individual 4.9% of its net video
poker revenue, after associated state taxes, for as long as video poker
machines are operated on the current property. Expenses incurred under the
agreement were approximately $62,000 and $35,000 for the years ended December
31, 2001 and 2000, respectively.
4. Related Parties
The Company has net advances outstanding from owners and affiliates of the
owners which total $2,110,229 and $5,052,133 at December 31, 2001 and 2000,
respectively. The advances are non-interest bearing and were primarily incurred
to fund the operations of new truck stop casinos during their start-up period.
The Company has agreements with a related party to maintain video poker
machines at each of the Company's casino locations. Net video poker revenue
consists of fees received from the related party, who is the licensed owner and
operator of the machines, equal to approximately 80% of the net machine revenue
after state taxes and fees. The Company recorded net revenue related to this
agreement of $6,244,644 and $6,650,011 for the years ended December 31, 2001
and 2000, respectively. Accounts receivable includes fees receivable under this
agreement of approximately $55,000 and $120,000 as of December 31, 2001 and
2000, respectively.
The Company purchased approximately $7,700,000 of fuel from an affiliated
company of an owner during each of the years ended December 31, 2001 and 2000,
respectively.
F-75
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
exchange only the notes offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
Through and including , 2002 (25 days after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when
acting as an underwriter and with respect to an unsold allotment or
subscription.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision or the indemnification of officers and directors of corporations in
terms sufficiently broad to indemnify the officers and directors of the
registrant under certain circumstances for liabilities (including reimbursement
of expenses incurred) arising under the Securities Act.
Jacobs Entertainment Amended Certificate of Incorporation (the
"Certificate") provides that to the fullest extent permitted by Delaware law or
another applicable law, a director of Jacobs Entertainment shall not be liable
to Jacobs Entertainment or its stockholders for monetary damages for breach of
fiduciary duty as a director. Under current Delaware law, liability of a
director may not be limited (i) for any breach of the director's duty of
loyalty to Jacobs Entertainment or its stockholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or repurchases and (iv) for any transaction from which the director
derives an improper personal benefit. The effect of the provision of the
Certificate is to eliminate the rights of Jacobs Entertainment and its
stockholders (through stockholders' derivative suits on behalf of Jacobs
Entertainment) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (i) through (iv) above. This provision does not limit or eliminate the
rights of Jacobs Entertainment or any stockholder to seek nonmonetary relief
such as an injunction or rescission in the event of a breach of a director's
duty of care. In addition, Jacobs Entertainment Bylaws (the "Bylaws") provide
that Jacobs Entertainment shall indemnify its officers, directors, employees
and Agents to the extent permitted by the General Corporation Law of Delaware.
We have in force and effect policies insuring our directors and officers
against losses which they or any of them will become legally obligated to pay
by reason of any actual or alleged error or misstatement or misleading
statement or act or omission or neglect or breach of duty by the directors and
officers in the discharge of their duties, individually or collectively, or any
matter claimed against them solely by reason of their being directors or
officers. Such coverage is limited by the specific terms and provisions of the
insurance policies.
ITEM 21. Exhibits and Financial Statement Schedules
(b) Exhibits
Exhibit
No. Description
- ------- -----------
*2.1 Agreement and Plan of Merger dated as of April 25, 2001, among Black Hawk Gaming &
Development Company, Inc., Gameco, Inc., and BH Acquisition, Inc.
*2.2 Amendment to Agreement and Plan of Merger dated as of November 12, 2001 among Black Hawk
Gaming & Development Company, Inc., Gameco, Inc. and BH Acquisition, Inc.
*2.3 Exchange Agreement dated February 22, 2002 among Gameco, Inc., Jeffrey P. Jacobs and The
Richard E. Jacobs Revocable Trust.
*2.4 Agreement and Plan of Merger dated as of June 11, 2001 among Colonial Holdings, Inc., Gameco,
Inc. and Gameco Acquisitions, Inc.
*2.5 Amendment to Agreement and Plan of Merger dated as of November 16, 2001 among Colonial
Holdings, Inc., Gameco, Inc., and Gameco Acquisition, Inc.
*2.6 Agreement and Plan of Merger, dated February 22, 2002 between Gameco, Inc. and Jacobs
Entertainment, Inc.
II-1
Exhibit
No. Description
- ------- -----------
*3.1 Certificate of Incorporation of Gameco, Inc.
*3.2 By-Laws of Gameco, Inc.
*3.3 Articles of Incorporation of Black Hawk Gaming & Development Company, Inc.
*3.4 By-Laws of Black Hawk Gaming & Development Company
*3.5 Articles of Incorporation of Gold Dust West Casino, Inc.
*3.6 Code of By-laws of Gold Dust West Casino, Inc.
*3.7 Articles of Organization of Black Hawk/Jacobs Entertainment, LLC
*3.8 Operating Agreement of Black Hawk/Jacobs Entertainment, LLC
*3.9 Joint Venture Agreement of Gilpin Hotel Venture
*3.10 Articles of Incorporation of Gilpin Ventures, Inc.
*3.11 By-Laws of Gilpin Ventures, Inc.
*3.12 Article of Incorporation of Jalou II Inc.
*3.13 By-Laws of Jalou II Inc.
*3.14 Articles of Incorporation of Winner's Choice Casino, Inc.
*3.15 By-Laws of Winner's Choice Casino, Inc
*3.16 Articles of Organization of Diversified Opportunities Group Ltd
*3.17 Articles of Organization of Jalou L.L.C.
*3.18 Articles of Organization of Houma Truck Plaza & Casino, L.L.C.
*3.19 Articles of Organization of Jalou-Cash's L.L.C.
*3.20 Articles of Incorporation of JACE, Inc.
*3.21 Articles of Organization of Lucky Magnolia Truck Stop and Casino, L.L.C.
*3.22 Articles of Organization of Bayou Vista Truck Plaza and Casino, L.L.C.
*3.23 Articles of Organization of Raceland Truck Plaza and Casino, L.L.C.
*3.24 Articles of Incorporation of JACE, Inc.
3.25 Certificate of Amendment of Certificate of Incorporation of Gameco, Inc.
3.26 Amended and Restated Certificate of Limited Partnership of Colonial Downs, L.P.
3.27 Limited Partnership Agreement of Colonial Downs, L.P.
3.28 Amended and Restated Articles of Incorporation of Colonial Downs Holdings, Inc.
3.29 Amendment to Articles of Incorporation of Colonial Downs Holdings, Inc.
3.30 Bylaws of Colonial Downs Holdings, Inc.
3.31 Articles of Incorporation of Stansley Racing Corp.
3.32 Articles of Amendment to the Articles of Incorporation of Stansley Racing Corp.
3.33 Bylaws of Stansley Racing Corp.
3.34 Amended and Restated Operating Agreement of Diversified Opportunities Group Ltd.
3.35 Amendment to the Operating Agreement of Black Hawk/Jacobs Entertainment, LLC
3.36 Amendment to the Certificate of Incorporation of Gameco, Inc.
*4.1 Indenture dated February 8, 2002 by and among Gameco, Inc., certain guarantors and Wells Fargo
Bank Minnesota, National Association relating to 11 7/8% Senior Secured Notes due 2009
*4.2 Form of Gameco, Inc. 11 7/8% Senior Secured Notes due 2009 (included as part of the Indenture at
Exhibit 4.1)
II-2
Exhibit
No. Description
- ------- -----------
*4.3 Supplemental Indenture dated February 22, 2002 by and among Gameco, Inc. certain guarantors and
Wells Fargo Bank Minnesota, National Association relating to 11 7/8% Senior Secured Notes due 2009
*4.4 Form of Subsidiary Guaranty for 11 7/8% Senior Secured Notes due 2009 (included as part of the
Indenture at 4.1)
*4.5 Registration Rights Agreement dated as of February 8, 2002 by and among Gameco, Inc., certain
guarantors, CIBC World Markets Corp. And Libra Securities, LLC
*4.6 Security Agreement dated February 8, 2002 among Gameco, Inc., certain guarantors and Wells Fargo
Bank Minnesota, National Association as Trustee
*4.7 Amendment to the Security Agreement dated February 22, 2002 among Gameco, Inc., certain
guarantors and Wells Fargo Bank Minnesota, National Association
*4.8 Joinder Agreements dated February 22, 2002 between Wells Fargo Bank Minnesota, National
Association and each guarantor
*4.9 Guaranty of each guarantor dated February 22, 2002
*4.10 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents, Security Agreements and fixture
filings by Black Hawk/Jacobs Entertainment LLC and Gilpin Hotel Venture to the Public Trustee
of Gilpin County, State of Colorado, as Trustee for the Benefit of Wells Fargo Bank Minnesota,
National Association as Beneficiary, dated February 22, 2002
*4.11 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents, Security Agreements and fixture
filings by Gold Dust Casino, Inc. to the First American Title Company of Nevada, as Trustee for
the Benefit of Wells Fargo Bank Minnesota, National Association as Beneficiary, dated
February 22, 2002
*4.12 Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and fixture filing by
Houma Truck Plaza & Casino, L.L.C. to Wells Fargo Bank Minnesota, National Association, as
Trustee dated February 22, 2002
*4.13 Mortgage, Assignment of Leases and Rents, Security Agreements and fixture filing by Winners
Choice Casino, Inc. to Wells Fargo Bank Minnesota, National Association as Trustee dated
February 22, 2002
*4.14 Mortgage, Assignment of Leases and Rents, Security Agreements and fixture filing by Raceland
Truck Plaza and Casino, LLC to Wells Fargo Bank Minnesota, National Association as Trustee
dated February 22, 2002
*4.15 Mortgage, Assignment of Leases and Rents, Security Agreements and fixture filing by Bayou Vista
Truck Plaza and Casino, LLC to Wells Fargo Bank Minnesota, National Association as Trustee
dated February 22, 2002
*4.16 Mortgage, Assignment of Leases and Rents, Security Agreements and fixture filing by Lucky
Magnolia Truck Stop and Casino, L.L.C. to Wells Fargo Bank Minnesota, National Association as
Trustee dated February 22, 2002
*4.17 Mortgage, Assignment of Leases and Rents, Security Agreements and fixture filing by JACE, Inc. to
Wells Fargo Bank Minnesota, National Association as Trustee dated February 22, 2002
*4.18 Collateral Assignment of Deeds of Trust, Assignments of Rents and Leases, Security Agreements and
fixture filings and other loan documents by Gameco, Inc. to Wells Fargo Bank Minnesota, National
Association as Trustee dated February 22, 2002.
*4.19 Escrow Agreement between Gameco, Inc. and Wells Fargo Bank Minnesota, National Association
dated February 22, 2002
4.20 Supplemental Indenture dated June 14, 2002 by and among Jacobs Entertainment, Inc., certain
guarantors and Wells Fargo Bank Minnesota, National Association relating to 11 7/8% Senior Secured
Notes due 2009.
4.21 Joinder Agreements dated June 14, 2002 between Wells Fargo Bank, National Association and each
guarantor
II-3
Exhibit
No. Description
- ------- -----------
4.22 Subsidiary Guarantee of each subsidiary guarantor dated June 14, 2002 for 11 7/8% Senior Secured
Notes due 2009
4.23 Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing by Colonial
Downs, L.P. to David F. Belkowitz and James L. Weinberg as Trustees for the benefit of Wells
Fargo Bank Minnesota, National Association, dated June 14, 2002
4.24 Leasehold Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing by
Colonial Downs, L.P. to David F. Belkowitz and James L. Weinberg as Trustees for the benefit of
Wells Fargo Bank Minnesota, National Association, dated June 14, 2002
4.25 Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing by Colonial
Holdings, Inc. to David F. Belkowitz and James L. Weinberg as Trustees for the benefit of Wells
Fargo Bank Minnesota, National Association, dated June 14, 2002
4.26 Loan and Security Agreement dated July 12, 2002 by and among Jacobs Entertainment, Inc., certain
subsidiaries and Foothill Capital Corporation
4.27 Promissory Note dated July 12, 2002 by and among Jacobs Entertainment, Inc., certain borrowers
and Foothill Capital Corporation
4.28 Guaranty of Gold Dust West Casino, Inc. and Diversified Opportunities Group Ltd., dated July 12,
2002
4.29 Intercreditor Agreement dated July 12, 2002 by and between Wells Fargo Bank Minnesota, National
Association and Foothill Capital Corporation
4.30 Memorandum of Intercreditor Agreement dated July 12, 2002 by and among Foothill Capital
Corporation, Wells Fargo Bank Minnesota, National Association and Borrowers
4.31 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents, Securiting Agreement and
Fixture Filing by Black Hawk Gaming & Development Company, Inc., Black Hawk/Jacobs
Entertainment, LLC, and Gilpin Hotel Venture to the Public Trustee of Gilpin County, State of
Colorado and Foothill Capital Corporation, dated July 12, 2002
*5.1 Opinion of Baker & Hostetler LLP
5.2 Opinion of Nevada Counsel
5.3 Opinion of Louisiana Counsel
*10.1 Consulting Agreement between Diversified Opportunities Group Ltd. and Ian M Stewart dated
January 1, 2001.
*10.2 Executive Employment Agreement between Gameco, Inc. and Jeffrey P. Jacobs dated February 22, 2002.
*10.3 Executive Employment Agreement between Gameco, Inc. and Richard E. Jacobs dated February 22, 2002.
*10.4 Executive Employment Agreement between Gameco, Inc. and Stephen R. Roark dated February 22, 2002.
*10.5 Executive Employment Agreement between Colonial Holdings, Inc. and Ian M. Stewart dated February 22,
2002.
*10.7 Standardbred Horsemen's Contract effective January 1, 2002 among Colonial Downs L.P. Stansley
Racing Corp. and The Virginia Harness Horse Association.
*10.8 Thoroughbred Horsemen's Agreement dated February 20, 2002 between Colonial Downs L.P. and
the Virginia Horsemen's Benevolent and Protective Association.
12.1 Statement Regarding Computation of Ratios
21.1 Subsidiaries of Jacobs Entertainment, Inc.
23.1 Consent of Deloitte & Touche LLP for Jacobs Entertainment, Inc.
23.2 Consent of Baker & Hostetler LLP (included in Exhibit 5.1)
23.3 Consent of Deloitte & Touche LLP for Black Hawk Gaming & Development Company, Inc.
II-4
Exhibit
No. Description
- ------- -----------
23.4 Consent of BDO Seidman LLP for Jalou
*25.1 Statement of Eligibility of Trustee on Form T-1
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Jacobs Entertainment, Inc. Exchange of all Outstanding 11 7/8% Senior Secured Notes Due 2009 for
11 1/8% Senior Secured Notes Due 2009
99.4 Jacobs Entertainment, Inc. Letter to Depository Trust Company Participants
Financial statement schedules are omitted because of the absence of
conditions under which they are required or because the required information is
provided in the consolidated financial statements or notes thereto.
* Previously filed.
ITEM 22. Undertakings
The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of a
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, each registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, on the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it becomes effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of
Ohio, on this 8th day of August, 2002.
JACOBS ENTERTAINMENT, INC.
By: /s/ JEFFREY P. JACOBS*
-----------------------------
Jeffrey P. Jacobs
Chairman of the Board,
Chief Executive Officer and
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ JEFFREY P. JACOBS* Chairman of the August 8, 2002
- ----------------------------- Board, Chief Executive Officer, President, Treasurer,
Jeffrey P. Jacobs Secretary (Principal
Executive Officer)
/s/ STEPHEN R. ROARK President of Casino August 8, 2002
- ----------------------------- Operations and
Stephen R. Roark Chief Financial Officer
(Principal
Financial and Accounting
Officer)
/s/ RICHARD E. JACOBS* Director August 8, 2002
- -----------------------------
Richard E. Jacobs
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of
Ohio, on this 8th day of August, 2002.
BLACK HAWK GAMING & DEVELOPMENT
COMPANY, INC.
By: /s/ JEFFREY P. JACOBS *
-----------------------------
Jeffrey P. Jacobs
Chief Executive Officer and
Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ JEFFREY P. JACOBS* Chief Executive Officer, Chairman August 8, 2002
- ----------------------------- of the Board and Sole Director
Jeffrey P. Jacobs (Principal Executive Officer)
/s/ STEPHEN R. ROARK August 8, 2002
- ----------------------------- President (Principal Financial and
Stephen R. Roark Accounting Officer)
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of
Ohio, on this 8th day of August, 2002.
GOLD DUST WEST CASINO, INC.
By: /s/ JEFFREY P. JACOBS*
-----------------------------
Jeffrey P. Jacobs
Chairman of the Board, and
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ JEFFREY P. JACOBS* Chairman of the Board, August 8, 2002
- ----------------------------- President and
Jeffrey P. Jacobs Director (Principal
Executive Officer)
/s/ STEPHEN R. ROARK Secretary, Treasurer and August 8, 2002
- ----------------------------- Director
Stephen R. Roark (Principal Financial and
Accounting Officer)
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of
Ohio, on this 8th day of August, 2002.
BLACK HAWK/JACOBS ENTERTAINMENT,
LLC
By: Black Hawk Gaming &
Development
Company, Inc., its co-Manager
/s/ JEFFREY P. JACOBS*
Jeffrey P. Jacobs,
Chief Executive Officer
By: Diversified Opportunities
Group Ltd.
By: Jacobs Entertainment,
Inc., its Manager
/s/ JEFFREY P. JACOBS*
Jeffrey P. Jacobs,
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title Date
--------- ----- ----
/s/ JEFFREY P. JACOBS* Policy Board Member August 8, 2002
- ----------------------------- (Principal Executive Officer)
Jeffrey P. Jacobs
/s/ STEPHEN R. ROARK Policy Board Member August 8, 2002
- ----------------------------- (Principal Financial and
Stephen R. Roark Accounting Officer)
/s/ STANLEY POLITANO* Policy Board Member
- ----------------------------- August 8, 2002
Stanley Politano
/s/ DAVID C. GRUNENWALD* Policy Board Member August 8, 2002
- -----------------------------
David C. Grunenwald
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Black Hawk, State of
Colorado, on this 8th day of August, 2002.
GILPIN HOTEL VENTURE
By: /s/ STEPHEN R. ROARK
-----------------------------
Stephen R. Roark
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ STEPHEN R. ROARK President (Principal August 8, 2002
- ----------------------------- Executive, Financial and
Stephen R. Roark Accounting Officer)
BLACK HAWK GAMING & Joint Venturer August 8, 2002
DEVELOPMENT COMPANY, INC
/s/ JEFFREY P. JACOBS*
- -----------------------------
Jeffrey P. Jacobs,
Chief Executive Officer
GILPIN VENTURES, INC. Joint Venturer August 8, 2002
/s/ STEPHEN R. ROARK
- -----------------------------
Stephen R. Roark,
President
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Black Hawk, State of
Colorado, on this 8th day of August, 2002.
GILPIN VENTURES, INC.
By: /s/ STEPHEN R. ROARK
-----------------------------
Stephen R. Roark
President and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ STEPHEN R. ROARK President and August 8, 2002
- ----------------------------- Director (Principal
Stephen R. Roark Executive, Financial and
Accounting Officer)
/s/ STANLEY POLITANO* Director August 8, 2002
- -----------------------------
Stanley Politano
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New Kent, State of
Virginia, on this 8th day of August, 2002.
JALOU II INC.
By: /s/ IAN M. STEWART*
-----------------------------
Ian M. Stewart
President and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ IAN M. STEWART* President and Director August 8, 2002
- ----------------------------- (Principal Executive
Ian M. Stewart Officer)
/s/ REID M. SMITH* Secretary, Treasurer and August 8, 2002
- ----------------------------- Executive Vice-President
Reid M. Smith (Principal Financial and
Accounting Officer)
/s/ JEFFREY P. JACOBS* Chairman of the Board and August 8, 2002
- ----------------------------- Director
Jeffrey P. Jacobs
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New Kent, State of
Virginia, on this 8th day of August, 2002.
WINNER'S CHOICE CASINO, INC.
By: /s/ IAN M. STEWART*
-----------------------------
Ian M. Stewart
President and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ IAN M. STEWART* President and Director August 8, 2002
- ----------------------------- (Principal Executive
Ian M. Stewart Officer)
/s/ REID M. SMITH* Secretary, Treasurer August 8, 2002
- ----------------------------- and Executive Vice-President
Reid M. Smith (Principal Financial and
Accounting Officer)
/s/ JEFFREY P. JACOBS* Chairman of the Board and August 8, 2002
- ----------------------------- Director
Jeffrey P. Jacobs
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of
Ohio, on this 8th day of August, 2002.
DIVERSIFIED OPPORTUNITIES GROUP
LTD.
By: Jacobs Entertainment, Inc.,
its Manager
By: /s/ JEFFREY P. JACOBS*
-----------------------------
Jeffrey P. Jacobs, President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
JACOBS ENTERTAINMENT, INC.
By: /s/ JEFFREY P. JACOBS* Manager August 8, 2002
- -----------------------------
Jeffrey P. Jacobs,
President
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New Kent, State of
Virginia, on this 8th day of August, 2002.
JALOU L.L.C.
By: /s/ IAN M. STEWART*
-----------------------------
Ian M. Stewart,
President and Manager
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ IAN M. STEWART* President and Manager August 8, 2002
- ----------------------------- (Principal Executive
Ian M. Stewart Officer)
/s/ REID M. SMITH* Secretary, Treasurer and August 8, 2002
- ----------------------------- Executive Vice-President
Reid M. Smith and Manager
(Principal Financial and
Accounting Officer)
/s/ JEFFREY P. JACOBS* Chairman and Manager August 8, 2002
- -----------------------------
Jeffrey P. Jacobs
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New Kent, State of
Virginia, on this 8th day of August, 2002.
HOUMA TRUCK PLAZA & CASINO, L.L.C.
By: /s/ IAN M. STEWART*
-----------------------------
Ian M. Stewart
President and Manager
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ IAN M. STEWART* President and Manager August 8, 2002
- ----------------------------- (Principal Executive
Ian M. Stewart Officer)
/s/ REID M. SMITH* Secretary, Treasurer, and August 8, 2002
- ----------------------------- Executive Vice-President
Reid M. Smith and Manager (Principal
Financial Accounting
Officer)
/s/ JEFFREY P. JACOBS* Chairman and Manager August 8, 2002
- -----------------------------
Jeffrey P. Jacobs
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New Kent, State of
Virginia, on this 8th day of August, 2002.
JALOU - CASH'S L.L.C.
By: /s/ IAN M. STEWART*
-----------------------------
Ian M. Stewart
President and Manager
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ IAN M. STEWART* President and Manager August 8, 2002
- ----------------------------- (Principal Executive Officer)
Ian M. Stewart
/s/ REID M. SMITH* Secretary, Treasurer and August 8, 2002
- ----------------------------- Executive Vice-President and
Reid M. Smith Manager (Principal Financial
and Accounting Officer)
/s/ JEFFREY P. JACOBS* Chairman and Manager August 8, 2002
- -----------------------------
Jeffrey P. Jacobs
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New Kent, State of
Virginia, on this 8th day of August, 2002.
JACE, INC.
By: /s/ IAN M. STEWART*
-----------------------------
Ian M. Stewart
President and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ IAN M. STEWART* President and August 8, 2002
- ----------------------------- Director (Principal
Ian M. Stewart Executive Officer)
/s/ REID M. SMITH* Secretary, Treasurer August 8, 2002
- ----------------------------- and Executive
Reid M. Smith Vice-President
(Principal Financial and
Accounting Officer)
/s/ JEFFREY P. JACOBS* Chairman of the Board and August 8, 2002
- ----------------------------- Director
Jeffrey P. Jacobs
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New Kent, State of
Virginia, on this 8th day of August, 2002.
LUCKY MAGNOLIA TRUCK STOP AND
CASINO, L.L.C.
By: /s/ IAN M. STEWART*
-----------------------------
Ian M. Stewart
President and Manager
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ IAN M. STEWART* President and Manager August 8, 2002
- ----------------------------- (Principal Executive
Ian M. Stewart Officer)
/s/ REID M. SMITH* Secretary, Treasurer, and August 8, 2002
- ----------------------------- Executive Vice-President
Reid M. Smith and Manager (Principal
Financial Accounting
Officer)
/s/ JEFFREY P. JACOBS* Chairman and Manager August 8, 2002
- -----------------------------
Jeffrey P. Jacobs
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New Kent, State of
Virginia, on this 8th day of August, 2002.
BAYOU VISTA TRUCK PLAZA AND
CASINO, L.L.C.
By: /s/ IAN M. STEWART*
-----------------------------
Ian M. Stewart
President and Manager
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated:
Signature Title Date
--------- ----- ----
/s/ IAN M. STEWART* President and Manager August 8, 2002
- ----------------------------- (Principal Executive
Ian M. Stewart Officer)
/s/ REID M. SMITH* Secretary, Treasurer, August 8, 2002
- ----------------------------- Executive Vice-President
Reid M. Smith and Manager
(Principal Financial and
Accounting Officer)
/s/ JEFFREY P. JACOBS* Chairman and Manager August 8, 2002
- -----------------------------
Jeffrey P. Jacobs
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New Kent, State of
Virginia, on this 8th day of August, 2002.
RACELAND TRUCK PLAZA AND CASINO,
L.L.C.
By: /s/ IAN M. STEWART*
-----------------------------
Ian M. Stewart
President and Manager
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ IAN M. STEWART* President and Manager August 8, 2002
- ----------------------------- (Principal Executive
Ian M. Stewart Officer)
/s/ REID M. SMITH* Secretary, Treasurer, and August 8, 2002
- ----------------------------- Executive Vice-President
Reid M. Smith and Manager
(Principal Financial
Accounting Officer)
/s/ JEFFREY P. JACOBS* Chairman and Manager August 8, 2002
- -----------------------------
Jeffrey P. Jacobs
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New Kent, State of
Virginia, on this 6th day of August, 2002.
COLONIAL HOLDINGS, INC.
By: /s/ IAN M. STEWART
-----------------------------
Ian M. Stewart
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ JEFFREY P. JACOBS Chief Executive Officer and August 6, 2002
- ----------------------------- Sole Director (Principal
Jeffrey P. Jacobs Executive Officer)
/s/ IAN M. STEWART President (Principal August 6, 2002
- ----------------------------- Financial and Accounting
Ian M. Stewart Officer)
II-22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New Kent, State of
Virginia, on this 6th day of August, 2002.
COLONIAL DOWNS, L.P.
By: STANSLEY RACING CORP.
-----------------------------
Its: General Partner
/s/ IAN M. STEWART
-----------------------------
Ian M. Stewart
President and Chief Operating
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
STANSLEY RACING CORP.
/s/ IAN M. STEWART General Partner August 6, 2002
- -----------------------------
Ian M. Stewartt, President
and Chief Operating Officer
COLONIAL HOLDINGS, INC.
/s/ IAN M. STEWART Limited Partner August 6, 2002
- -----------------------------
Ian M. Stewart, President
II-23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New Kent, State of
Virginia, on this 6th day of August, 2002.
STANSLEY RACING CORP.
By: /s/ IAN M. STEWART
-----------------------------
Ian M. Stewart
President and Chief Operating
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey P. Jacobs and Stephen R. Roark or either
one of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ JEFFREY P. JACOBS Chairman of the Board, Chief August 6, 2002
- ----------------------------- Executive Officer and Sole
Jeffrey P. Jacobs Director (Principal Executive
Officer)
/s/ IAN M. STEWART President and Chief Operating August 6, 2002
- ----------------------------- Officer (Principal Financial
Ian M. Stewart and Accounting Officer)
*By: /s/ STEPHEN R. ROARK
------------------------
Stephen R. Roark
Attorney-in-fact
II-24
Exhibit
No. Description
- ------- -----------
*2.1 Agreement and Plan of Merger dated as of April 25, 2001, among Black Hawk Gaming &
Development Company, Inc., Gameco, Inc., and BH Acquisition, Inc.
*2.2 Amendment to Agreement and Plan of Merger dated as of November 12, 2001 among Black Hawk
Gaming & Development Company, Inc., Gameco, Inc. and BH Acquisition, Inc.
*2.3 Exchange Agreement dated February 22, 2002 among Gameco, Inc., Jeffrey P. Jacobs and The
Richard E. Jacobs Revocable Trust.
*2.4 Agreement and Plan of Merger dated as of June 11, 2001 among Colonial Holdings, Inc., Gameco,
Inc. and Gameco Acquisitions, Inc.
*2.5 Amendment to Agreement and Plan of Merger dated as of November 16, 2001 among Colonial
Holdings, Inc., Gameco, Inc., and Gameco Acquisition, Inc.
*2.6 Agreement and Plan of Merger, dated February 22, 2002 between Gameco, Inc. and Jacobs
Entertainment, Inc.
*3.1 Certificate of Incorporation of Gameco, Inc.
*3.2 By-Laws of Gameco, Inc.
*3.3 Articles of Incorporation of Black Hawk Gaming & Development Company, Inc.
*3.4 By-Laws of Black Hawk Gaming & Development Company
*3.5 Articles of Incorporation of Gold Dust West Casino, Inc.
*3.6 Code of By-laws of Gold Dust West Casino, Inc.
*3.7 Articles of Organization of Black Hawk/Jacobs Entertainment, LLC
*3.8 Operating Agreement of Black Hawk/Jacobs Entertainment, LLC
*3.9 Joint Venture Agreement of Gilpin Hotel Venture
*3.10 Articles of Incorporation of Gilpin Ventures, Inc.
*3.11 By-Laws of Gilpin Ventures, Inc.
*3.12 Article of Incorporation of Jalou II Inc.
*3.13 By-Laws of Jalou II Inc.
*3.14 Articles of Incorporation of Winner's Choice Casino, Inc.
*3.15. By-Laws of Winner's Choice Casino, Inc
*3.16. Articles of Organization of Diversified Opportunities Group Ltd
*3.17 Articles of Organization of Jalou L.L.C.
*3.18 Articles of Organization of Houma Truck Plaza & Casino, L.L.C.
*3.19 Articles of Organization of Jalou-Cash's L.L.C.
*3.20 Articles of Incorporation of JACE, Inc.
*3.21 Articles of Organization of Lucky Magnolia Truck Stop and Casino, L.L.C.
*3.22 Articles of Organization of Bayou Vista Truck Plaza and Casino, L.L.C.
*3.23 Articles of Organization of Raceland Truck Plaza and Casino, L.L.C.
*3.24 Articles of Incorporation of JACE, Inc.
3.25 Certificate of Amendment of Certificate of Incorporation of Gameco, Inc.
3.26 Amended and Restated Certificate of Limited Partnership of Colonial Downs, L.P.
3.27 Limited Partnership Agreement of Colonial Downs, L.P.
3.28 Amended and Restated Articles of Incorporation of Colonial Downs Holdings, Inc.
Exhibit
No. Description
- ------- -----------
3.29 Amendment to Articles of Incorporation of Colonial Downs Holdings, Inc.
3.30 Bylaws of Colonial Downs Holdings, Inc.
3.31 Articles of Incorporation of Stansley Racing Corp.
3.32 Articles of Amendment to the Articles of Incorporation of Stansley Racing Corp.
3.33 Bylaws of Stansley Racing Corp.
3.34 Amended and Restated Operating Agreement of Diversified Opportunities Group Ltd.
3.35 Amendment to the Operating Agreement of Black Hawk/Jacobs Entertainment, LLC
3.36 Amendment to the Certificate of Incorporation of Gameco, Inc.
*4.1 Indenture dated February 8, 2002 by and among Gameco, Inc., certain guarantors and Wells Fargo
Bank Minnesota, National Association relating to 11 7/8% Senior Secured Notes due 2009
*4.2 Form of Gameco, Inc. 11 7/8% Senior Secured Notes due 2009 (included as part of the Indenture at
Exhibit 4.1)
*4.3 Supplemental Indenture dated February 22, 2002 by and among Gameco, Inc. certain guarantors and
Wells Fargo Bank Minnesota, National Association relating to 11 7/8% Senior Secured Notes due
2009
*4.4 Form of Subsidiary Guaranty for 11 7/8% Senior Secured Notes due 2009 (included as part of the
Indenture at 4.1)
*4.5 Registration Rights Agreement dated as of February 8, 2002 by and among Gameco, Inc., certain
guarantors, CIBC World Markets Corp. And Libra Securities, LLC
*4.6 Security Agreement dated February 8, 2002 among Gameco, Inc., certain guarantors and Wells Fargo
Bank Minnesota, National Association as Trustee
*4.7 Amendment to the Security Agreement dated February 22, 2002 among Gameco, Inc., certain
guarantors and Wells Fargo Bank Minnesota, National Association
*4.8 Joinder Agreements dated February 22, 2002 between Wells Fargo Bank Minnesota, National
Association and each guarantor
*4.9 Guaranty of each guarantor dated February 22, 2002
*4.10 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents, Security Agreements and fixture
filings by Black Hawk/Jacobs Entertainment LLC and Gilpin Hotel Venture to the Public Trustee
of Gilpin County, State of Colorado, as Trustee for the Benefit of Wells Fargo Bank Minnesota,
National Association as Beneficiary, dated February 22, 2002
*4.11 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents, Security Agreements and fixture
filings by Gold Dust Casino, Inc. to the First American Title Company of Nevada, as Trustee for
the Benefit of Wells Fargo Bank Minnesota, National Association as Beneficiary, dated February
22, 2002
*4.12 Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and fixture filing by
Houma Truck Plaza & Casino, L.L.C. to Wells Fargo Bank Minnesota, National Association, as
Trustee dated February 22, 2002
*4.13 Mortgage, Assignment of Leases and Rents, Security Agreements and fixture filing by Winners
Choice Casino, Inc. to Wells Fargo Bank Minnesota, National Association as Trustee dated
February 22, 2002
*4.14 Mortgage, Assignment of Leases and Rents, Security Agreements and fixture filing by Raceland
Truck Plaza and Casino, LLC to Wells Fargo Bank Minnesota, National Association as Trustee
dated February 22, 2002
Exhibit
No. Description
- ------- -----------
*4.15 Mortgage, Assignment of Leases and Rents, Security Agreements and fixture filing by Bayou Vista
Truck Plaza and Casino, LLC to Wells Fargo Bank Minnesota, National Association as Trustee
dated February 22, 2002
*4.16 Mortgage, Assignment of Leases and Rents, Security Agreements and fixture filing by Lucky
Magnolia Truck Stop and Casino, L.L.C. to Wells Fargo Bank Minnesota, National Association as
Trustee dated February 22, 2002
*4.17 Mortgage, Assignment of Leases and Rents, Security Agreements and fixture filing by JACE, Inc. to
Wells Fargo Bank Minnesota, National Association as Trustee dated February 22, 2002
*4.18 Collateral Assignment of Deeds of Trust, Assignments of Rents and Leases, Security Agreements
and fixture filings and other loan documents by Gameco, Inc. to Wells Fargo Bank Minnesota,
National Association as Trustee dated February 22, 2002.
*4.19 Escrow Agreement between Gameco, Inc. and Wells Fargo Bank Minnesota, National Association
dated February 22, 2002
4.20 Supplemental Indenture dated June 14, 2002 by and among Jacobs Entertainment, Inc., certain
guarantors and Wells Fargo Bank Minnesota, National Association relating to 11 7/8% Senior Secured
Notes due 2009.
4.21 Joinder Agreements dated June 14, 2002 between Wells Fargo Bank, National Association and each
guarantor
4.22 Subsidiary Guarantee of each subsidiary guarantor dated June 14, 2002 for 11 7/8% Senior Secured
Notes due 2009
4.23 Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing by Colonial
Downs, L.P. to David F. Belkowitz and James L. Weinberg as Trustees for the benefit of Wells
Fargo Bank Minnesota, National Association, dated June 14, 2002
4.24 Leasehold Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing by
Colonial Downs, L.P. to David F. Belkowitz and James L. Weinberg as Trustees for the benefit of
Wells Fargo Bank Minnesota, National Association, dated June 14, 2002
4.25 Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing by Colonial
Holdings, Inc. to David F. Belkowitz and James L. Weinberg as Trustees for the benefit of Wells
Fargo Bank Minnesota, National Association, dated June 14, 2002
4.26 Loan and Security Agreement dated July 12, 2002 by and among Jacobs Entertainment, Inc., certain
subsidiaries and Foothill Capital Corporation
4.27 Promissory Note dated July 12, 2002 by and among Jacobs Entertainment, Inc., certain borrowers
and Foothill Capital Corporation
4.28 Guaranty of Gold Dust West Casino, Inc. and Diversified Opportunities Group Ltd. dated July 12,
2002
4.29 Intercreditor Agreement dated July 12, 2002 by and between Wells Fargo Bank Minnesota, National
Association and Foothill Capital Corporation
4.30 Memorandum of Intercreditor Agreement dated July 12, 2002 by and among Foothill Capital
Corporation, Wells Fargo Bank Minnesota, National Association and Borrowers
4.31 Fee and Leasehold Deed of Trust, Assignment of Leases and Rents, Securiting Agreement and
Fixture Filing by Black Hawk Gaming & Development Company, Inc., Black Hawk/Jacobs
Entertainment, LLC, and Gilpin Hotel Venture to the Public Trustee of Gilpin County, State of
Colorado and Foothill Capital Corporation, dated July 12, 2002
*5.1 Opinion of Baker & Hostetler LLP
5.2 Opinion of Nevada Counsel
5.3 Opinion of Louisiana Counsel
*10.1 Consulting Agreement between Diversified Opportunities Group Ltd. and Ian M Stewart dated
January 1, 2001.
Exhibit
No. Description
- ------- -----------
*10.2 Executive Employment Agreement between Gameco, Inc. and Jeffrey P. Jacobs dated February 22,
2002.
*10.3 Executive Employment Agreement between Gameco, Inc. and Richard E. Jacobs dated February 22,
2002.
*10.4 Executive Employment Agreement between Gameco, Inc. and Stephen R. Roark dated February 22,
2002.
*10.5 Executive Employment Agreement between Colonial Holdings, Inc. and Ian M. Stewart dated
February 22, 2002.
*10.7 Standardbred Horsemen's Contract effective January 1, 2002 among Colonial Downs L.P. Stansley
Racing Corp. and The Virginia Harness Horse Association.
*10.8 Thoroughbred Horsemen's Agreement dated February 20, 2002 between Colonial Downs L.P. and
the Virginia Horsemen's Benevolent and Protective Association.
12.1 Statement Regarding Computation of Ratios
21.1 Subsidiaries of Jacobs Entertainment, Inc.
23.1 Consent of Deloitte & Touche LLP for Jacobs Entertainment, Inc.
23.2 Consent of Baker & Hostetler LLP (included in Exhibit 5.1)
23.3 Consent of Deloitte & Touche LLP for Black Hawk Gaming & Development Company, Inc.
23.4 Consent of BDO Seidman LLP for Jalou
*25.1 Statement of Eligibility of Trustee on Form T-1
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Jacobs Entertainment, Inc. Exchange of all Outstanding 11 7/8% Senior Secured Notes Due 2009 For
11 1/8% Senior Secured Notes Due 2009
99.4 Jacobs Entertainment, Inc. Letter to Depository Trust Company Participants
Financial statement schedules are omitted because of the absence of
conditions under which they are required or because the required information is
provided in the consolidated financial statements or notes thereto.
* Previously filed