As filed with the Securities and Exchange Commission on February 14, 2003
File No. 333-102202
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
_____________________
Chukchansi Economic Development Authority
(Exact Name of Registrant as Specified in Its Charter)
Not Applicable 7990 16-1615196
State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation Industrial Classification Identification No.)
or Organization) Code Number)
46575 Road 417
Coarsegold, California 93614
(559) 683-6633
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Dixie Jackson
Chairperson
Chukchansi Economic Development Authority
46575 Road 417
Coarsegold, California 93614
(559) 683-6633
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_____________________
Copies to:
John Peebles Nicholas P. Saggese
Monteau Peebles L.L.P. Skadden Arps Slate Meagher & Flom LLP
1001 Second Street 300 South Grand Ave, Suite 3400
Sacramento, California 95814-3201 Los Angeles, CA 90071
(916) 441-2700 (213)-687-5000
(916) 441-2067 (facsimile) (213)-687-5600 (facsimile)
_____________________
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable 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. [ ]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to the said Section 8(a), may determine.
______________________________________________________________________________
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 February 14, 2003.
PROSPECTUS
[Chukchansi Gold Resort & Casino logo]
CHUKCHANSI ECONOMIC DEVELOPMENT AUTHORITY
OFFER TO EXCHANGE $153,000,000 AGGREGATE PRINCIPAL AMOUNT OF 14 1/2%
SERIES A SENIOR NOTES DUE 2009 FOR $153,000,000 AGGREGATE PRINCIPAL AMOUNT
OF 14 1/2% SERIES B SENIOR NOTES DUE 2009 WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2003
(THE 21ST BUSINESS DAY FOLLOWING THE DATE OF THIS PROSPECTUS), UNLESS WE
EXTEND THE EXCHANGE OFFER IN OUR SOLE AND ABSOLUTE DISCRETION.
The principal terms of the exchange offer are as follows:
o We will exchange the new notes for all outstanding old notes
that are validly tendered and not withdrawn pursuant to the
exchange offer.
o You may withdraw tenders of old notes at any time prior to the
expiration of the exchange offer.
o The terms of the new notes are substantially identical to those
of the outstanding old notes, except that the transfer
restrictions and registration rights relating to the old note
will not apply to the new notes.
o The exchange of old notes for new notes will not be a taxable
transaction for U.S. federal income tax purposes, but you
should see the discussion under the heading "Material United
States Federal Income Tax Considerations" for more information.
o We will not receive any cash proceeds from the exchange offer.
o We issued the old notes in a transaction not requiring
registration under the Securities Act, and as a result,
transfer of the old notes is restricted. We are making the
exchange offer to satisfy your registration rights, as a holder
of the old notes.
There is no established trading market for the new notes or the old notes.
See Risk Factors beginning on page 14 for a discussion of risks you should
consider prior to tendering your outstanding old notes for exchange.
Each broker-dealer that receives new notes for its own account in the exchange
offer must acknowledge that it will deliver a prospectus in connection with
any resale of these 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 old notes where the old
notes were acquired as a result of market-making activities or other trading
activities. We have agreed, that for a period of one year after the
consummation of the exchange offer, we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
resale.
None of the Securities and Exchange Commission, the National Indian Gaming
Commission or any state securities commission has approved or disapproved of
these securities or passed upon the adequacy or accuracy of this prospectus.
Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2003.
TABLE OF CONTENTS
Page
Forward Looking Statements...............................................................................i
Summary..................................................................................................1
Risk Factors............................................................................................14
Use Of Proceeds.........................................................................................34
Capitalization..........................................................................................35
Selected Historical Financial Data......................................................................36
Management's Discussion And Analysis Of Financial Condition And Results Of Operations...................40
Business................................................................................................46
Picayune Rancheria Of Chukchansi Indians................................................................52
Regulation Of Indian Gaming.............................................................................62
Material Agreements.....................................................................................67
Related Party Transactions..............................................................................87
Description Of Other Indebtedness.......................................................................88
Description Of The New Notes............................................................................91
Material United States Federal Income Tax Considerations...............................................142
Plan Of Distribution...................................................................................143
Legal Matters..........................................................................................144
Experts................................................................................................144
Where You Can Find More Information....................................................................144
Index To Financial Statements..........................................................................F-1
References in this prospectus to the "Authority," "we," "our" or "us"
refer to the Chukchansi Economic Development Authority. References to "Cascade
Entertainment" and "Manager" refer to Cascade Entertainment Group, LLC, a
California limited liability company and the developer and manager of the
Chukchansi Gold Resort & Casino. References to the "Tribe" refer to the
Picayune Rancheria of Chukchansi Indians, a federally recognized tribe.
The "old notes" consisting of the 14 1/2% Series A Senior Notes due
2009 which were issued on October 8, 2002 and the "new notes" consisting of
the 14 1/2% Series B Senior Notes due 2009 offered pursuant to this prospectus
are sometimes collectively referred to in this prospectus as the "notes."
You should rely only on the information contained in this prospectus.
The Authority has not authorized anyone to provide you with different
information. If anyone provides you with different or inconsistent
information, you should not rely on it. The Authority is not making an offer
of these securities in any state where the offer is not permitted. You should
not assume that the information contained in this prospectus is accurate as of
any date other than the date on the front cover of this prospectus.
FORWARD LOOKING STATEMENTS
Although statements made in this prospectus are not subject to the
protections of the United States Private Securities Act of 1995, this
prospectus does contain statements that are "forward-looking statements" as
defined in Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). We based these forward-looking statements
on our current expectations and our projections about future events. These
forward-looking statements may be identified by the use of words such as
"may," "will," "believes," "estimates," "expects," "intends," "should,"
"anticipates" or similar words, or by discussion of the strategy or risks
and uncertainties about the development plans for the Chukchansi Gold
Resort & Casino. All of these forward-looking statements are based on our
estimate of future results or trends, which may not be correct. Although we
believe that the plans and objectives reflected in or suggested by such
forward-looking statements are reasonable, they are inherently subject to
risks, uncertainties and assumptions about
i
the development and anticipated results of operations of the Chukchansi Gold
Resort & Casino, including, among other things, those related to the
following:
o changes in the scope, cost or timing of the development plans,
construction or capital improvements of the Chukchansi Gold Resort &
Casino;
o the financial performance of the Chukchansi Gold Resort & Casino
once it is open;
o actual or threatened terrorist attacks and their impact on domestic
travel and spending on leisure activities;
o other adverse conditions, such as adverse economic conditions,
changes in general customer confidence or spending, weather-related
factors, factors relating to the current state of world affairs or
any other destabilizing events, that may adversely affect the
economy in general and/or the casino industry in particular;
o actions that may be taken or omitted to be taken by third parties,
including customers, suppliers and competitors;
o changes in the business strategy or development plans of the
Manager, us or the Tribe; and
o any adverse outcome relating to one or more of the various risk
factors identified in this prospectus, including those risk factors
discussed beginning on page 14, or from other unforeseen
developments.
All future written and oral forward-looking statements made by us or
on our behalf are also subject to these factors. We undertake no obligation to
publicly update or revise our forward-looking statements, whether as a result
of new information, future events or otherwise, except as required by law. In
light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
ii
SUMMARY
This summary highlights selected information contained elsewhere in
this prospectus and does not contain all of the information that may be
important to you. You should read this entire prospectus, including the
financial data and related notes and the information described under the
heading "Risk Factors," and the other documents to which we refer you.
The Chukchansi Gold Resort & Casino
We will be the owner of the Chukchansi Gold Resort & Casino, a gaming
facility and hotel to be built on approximately 120 acres near Coarsegold,
California, approximately 35 miles north of Fresno. The Chukchansi Gold Resort
& Casino, which will be developed and managed by Cascade Entertainment, is
being designed to be an approximately 296,000 square-foot facility, including
approximately 52,000 square feet of gaming space, and is expected to feature:
o 1,800 slot machines, approximately 40 table games and a poker room;
o a 192-room rustic, contemporary-style hotel, which will feature room
service, full bell service and valet service;
o five restaurants, including a 450-seat action-station buffet, a
150-seat casual dining restaurant, a 125-seat signature,
wine-country restaurant with an exhibition kitchen and wine cellar,
a 75-seat quick-serve Asian restaurant and a 75-seat 1950's-themed
diner;
o four bars, including a rustic, lobby lounge with views of the
majestic Sierra Nevada Mountains and a 200-seat sports and
entertainment slot bar and lounge that will also offer limited food
service;
o approximately 16,500 square feet of meeting and convention space,
which will include an approximately 13,000 square foot Events Center
designed to seat up to 1,000 people;
o approximately 1,900 surface parking spaces with free valet;
o an approximately 40-space RV park with full electrical and water
hook-ups and complimentary shuttle service to the casino;
o a retail shop; and
o VIP and guest services facilities.
We expect that the construction of the casino portion of the Chukchansi Gold
Resort & Casino will be completed, and the operation of the casino will begin,
in June 2003. We expect that the construction of the hotel portion of the
Chukchansi Gold Resort & Casino will be completed, and the operation of the
hotel will begin, in August 2003.
The Chukchansi Gold Resort & Casino will be strategically located off
Highway 41, 35 miles north of Fresno on tribal lands near Coarsegold,
California. Highway 41 is a major highway serving the Fresno area and is the
main road from the south into Yosemite National Park. The Chukchansi Gold
Resort & Casino site is approximately 25 miles from the south entrance of
Yosemite. According to Yosemite National Park Media Relations, the south
entrance, the most popular of Yosemite's five entrances, accounted for 1.0
million, or over 30%, of Yosemite's visitors in 2001.
The Fresno Market
According to the 2000 U.S. Census, the Fresno metropolitan statistical
area (MSA) had a population of 922,516. From 1990 to 2000, the Fresno MSA grew
22.1%, ranking it among the top 20% of all U.S. MSAs in terms of population
growth rate. As of 2000, approximately 1.0 million and 2.3 million
1
people lived within a 50- and 100-mile radius, respectively, of the
Chukchansi Gold Resort & Casino site. The 2000 U.S. Census and the State of
California project that the four counties principally located within 50 miles
of the Chukchansi site and the eleven counties principally located within 100
miles of the Chukchansi site will experience aggregate population growth of
22.3% and 25.1%, respectively, between 2000 and 2010, as compared to 16.8% for
California and 6.6% nationally.
The Tribe and Authority
The Picayune Rancheria of Chukchansi Indians is a federally
recognized tribe with over 1,100 enrolled members and is governed by a tribal
council. In June 2001, the tribal council created the Chukchansi Economic
Development Authority to own the Chukchansi Gold Resort & Casino. The
Authority is a wholly-owned enterprise of the Tribe, governed by a board of
directors and regulated by a tribal gaming commission that is appointed by the
Tribe. In the Authority's December 31, 2001 and September 30, 2002 financial
statements, the Authority's auditors expressed substantial doubt about the
Authority's ability to continue as a going concern. This doubt was based, in
part, on the Authority not having secured the necessary financing for the
Chukchansi Gold Resort & Casino as of the date of the report. Subsequent to
those financial statements, the Authority completed the bond offering to
finance the development of the Chukchansi Gold Resort & Casino. The
Authority's ability to continue as a going concern is dependent upon the
completion of the Chukchansi Gold Resort & Casino and generating profitable
operations once the Chukchansi Gold Resort & Casino is complete. As of
September 30, 2002, the Authority had an accumulated deficit of $4,528,579.
The Developer and Manager
The Authority has entered into a development agreement and a
management agreement with Cascade Entertainment. The management agreement
extends for seven years from the date the Chukchansi Gold Resort & Casino
opens. Members of Cascade Entertainment's management team have substantial
experience developing and/or operating large-scale Indian gaming and
hospitality facilities.
Cascade Entertainment is responsible for managing the design,
development, construction, staffing, equipping, opening and ongoing operation
of the Chukchansi Gold Resort & Casino, subject, in certain cases, to the
approval of the Authority, as well as assisting in the regulatory approval
process for the facility. Cascade Entertainment has agreed not to conduct any
business operations other than those in connection with the development and
management of the Chukchansi Gold Resort & Casino and, if it so chooses, one
other Indian gaming facility, until the Chukchansi Gold Resort & Casino has
opened and certain financial tests have been satisfied. Cascade Entertainment
is not a guarantor of the notes, and, other than its pledge of a portion of
its management fees until we meet certain financial tests, Cascade
Entertainment's assets will not be available to holders of the notes in the
event of a default on the notes. Cascade Entertainment's auditors have
expressed doubt about Cascade Entertainment's ability to continue as a going
concern. As discussed in note 1 to the financial statements beginning on page
F-23, Cascade Entertainment has suffered recurring net losses from operations,
and has a net members' deficit that raises substantial doubt about its ability
to continue as a going concern. Management's plans with regard to these matters
are also described in note 1. As of September 30, 2002, Cascade Entertainment
had an accumulated deficit of $37,586,311.
Business Strategy
We and Cascade Entertainment, the developer and manager of the
Chukchansi Gold Resort & Casino, intend to implement the following development
and operating strategies:
o Design and Construct the First Fully Integrated Gaming Facility in
the Fresno Market. The Chukchansi Gold Resort & Casino will be the
first fully integrated gaming facility in the Fresno market that
will be completely designed and constructed after the legalization
of gaming in California, rather than developed through a series of
expansions and renovations. The Chukchansi Gold Resort & Casino will
be the product of a thorough development process undertaken with the
assistance of experienced gaming architects, engineers and
contractors.
o Benefit from a Team of Experienced Development Professionals.
Cascade Entertainment has assembled a team of skilled design,
development and construction professionals: Morris
2
& Brown Architects, Ltd., the architect; Walton Construction, the
construction manager; and Rider Hunt Levett & Bailey, the
construction consultant.
o Capitalize on the Indian Gaming Experience of Cascade
Entertainment's Management. Members of Cascade Entertainment's
management team have substantial experience developing and operating
Indian gaming facilities and within the gaming industry generally.
o Offer Customers a Distinctive Experience. The Chukchansi Gold Resort
& Casino will offer its customers Las Vegas-style gaming in
conjunction with exciting entertainment and high quality dining. The
facility will offer multiple dining options, such as three themed
specialty restaurants and an action-station buffet. There will also
be entertainment in our lounge and the Events Center, which is
expected to feature headline entertainers.
o Attract Overnight Customers. When the Chukchansi Gold Resort &
Casino opens, we expect it to be one of the only gaming facilities
in the Fresno market that can accommodate overnight guests. We
intend to use our hotel as a key element of our casino marketing
plan. This will give us the opportunity to draw casino customers
from a large geographic radius while also serving the rapidly
growing local market.
o Provide Exceptional Customer Service. The Chukchansi Gold Resort &
Casino will strive to provide patrons with exceptional personal
service intended to foster customer loyalty and generate repeat
business.
o Develop Brand Awareness and Customer Loyalty. We will seek to build
brand awareness and name recognition for the Chukchansi Gold Resort
& Casino through a wide variety of marketing and promotional tools,
including broadcast and print media, billboards and area visitor's
guides. We will encourage customer loyalty and repeat business
through a player's club program, which should allow us to build our
customer database and target our promotions to frequent patrons.
Our financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. We have incurred substantial
losses to date. Our ability to continue as a going concern is dependent upon
completion of the Chukchansi Gold Resort & Casino and generating profitable
operations once construction has been completed. Please see the going concern
opinion in the financial statements on page F-2.
The Exchange Offer
Old Notes........................... 14 1/2% Series A Senior Notes due 2009, which we issued October 8, 2002.
New Notes........................... 14 1/2% Series B Senior Notes due 2009, the issuance of which has
been registered under the Securities Act. The form and the
terms of the new notes are identical in all material respects to
those of the old notes, except that the transfer restrictions
and registration rights relating to the old notes do not apply
to the new notes.
Exchange Offer...................... We are offering to issue up to $153,000,000 aggregate principal
amount of the new notes in exchange for a like principal amount
of the old notes to satisfy our obligations under the
registration rights agreement that we entered into when the old
notes were issued in transactions in reliance upon the exemption
from registration provided by Rule 144A under the Securities
Act.
3
Expiration Date; Tenders............ The exchange offer will expire at 5:00 p.m., New York City time,
on , 2003, the 21st business day
following the date of this prospectus, unless extended in our
sole and absolute discretion. By tendering your old notes, you
represent to us that:
o you are not our affiliate, as defined in Rule 405
under the Securities Act;
o any new notes you receive in the exchange offer are
being acquired by you in the ordinary course of your
business;
o at the time of the commencement of the exchange
offer, neither you nor, to your knowledge, anyone
receiving new notes from you, has any arrangement or
understanding with any person to participate in the
distribution, as defined in the Securities Act, of
the new notes in violation of the Securities Act;
o if you are a broker-dealer, you will receive the new
notes for your own account in exchange for old notes
that were acquired by you as a result of your market
making or other trading activities and that you will
deliver a prospectus in connection with any resale of
the new notes you receive. For further information
regarding resales of the new notes by participating
broker-dealers, see the discussion under the caption
"Plan of Distribution"; and
o if you are not a broker-dealer, you are not engaged
in, and do not intend to engage in, the distribution
of the new notes, as defined in the Securities Act.
Withdrawal; Non-Acceptance.......... You may withdraw any old notes tendered in the exchange
offer at any time prior to 5:00 p.m., New York City time, on
, 2003. To be effective, a written notice of withdrawal
must be received by the exchange agent at one of the addresses
set forth on page 31. The notice must specify:
o the name of the person having tendered the old notes
to be withdrawn,
o the old notes to be withdrawn, including the
principal amount of such old notes, and
o where certificates for old notes have been
transmitted, the name in which such old notes are
registered, if different from that of the withdrawing
holder.
If we decide for any reason not to accept any old notes
tendered for exchange, the old notes will be returned to the
registered holder at our expense promptly after the
expiration or termination of the exchange offer. In the case
of the old notes tendered by book-entry transfer into the
exchange agent's account at The Depository Trust Company,
which we sometimes refer to in this prospectus as DTC, any
withdrawn or unaccepted old notes will be credited to the
tendering holders' account at DTC. For further information
regarding the withdrawal of the tendered old notes, see "The
Exchange Offer - Withdrawal Rights."
Conditions to the
Exchange Offer.................. We are not required to accept for exchange or to issue new notes
in exchange for any old notes and we may terminate or amend the
exchange offer if any of the following events occur prior to our
acceptance of the old notes:
4
o the exchange offer violates any applicable law or
applicable interpretation of the staff of the
Securities and Exchange Commission;
o an action or proceeding shall have been instituted or
threatened in any court or by any governmental agency
that might materially impair our ability to proceed
with the exchange offer;
o we do not receive all the governmental approvals that
we believe are necessary to consummate the exchange
offer; or
o there has been proposed, adopted, or enacted any law,
statute, rule or regulation that, in our reasonable
judgment, would materially impair our ability to
consummate the exchange offer.
We may waive any of the above conditions in our reasonable
discretion. See the discussion below under the caption "The
Exchange Offer - Conditions to the Exchange Offer" for more
information regarding the conditions to the exchange offer.
Procedures for Tendering
Old Notes........................ Unless you comply with the procedure described below under the
caption "The Exchange Offer - Guaranteed Delivery Procedures,"
you must do one of the following on or prior to the expiration
or termination of the exchange offer to participate in the
exchange offer:
o tender your old notes by sending the certificates for
your old notes, in proper form for transfer, a
properly completed and duly executed letter of
transmittal, with any required signature guarantees,
and all other documents required by the letter of
transmittal, to U.S. Bank, N.A., as exchange agent,
at one of the addresses listed below under the
caption "The Exchange Offer - Exchange Agent"; or
o tender your old notes by using the book-entry
transfer procedures described below and transmitting
a properly completed and duly executed letter of
transmittal, with any required signature guarantees,
or an agent's message instead of the letter of
transmittal, to the exchange agent. In order for a
book-entry transfer to constitute a valid tender of
your old notes in the exchange offer, U.S. Bank,
N.A., as exchange agent, must receive a confirmation
of book-entry transfer of your old notes into the
exchange agent's account at DTC prior to the
expiration or termination of the exchange offer. For
more information regarding the use of book-entry
transfer procedures, including a description of the
required agent's message, see the discussion below
under the caption "The Exchange Offer - Book-Entry
Transfers."
Guaranteed Delivery Procedures...... If you are a registered holder of old notes and wish to tender
your old notes in the exchange offer, but
o the old notes are not immediately available;
o time will not permit your old notes or other required
documents to reach the exchange agent before the
expiration or termination of the exchange offer; or
5
o the procedure for book-entry transfer cannot be
completed prior to the expiration or termination of
the exchange offer;
o then you may tender old notes by following the
procedures described below under the caption "The
Exchange Offer - Guaranteed Delivery Procedures."
Special Procedures for
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 and you wish to tender your old notes in the
exchange offer, you should promptly contact the person in whose
name the old notes are registered and instruct that person to
tender them on your behalf. If you wish to tender in the
exchange offer on your own behalf, prior to completing and
executing the letter of transmittal and delivering your old
notes, you must either make appropriate arrangements to register
ownership of the old notes in your name, or obtain a properly
completed bond power from the person in whose name the old notes
are registered.
Material United States Federal
Income Tax Considerations........ The exchange of the old notes for new notes in the exchange
offer will not be a taxable transaction for United States
federal income tax purposes. See the
discussion below under the caption
"Material United States Federal Income
Tax Considerations," for more
information regarding the United States
federal income tax consequences to you
of the exchange offer.
Use of Proceeds..................... We will not receive any cash proceeds from the exchange offer.
Exchange Agent...................... U.S. Bank, N.A. is the exchange agent for the exchange offer.
You can find the address and telephone number of the exchange
agent below under the caption, "The Exchange Offer - Exchange
Agent."
Resales............................. Based on interpretations by the staff of the SEC, as set
forth in no-action letters issued to third parties, we
believe that the new notes issued in the exchange offer may
be offered for resale, resold or otherwise transferred by
you without compliance with the registration and prospectus
delivery requirements of the Securities Act as long as:
o you are acquiring the new notes in the ordinary course
of your business;
o you are not participating, do not intend to
participate and have no arrangement or understanding
with any person to participate, in a distribution of
the new notes; and
o you are not an affiliate of ours.
If you are an affiliate of ours, are engaged in or intend to
engage in or have any arrangement or understanding with any
person to participate in the distribution of the new notes:
o you cannot rely on the applicable interpretations of
the staff of the SEC; and
o you must comply with the registration requirements of
the Securities Act in connection with any resale
transaction.
6
Each broker or dealer that receives new notes for its own
account in exchange for old notes that were acquired as a
result of market-making or other trading activities must
acknowledge that it will comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with any offer, resale, or other transfer of the
new notes issued in the exchange offer, including
information with respect to any selling holder required by
the Securities Act in connection with any resale of the new
notes.
Furthermore, any broker-dealer that acquired any of its old
notes directly from us:
o may not rely on the applicable interpretation of the
staff of the SEC's position contained in Exxon
Capital Holdings Corp., SEC no-action letter (April
13, 1988), Morgan, Stanley Co. Inc., SEC no-action
letter (June 5, 1991) and Shearman Sterling, SEC
no-action letter (July 2, 1993); and
o must also be named as a selling noteholder in
connection with the registration and prospectus
delivery requirements of the Securities Act relating
to any resale transaction.
Broker-Dealers...................... 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. The letter of transmittal states that by
so acknowledging and delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act. 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 old notes
which were received by the broker-dealer as a result of
market making or other trading activities. We have agreed
that for a period of up to one year after the consummation
of this exchange offer, we will make this prospectus
available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution" for more
information.
7
Registration Rights Agreement....... When we issued the old notes in October 2002, we and the
Tribe entered into a registration rights agreement with the
initial purchasers of the old notes. Under the terms of the
registration rights agreement, we and the Tribe agreed to:
o use our reasonable best efforts to have the exchange
offer registration statement declared effective on or
prior to 210 days after the closing date of the
offering;
o use our reasonable best efforts to consummate the
exchange offer within 30 business days after the date
on which the exchange offer registration statement is
declared effective;
o use our reasonable best efforts to file a shelf
registration statement for the resale of the notes if
we cannot effect an exchange offer within the time
periods listed above and in certain other
circumstances; and
o if we fail to meet our registration obligations, we
will pay liquidated damages at a rate of $.05 per
week per $1,000 in principal amount of old notes held
by a Holder, increasing by an additional $.05 per
week per $1,000 in principal amount of old notes for
each subsequent 90-day period our registration
obligations are not met, up to a maximum of
liquidated damages of $.50 per week.
Consequences of not exchanging your old notes
If you do not exchange your old notes in the exchange offer, you will
continue to be subject to the restrictions on transfer described in the legend
on the certificate for your old notes. In general, you may offer or sell your
old notes only:
o if they are registered under the Securities Act and applicable state
securities laws;
o if they are offered or sold under an exemption from registration
under the Securities Act and applicable state securities laws; or
o if they are offered or sold in a transaction not subject to the
Securities Act and applicable state securities laws.
We do not intend to register the old notes under the Securities Act.
Under some circumstances set forth in the registration rights agreement,
however, holders of the old notes, including holders who are not permitted to
participate in the exchange offer or who may not freely sell new notes
received in the exchange offer, may require us to file, and to cause to become
effective, a shelf registration statement covering resales of the old notes by
these holders. For more information regarding the consequences of not
tendering your old notes and our obligations to file a shelf registration
statement, see "The Exchange Offer - Consequences of Exchanging or Failing to
Exchange Old Notes" and "Description of New Notes - Registration Rights".
Summary Description of the New Notes
Issuer.............................. Chukchansi Economic Development Authority.
Securities.......................... Up to $153,000,000 aggregate principal
amount of 14 1/2% Series B Senior Notes due 2009.
Maturity............................ June 15, 2009.
8
Interest Payment Dates.............. April 1 and October 1 of each year, commencing on April 1, 2003.
Ranking............................. The new notes will be our senior obligations. The new notes will:
o rank equally with all of our existing and future senior
indebtedness; and
o rank senior to all of our existing and future
subordinated indebtedness.
As of the date of this prospectus, we will have $[ ] million
of indebtedness outstanding in addition to the notes, none of
which will rank senior to the notes. However, we anticipate
incurring up to $24.0 million of senior secured indebtedness
to acquire furniture, fixtures and equipment, including gaming
devices, prior to the opening of the Chukchansi Gold Resort &
Casino. This indebtedness will rank equally with the notes and
will be effectively senior to the notes with respect to the
furniture, fixtures and equipment securing such indebtedness.
Optional Redemption................. On or after October 1, 2006, we may redeem some or all of the
notes at the following redemption prices:
October 1, 2006 to September 30, 2007..................113.000%
October 1, 2007 to September 30, 2008..................108.667%
October 1, 2008 to June 14, 2009.......................104.333%
See "Description of the New Notes--Optional Redemption."
Gaming Redemption................... The new notes will be subject to mandatory disposition or
redemption in the event of certain determinations by gaming
authorities pursuant to applicable gaming laws. See
"Description of the New Notes--Mandatory Disposition Pursuant to
Gaming Laws."
Security............................ The notes will be secured by a letter of credit, certain cash
collateral accounts and a pledge by Cascade Entertainment of a
portion of its management fees received from us until we meet
certain financial tests.
Cash Accumulation Account........... We have established a cash accumulation account and have
granted a first priority lien on, and security interest in,
that account to the trustee to secure our payment obligations
under the notes. We are required to deposit $3.0 million per
quarter (beginning with the end of the first full fiscal
quarter commencing after the Chukchansi Gold Resort & Casino
opens) into the cash accumulation account. Funds from this
account may be used under certain circumstances on a pro rata
basis to repurchase notes.
Manager Security Account............ Until:
o the Chukchansi Gold Resort & Casino is operating,
o our fixed charge coverage ratio has been at least 2.5
to 1.0 for the immediately preceding four fiscal
quarters, and, if the Chukchansi Gold Resort &
Casino was closed for more
9
than five days during such period, our
fixed charge coverage ratio for the most recent
fiscal quarter was also at least 2.5 to 1.0,
o the cash accumulation account securing the notes
contains at least the minimum required amount,
o no event of default has occurred and is continuing, and
o the Chukchansi Gold Resort & Casino has not ceased
operating for more than five days since the end of the
last fiscal quarter,
Cascade Entertainment will be required to deposit the
management fees it receives from us under its management
agreement, after payment of certain of its taxes and expenses
with respect to these fees, into a Manager security account
which has been pledged to the trustee to secure our payment
obligations under the notes. After we meet those financial
tests, funds from this account (as well as any funds in the
shortfall account described below) will be disbursed to
Cascade Entertainment and will no longer serve as security for
the notes.
Letter of Credit
Drawdown Agreement................ Pursuant to a letter of credit drawdown agreement, Credit
Provider Group has agreed to lend us up to $15.0 million under
an irrevocable letter of credit, which may be drawn on from
time to time, in order to facilitate the opening of the
Chukchansi Gold Resort & Casino on or prior to 21 months from
the issue date of the notes. Following the opening of the
Chukchansi Gold Resort & Casino, the amount of the letter of
credit will be reduced to the lesser of (1) the amount
available on the letter of credit on the opening date and (2)
$10.0 million. We will borrow up to the aggregate amount
available under the letter of credit if:
o the completion of the Chukchansi Gold Resort & Casino
is delayed beyond 18 months from the issue date of the
notes and the construction expenses incurred by us as
of such date exceed a specified limit;
o the completion of the Chukchansi Gold Resort & Casino
is delayed beyond 21 months from the issue date;
o we do not have sufficient funds available to make
scheduled payments on the notes;
o the notes are accelerated; or
o the letter of credit is due to expire within 30 days
and has not been renewed for its then outstanding
amount.
Our obligation to repay amounts funded through the letter of
credit will be subordinated to the notes. Credit Provider
Group shall provide us with a letter of credit until:
o the Chukchansi Gold Resort & Casino is operating,
o our fixed charge coverage ratio has been at least 2.5
to 1.0 for the immediately preceding four fiscal quarters,
10
and, if the Chukchansi Gold Resort & Casino
was closed for more than five days during such period,
our fixed charge coverage ratio for the most recent
fiscal quarter was also at least 2.5 to 1.0,
o the cash accumulation account securing the notes
contains at least the minimum required amount,
o no event of default has occurred and is continuing, and
o the Chukchansi Gold Resort & Casino has not ceased
operating for more than five days since the end of the
last fiscal quarter.
The letter of credit drawdown agreement will remain in effect
until we meet the financial test described above. See
"Material Agreements--Letter of Credit Drawdown Agreement."
Cash Accumulation Account
Contribution Agreement........... Pursuant to a cash accumulation account contribution agreement,
if, at the end of any quarter, we have not made all of the
deposits required to be made into the cash accumulation account
with respect to such fiscal quarter, Cascade Entertainment must
transfer from the Manager security account an amount equal to
the shortfall into a shortfall account in which the trustee has
a first priority perfected security interest. However, Cascade
Entertainment will not be required to cover any shortfalls that
exceed the amount of the net management fees contained in the
Manager security account on the date of such shortfall. Funds
in the shortfall account will be deemed to have been loaned to
us by Cascade Entertainment under a Manager repayment note at an
interest rate equal to the interest rate earned on the cash
accumulation account. See "Material Agreements--Cash
Accumulation Account Contribution Agreement."
Intercreditor Agreement............. Pursuant to an intercreditor agreement, the rights of the
holders of the senior subordinated pay-in-kind notes (referred
to as the senior subordinated PIK notes), the subordinated
pay-in-kind notes (referred to as the subordinated PIK notes),
the Manager repayment note and the L/C note, to receive
payments under their respective notes are subordinate to the
old notes and the new notes offered hereby and are subject to
certain other conditions to repayment. See "Material
Agreements--Intercreditor Agreement."
Excess Cash Offers.................. Prior to October 1, 2006, under the circumstances described in
"Description of the New Notes--Repurchase at the Option of
Holders--Excess Cash Offers," we may offer to repurchase
notes, in whole or in part, with our excess cash flow at a
price that includes a "make-whole premium" as set forth under
the heading "Description of the New Notes--Repurchase at the
Option of Holders--Excess Cash Offers." Excess cash flow is
defined as cash held by the Authority in excess of $25.0
million. To the extent that any such offer is not accepted, we
may distribute our excess cash to the Tribe. If we choose not
to make an Excess Cash Offer, under certain circumstances we
will be required to make an offer to purchase notes with our
excess cash flow at a price equal to principal and accrued
interest and liquidated damages, if any.
11
Change of Control Offer............. If we or Cascade Entertainment experience specific changes of
control, we must offer to repurchase notes at a price equal to
101% of the principal amount of the notes, plus accrued and
unpaid interest and liquidated damages, if any, to the date of
such repurchase. See "Description of the New Notes--Repurchase
at the Option of Holders--Change of Control."
Certain Covenants................... The indenture governing the new notes will contain covenants
limiting our ability to, among other things:
o incur or refinance debt;
o distribute funds to the Tribe;
o make investments, loans or advances;
o engage in other businesses;
o create liens on our assets;
o merge, consolidate or sell substantially all of our
assets;
o enter into sale-leaseback transactions; and
o enter into transactions with our affiliates.
These covenants are subject to important limitations and
exceptions. See "Description of the New Notes--Certain
Covenants."
Use of Proceeds..................... We will not receive any cash proceeds from the exchange offer.
However, proceeds received in the old notes offering were used
to finance the design, development, construction, equipping
and opening costs of the Chukchansi Gold Resort & Casino. See
"Use of Proceeds."
For more detailed information regarding the terms of the new notes,
see "Description of the New Notes."
Address and Telephone Number
Our principal executive offices are located at 46575 Road 417,
Coarsegold, California 93614. Our telephone number is (559) 683-6633.
Risk Factors
The following are brief descriptions of certain important factors
that you should consider before deciding whether to invest in the new notes:
o our substantial amount of indebtedness;
o changes in the scope, cost or timing of the development plans,
construction or capital improvements of the Chukchansi Gold Resort &
Casino;
o our ability to complete the construction of the Chukchansi Gold
Resort & Casino on time and within budget, or, if necessary, a
temporary facility for our gaming devices, the failure of which
could result in, among other things, the loss of all of our gaming
device licenses issued on June 26, 2002 if those gaming devices are
not in commercial operation by June 25, 2003;
o the failure to obtain or renew, or the loss of, any license or
permit or limitations placed on any such licenses or permits;
12
o a successful legal challenge to the validity of the Tribe's compact
or tribal-state gaming compacts in general;
o the fact that the Chukchansi Gold Resort & Casino is in the early
development stage with no operating history and that Cascade
Entertainment is a new company with no experience developing or
operating gaming facilities;
o our dependence on, and the uncertainty regarding the availability
and adequacy of, the cash flow from the Chukchansi Gold Resort &
Casino to pay our substantial amount of debt and our ability to
service our obligations under the notes;
o the impact of a prolonged economic downturn on domestic travel and
spending on leisure activities;
o changes or developments in, or adverse interpretations of, laws,
rules or regulations, including taxes, applicable to us or the
Tribe, especially in light of the fact that Indian gaming in
California has been, and is currently, the subject of legal
disputes;
o uncertainty regarding the ability of holders of notes to enforce
their legal rights against us or the Tribe;
o the ability of the Chukchansi Gold Resort & Casino to compete with
established or future gaming operators, particularly in the central
California gaming market;
o the dependence of the Chukchansi Gold Resort & Casino on a single
gaming market;
o the ability to secure financing to purchase furniture, fixtures and
equipment;
o our ability to recruit, train and retain qualified employees for the
Chukchansi Gold Resort & Casino;
o our ability to comply with environmental laws and regulations;
o restrictive covenants in the indenture governing the new notes and
other agreements may limit our ability and that of Cascade
Entertainment to capitalize on business opportunities;
o the collateral securing the new notes is worth less than the amount
due on the new notes; and
o the ability of creditors of the Tribe or the Authority to assert
liens against the site on which the Chukchansi Gold Resort & Casino
will be built.
For more detailed information on these risks factor and other
important risk factors, see "Risk Factors" beginning on page 14.
13
RISK FACTORS
You should carefully consider the following risk factors in addition
to all the other information provided to you in this prospectus before
tendering your old notes in the exchange offer.
Risks Relating to Our Business
We have a substantial amount of indebtedness which could adversely affect our
financial condition and prevent us from servicing our obligations under the
new notes.
We have a significant amount of indebtedness. As of September 30,
2002, we had outstanding $17.3 million of indebtedness. In addition, the
indenture governing the new notes permits us to incur additional debt in
certain circumstances, including up to $25.0 million to finance the purchase
of furniture, fixtures and equipment, including gaming devices, up to $2.0
million in letters of credit (in addition to the $15.0 million we can draw on
pursuant to the letter of credit agreement entered into at the closing of the
old notes) and completion bonds. The terms of the indenture also permits us to
incur additional debt if required debt coverage tests are satisfied. If new
debt were to be incurred in the future, the related risks could increase.
Our substantial indebtedness could have important consequences to you
and significant effects on our business and future operations. For example, it
could:
o make it more difficult for us to satisfy our obligations with
respect to the new notes;
o increase our vulnerability to general adverse economic and industry
conditions or a downturn in our business;
o result in an event of default if we fail to comply with the
financial and other restrictive covenants contained in the indenture
governing the new notes or in such other indebtedness;
o limit our ability to obtain financing to fund future working
capital, capital expenditures and other general operating
requirements;
o require us to dedicate a substantial portion of our cash flow from
operations to repay our outstanding indebtedness, thereby reducing
the availability of our cash flow to fund working capital, capital
expenditures, development projects and other general operating
requirements; and
o place us at a competitive disadvantage compared to our competitors
that have less debt.
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 new notes.
We could encounter problems during development and construction that could
substantially increase the construction costs of the Chukchansi Gold Resort &
Casino or delay opening.
Construction projects such as the construction of the Chukchansi Gold
Resort & Casino are subject to significant development and construction risks.
These include the following:
o shortages of energy, material and skilled labor;
o delays in obtaining or inability to obtain necessary permits,
licenses and approvals;
o changes in law applicable to gaming projects;
14
o changes to the plans or specifications;
o weather interferences or delays;
o engineering problems;
o labor disputes and work stoppages;
o disputes with contractors;
o environmental issues;
o fire, earthquake and other natural disasters; and
o geological, construction, excavation, regulatory and equipment
problems.
Any of the above-mentioned construction risks could cause unanticipated cost
increases and delays, which could have a material adverse effect on our
results of operations and financial condition and thus on our ability to make
payments on the new notes. See "--Failure to complete the Chukchansi Gold
Resort & Casino on schedule could result in the loss of our gaming device
licenses."
We expect the construction of the Chukchansi Gold Resort & Casino to
cost approximately $72.1 million, excluding capitalized interest. The
Chukchansi Gold Resort & Casino, excluding the hotel, is scheduled to be
completed and opened in June 2003. We are scheduled to complete construction
of the hotel in August 2003. However, opening the project by these dates and
the costs necessary to complete construction assume that there are no
unforeseen difficulties or delays. There can be no assurance that we will
complete the Chukchansi Gold Resort & Casino on time or within budget. We
commenced construction before all design documents are finalized, which could
result in inefficiencies or modifications that cause actual construction costs
to exceed budgeted amounts. For example, certain items may need to be modified
or replaced after they have been purchased, constructed or installed in order
to conform with the final design documents or building code requirements.
There can be no assurance that changes in the scope of the project will not be
required, even though they are not part of the construction manager's
guaranteed maximum price.
Failure to complete the Chukchansi Gold Resort & Casino on schedule could
result in the loss of our gaming device licenses.
Failure to complete the casino on schedule could cause us to have our
gaming device licenses cancelled because our tribal-state gaming compact
requires that licensed gaming devices be in commercial operation within one
year from the date of the grant of such licenses. See "Material
Agreements--Tribal-State Gaming Compact." The California Gambling Control
Commission has informed us that 1,250 of the Tribe's gaming device licenses
became effective on June 26, 2002 for this purpose and therefore those gaming
devices must be in commercial operation by June 25, 2003. An additional 200
gaming devices must be in commercial operation by September 4, 2003. Due to
the timing of the financing of the construction and the conditions on the
gaming device licenses established by the tribal-state gaming compact, we will
likely be required to place 1,250 gaming devices in commercial operation prior
to the date construction of the facility as a whole is completed. In addition,
we will have the ability to prioritize the construction of the Events Center,
which will be designed to house those gaming devices if it becomes necessary
to place them in commercial operation prior to opening the facility. However,
we cannot assure you that such use of the Events Center will satisfy the
commercial operation condition of the tribal-state gaming compact. See
"--Risks Relating to the Indian Gaming Industry--Our gaming device licenses
may not be valid or, if valid and we do not commence gaming operations by June
25, 2003, a significant number of our licenses may be cancelled and we may not
be able to obtain replacement licenses." Under certain circumstances, we have
agreed to delay certain non-gaming elements of the project and to accelerate
construction of the casino. Although we allocated $2.5 million of the proceeds
of the old notes to cover the cost of accelerating the construction of the
casino or constructing a temporary facility, we may incur additional
construction and
15
other unbudgeted costs. Failure to complete the Chukchansi
Gold Resort & Casino on time or on budget or, if required, the failure to
complete a temporary facility by June 25, 2003, could have a material adverse
effect on our results of operations and financial condition and thus on our
ability to make payments on the new notes.
Failure to secure financing to purchase furniture, fixtures and equipment
could delay or prevent the opening of the Chukchansi Gold Resort & Casino.
We will need to obtain up to $24.0 million in additional financing to
purchase furniture, fixtures and equipment, including gaming devices, prior to
the opening of the Chukchansi Gold Resort & Casino. We may be unable to obtain
such financing on acceptable terms or at all. If we fail to obtain financing
on terms consistent with our budget, the opening of the Chukchansi Gold Resort
& Casino could be delayed or prevented which could have a material adverse
effect on our operating results.
The Chukchansi Gold Resort & Casino will face significant competition from
other California Indian casinos, casinos located in Nevada and other forms of
gaming.
The gaming industry is very competitive. If the Chukchansi Gold
Resort & Casino is unable to compete successfully, we will not be able to
generate sufficient revenues and cash flow to make payments on the new notes.
When the Chukchansi Gold Resort & Casino opens it will principally
compete with other existing and proposed Indian gaming facilities in the
surrounding area and, to a lesser extent, with casinos in Nevada. The
Chukchansi Gold Resort & Casino's principal competitors are expected to be the
Table Mountain Casino & Bingo, the Palace Indian Gaming Center and the Mono
Wind Casino. It will also compete with card rooms located in the surrounding
area, other forms of gaming, including on- and off-track wagering, the
California State Lottery and Internet gaming, as well as with non-gaming
leisure activities. Many of our competitors have substantially greater
resources and name recognition than the Chukchansi Gold Resort & Casino will
have. In addition, there are other tribes that are currently seeking to
execute tribal-state gaming compacts with the State of California. Thus, we
may also face competition from gaming facilities that may be built in the
future.
We do not have any operating history or history of earnings.
We do not have any operating history or history of earnings and have
an accumulated deficit of $4,528,579, as of September 30, 2002. In addition,
our earnings were insufficient to cover fixed charges by $2,599,675 for the
period from June 15, 2001 (commencement of operations) to December 31, 2001
and by $1,259,416 for the nine months ended September 30, 2002.
Neither we nor the Tribe has operated a business comparable to the
Chukchansi Gold Resort & Casino. There can be no assurance that the Chukchansi
Gold Resort & Casino will generate sufficient revenues and cash flow to allow
us to service our debt obligations, including our obligations under the new
notes, as they become due.
We will depend solely on the Chukchansi Gold Resort & Casino to generate cash
sufficient to make payments on the new notes.
Our ability to generate cash flow will depend on the future operating
performance of the Chukchansi Gold Resort & Casino, which is subject to many
financial, economic, competitive, regulatory, business and other factors,
including casualty losses or forces of nature that we are not able to predict
or control. The impact of these factors could be more significant to us than
it would be to a diversified gaming company since we will rely solely on the
revenues generated by the Chukchansi Gold Resort & Casino. Until construction
of the Chukchansi Gold Resort & Casino is completed, we will rely exclusively
on funds from an interest reserve account, which was funded with a portion of
the proceeds of the sale of the old notes and the senior subordinated PIK
notes (we refer to these sales as the Financing Transactions) to service our
obligations under the notes. Once funds in the interest reserve account have
been depleted, we will rely exclusively on cash flow generated by the
Chukchansi Gold Resort & Casino and funds which may be drawn on the letter of
credit to service our debt obligations, including the new notes. Our
operations and assets are accounted for separately from the other operations
and assets of the Tribe, and
16
holders of the new notes will not have recourse to any of those other
operations or assets of the Tribe, including funds generated from our
operations which are distributed to the Tribe in accordance with the
indenture.
We will be subject to greater risks than a geographically diverse company.
Our revenues and cash flow will be heavily dependent upon the
patronage of persons living in and visiting the Fresno market. Therefore, we
will be subject to greater risks than a geographically diversified gaming
company, including:
o a downturn in local or regional economic conditions;
o an increase in competition in the surrounding area;
o inaccessibility to the casino due to road construction or
closures of primary access routes; and
o natural and other disasters in the surrounding area, including
earthquakes and fire.
If we are unable to generate sufficient cash flow, we may need to
refinance or restructure our debt, reduce or delay capital investments or seek
to raise additional capital in order to service our obligations under the new
notes. These measures may not be available to us or, if available, they may
not be sufficient to enable us to satisfy our obligations under the new notes.
Moreover, we cannot assure you that any of these alternatives could be
effected on satisfactory terms, if at all.
Cascade Entertainment is a new company and does not have any experience
developing or operating a gaming facility and has limited experience in
managing a public company.
Under the development agreement and the management agreement entered
into among us, Cascade Entertainment and the Tribe, Cascade Entertainment has
exclusive responsibility for developing, marketing and operating the
Chukchansi Gold Resort & Casino. Although members of Cascade Entertainment's
management have experience in the gaming industry, Cascade Entertainment is a
new company and, as an entity, does not have any experience developing,
marketing or operating a gaming facility. In addition, most of the executive
officers of Cascade Entertainment do not have prior experience in managing a
public company. No assurance can be given that Cascade Entertainment will be
able to attract a sufficient number of guests, gaming customers and other
visitors to the Chukchansi Gold Resort & Casino in order to make its
operations profitable and thus enable us to make the payments required on the
new notes. Furthermore, Cascade Entertainment has the right to enter into
similar development and management agreements with another Indian tribe, and
simultaneously developing and managing two gaming facilities may compound
these difficulties.
The failure to obtain necessary licenses, permits and approvals could delay
the completion of the Chukchansi Gold Resort & Casino which could have a
material adverse effect on our operating results.
We believe that we will be able to obtain all regulatory licenses,
permits and approvals necessary in order to construct and operate the
Chukchansi Gold Resort & Casino. We cannot assure you, however, that the
required licenses, permits and other approvals will be issued. Even if issued,
these licenses, permits and other approvals could have conditions and
restrictions that could adversely affect the completion of the Chukchansi Gold
Resort & Casino. The failure to obtain any of these licenses, permits and
other approvals in a timely manner may delay, restrict or prevent the
Chukchansi Gold Resort & Casino from being completed or opened as currently
contemplated, thereby causing a material adverse effect on our ability to
satisfy our obligations under the new notes. See "--We will depend solely on
the Chukchansi Gold Resort & Casino to generate cash sufficient to make
payments on the new notes."
17
We may face difficulties in recruiting, training and retaining qualified
employees for the Chukchansi Gold Resort & Casino.
The operation of the Chukchansi Gold Resort & Casino will require us
and Cascade Entertainment to recruit a substantial number of qualified
employees with gaming industry experience and qualifications to obtain the
requisite gaming licenses. There can be no assurances that we or Cascade
Entertainment will be able to recruit, train and retain a sufficient number of
qualified employees, particularly given the very small number of workers
skilled in the gaming industry that reside in the immediate vicinity of the
Chukchansi Gold Resort & Casino. Such difficulties may intensify as additional
gaming facilities open in the surrounding area.
Restrictive covenants in the indenture governing the new notes and the other
agreements executed in connection with the Financing Transactions may limit
our ability to expand our operations and the ability of us and Cascade
Entertainment to pursue our respective business strategies.
The indenture governing the new notes includes covenants which, among
other things, limits our ability to borrow money, make investments, create
liens, sell assets, engage in transactions with affiliates, engage in other
businesses, open other gaming facilities and engage in mergers or
consolidations. These restrictive covenants may limit our ability to expand
our operations and the ability of Cascade Entertainment to pursue its business
strategies. In addition, other agreements executed in connection with these
Financing Transactions limit our access to the proceeds of the Financing
Transactions and restrict our access to a portion of the cash flow from our
operations. If we or Cascade Entertainment are unable to capitalize on
business opportunities, we may be unable to make payments on the new notes.
Our failure to comply with environmental laws and regulations could have a
material adverse effect on us.
We are, and upon completion of the Chukchansi Gold Resort & Casino
will be, subject to various federal, state and local laws, ordinances and
regulations which (1) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as
handling and disposal of hazardous material or solid or hazardous wastes, or
(2) may impose joint and several liability on current and former property
owners or operators for the costs of investigation, removal and remediation of
hazardous substances or wastes related to the environment without regard to
fault. We have not identified any such issues associated with our properties
that could reasonably be expected to have an adverse effect on us or the
results of our operations. However, it is possible that historical or
neighboring activities have affected one or more of our properties and, as a
result, we can give no assurance that material obligations or liabilities
under environmental laws will not arise in the future which may have a
material adverse effect on us.
If the current economic downturn continues, our business could be materially
adversely affected.
We depend on consumers voluntarily spending discretionary funds on
gambling and other leisure activities. The gaming industry may be affected by
prolonged, negative trends in the general economy that adversely affect
consumer spending, including the current economic downturn. If any downturn
reduces consumer confidence or disposable income, the demand for leisure
activities such as gambling may be adversely affected, which could adversely
affect our operations.
Risks Relating to the Indian Gaming Industry
Tribal gaming is extensively regulated by the Tribe's compact, the Tribe's
gaming ordinance and federal laws and regulations, and non-compliance with
such laws or the compact by us or the Tribe, as well as changes in such laws
or future interpretations of the laws or the compact, could have a material
adverse effect on our ability to conduct gaming.
Gaming on the Tribe's reservation is extensively regulated by
federal, state and tribal regulatory bodies, including the National Indian
Gaming Commission, the California Gambling Control Commission, the California
Department of Justice and the Tribal Gaming Commission. The Tribe's
tribal-state gaming compact imposes ongoing compliance obligations on us. Our
failure to observe any of these obligations could result in a breach of the
compact and the loss of our right to conduct gaming.
18
Changes in applicable laws or regulations or future interpretations
of such laws, regulations or the Tribe's compact could limit or materially
affect the types of gaming that we may offer, which would, in turn, affect
gaming revenues. Congress has regulatory authority over Indian affairs and can
establish and change the terms upon which Indian tribes may conduct gaming.
Currently, the operation of all gaming on the Tribe's rancheria is subject to
the Indian Gaming Regulatory Act. For the past several years, Congress has
introduced legislation designed to address a myriad of perceived problems with
this Act, including proposed legislation repealing many of the provisions of
the Indian Gaming Regulatory Act and prohibiting the operation of certain
types of gaming on Indian reservations in states where gaming is not otherwise
allowed on a commercial basis. While none of the substantive proposed
amendments to the Indian Gaming Regulatory Act have proceeded out of committee
hearings to a vote by either house of the U.S. Congress, we cannot predict the
ramifications of future legislative acts. It is possible that the retroactive
application of legislation could result in the closure of certain Indian
gaming operations.
There is pending litigation challenging the validity of the tribal-state
gaming compacts.
In a lawsuit recently decided in federal court, which challenged the
validity of all of the compacts entered into by the State of California, the
court held that the tribal-state gaming compacts were valid; however, this
decision has been appealed. If an appeals court were to ultimately decide that
the California compacts are invalid and the Tribe is no longer able to conduct
gaming activities, our ability to satisfy our obligations under the new notes
would be materially adversely affected.
Our gaming device licenses may not be valid or, if valid and we do not
commence gaming operations by June 25, 2003, a significant number of our
licenses may be cancelled and we may not be able to obtain replacement
licenses.
Under the Tribe's tribal-state gaming compact, we must have a gaming
license from the California Gambling Control Commission for all gaming devices
(defined under the tribal-state gaming compact as slot machines) we operate,
which constitutes substantially all of our gaming operations, other than the
first 350. In June 2002, the California Gambling Control Commission ratified
all gaming device licenses issued in a May 2000 drawing, and directed that a
notice of such action be sent to the tribes stating that the twelve month time
limit for putting the gaming device licenses into commercial operation
commences upon the date of the notice.
The California Gambling Control Commission has notified the Tribe
that its twelve month time period began on June 26, 2002. The Tribe believes,
consistent with the California Gambling Control Commission's position, the
1,250 gaming devices that will be operated pursuant to those gaming device
licenses must be commercially operational by June 25, 2003. On September 5,
2002, the Tribe was awarded an additional 200 gaming device licenses in this
draw. We are required to have these 200 gaming devices in commercial operation
by September 4, 2003. However, certain officials of other California tribes
have questioned the validity of licenses drawn in May 2000 for gaming devices
that were not put into commercial operation by May 2001. In addition, on
October 28, 2002, two California tribes filed suit against the State of
California and the California Gambling Control Commission, contending that the
State of California had incorrectly claimed to be the proper entity to issue
gaming device licenses under the compacts. If the 1,250 licenses issued by the
California Gambling Control Commission are held invalid or if the date of
issuance of such licenses is deemed to be earlier than the date of the June
26, 2002 notice to the Tribe, we could be prevented from operating those
gaming devices and if the 200 licenses issued in September 2002 are held
invalid or if the date of issuance of the 200 licenses is deemed to be other
than September 5, 2002, we could be prevented from operating those licenses.
See "Material Agreements--Tribal-State Gaming Compact."
If we are required to place certain of our gaming devices in
commercial operation prior to the date construction of the facility as a whole
is completed, we have agreed, under certain circumstances, to delay certain
non-gaming elements of the project and to accelerate construction of the
casino. In addition, we will have the ability to prioritize the construction
of the Events Center, which will be designed to house our gaming devices prior
to the opening of the facility. See "Risks Relating to Our Business -- We
could encounter problems during development and construction that could
substantially increase the construction costs of the Chukchansi Gold Resort &
Casino or delay opening." However, we cannot assure you that such
19
use of the Events Center will satisfy the commercial operation condition of
the tribal-state gaming compact. In any case, if we fail to open our gaming
facility or a temporary facility on or prior to June 25, 2003, or if the use
of the Events Center does not satisfy the commercial operation condition of
the tribal-state gaming compact, we likely will be prevented from operating
more than 350 gaming devices because no assurance can be given that
replacement licenses will be obtainable. Our failure to operate more than 350
gaming devices would likely cause us to fail to meet our obligations under the
new notes.
The tribal-state gaming compacts permit the parties to renegotiate matters
related to the numbers of gaming devices that may be licensed and the effects
of these renegotiations may negatively impact our competitive position.
The tribal-state gaming compacts permit each party to request that
the other party commence negotiations in good faith concerning matters related
to the numbers of gaming devices that may be licensed under the compacts,
including license allocation mechanics and license fees. See "Material
Agreements--Tribal-State Gaming Compacts." We and the other tribes that are
parties to tribal-state gaming compacts may pursue negotiations with the State
of California in March 2003 in an attempt to revise the gaming device
allocation procedures and license fees to make them more advantageous to our
respective tribes. These renegotiations may have negative effects on our
competitive position. If the gaming device license allocation procedures are
amended in ways that benefit our competitors, our competitive position could
be harmed and our results of operations could be materially adversely
affected. Even if we commence negotiations with the State of California and
are successful, the renegotiation process as a whole could have a negative
effect on Indian gaming throughout California, including our operations. The
effects of these renegotiations, if pursued at all, are unknown. Nonetheless,
irrespective of the March 2003 renegotiations, the Tribe may opt out at any
time and keep its existing compact.
A change in our current non-taxable status could have a material adverse
effect on our cash flow and our ability to satisfy our obligations under the
new notes.
Based on current interpretations of United States tax laws, neither
we nor the Tribe is a taxable entity for United States federal income tax
purposes. There can be no assurance that these interpretations will not be
reversed or modified, or that federal tax law will not change. In addition,
our non-taxable status does not preclude revenue-sharing with states. For
example, the State of Connecticut receives 20% of the slot machine revenue
from that state's Indian casinos. California governor Gray Davis has indicated
that he may pursue a similar revenue-sharing system during the renegotiations
of the tribal-state gaming compacts, which would bring in about $1.5 billion
of revenue annually to California.
Efforts have been made in Congress over the past several years to tax
the income of tribal business entities. These have included a House of
Representatives bill that would have taxed gaming income earned by Indian
tribes as business income subject to corporate tax rates. Although no such
legislation has been enacted, similar legislation could be passed in the
future. Future legislation in this area or approval of a revenue-sharing
system could materially and adversely affect our cash flow and ability to make
payments on the new notes.
Risks Relating to the Land and Collateral
The collateral securing the new notes is of limited value and is worth less
than the amount due on the new notes.
The total value of the collateral is less than the amount due on the
new notes and the balance of the funds in the restricted disbursement accounts
will continue to decline until they are substantially depleted upon completion
of the project, which is expected to be approximately June 2003. Since the new
notes will not be secured by the land, building or fixtures of the Chukchansi
Gold Resort & Casino, once those funds are spent, that portion of the
collateral will cease to be available to holders of the new notes. Realizing
any value from the collateral that secures the new notes will be subject to a
number of limitations. Under the Indian Gaming Regulatory Act and the rules
and regulations of the National Indian Gaming Commission, only the Tribe or
its subdivisions or instrumentalities thereof may operate its gaming devices
in California. Therefore, it may be in the best interest of holders of new
notes not to foreclose on the gaming devices in the event of a default under
the new notes and thereby enable us to continue to operate.
20
While the site of the Chukchansi Gold Resort & Casino is not held by the
United States in trust, the site may be subject to taxation and the claims of
judgment creditors.
The site on which the Chukchansi Gold Resort & Casino will be
developed will initially be owned by the Tribe in its own name. In order to
clarify the tax status of this property, the Tribe intends to transfer all of
the land comprising the site of the Chukchansi Gold Resort & Casino to the
United States to be held in trust for the Tribe. Once in trust, the site will
not be subject to taxation by the State of California or other state and local
governments and will not be subject to the claims of any creditors of the
Tribe or us. While the site is not held in trust, it may be subject to such
taxation. Further, although the tribal law under which we were created
purports to separate the Tribe's liabilities from ours, and our liabilities
from the Tribe's, we are not a separate corporation. Therefore, there is a
risk that creditors of the Tribe or us might assert liens against the site
while it is held in the name of the Tribe to the extent the site is not
protected by our, or the Tribe's, sovereign immunity.
Enforcement of liens against collateral located on the Tribe's rancheria will
depend on the interpretation and enforcement of tribal law.
We have pledged the collateral to secure our obligations under the
new notes. Although we have agreed that the law of the State of New York
generally governs the new notes and their security, with respect to the
collateral located on the Tribe's rancheria, any rights of the trustee to
foreclose may be subject to recently adopted tribal uniform commercial code
provisions. The tribe's uniform commercial code contains certain provisions of
the California Uniform Commercial Code, including the article governing
secured transactions. As a matter of tribal law, these provisions are untested
and if not effective, other creditors may have a right to foreclose against
the collateral with a priority ahead of the liens securing the new notes and
enforcement of the liens may be limited.
Risks Relating to the Exchange Offer and Holding the New Notes
Holders who fail to exchange their old notes will continue to be subject to
restrictions on transfer.
If you do not exchange your old notes in the exchange offer, you will
continue to be subject to the restrictions on transfer of your old notes
described in the legend on the certificates for your old notes. The
restrictions on transfer of your old notes arise because we issued the old
notes under exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, you may only offer or sell the old notes if they
are registered under the Securities Act and applicable state securities laws,
or are offered and sold under an exemption from these requirements. We do not
plan to register the old notes under the Securities Act. Furthermore, we have
not conditioned the exchange offer on receipt of any minimum or maximum
principal amount of old notes. As old notes are tendered and accepted in the
exchange offer, the principal amount of remaining outstanding notes will
decrease. This decrease will reduce the liquidity of the trading market for
the old notes. We cannot assure you of the liquidity, or even the
continuation, of the trading market for the outstanding notes following the
exchange offer. For further information regarding the consequences of
tendering your old notes in the exchange offer, see the discussions below
under the captions "The Exchange Offer -- Consequences of Exchanging or
Failing to Exchange Old Notes" and "Material United States Federal Tax
Considerations."
You must comply with the exchange offer procedures in order to receive new,
freely tradable notes.
Delivery of new notes in exchange for old notes tendered and accepted
for exchange pursuant to the exchange offer will be made only after timely
receipt by the exchange agent of the following:
o certificates for old notes or a book-entry conformation of a
book-entry transfer of old notes into the exchange agent's account
at DTC, New York, New York as a depository, including an agent's
message, as defined in this prospectus, if the tendering holder does
not deliver a letter of transmittal;
o a complete and signed letter of transmittal, or facsimile copy, with
any required signature guarantees, or, in the case of a book-entry
transfer, an agent's message in place of the letter of transmittal;
and
21
o any other documents required by the letter of transmittal.
Therefore, holders of old notes who would like to tender old notes in
exchange for new notes should be sure to allow enough time for the old notes
to be delivered on time. We are not required to notify you of defects or
irregularities in tenders of old notes for exchange. Old notes that are not
tendered or that are tendered but we do not accept for exchange will,
following consummation of the exchange offer, continue to be subject to the
existing transfer restrictions under the Securities Act and will no longer
have the registration and other rights under the registration rights
agreement. See "The Exchange Offer -- Procedures for Tendering Old Notes" and
"The Exchange Offer -- Consequences of Exchanging or Failing to Exchange Old
Notes".
Some holders who exchange their old notes may be deemed to be underwriters and
these holders will be required to comply with the registration and prospectus
delivery requirements in connection with any resale transaction.
If you exchange your old notes in the exchange offer for the purpose
of participating in a distribution of the new notes, you may be deemed to have
received restricted securities. If you are deemed to have received restricted
securities, you will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction.
There is no established trading market for the notes and you may find it
difficult to sell your notes.
There is no existing trading market for the new notes. We do not
intend to apply for listing or quotation of the new notes on any exchange.
Therefore, we do not know the extent to which investor interest will lead to
the development of a trading market or how liquid that market might be, nor
can we make any assurances regarding the ability of new note holders to sell
their notes, the amount of new notes to be outstanding following the exchange
offer or the price at which the new notes might be sold. As a result, the
market price of the new notes could be adversely affected. Historically, the
market for non-investment grade debt, such as the new notes, has been subject
to disruptions that have caused substantial volatility in the prices of
securities. Any disruptions may have an adverse effect on holders of the new
notes.
A holder's violation of the compact's licensing and suitability requirements
may cause an early termination of the holder's investment in the notes,
forfeiture of unpaid interest and other adverse consequences.
Except for federally or state regulated banks or savings and loan
associations or other federally or state regulated lending institutions and
persons exempted from licensing because they hold less than 10% of the notes,
anyone holding notes must be licensed by the Tribal Gaming Commission and must
receive a determination of suitability by the California Gambling Control
Commission. Anyone holding less than 10% of the notes who is not a federally
or state regulated bank or savings and loan association or other federally or
state regulated lending institution and who is not so licensed may violate the
compact if that holder becomes an owner of 10% or more of the outstanding
notes at any time as a result of additional note purchases or redemptions or
our repurchase of notes. There are no court cases or precedents that clearly
define all of the consequences of a person voluntarily or involuntarily
violating these licensing requirements. Ramifications could include the holder
being required to sell its notes or having notes repurchased by us and not
being able to collect any payments on the notes, other than payments of
principal; if we are required to immediately repurchase the notes of an
unlicensed holder who has not been exempted from licensing by the Tribal
Gaming Commission, our business could be adversely affected.
The compact is unclear as to whether the subsequent licensing of a
holder who violates these licensing requirements, or the divestiture by such
person and its affiliates of all or a portion of their notes, would cure the
violation of the compact. Therefore, there can be no assurance that we will
have any ability to cure such a violation of the compact, which could cause us
to lose the ability to conduct gaming under the compact or have other adverse
effects on our ability to make payments on the notes.
22
Holders of notes may not have enforcement rights against us or the Tribe or
any right to receive payments on their notes because of enforcement efforts or
after an acceleration if the holder is not licensed or exempted from licensing
by the Tribal Gaming Commission.
In compliance with the State regulation described in the following
risk factor, the indenture provides that any holder who is not licensed by the
Tribal Gaming Commission or exempted from licensing will have no right to
enforce any remedies against us or our assets, which would limit such holder's
rights to vote on any matter affecting noteholders generally if the exercise
of such right would constitute an attempt to enforce such holder's rights
under the indenture. In addition, we and the trustee will be prohibited from
making any payment of principal or interest on the notes because of any
enforcement action or because payment of the notes has been accelerated due to
an indenture default, except to a holder who is licensed or exempted from
licensing. An unlicensed holder may be unable to later become licensed.
We have structured the notes and the indenture in reliance on a new State
regulation adopted to facilitate this type of note offering, but the
regulation's validity and application are untested.
On July 17, 2002, the California Gambling Control Commission adopted
a regulation providing for simplified licensing and state certification of
suitability for certain federally or state regulated institutions owning more
than $100.0 million in securities that applies to this offering and the
secondary market for the notes. If the state regulation is invalid, the
compact will be violated if any unlicensed person that owns more than 10% of
the notes is not otherwise exempted from licensing. Any violation of the
compact could have a material adverse effect on our operations if we lose the
ability to conduct gaming or are forced to repurchase notes. See "--A note
purchaser's violation of the compact's licensing and suitability requirements
may cause an early termination of the purchaser's investment in the notes,
forfeiture of unpaid interest and other adverse consequences" and "Regulation
of Indian Gaming--Licensing and Registration Requirements of the Compact and
State Regulation."
To our knowledge, we are among the first to issue debt in reliance on
the newly-adopted state regulation, and, as such, there are limited or no
examples of how well this regulation works to permit trading in the secondary
market or to permit the simplified registration and licensing of holders. One
California tribe has received an opinion from the California Attorney
General's Office that the compacts do not permit additional exceptions to the
licensing requirements and further asserts that the regulation is an
unpermitted exception to the compact licensing requirements.
Your contract rights relating to the notes may be subject to impairment by
referendum or otherwise.
We and the Tribe have covenanted in the indenture not to take certain
actions which would impair the rights of, or the liens securing, the notes. If
the members of the Tribe adopt any proposal adverse to the interests of the
holders of notes, your rights under the new notes and/or the collateral
securing the new notes could be impaired. The Tribe, however, is not subject
to any prohibition in its constitution against the impairment of contracts
that is similar to the protection against state impairment of contracts found
in the U.S. Constitution.
Further, the Tribe's constitution contains a provision requiring the
Tribal Council to adopt, or submit to a vote of the members of the Tribe, any
proposal contained in a petition signed by at least 30% of qualified voters of
the Tribe. This provision of the Tribe's constitution could be interpreted to
permit a vote of tribal members at any time that could impair our obligations
under, or liens securing, the notes. The Tribal Council has interpreted this
provision of its constitution not to permit such actions, and our legal
counsel has concurred in this interpretation. We cannot assure you, however,
that any future Tribal Council will not take a contrary position, and the
opinion of our legal counsel is not binding on any court. The Tribe currently
has approximately 800 qualified voting members.
Any action taken to impair our contractual obligations to you,
whether taken by the Tribal Council or through a vote of the Tribe's
membership, would be subject to restrictions in the Tribe's constitution and
the federal Indian Civil Rights Act that prohibits the Tribe from taking any
property for a public use without just compensation. There is no clear
precedent as to whether these prohibitions would
23
restrict a material impairment of your rights under the new notes and
related agreements without just compensation.
Cascade Entertainment's pledge of its management fees and the letter of credit
provided by Credit Provider Group will terminate if we achieve specified
operating results.
Cascade Entertainment's pledge of a portion of its management fees
and the letter of credit provided by Credit Provider Group which will, under
certain circumstances, be available for construction costs overruns and to
make payments on the new notes will terminate if: (1) the Chukchansi Gold
Resort & Casino is operating; (2) our fixed charge coverage ratio has been at
least 2.5 to 1.0 for the immediately preceding four fiscal quarters, and, if
the Chukchansi Gold Resort & Casino was closed for more than five days during
such period, our fixed charge coverage ratio for the most recent fiscal
quarter was also at least 2.5 to 1.0; (3) the cash accumulation account
securing the notes contains at least the minimum required amount; (4) no event
of default has occurred and is continuing; and (5) the Chukchansi Gold Resort
& Casino has not ceased operating for more than five days since the end of the
last fiscal quarter. Following the time the conditions listed in the
immediately preceding sentence are satisfied, holders of notes will have to
rely solely on our cash flow from operations as a source for funds for
payments on the notes.
You may be required to dispose of your notes, or your notes may be redeemed,
if your ownership of the notes jeopardizes our right to conduct gaming
operations or violates the tribal-state gaming compact.
We will have the right to cause you to dispose of your notes, or to
redeem your notes, if you are determined to be unsuitable by the Tribal Gaming
Commission and the California Gambling Control Commission, or the California
Gambling Control Commission acting alone, or if your ownership of the notes is
found to violate the tribal-state gaming compact, because, among other things,
you are found to be unlicensed and not exempt from licensing. The redemption
price will be the lowest of:
o the amount you paid for the notes;
o the principal amount of the notes; and
o the then current fair market value for the notes.
See "Description of the New Notes--Mandatory Disposition Pursuant to
Gaming Laws."
We and the Tribe are waiving our sovereign immunity from unconsented legal
proceedings only for certain claims and for certain remedies.
Under federal law, we and the Tribe have sovereign immunity and may
not be sued or subjected to legal proceedings without our consent. The waivers
of sovereign immunity by us and the Tribe do not extend to all possible claims
that a holder of notes might ever allege against the Tribe or us. We and the
Tribe have granted waivers of sovereign immunity for any claim related or
incidental to the indenture, the notes or the agreements relating to the notes
described under "Material Agreements." These waivers will generally be limited
to permitting interpretation, enforcement and legal or equitable relief
through arbitration, as well as judicial actions to compel, enter judgment
upon, enforce, modify or vacate any award or interim injunctive relief related
to the arbitration. The waivers will permit enforcement only against our
assets, which will include all of the Tribe's and our interest in revenues and
personal property of any business or activity related to either class II and
class III gaming (as defined in IGRA) or any hotel, lodging, event center,
convention center, restaurant, dining, recreational, entertainment,
recreational vehicle or other facilities, improvements or equipment financed
through the financing. Such waiver will not be effective to permit enforcement
against any revenues or other property transferred by us to the Tribe in
compliance with the indenture and related agreements. The waivers will only
remain in effect until one year after the notes have been paid in full.
Neither we nor the Tribe have waived our sovereign immunity from
private civil suits by holders, including violations of federal or state
securities laws. For this reason, an investor may not have any
24
remedy against us or the Tribe for violations of federal or state securities
laws. No judgment against us will be enforceable against any of the Tribe's or
our real property.
Uncertainty exists as to which court, federal or state, would have
jurisdiction in an action related to the notes.
Uncertainty exists as to which court, federal or state, would have
jurisdiction in an action related to the notes. The effect of this uncertainty
cannot be predicted; at a minimum, delays in enforcement would occur, and in
the extreme, neither federal nor state courts would resolve the matter. See
"Regulation of Indian Gaming--Tribal Law and Legal Systems--Waiver of
Sovereign Immunity; Jurisdiction; Exhaustion of Tribal Remedies."
In matters involving Indian gaming, however, the relationship between
the jurisdiction of state courts and federal courts is not completely clear.
In a relatively recent case, a California appellate court upheld dismissal of
a state court action involving an Indian gaming management contract on the
grounds that federal courts have exclusive preemptive jurisdiction concerning
Indian gaming. This preemption rule has been applied by other courts, but
usually in a context directly related to regulated Indian gaming matters, and,
to our knowledge, not in the context of enforcing or aiding arbitration.
Disputes with us or the Tribe relating to the notes or the indenture may be
required to be resolved in a tribal forum.
Under certain legal doctrines, a federal or state court otherwise
having jurisdiction may decline to hear a matter involving an Indian tribe,
instead deferring the matter for disposition in tribal court or other tribal
proceedings. For matters subject to our waiver of sovereign immunity, the
Tribe and we have waived our rights to have such matters resolved in any
tribal court or other proceeding of the Tribe.
There is some case law suggesting such rights may not be waived. The
federal Court of Appeals for the Second Judicial Circuit (which has
jurisdiction over the State of New York) and at least one lower New York state
court have held that if no prior tribal court proceedings are pending, the
federal or state court may adjudicate a dispute involving tribal matters
without deferring to any tribal court. The notes and the related financing
agreements will be executed in New York and will recite that they are governed
by the laws of the State of New York. We presently have no tribal court, but
we may in the future. We can offer no assurance that either a federal or state
court would not defer to our tribal court or other tribal processes, if
contrary to our waiver, we seek or allege our right to seek tribal proceedings
for resolution of a dispute related to the notes.
Any non-tribal court judgment requiring enforcement on the Tribe's
reservation may require that an order for such enforcement be issued by the
Tribe's tribal court if one is created in the future. By resolution, the
Tribe's Tribal Council has required any such tribal court to give full faith
and credit to the non-tribal court judgment.
The merits of any dispute relating to the notes must be resolved in an
arbitration proceeding, rather than in a court of law, and your rights with
respect to such proceedings are more limited than in a court.
Disputes relating to the notes for which we and the Tribe have waived
our sovereign immunity must, with limited exceptions, be resolved through an
arbitration process, rather than through a court process. Such a dispute would
not be decided by a judge, but by an arbitrator appointed in accordance with
the rules of the American Arbitration Association who is an attorney
experienced in advising clients in connection with commercial borrowings or
the issuance of debt securities. The scope of a party's ability to conduct
discovery with respect to such a dispute, and the time in which the party is
permitted to do so are more limited than in a judicial proceeding. In the
event any party does not prevail in a dispute before an arbitrator, such
party's ability to appeal the arbitrator's decision will be limited. Federal
and state courts typically are required to enforce a proper arbitration award
without a re-examination of the merits of the decision. Although the Tribe
currently has no tribal court, the Tribe has adopted an arbitration code,
which requires any future tribal court to similarly enforce an arbitration
award. Therefore, no party should expect to have a right to seek reversal of
an arbitration award adverse to its interests.
25
We may not be subject to federal bankruptcy laws.
It is uncertain whether we or the Tribe may be a debtor in a case
under the U.S. Bankruptcy Code and thus the U.S. Bankruptcy Code may not be
available to protect your rights as our creditors.
We may not be able to repurchase notes upon a change of control or in
connection with any required regulatory redemption.
Under certain circumstances, we will be required to offer to
repurchase the notes upon the occurrence of specific change of control events
with respect to us or Cascade Entertainment. We may also be required to
repurchase the notes in connection with any required regulatory redemption.
See "Description of the New Notes--Repurchase at the Option of Holders--Change
of Control" and "--Mandatory Disposition Pursuant to Gaming Laws." We may not
have sufficient funds to purchase the notes in such circumstances. Our failure
to purchase the notes would be a default under the indenture and may also
cause a default under the senior subordinated PIK notes, the subordinated PIK
notes and under the agreements governing our financing to purchase furniture,
fixture and equipment, if the notes are accelerated.
26
THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Old Notes
Subject to terms and conditions detailed in this prospectus, we will
accept for exchange old notes that are properly tendered on or prior to the
expiration date and not withdrawn as permitted below. When we refer to the
term expiration date, we mean 5:00 p.m., New York City time, , 2003, the 21st
business day following the date of this prospectus. We may, however, in our
sole discretion, extend the period of time that the exchange offer is open.
The term expiration date means the latest time and date to which the exchange
offer is extended.
As of the date of this prospectus, $153,000,000 principal amount of
old notes are outstanding. We are sending this prospectus, together with the
letter of transmittal, to all holders of old notes that we are aware of on the
date hereof.
We expressly reserve the right, at any time, to extend the period of
time that the exchange offer is open, and delay acceptance for exchange of any
old notes, by giving oral or written notice of an extension to the holders of
the old notes as described below. During any extension, all old notes
previously tendered will remain subject to the exchange offer and may be
accepted for exchange by us. Any old notes not accepted for exchange for any
reason will be returned without expense to the tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.
Old notes tendered in the exchange offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
We expressly reserve the right to amend or terminate the exchange
offer, and not to exchange any old notes, upon the occurrence of any of the
conditions of the exchange offer specified under "--Conditions to the Exchange
Offer." We will give oral or written notice of any extension, amendment,
non-acceptance or termination to the holders of the old notes as promptly as
practicable. In the case of any extension, we will issue a notice by means of
a press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
Procedures for Tendering Old Notes
Your tender to us of old notes as set forth below and our acceptance
of the old notes will constitute a binding agreement between us and you upon
the terms and subject to the conditions detailed in this prospectus and in the
accompanying letter of transmittal. Except as set forth below, to tender old
notes for exchange in the exchange offer, you must transmit a properly
completed and duly executed letter of transmittal, including all other
documents required by the letter of transmittal or, in the case of a
book-entry transfer, an agent's message in place of the letter of transmittal,
to U.S. Bank, N.A., as exchange agent, at the address set forth below under
"--Exchange Agent" on or prior to the expiration date. In addition, either:
o certificates for old notes must be received by the exchange
agent along with the letter of transmittal, or
o a timely confirmation of a book-entry transfer, which we refer
to in this prospectus as a book-entry confirmation, of old
notes, if this procedure is available, into the exchange
agent's account at DTC pursuant to the procedure for book-entry
transfer described beginning on page 29 must be received by the
exchange agent prior to the expiration date, with the letter of
transmittal or an agent's message in place of the letter of
transmittal, or the holder must comply with the guaranteed
delivery procedures described below.
The term "agent's message" means a message, transmitted by DTC to and
received by the exchange agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment
from the tendering participant stating that such participant has received and
agrees to be bound by the letter of transmittal and that we may enforce such
letter of transmittal against such participant.
27
The method of delivery of old notes, letters of transmittal and all
other required documents is at your election and risk. If such delivery is by
mail, it is recommended that you use registered mail, properly insured, with
return receipt requested. In all cases, you should allow sufficient time to
assure timely delivery. No letter of transmittal or old notes should be sent
to us.
Signatures on a letter of transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the old notes surrendered for
exchange are tendered:
o by a holder of the old notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal, or
o for the account of an Eligible Institution (as defined below).
In the event that signatures on a letter of transmittal or a notice
of withdrawal are required to be guaranteed, such guarantees must be by a firm
which is a member of the Securities Transfer Agent Medallion Program, the
Stock Exchanges Medallion Program or the New York Stock Exchange Medallion
Program (we refer to each such entity as an Eligible Institution in this
prospectus). If old notes are registered in the name of a person other than
the signer of the letter of transmittal, the old notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as we or the
exchange agent determine in our sole discretion, duly executed by the
registered holders with the signature thereon guaranteed by an Eligible
Institution.
We or the exchange agent in our sole discretion will make a final and
binding determination on all questions as to the validity, form, eligibility,
including time of receipt, and acceptance of old notes tendered for exchange.
We reserve the absolute right to reject any and all tenders of any particular
old note not properly tendered or to not accept any particular old note which
acceptance might, in our judgment or our counsel's, be unlawful. We also
reserve the absolute right to waive any defects or irregularities or
conditions of the exchange offer as to any particular old note either before
or after the expiration date, including the right to waive the ineligibility
of any holder who seeks to tender old notes in the exchange offer. Our or the
exchange agent's interpretation of the terms and conditions of the exchange
offer as to any particular old note either before or after the expiration
date, including the letter of transmittal and the instructions thereto, will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of old notes for exchange must be
cured within a reasonable period of time, as we determine. We are not, nor is
the exchange agent or any other person, under any duty to notify you of any
defect or irregularity with respect to your tender of old notes for exchange,
and no one will be liable for failing to provide such notification.
If the letter of transmittal is signed by a person or persons other
than the registered holder or holders of old notes, such old notes must be
endorsed or accompanied by powers of attorney signed exactly as the name(s) of
the registered holder(s) that appear on the old notes.
If the letter of transmittal or any old notes or powers of attorneys
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing. Unless
waived by us or the exchange agent, proper evidence satisfactory to us of
their authority to so act must be submitted with the letter of transmittal.
By tendering old notes, you represent to us that, among other things:
o the new notes acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of the person
receiving such new notes, whether or not such person is the
holder; and
o neither the holder nor such other person has any arrangement or
understanding with any person, to participate in the
distribution of the new notes.
28
In the case of a holder that is not a broker-dealer, that holder, by
tendering, will also represent to us that the holder is not engaged in or does
not intend to engage in a distribution of the new notes.
If you are our "affiliate," as defined under Rule 405 under the
Securities Act, and engage in or intend to engage in or have an arrangement or
understanding with any person to participate in a distribution of such new
notes to be acquired pursuant to the exchange offer, you or any such other
person:
o could not rely on the applicable interpretations of the staff
of the SEC; and
o must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any
resale transaction.
Each broker-dealer that receives new notes for its own account in
exchange for old notes, where the old notes were acquired by the broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such new notes. See "Plan of Distribution." The letter of transmittal states
that by so acknowledging 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.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the exchange
offer, we will accept, promptly after the expiration date, all old notes
properly tendered and will issue the new notes promptly after acceptance of
the old notes. See "--Conditions to the Exchange Offer." For purposes of the
exchange offer, we will be deemed to have accepted properly tendered old notes
for exchange if and when we give oral, confirmed in writing, or written notice
to the exchange agent.
The holder of each old note accepted for exchange will receive a new
note in the amount equal to the surrendered old note. Accordingly, registered
holders of new notes on the record date for the first interest payment date
following the consummation of the exchange offer will received interest
accruing from the most recent date that interest has been paid on the old
notes. Holders of new notes will not receive any payment in respect of accrued
interest on old notes otherwise payable on any interest payment date, the
record date for which occurs on or after the consummation of the exchange
offer.
In all cases, issuance of new notes for old notes that are accepted
for exchange will only be made after timely receipt by the exchange agent of:
o certificates for such old notes or a timely book-entry
confirmation of such old notes into the exchange agent's
account at DTC,
o a properly completed and duly executed letter of transmittal or
an agent's message in lieu thereof, and
o all other required documents.
If any tendered old notes are not accepted for any reason set forth
in the terms and conditions of the exchange offer or if old notes are
submitted for a greater principal amount than the holder desires to exchange,
the unaccepted or non-exchanged old notes will be returned without expense to
the tendering holder or, in the case of old notes tendered by book-entry
transfer into the exchange agent's account at DTC pursuant to the book-entry
procedures described below, the non-exchanged old notes will be credited to an
account maintained with DTC, as promptly as practicable after the expiration
or termination of the exchange offer.
Book-Entry Transfers
For purposes of the exchange offer, the exchange agent will request
that an account be established with respect to the old notes at DTC within two
business days after the date of this prospectus, unless the exchange agent
already has established an account with DTC suitable for the exchange offer.
Any financial
29
institution that is a participant in DTC may make book-entry
delivery of old notes by causing DTC to transfer such old notes into the
exchange agent's account at DTC in accordance with DTC's procedures for
transfer. Although delivery of old notes may be effected through book-entry
transfer at DTC, the letter of transmittal or facsimile thereof or an agent's
message in lieu thereof, with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
exchange agent at the address set forth under "--Exchange Agent" on or prior
to the expiration date or the guaranteed delivery procedures described below
must be complied with.
Guaranteed Delivery Procedures
If you desire to tender your old notes and your old notes are not
immediately available, or time will not permit your old notes or other
required documents to reach the exchange agent before the expiration date, a
tender may be effected if:
o prior to the expiration date, the exchange agent received from
such Eligible Institution a notice of guaranteed delivery,
substantially in the form we provide, by telegram, telex,
facsimile transmission, mail or hand delivery, setting forth
your name and address, the amount of old notes tendered,
stating that the tender is being made thereby and guaranteeing
that within three New York Stock Exchange trading days after
the date of execution of the notice of guaranteed delivery, the
certificates for all physically tendered old notes, in proper
form for transfer, or a book-entry confirmation, as the case
may be, together with a properly completed and duly executed
appropriate letter of transmittal or facsimile thereof or
agent's message in lieu thereof, with any required signature
guarantees and any other documents required by the letter of
transmittal will be deposited by such Eligible Institution with
the exchange agent, and
o the certificates for all physically tendered old notes, in
proper form for transfer, or a book-entry confirmation, as the
case may be, together with a properly completed and duly
executed appropriate letter of transmittal or facsimile thereof
or agent's message in lieu thereof, with any required signature
guarantees and all other documents required by the letter of
transmittal, are received by the exchange agent within three
New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery.
Withdrawal Rights
You may withdraw your tender of old notes at any time prior to the
expiration date. To be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses set forth under
"--Exchange Agent." This notice must specify:
o the name of the person having tendered the old notes to be
withdrawn,
o the old notes to be withdrawn, including the principal amount
of such old notes, and
o where certificates for old notes have been transmitted, the
name in which such old notes are registered, if different from
that of the withdrawing holder.
If certificates for old notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of the
certificates, the withdrawing holder must also submit the serial numbers of
the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution, unless such holder is
an Eligible Institution. If old notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawn old notes and otherwise comply with the procedures of DTC.
We or the exchange agent will make a final and binding determination
on all questions as to the validity, form and eligibility, including time of
receipt, of such notices. Any old notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the exchange offer.
Any old notes tendered for exchange but not exchanged for any reason will be
returned to the holder without cost to
30
the holder, or, in the case of old notes tendered by book-entry transfer into
the exchange agent's account at DTC pursuant to the book-entry transfer
procedures described above, the old notes will be credited to an account
maintained with DTC for the old notes as soon as practicable after withdrawal,
rejection of tender or termination of the exchange offer. Properly withdrawn
old notes may be re-tendered by following one of the procedures described
under "--Procedures for Tendering Old Notes" above at any time on or prior to
the expiration date.
Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer, we are
not required to accept for exchange, or to issue new notes in exchange for,
any old notes and may terminate or amend the exchange offer, if any of the
following events occur prior to acceptance of such old notes:
o the exchange offer violates any applicable law or applicable
interpretation of the staff of the SEC, the National Indian
Gaming Commission or the California Gambling Control
Commission;
o an action or proceeding shall have been instituted or
threatened in any court or by any governmental agency that
might materially impair our ability to proceed with the
exchange offer;
o we shall not have received all governmental approvals that we
deem necessary to consummate the exchange offer; or
o there has been proposed, adopted, or enacted any law, statute,
rule or regulation that, in our reasonable judgment, would
materially impair our ability to consummate the exchange offer.
The conditions stated above are for our sole benefit and may be
asserted by us regardless of the circumstances giving rise to any condition or
may be waived by us in whole or in part at any time in our reasonable
discretion. Our failure at any time to exercise any of the foregoing rights
will not be deemed a waiver of any such right and each such right will be
deemed an ongoing right which may be asserted at any time.
In addition, we will not accept for exchange any old notes tendered,
and we will not issue new notes in exchange for any such old notes, if at such
time any stop order by the SEC is threatened or in effect with respect to the
Registration Statement, of which this prospectus constitutes a part, or the
qualification of the indenture under the Trust Indenture Act.
Exchange Agent
U.S. Bank, N.A. has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be directed to the
exchange agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent addressed as follows:
U.S. Bank, N.A., Exchange Agent
By Hand, Overnight Delivery or by Mail:
180 East 5th Street
St. Paul, Minnesota 55101
Attention: Corporate Trust Department
By Facsimile Transmission
(for Eligible Institutions only):
(651) 244-0711
Confirm by Telephone:
(651) 244-8677
31
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER
THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF
TRANSMITTAL.
Fees and Expenses
The principal solicitation is being made by mail by U.S. Bank, N.A.,
as exchange agent. We will pay the exchange agent customary fees for its
services, reimburse the exchange agent for its reasonable out-of-pocket
expenses incurred in connection with the provision of these services and pay
other registration expenses, including fees and expenses of the trustee under
the indenture relating to the new notes, filing fees, blue sky fees and
printing and distribution expenses. We estimate these expenses in the
aggregate to be approximately $50,000. We will not make any payment to
brokers, dealers or others soliciting acceptances of the exchange offer.
Additional solicitation may be made by telephone, facsimile or in
person by our and our affiliates' officers and regular employees and by
persons so engaged by the exchange agent.
Accounting Treatment
We will record the new notes at the same carrying value as the old
notes, as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes.
The expenses of the exchange offer will be amortized over the term of the new
notes.
Transfer Taxes
You will not be obligated to pay any transfer taxes in connection
with the tender of old notes in the exchange offer unless you instruct us to
register new notes in the name of, or request that old notes not tendered or
not accepted in the exchange offer be returned to, a person other than the
registered tendering holder. In those cases, you will be responsible for the
payment of any potentially applicable transfer tax.
Consequences of Exchanging or Failing to Exchange Old Notes
If you do not exchange your old notes for new notes in the exchange
offer, your old notes will continue to be subject to the provisions of the
indenture relating to the notes regarding transfer and exchange of the old
notes and the restrictions on transfer of the old notes described in the
legend on your certificates. These transfer restrictions are required because
the old notes were issued under an exemption from, or in transactions not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. In general, the old notes may not be offered or sold
unless registered under the Securities Act, except under an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. We do not plan to register the old notes under the Securities
Act.
Under existing interpretations of the Securities Act by the SEC's
staff contained in several no-action letters to third parties, and subject to
the immediately following sentence, we believe that the new notes would
generally be freely transferable by holders after the exchange offer without
further registration under the Securities Act, subject to certain
representations required to be made by each holder of new notes, as set forth
below. However, any purchaser of new notes who is one of our "affiliates" as
defined in Rule 405 under the Securities Act or who intends to participate in
the exchange offer for the purpose of distributing the new notes:
o will not be able to rely on the interpretation of the SEC's
staff;
o will not be able to tender its old notes in the exchange offer;
and
o must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale
or transfer of the new notes unless such sale or transfer is
made pursuant to an exemption from such requirements. See "Plan
of Distribution".
32
We do not intend to seek our own interpretation regarding the
exchange offer and there can be no assurance that the SEC's staff would make a
similar determination with respect to the new notes as it has in other
interpretations to other parties, although we have no reason to believe
otherwise.
Each broker-dealer that receives new notes for its own account in
exchange for old notes, where the old notes were acquired by it as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus that meets the requirements of the Securities Act 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 deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
33
USE OF PROCEEDS
Approximately $111.4 million of the net proceeds from the issuance of
the old notes and the senior subordinated notes were deposited into a
construction disbursement account and are to be periodically drawn by us to
finance the design, development, construction, equipping and opening costs of
the Chukchansi Gold Resort & Casino. Approximately $32.6 million of the net
proceeds from the issuance of the old notes and the senior subordinated notes
were deposited into an interest reserve account and were used to purchase
government securities representing funds sufficient to pay the first three
interest payments on the senior notes.
The estimated sources and uses of funds to design, develop,
construct, equip and open the Chukchansi Gold Resort & Casino are as follows:
Sources of Funds: Uses of Funds:
(In millions)
Senior Notes..............................$140.0 Development and Design............................ $.6.8
Senior subordinated PIK notes...............14.8 Land.............................................. 2.2
Subordinated PIK note.......................12.0 Construction (3).................................. 72.1
Furniture, fixtures and equipment........ ...... Contingency....................................... 7.6
financing (1)...........................24.0 Furniture, fixtures and equipment................. 30.1
Letter of Credit (2).........................0.0 Development Manager Fee (4)....................... 4.6
Pre-opening expenses.............................. 8.7
Gaming Device License Fee (5)..................... 4.8
Working capital................................... 4.4
Interest reserve (6).............................. 32.6
Transaction fees and expenses..................... 11.2
Other (7)......................................... 5.7
------ -------
Total Sources.....................$190.8 Total Uses................................$190.8
______________
(1) We anticipate incurring this indebtedness shortly before opening the
Chukchansi Gold Resort & Casino. We have not entered into any binding
arrangements for this financing.
(2) Credit Provider Group, LLC has agreed to provide a letter of credit
which will, under certain circumstances, be available for construction
cost overruns and to make payments on the notes. This letter of credit
has not been drawn on and accordingly has a zero balance. See "Material
Agreements--Letter of Credit Drawdown Agreement" and "Description of
Other Indebtedness--Letter of Credit Note."
(3) Includes construction expenses which will be incurred pursuant to a
$71.0 million guaranteed maximum price contract with Walton Construction
and includes $2.1 million of other construction expenses which are not a
part of the guaranteed maximum price contract. Excludes $1.0 million of
construction contingency which is accounted for in the "Contingency"
line item. See "Material Agreements--Construction Manager Agreement."
(4) Represents amounts payable to Cascade Entertainment pursuant to the
development agreement. See "Material Agreements--Development Agreement."
(5) Represents $4.8 million in fees paid or payable to the State of
California for gaming device licenses from May 2000 through June 2003.
(6) Includes pre-funding of the first three interest payments on the notes
and is net of estimated interest income to be earned on those funds.
(7) Includes permit fees, mitigation fees, insurance, letter of credit
commitment fees and interest on promissory notes issued by the Tribe in
exchange for funds previously advanced by Cascade Entertainment and
other parties, net of estimated interest income to be earned on cash
deposits (other than amounts in the interest reserve account).
34
We will not receive any cash proceeds from this exchange offer. Any
old notes that are properly tendered and exchanged pursuant to the exchange
offer will be retired and cancelled.
RATIO OF EARNINGS TO FIXED CHARGES
Chukchansi Economic Development Authority
The ratio of earnings to fixed charges is computed by dividing
earnings by fixed charges. For purposes of determining the ratio of earnings
to fixed charges, the term "earnings" is the amount resulting from adding (i)
net income, (ii) fixed charges and (iii) amortization of capitalized interest,
less the amount of interest capitalized. The term "fixed charges" is the
amount resulting from adding (i) interest expense, whether expensed or
capitalized, (ii) the amortization of debt financing costs and (iii) one-half
of rent expense under operating leases, which we believe is representative of
the interest component of rent expense. In all periods presented, earnings
were insufficient to cover fixed charges by $2,599,675 for the period from
June 15, 2001 (commencement of operations) through December 31, 2001 and by
$1,259,416 for the nine months ended September 30, 2002. Accordingly, these
ratios have not been presented. (See Exhibit 12.1)
Cascade Entertainment Group, LLC
In all years presented, earnings were insufficient to cover fixed
charges by $7,347,395 in 2001, $11,131,864 in 2000, $1,134,528 in 1999, and
$361,962 in 1998. For the nine months ended September 30, 2002 and 2001,
earnings were insufficient to cover fixed charges by $10,726,348 and
$5,439,762, respectively. Accordingly, these ratios have not been presented.
(See Exhibit 12.2)
CAPITALIZATION
The following table sets forth the Authority's cash and cash
equivalents and capitalization as of September 30, 2002, and on an as adjusted
basis to give effect to the Financing Transactions and use of the proceeds
therefrom. You should read this table in conjunction with the financial
statements, including the related notes, and other financial data contained
elsewhere in this prospectus.
As of
September 30 , 2002
------------------------
Actual As Adjusted
------ -----------
(In millions)
(Unaudited)
Cash and cash equivalents............................................. $4.0 $ 111.4
========= =========
Debt:
Furniture, fixtures & equipment financing (1)................... $ -- $ --
Senior Notes (2)................................................ -- 140.0
Senior subordinated PIK notes................................... -- 14.8
Subordinated PIK note........................................... -- 12.0
Other (3)....................................................... 17.3 --
--------- ----------
Total debt............................................................ 17.3 166.8
Total accumulated deficit............................................. (4.5) (4.5)
Total capitalization.................................................. $ 12.8 $ 162.3
========= =========
______________
(1) We anticipate incurring approximately $24.0 million of indebtedness
shortly before opening the Chukchansi Gold Resort & Casino. We have not
entered into any binding arrangements for this financing.
(2) The Senior Notes were issued at 91.476% for net proceeds of $140.0
million.
35
(3) Includes loans by Cascade Entertainment and other parties to finance the
cost of development of the Chukchansi Gold Resort & Casino and the cost
of obtaining gaming device licenses through September 30, 2002. Excludes
$0.7 million of debt used to acquire certain parcels of land which was
transferred to the Tribe upon the closing of the old notes offering.
Subordinated PIK notes were issued concurrently with the closing of the
old notes offering in exchange for an aggregate of $12.0 million of
promissory notes issued by the Tribe for funds previously advanced by
Cascade Entertainment and other parties.
SELECTED HISTORICAL FINANCIAL DATA
You should read the selected historical financial data set forth
below in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the financial statements, including the
related notes, included elsewhere in this prospectus.
Chukchansi Economic Development Authority
The following table sets forth our selected historical financial data
from inception on June 15, 2001 to December 31, 2001, which have been derived
from our audited financial statements. Our selected historical financial data
for the nine months ended September 30, 2002 have been derived from our
unaudited financial statements and, in the opinion of management, include all
adjustments necessary for a fair presentation of the results of operations for
such period and financial condition as of the date presented.
Period from inception
on June 15, 2001 Nine months ende
to September
December 31, 2001 30, 2002
--------------------- ----------------
(Unaudited)
Statements of Operations:
Revenues................................................................. $ -- $ --
Operating expenses
Gaming device license fees......................................... 2,177,497 1,063,223
General and administrative......................................... 721,220 231,895
------------ ------------
Total operating expenses................................................. 2,898,717 1,295,118
------------ ------------
Loss from operations..................................................... (2,898,717) (1,295,118)
Other expense--interest.................................................. (299,042) (35,702)
------------ ------------
Net loss................................................................. $(3,197,759) $ (1,330,820)
============ ============
As of December 31, As of September
2001 30, 2002
------------------ ---------------
Balance Sheet Data:
Total assets............................................................. $ 7,647,923 $ 18,152,554
Total liabilities........................................................ $ 10,845,682 $ 22,681,133
Total long term debt..................................................... 8,192,701 17,292,461
Total accumulated deficit................................................ (3,197,759) (4,528,579)
36
Cascade Entertainment Group, LLC
Cascade Entertainment initially commenced operations in October 1998.
The selected financial data for Cascade Entertainment as of and for the years
ended December 31, 2001, 2000, 1999 and 1998 have been derived from its
audited financial statements. The selected financial data for Cascade
Entertainment for the nine months ended September 30, 2002 and 2001 have been
derived from their unaudited condensed financial statements and, in the
opinion of management, include all adjustments necessary for a fair
presentation of its results of operations for such period and financial
condition as of the date presented. Read the selected financial data set forth
below in conjunction with "Management's Discussion And Analysis Of Financial
Condition And Results Of Operations," the financial statements and the notes
thereto, and the other financial information included or incorporated by
reference herein. Also, see Note 6 - Subsequent Events in the September 30,
2002 Notes to the Condensed Financial Statements found herein for specific
information relating to the financial statement effect of the old offering on
Cascade Entertainment.
Nine months ended
Years ended December 31, September 30,
-------------------------------------------------- --------------------------
2001 2000 1999 1998 2002 2001
---- ---- ---- ---- ---- ----
(Unaudited)
Statements of Operations:
Revenues:
Development fees...... $ -- $ -- $ -- $ -- $ -- $ -
Operating expenses...........
Compensation and
benefits............. 1,385,796 1,137,545 373,337 89,231 1,106,658 983,058
Professional
fees (1)............. 872,624 94,017 145,522 14,190 148,509 550,623
Gaming licensing costs 106,088 60,493 17,521 -- 12,172 106,088
Promotion and
marketing
(2).................. 47,090 55,090 55,898 169,264 2,227 33,940
General and
Administrative...... 459,806 342,708 135,932 34,556 352,553 354,439
Provision for
uncollectible
receivables (3)...... 5,874,237 10,381,978 606,817 60,000 10,185,527 4,489,729
Depreciation and
amortization......... 23,729 13,035 3,539 272 58,135 36,585
------ ------ ----- --- ------ ------
Total operating expenses..... 8,799,370 12,084,866 1,338,566 367,513 11,865,781 6,554,462
--------- ---------- --------- ------- ---------- ---------
Operating loss............... (8,799,370) (12,084,866) (1,338,566) (367,513) (11,865,781) (6,554,462)
---------- ----------- ---------- -------- ----------- ----------
Interest income (expense)
Interest income....... 23,977 46,547 466 -- 4,255 23,055
Interest expense (4).. (1,296,862) (798,187) (93,348) (5,551) (1,011,512) (994,431)
---------- -------- ------- ------ ---------- --------
Total other expense........ (1,272,885) (751,640) (92,882) (5,551) (1,007,257) (971,376)
---------- -------- ------- ------ ---------- --------
Net loss..................... $(10,072,255) $(12,836,506) $(1,431,448) $(373,064) $(12,873,038) $(7,525,838)
============ ============ =========== ========= ============ ===========
37
As of December 31, As of September 30,
---------------------------------------------------- ---------------------------
2001 2000 1999 1998 2002 2001
---- ---- ---- ---- ---- ----
(Unaudited)
Balance Sheet Data:
Cash and cash
Equivalents (unrestricted) $480,798 $ 865,025 $ -- $145,030 $ 443,491 $ (5,922)
Working capital (deficit).. (1,702,486) 773,359 713,995 140,145 (498,552) (2,007,129)
Total assets............... 3,330,710 3,636,214 2,310,840 235,472 6,281,358 2,835,883
Long-term debt (excluding
current portion)......... 21,075,989 14,840,632 2,542,575 442,575 33,098,479 18,661,979
Total liabilities.......... 25,568,983 15,978,457 2,667,827 461,011 41,392,669 22,683,964
Members' deficit........... (22,238,273) (12,342,243) (356,987) (225,539) (35,111,311) (19,848,081)
Other Financial Data:
Ratio of earnings to fixed
charges (5).............. -- -- -- -- -- --
______________
(1) In 2001, Cascade Entertainment contracted with Rider Hunt Levett & Bailey
of Las Vegas for estimating services related to the construction costs
portion of the budget for the two casino projects currently under
contract. Payments began under this contract in May of 2001 and averaged
$115,000 per month. Due to the nature of the services provided in 2001,
management believed that the estimating services were a supplement to the
other development services provided under the respective development
agreements. However, due to the more project-specific nature of the
continuing services, as of January, 2002, the costs of Rider Hunt's
project management, budget control and estimating services have been
split between the two projects and billed to each Tribe's loans
receivable.
(2) Cascade Entertainment has entered into a development agreement and
management agreement relating to a casino project for the Buena Vista
Rancheria of Me-Wuk Indians. The Buena Vista project is still in the
early development stage and at present there is no projected opening date
for this project. The consulting agreement provides for the payment of a
"facility opening bonus" to the consultant in the amount of $25,000 and a
"facility operating bonus" in the amount of $750,000 (or $900,000
depending on the length of the contract), payable in quarterly
installments over the term of the contract. Payments began under this
consulting agreement in January 2000. These payments are expensed as a
promotion and marketing cost and amounted to approximately $39,840 and
$39,940 for the years ended December 31, 2001 and 2000, respectively. No
services were provided in fiscal 1999 and 1998. Due to the uncertain
status of the Buena Vista project, effective January 1, 2002, this
payment ceased.
(3) The collectibility of tribal loans receivable is largely contingent upon
the successful financing of the Chukchansi Gold Resort & Casino and the
Buena Vista project. As a result, management has reserved 100% of the
tribal loans receivable at December 31, 2001, 2000, 1999 and 1998 as well
as for the nine months ended September 30, 2002. The completion of the
old offering, subsequent to September 30, 2002, resulted in a recovery of
all amounts previously reserved for the Chukchansi project (see Note 6 -
Subsequent Events in the Notes to the Condensed Financial Statements
found herein). Also, at December 31, 2001, 2000, 1999 and 1998 as well as
for the nine months ended September 30, 2002, no interest income relating
to tribal loans receivable has been recorded as the collectibility of
such amounts is contingent on the ability of Cascade Entertainment to
secure construction financing. Under the terms of the funding agreements,
contractual interest due on the outstanding tribal loans receivable was
$1,137,529, $684,891, $59,536 and $932 for the years ended December 31,
2001, 2000, 1999 and 1998, respectively, and the total due as of December
31, 2001, 2000, 1999 and 1998 was $1,882,888, $745,359, $60,468 and $932,
respectively. The completion of the old offering, subsequent to September
30, 2002, resulted in a realization of interest income previously not
recorded for the Chukchansi project (see Note 6 - Subsequent Events in
the Notes to the Condensed Financial Statements found herein).
(4) Interest accrued and expensed under loans payable during the years ended
December 31, 2001, 2000, 1999 and 1998 amounted to $1,296,862, $798,187,
$93,348 and $5,551, respectively. The loans payable and accrued interest
related to the Chukchansi project were paid in full at the close of the
old offering (see Note 6 - Subsequent Events in the Notes to the
Condensed Financial Statements found herein). The loans payable and
accrued interest related to the Buena Vista project are expected to be
paid in full if and when its anticipated private placement offering is
funded.
(5) The ratio of earnings to fixed charges is computed by dividing earnings
by fixed charges. For purposes of determining the ratio of earnings to
fixed charges, the term "earnings" is the amount resulting from
38
adding (i) net income, (ii) fixed charges and (iii) amortization of
capitalized interest, less the amount of interest capitalized. The term
"fixed charges" is the amount resulting from adding (i) interest expense,
whether expensed or capitalized, (ii) the amortization of debt financing
costs and (iii) one-half of rent expense under operating leases, which we
believe is representative of the interest component of rent expense. In
all years presented, earnings were insufficient to cover fixed charges by
$7,347,395 in 2001, $11,131,864 in 2000, $1,134,528 in 1999 and $361,962
in 1998. For the nine months ended September 30, 2002 and 2001, earnings
were insufficient to cover fixed charges by $10,726,348 and $5,439,762,
respectively. Accordingly, these ratios have not been presented. (See
Exhibit 12.2.)
39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with the financial
statements, including the related notes, and other financial information in
this prospectus and the risks involved in investing in the notes as described
in "Risk Factors."
History and Development Activities
Chukchansi Economic Development Authority
We were formed in June 2001 as a wholly-owned enterprise of the
Tribe. See "Picayune Rancheria of Chukchansi Indians--Chukchansi Economic
Development Authority." Although formed in 2001, development and expenditures
relating to the Chukchansi Gold Resort & Casino began in late 1998. Since our
formation, we have been in the development stage and our activities have been
limited to contracting with Cascade Entertainment as developer and manager of
the Chukchansi Gold Resort & Casino. Cascade Entertainment's activities have
included applying for certain necessary permits, licenses and regulatory
approvals to enable it to construct and manage the operations of the
Chukchansi Gold Resort & Casino, and arranging for the planning, design,
construction and financing of the Chukchansi Gold Resort & Casino. Cascade
Entertainment and other parties have also funded, through loans to us, the
costs of development to date and the cost of obtaining our gaming device
licenses, including arranging for the acquisition and transfer of certain
lands on which the Chukchansi Gold Resort & Casino will be developed. Amounts
advanced under these loans were repaid through the issuance of the
subordinated PIK notes. See "Description of Other Indebtedness--Subordinated
Pay-in-Kind Notes due 2009 with Contingent Interest."
We anticipate that the Chukchansi Gold Resort & Casino will be an
approximately 296,000 square foot facility with an approximately 192-room
hotel, featuring 1,800 slot machines, approximately 40 table games, a poker
room, five restaurants, on-site parking for approximately 1,900 vehicles, and
various other amenities. We expect to open the Chukchansi Gold Resort & Casino
in 2003.
Through September 30, 2002, we have expended approximately $17.3
million in connection with the development of the Chukchansi Gold Resort &
Casino. As of September 30, 2002, we have borrowed an aggregate of $17.3
million from Cascade Entertainment to finance the cost of the development of
the Chukchansi Gold Resort & Casino.
Cascade Entertainment Group, LLC
Cascade Entertainment initially commenced business in October 1998.
Cascade Entertainment entered into pre-construction, development, credit and
management agreements, which were amended by similar agreements subsequent to
December 31, 2001 (collectively, the "Agreements"), with two federally
recognized California Native American tribes, including the Buena Vista
Rancheria of the Me-Wuk Indians ("Buena Vista") and the Tribe. Cascade
Entertainment has been engaged by each of the Tribe and Buena Vista to develop
and manage class II and class III (as defined) gaming facilities (the
"Projects") on land that Cascade Entertainment believes qualifies for the
conduct of gaming operations on Indian Lands (as defined). Each tribe has
established an Economic Development Authority that have been given sole
responsibility and authority to develop and operate the Projects on behalf of
their respective tribe. Cascade Entertainment submitted its Agreements and
licensing applications to the NIGC for approval. On July 25, 2002, the Tribe
and Cascade Entertainment received management contract approval from the NIGC.
The approvals of the management contract for the Buena Vista Tribe are still
pending approval and await the outcome of certain legal issues (see Note 6 to
Condensed Financial Statements of Cascade Entertainment). Additionally, in
accordance with the Indian Gaming Regulatory Act ("IGRA") each of the Tribe
and Buena Vista has executed tribal-state gaming compacts with the State of
California that outlines the scope and nature of gaming operations that will
be allowed. The BIA has approved these tribal-state gaming compacts.
40
Under the Agreements, Cascade Entertainment is responsible for and
manages on behalf of the Tribe and Buena Vista and their respective Economic
Development Authority, the development process which includes: regulatory
approval; funding; land acquisition; master planning; design and engineering;
construction; interior and exterior decor; furniture, fixtures and equipment;
staffing and training; and all other pre-opening activities Cascade
Entertainment also prepares all necessary budgets, financial projections,
schedules, design concepts, final plans, staffing and training strategies, and
any other required components of the development process for the respective
tribe's review and approval. Upon commencement of operations of the Projects,
Cascade Entertainment will conduct and direct all business and affairs in
connection with the day-to-day operation, management and maintenance of the
Projects.
Through September 30, 2002, Cascade Entertainment has expended
approximately $7.3 million in non-recoverable costs relating to the operating
expenses of Cascade Entertainment since inception and obtaining the right to
enter into the agreements with the tribes. Of that amount, approximately $4.0
million related to the development of the Chukchansi Gold Resort & Casino
project.
Results of Operations
Chukchansi Economic Development Authority
We are in the development stage and do not have any historical
operating results other than costs incurred in developing the Chukchansi Gold
Resort & Casino. Through September 30, 2002, we had incurred a total of $4.5
million of non-capitalized development and pre-opening expenses in connection
with the Chukchansi Gold Resort & Casino, including $3.2 million through the
period ended December 31, 2001 and $1.3 million for the nine-months ended
September 30, 2002, all of which was funded through proceeds of loans from
Cascade Entertainment. These costs primarily relate to gaming device license
fees, tribal administrative expenses, legal fees, interest expense and
organizational costs to prepare us for a gaming enterprise. We did not have
any revenue or income during this period. Our future operating results will
depend strongly on the revenues generated by the Chukchansi Gold Resort &
Casino. As we emerge from the development stage, and open the Chukchansi Gold
Resort & Casino, it will have a material impact on our net revenues.
Cascade Entertainment Group, LLC
Prior to January 2002, Cascade Entertainment engaged in development
management activities related to developing two different tribal gaming
enterprises in California. Through September 30, 2002, Cascade Entertainment's
net loss was $12.9 million including $10.2 million of bad debt expense
relating to the tribal loans and $1.0 million in interest expense on the
pass-through loans from members and others. The remaining $1.7 million in
expenses primarily consisted of salaries and employee benefits, legal and
accounting fees, expenses relating to obtaining licenses, office rent and
supplies, travel and other administrative expenses. Due to the uncertainty in
obtaining permanent financing for either, or both, tribal projects, Cascade
Entertainment defers recording of any development fee revenues until
construction of either project commences and permanent construction financing
has been secured. Cascade Entertainment entered into interim credit and
reimbursement agreements with us in connection with the development activities
relating to the Chukchansi Gold Resort & Casino. Since Cascade Entertainment
was used principally as a pass-through entity by its members and others for
the funding of these loans, Cascade Entertainment's historical operating
results will not be indicative of future operating results. For more
information, please see Cascade Entertainment's Financial Statements beginning
on page F-18. Cascade Entertainment is not a guarantor of the notes and its
assets will not be available to holders of notes in the event of a default on
the notes. However, Cascade Entertainment will pledge a portion of its
management fees for the benefit of holders of the notes until we meet certain
financial tests as described in "Material Agreements - Cash Accumulation
Account Contribution Agreement."
Liquidity and Capital Resources
Chukchansi Economic Development Authority
Construction of the casino portion of the Chukchansi Gold Resort &
Casino is scheduled to be completed in June 2003. As of October 8, 2002, we
have expended $18.0 million, which funds were provided to us through loans, to
finance the development costs of the Chukchansi Gold Resort & Casino.
41
The loans used in such financing were refinanced into $12.0 million of
subordinated PIK notes and $6.0 million of senior subordinated PIK notes upon
the closing of the preliminary placement offering. We plan to use the net
proceeds received from the issuance of the old notes, together with the net
proceeds from the issuance of the senior subordinated PIK notes and up to
$24.0 million in financing to acquire furniture, fixtures and equipment,
including gaming devices, to provide the remaining funds that we estimate is
needed to design, develop, construct, equip and open the Chukchansi Gold
Resort & Casino, including financing costs, the costs of constructing a
temporary facility for gaming devices, if necessary, and certain legal and
other advisory fees.
The funds provided by the sources described above are expected to be,
but there can be no assurance that they will be, sufficient to design,
develop, construct and commence operations of the Chukchansi Gold Resort &
Casino, assuming there are no unexpected delay costs or construction cost
overruns or that any unexpected delay costs or construction overruns are
covered by (1) a Construction Management Contract contingency of approximately
$1.0 million, (2) the owner's contingency of approximately $9.1 million, (3)
the Construction Manager pursuant to the Construction Management Contract and
(4) Credit Provider Group, pursuant to its liability under the collateralized
Letter of Credit Drawdown Agreement of up to $15.0 million.
Following the commencement of operations of the Chukchansi Gold
Resort & Casino, we expect to fund our operations, capital requirements and
required cash collateral reserve amounts from operating cash flows. Cascade
will manage the operation of the Chukchansi Gold Resort & Casino pursuant to a
management agreement. Under the terms of the management agreement, we will pay
Cascade a fee of 30% of all items of operating income from operations
(including gaming, food and beverage, entertainment and retail), less
operating expenses, interest expense, depreciation and amortization,
eliminating specified receipts such as gratuities or service charges, refunds
or credits to customers, credits received for lost or damaged merchandise,
certain insurance proceeds and condemnation awards, sales and other taxes
received from patrons, proceeds from disposition of assets, proceeds from
financings, and interest on bank accounts. In addition, we will reimburse
Cascade for certain out-of-pocket expenses incurred in connection with
services provided under the management agreement. With the recommendation of
Cascade, we intend to establish initial working capital reserves to provide
for reasonably anticipated short-term liquidity needs. Additionally, in order
to support our obligations under the notes, Cascade has agreed to set aside
certain of its management fees (after deducting certain expenses and tax
liabilities) in a separate collateral account until the Chukchansi Gold Resort
& Casino meets specified performance criteria. Other than with respect to these
management fees Cascade Entertainment has not agreed to support or be liable
for the Authority's obligations under the notes.
The audit report on our December 31, 2001 financial statements
includes an explanatory paragraph about our ability to continue as a going
concern. Subsequent to December 31, 2001, we completed the financing to go
forward with the construction of the Chukchansi Gold Resort & Casino. Our
ability to continue as a going concern is dependent upon the completion of the
Chukchansi Gold Resort & Casino and generating profitable operations once the
Chukchansi Gold Resort & Casino is complete.
Cascade Entertainment Group, LLC
To date, Cascade Entertainment's operations and pre-development
activities relating to the Projects have been funded solely from loans
obtained from Cascade Entertainment members, affiliates and third parties. On
October 8, 2002, Cascade Entertainment assisted the Authority in closing on a
$153 million private placement offering for the Chukchansi Gold Resort &
Casino. As a result of the closing, Cascade Entertainment will earn
approximately $3.3 million in development management fee revenue during the
construction period of the Chukchansi Gold Resort & Casino, currently expected
to be completed in June, 2003. Cascade Entertainment has agreed to cause its
management fees, less a maximum of $3.4 million annually, to be deposited,
following the opening of the Chukchansi Gold Resort & Casino, in a secured
account as further collateral for the notes. Following the attainment of
certain financial ratios, such funds would be released to Cascade
Entertainment and will cease to be subject to the claims of noteholders. Other
than with respect to these management fees, Cascade Entertainment has not
agreed to support or be liable for the Authority's obligations under the
notes.
The audit report on the December 31, 2001 financial statements for
Cascade Entertainment includes an explanatory paragraph about its ability to
continue as a going concern. Subsequent to
42
September 30, 2002, due to the closing of the Authority offering, Cascade
Entertainment has secured the necessary revenue sources to fund continuing
development activities of the Chukchansi Gold Resort & Casino project,
however, Cascade Entertainment will seek to raise an additional $130 million
in a private placement offering for the Buena Vista project once the pending
tribal leadership issues have been resolved.
If Cascade Entertainment is unable to move forward on the Buena Vista
project, the development costs related to the project would be unrecoverable
and may adversely impact Cascade Entertainment's ability to continue as a
going concern. In the event that Cascade Entertainment is unable to move
forward with the Buena Vista project, management's plans include researching
other viable Indian gaming projects within California and the western region
of the United States to utilize their expertise at project development and
gaming operations management.
Significant Accounting Policies and Estimates
Chukchansi Economic Development Authority
The Authority prepares its consolidated financial statements in
conformity with accounting principles generally accepted in the United States
of America. Certain of its accounting policies, including the determination of
bad debt reserves, the estimated useful lives assigned to its assets, asset
impairment, purchase price allocations made in connection with its
acquisitions and the calculation of certain of its liabilities, require that
we apply significant judgment in defining the appropriate assumptions for
calculating financial estimates. By their nature, these judgments are subject
to an inherent degree of uncertainty. The Authority's judgments are based on
its historical experience, terms of existing contracts, observance of trends
in the gaming industry and information available from other outside sources.
There can be no assurance that actual results will not differ from its
estimates. To provide an understanding of the methodology they apply, its
significant accounting policies and basis of presentation are discussed where
appropriate in this discussion and analysis and in the notes to its December
31, 2001 audited consolidated financial statements located elsewhere in this
prospectus.
Cascade Entertainment Group, LLC
Cascade Entertainment prepares its condensed financial statements in
conformity with accounting principles generally accepted in the United States
of America. Certain of its accounting policies, including the determination of
bad debt reserves, the estimated useful lives assigned to its assets, asset
impairment, purchase price allocations made in connection with its
acquisitions and the calculation of certain of its liabilities, require that
we apply significant judgment in defining the appropriate assumptions for
calculating financial estimates. By their nature, these judgments are subject
to an inherent degree of uncertainty. Cascade Entertainment's judgments are
based on its historical experience, terms of existing contracts, observance of
trends in the gaming industry and information available from other outside
sources. There can be no assurance that actual results will not differ from
its estimates. To provide an understanding of the methodology they apply, its
significant accounting policies and basis of presentation are discussed where
appropriate in this discussion and analysis and in the notes to its December
31, 2001 audited consolidated financial statements located elsewhere in this
prospectus.
Recent Accounting Pronouncements
During and subsequent to fiscal 2001, the Financial Accounting
Standards Board ("FASB") issued Statements of financial Standards ("SFAS")
Nos. 141, 142, 143, 144, 145 and 146 "Business Combinations," "Goodwill and
Other Intangible Assets," "Accounting for Asset Retirement Obligations,"
"Accounting for Impairment or Disposal of Long-Lived Assets," "Rescission of
SFAS Statements No. 4 (Reporting Gains and Losses from Extinguishment of
Debt), No. 44 (Accounting for Intangible Assets of Motor Carriers), and No. 64
(Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements), Amendment
of SFAS No. 13 (Accounting for Leases), and Technical Corrections" and
"Accounting for Costs Associated with Exit or Disposal Activities,"
respectively.
SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 use the purchase method of accounting. SFAS No. 141 prohibits
and eliminates the pooling-of-interest accounting
43
method for business combinations. The Authority adopted SFAS No. 141 in 2001.
However, the adoption of SFAS No. 141 did not have an impact on either the
Authority or Cascade, as neither the Authority nor Cascade Entertainment has
initiated any business combinations.
SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only method. Amortization of goodwill, including
goodwill recorded in past business combinations, will cease upon the adoption
of SFAS No. 142. The Authority adopted SFAS No. 142 in 2001. After December
31, 2001, goodwill can only be written down upon impairment discovered during
annual or transitional tests for fair value or discovered during tests taken
when certain triggering events occur. Additionally, an intangible asset
acquired individually or with a group of assets (but not those acquired in a
business combination) should be separately recognized if the benefit of the
intangible asset can be sold, transferred, licenses, rented or exchanged
regardless of the acquirer's intent to do so. The adoption of this Statement
did not have an impact on the Authority or on Cascade Entertainment.
SFAS No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. The Statement requires that the amount recorded as a liability be
capitalized by increasing the carrying amount of the related long-lived asset.
Subsequent to initial measurement, the liability is accreted to the ultimate
amount anticipated to be paid, and is also adjusted for revision to the timing
or amount of estimated cash flows. 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. SFAS No. 143 will become effective January 1, 2003,
with earlier application encouraged. The adoption of this Statement is not
expected to have a material impact on the Authority nor is it expected to have
a material impact on Cascade Entertainment.
SFAS No. 144 will become effective for fiscal years beginning after
December 15, 2001. This Statement supersedes SFAS 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." SFAS No. 144 retains the fundamental provisions of SFAS No. 121
for (1) recognition and measurement of the impairment of long-lived assets to
be held and used and (2) measurement of long-lived assets to be disposed by
sale. SFAS No. 144 also retains the basic provisions of APB Opinion No. 30 for
the presentation of discontinued operations in the income statement, but
broadens that presentation to include a component of an entity. The adoption
of this statement is not expected to have a material impact on the Authority
nor is it expected to have a material impact on Cascade Entertainment.
SFAS No. 145 is effective for transactions occurring after May 15,
2002. This Statement also amends other existing authoritative pronouncements
to make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The adoption of this Statement is not
expected to have a material impact on the Authority nor is it expected to have
a material impact on Cascade Entertainment.
SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). SFAS No. 146 requires recognition of a liability for a
cost associated with an exit or disposal activity when the liability is
incurred, as opposed to being recognized at the date an entity commits to an
exit plan under EITF 94-3. SFAS No. 146 also establishes that fair value is
the objective for initial measurement of the liability. The Authority does not
anticipate exit or disposal activities in the near term; therefore, the
adoption of this Statement is not expected to have a material impact on the
Authority. In addition, Cascade Entertainment does not anticipate exit or
disposal activities in the near term; therefore, the adoption of this
Statement is not expected to have a material impact on Cascade Entertainment.
44
Quantitative and Qualitative Disclosures About Market Risk
Chukchansi Economic Development Authority
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. Our primary exposure to market risk is interest
rate risk associated with our variable-rate interim long-term debt which as of
September 30, 2002, was $17.3 million. Our variable-rate indebtedness is
affected by the general level of the prime rate. Therefore, our interest rate
on the interim long-term debt will change as the prime rate changes. Based on
our $17.3 million of outstanding long-term debt at September 30, 2002, a
hypothetical 100 basis point (1%) increase in the prime rate would result in
an annual interest expense of approximately $173,000. We repaid all amounts
borrowed under the interim loans upon completion of the old note offering. The
borrowings in connection with this offering will be fixed-rate indebtedness.
Through September 30, 2002, we had not invested in derivative or foreign
currency-based financial instruments.
Cascade Entertainment Group, LLC
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. Cascade Entertainment's primary exposure to market
risk is interest rate risk associated with its variable-rate long-term debt
which as of September 30, 2002 was $33.1 million. Cascade Entertainment's
variable-rate indebtedness is affected by the general level of the prime rate.
Therefore, the interest rate on its long-term debt will change as the prime
rate changes. Based on Cascade Entertainment's $33.1 million of outstanding
long-term debt at September 30, 2002, a hypothetical 100 basis point (1%)
increase in the prime rate would result in an annual interest expense of
approximately $331,000. Subsequent to September 30, 2002 on October 8, Cascade
Entertainment repaid all amounts borrowed under the loans attributable to the
Chukchansi Gold Resort & Casino, upon completion of the old note offering of
the Chukchansi Economic Development Authority. Through September 30, 2002,
Cascade Entertainment had not invested in derivative or foreign currency-based
financial instruments.
45
BUSINESS
The Chukchansi Gold Resort & Casino
We were formed in June 2001 as a wholly-owned enterprise of the Tribe
to own and manage the distributable revenues generated by the Chukchansi Gold
Resort & Casino, a gaming facility and hotel to be built on approximately 120
acres near Coarsegold, California, approximately 35 miles north of Fresno. The
Chukchansi Gold Resort & Casino, which will be developed and managed by
Cascade Entertainment, is being designed to be an approximately 296,000
square-foot facility, including approximately 52,000 square feet of gaming
space, and is expected to feature:
o 1,800 slot machines, approximately 40 table games and a poker
room;
o a 192-room rustic, contemporary-style hotel, which will feature
room service, full bell service and valet service;
o five restaurants, including a 450-seat action-station buffet, a
150-seat casual dining restaurant, a 125-seat signature,
wine-country restaurant with an exhibition kitchen and wine
cellar, a 75-seat quick-serve Asian restaurant and a 75-seat
1950's-themed diner;
o four bars, including a rustic, lobby lounge with views of the
majestic Sierra Nevada Mountains and a 200-seat sports and
entertainment slot bar and lounge that will also offer limited
food service;
o approximately 16,500 square feet of meeting and convention
space, which will include an approximately 13,000 square foot
Events Center intended to seat up to 1,000 people;
o approximately 1,900 surface parking spaces with free valet;
o an approximately 40-space RV park with full electrical and
water hook-ups and complimentary shuttle service to the casino;
o a retail shop; and
o VIP and guest services facilities.
We expect that the construction of the casino portion of the Chukchansi Gold
Resort & Casino will be completed, and the operation of the casino will begin,
in June 2003. We except that the construction of the hotel portion of the
Chukchansi Gold Resort & Casino will be completed, and the operation of the
hotel will begin, in August 2003.
The Chukchansi Gold Resort & Casino will be strategically located off
Highway 41, 35 miles north of Fresno on tribal lands near Coarsegold,
California. Highway 41 is a major highway serving the Fresno area and is the
main road from the south into Yosemite National Park. The Chukchansi Gold
Resort & Casino site is approximately 25 miles from the south entrance of
Yosemite. According to Yosemite National Park Media Relations, the south
entrance, the most popular of Yosemite's five entrances, accounted for 1.0
million, or over 30%, of Yosemite's visitors in 2001.
Our auditors have expressed substantial doubt about our ability to
continue as a going concern, which is dependent upon the completion and
generation of profitable operations of the Chukchansi Gold Resort & Casino.
The Fresno Market
According to the 2000 U.S. Census, the Fresno metropolitan
statistical area (MSA) had a population of 922,516. From 1990 to 2000, the
Fresno MSA grew at a rate of 22.1%, ranking it among the top 20% of all U.S.
MSAs in terms of population growth rate. As of 2000, approximately 1.0 million
46
and 2.3 million people lived within a 50- and 100-mile radius, respectively,
of the Chukchansi Gold Resort & Casino site. The 2000 U.S. Census and the
State of California project that the four counties principally located within
50 miles of the Chukchansi site and the eleven counties principally located
within 100 miles of the Chukchansi site will experience aggregate population
growth of 22.3% and 25.1%, respectively, between 2000 and 2010, as compared to
16.8% for California and 6.6% nationally.
Because of Fresno's strong population growth and role as a gateway to
Yosemite National Park, Fresno Yosemite International Airport is currently
undergoing an expansion of its facilities. In addition, many carriers have
expanded their service to Fresno and there are currently non-stop flights to
and from nine destinations.
Competition
The Chukchansi Gold Resort & Casino will compete primarily with other
California Indian gaming facilities including three in the Fresno area: Table
Mountain Casino & Bingo, the Palace Indian Gaming Center and the Mono Wind
Casino. Table Mountain and the Palace Indian Gaming Center have recently
expanded their facilities and now offer the maximum allowable number of gaming
devices. Table Mountain expanded significantly in 2001, and now features 2,000
slots and approximately 41 table games (including poker), but it currently has
only one 24-hour restaurant and no hotel rooms. The Palace Indian Gaming
Center features 2,000 slot machines, approximately 26 table games, headliner
entertainment and live boxing events in its showroom. It currently offers a
specialty restaurant, a 24-hour buffet and two snack bars. The Mono Wind
Casino is a smaller competitor that offers approximately 329 slot machines and
approximately 10 table games. It has two restaurants and has no hotel at this
time.
The Chukchansi Gold Resort & Casino will also compete with casinos in
the Lake Tahoe area, Reno, Las Vegas and elsewhere in Nevada. To a lesser
extent, the facility will compete with local card rooms, on- and off-track
wagering, bingo halls, the California State Lottery, Internet gaming and other
forms of gaming and leisure activities.
Business Strategy
We and Cascade Entertainment, the developer and manager of the
Chukchansi Gold Resort & Casino, intend to implement the following development
and operating strategies:
o Design and Construct the First Fully Integrated Gaming Facility
in the Fresno Market. The Chukchansi Gold Resort & Casino will
be the first fully integrated gaming facility in the Fresno
market that will be completely designed and constructed after
the legalization of gaming in California, rather than developed
through a series of expansions and renovations. The Chukchansi
Gold Resort & Casino will be the product of a thorough
development process undertaken with the assistance of
experienced gaming architects, engineers and contractors.
o Benefit from a Team of Experienced Development Professionals.
Cascade Entertainment has assembled a team of skilled design,
development and construction professionals: Morris & Brown, the
architect; Walton Construction, the construction manager; and
Rider Hunt Levett & Bailey, the construction consultant.
o Capitalize on the Indian Gaming Experience of Cascade
Entertainment's Management. Members of Cascade Entertainment's
management team have substantial experience developing and
operating Indian gaming facilities and within the gaming
industry generally.
o Offer Customers a Distinctive Experience. The Chukchansi Gold
Resort & Casino will offer its customers Las Vegas-style gaming
in conjunction with exciting entertainment and high quality
dining. The facility will offer multiple dining options, such
as three themed specialty restaurants and an action-station
buffet. There will also be entertainment in our lounge and the
Events Center, which is expected to feature headline
entertainers.
47
o Attract Overnight Customers. When the Chukchansi Gold Resort &
Casino opens, we expect it to be one of the only gaming
facilities in the Fresno market that can accommodate overnight
guests. We intend to use our hotel as a key element of our
casino marketing plan. This will give us the opportunity to
draw casino customers from a large geographic radius while also
serving the rapidly growing local market.
o Provide Exceptional Customer Service. The Chukchansi Gold
Resort & Casino will strive to provide patrons with exceptional
personal service intended to foster customer loyalty and
generate repeat business.
o Develop Brand Awareness and Customer Loyalty. We will seek to
build brand awareness and name recognition for the Chukchansi
Gold Resort & Casino through a wide variety of marketing and
promotional tools, including broadcast and print media,
billboards and area visitor's guides. We will encourage
customer loyalty and repeat business through a player's club
program, which should allow us to build our customer database
and target our promotions to frequent patrons.
Our financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. We have incurred substantial
losses to date. Our ability to continue as a going concern is dependent upon
completion of the Chukchansi Gold Resort & Casino and generating profitable
operations once construction has been completed. Please see the going concern
opinion in the financial statements on page F-2.
The Design and Construction Process
Cascade Entertainment commenced the planning of the Chukchansi Gold
Resort & Casino in 1999. Cascade Entertainment's management has worked closely
with Morris & Brown, the architect, Walton Construction, the construction
manager, and Rider Hunt Levett & Bailey, our construction consultant, to
develop a detailed set of design plans for the Chukchansi Gold Resort &
Casino. Detailed design plans are underway for every significant element of
the facility.
Construction of the Chukchansi Gold Resort & Casino commenced on
September 25, 2002, with opening of the casino scheduled to occur in June 2003
and opening of the hotel scheduled to occur in August 2003. Cascade
Entertainment will work closely with the architect, construction manager,
disbursement agent, and Professional Associates Construction Services, Inc.,
the independent construction consultant, to ensure that the design concepts
can be built in accordance with the construction budgets and schedules. We
have entered into a guaranteed maximum price construction management agreement
with Walton Construction. See "Material Agreements--Construction Manager
Agreement" and "Use of Proceeds."
Due to the timing of the commencement of construction and the
conditions on the gaming device licenses established by the tribal-state
gaming compact, we will likely be required to place certain of our gaming
devices in commercial operation prior to the date construction of the facility
as a whole is completed. Under certain circumstances, we have agreed to delay
certain non-gaming elements of the project and to accelerate construction of
the casino. In addition, we will have the ability to prioritize the
construction of the Events Center, which will be designed to house our gaming
devices prior to the opening of the facility. In either case, we estimate
construction costs would increase by approximately $2.5 million, which would
be funded with our contingency, if available. See "Risk Factors--Risks
Relating to Our Business--We could encounter problems during development and
construction that could substantially increase the construction costs of the
Chukchansi Gold Resort & Casino or delay opening and result in the loss of our
gaming device licenses."
The design and construction team includes:
o Architect and Designer. Morris & Brown Architects, Ltd. of
Reno, Nevada and San Diego, California, a national architecture
48
firm with significant gaming experience, has been retained as
design manager for the project upon completion of definitive
agreements. Morris & Brown has designed major gaming projects
such as Station Casino Kansas City, Hollywood Casino
Shreveport, Isle of Capri Bossier and Harrah's Reno. Under the
direction of Cascade Entertainment, Morris & Brown coordinates
a team of specialized engineers, consultants and specialty
designers.
o Construction Manager. Walton Construction of Kansas City,
Missouri, has been retained as construction manager to provide
construction services. Walton Construction has 17 years of
construction experience and has worked on such projects as
Harrah's Prairie Band Casino and Station Casino Kansas City.
Walton Construction has previously collaborated with Morris &
Brown on the Turtle Creek Casino in Traverse City, Michigan and
the designs for other tribal gaming projects such as the San
Pasqual Resort & Casino and the Santa Clara Pueblo Resort &
Casino.
o Construction Consultant. Rider Hunt Levett & Bailey of Las
Vegas, Nevada has been retained by Cascade Entertainment to
provide focused project management services, estimating
services and ongoing budget management. Rider Hunt Levett &
Bailey has been involved in the design and construction process
for over 35 casino projects including Pechanga Entertainment
Center, Excalibur Las Vegas Resort Hotel and Casino, Hard Rock
Hotel and Casino, Aladdin Resort and Casino and Silver Legacy
Resort Casino.
o Independent Construction Consultant. Professional Associates
Construction Services, Inc. of Orange, California has been
retained as an independent construction consultant on behalf of
the holders of the notes. The conditions under the cash
collateral and disbursement agreement generally provide that
funds will be disbursed only if Cascade Entertainment and the
independent construction consultant certify to the disbursement
agent that there are sufficient available funds to complete the
Chukchansi Gold Resort & Casino in accordance with the budget.
Professional Associates has acted as construction consultant in
connection with the construction of Pechanga Entertainment
Center, Barona Casino and Station Casino's Green Valley Ranch
Resort.
Environmental Matters
In February 2002, the National Indian Gaming Commission (the "NIGC")
issued a Finding of No Significant Impact (FONSI) for the Chukchansi Gold
Resort & Casino. The FONSI allowed us to start construction of the Chukchansi
Gold Resort & Casino. Under the tribal-state gaming compact, the Tribe was
required to adopt and comply with standards no less stringent than federal
water quality and safe drinking water standards applicable in California. In
order to comply with this provision of the tribal-state gaming compact, the
Authority will spend approximately $3.6 million this fiscal year to build and
maintain a waste water treatment plant.
Employees and Labor Relations
Upon the opening of the Chukchansi Gold Resort & Casino, we expect to
employ approximately 1,200 persons. The Tribe has entered into an agreement
with the Hotel Employees Restaurant Employees Union for representation of
employees. In exchange, subject to certain conditions set forth in the
agreement, the Tribe has received no-strike and non-interference guarantees
from the Hotel Employees Restaurant Employees Union.
Property
The Chukchansi Gold Resort & Casino project will consist of
approximately 120 acres. We are permitted to conduct gaming operations on
lands included in the Tribe's rancheria regardless of whether we own the land
or it is held in trust by the United States for our benefit. The Chukchansi
Gold Resort & Casino's gaming facility, hotel, main parking facilities, RV
park and wastewater treatment plant will be
49
built on 48.5 acres which lie within the boundaries of the Tribe's rancheria.
The Tribe presently owns these lands, however, to clarify the status of this
land as exempt from property taxes, the Tribe will in the future apply to have
the United States take title to these lands in trust for the benefit of the
Tribe. In addition, access roads and additional parking facilities for the
Chukchansi Gold Resort & Casino will be built on up to 80 acres that lie
adjacent to but outside the rancheria's boundaries. The Tribe presently owns
these lands, however, the Tribe has recently applied to have title to these
lands taken by the United States into trust for the benefit of the Tribe.
Seasonality
We have no operating history. We anticipate that activity at the
Chukchansi Gold Resort & Casino may be modestly seasonal, with stronger
results expected during the second and third quarters due in part to the
relatively higher levels of tourism experienced by Yosemite National Park
during this time of the year. In addition, our operations may be impacted by
adverse weather conditions and fluctuations in the tourism business.
Accordingly, our results of operations may fluctuate from quarter to quarter
and the results for any one quarter may not be indicative of results for
future quarters.
Trademarks
The Authority has applied to trademark "Chukchansi Gold." The
Authority expects the trademark to be granted in early 2003. Should the
trademark be granted it will have a duration of 10 years (which term is
renewable). However, the Authority does not expect any material adverse
consequences to arise in the event the trademark application is rejected.
Services
The Tribe has entered into a memorandum of understanding with the
County of Madera for law enforcement, fire protection, traffic management and
road improvement services. In addition, the Tribe has entered into a
non-binding memorandum of understanding with Sierra Ambulance Services for the
provision of ambulance and emergency medical technician services. A total of
three wells will be drilled as a water source for the Chukchansi Gold Resort &
Casino and a tertiary wastewater treatment facility will be built to handle
all of the facility's wastewater.
Legal Proceedings
In a lawsuit recently decided in federal court, which challenged the
validity of all of the tribal-state gaming compacts entered into by the State
of California, the court held that the tribal-state gaming compacts were
valid. The plaintiffs are California card clubs and charities that are
prohibited under California laws from offering casino-type gaming. The
plaintiffs allege that the Secretary of the Interior and the Governor of
California, among others, violated the Fifth and Fourteenth Amendments to the
United States Constitution and the Indian Gaming Regulatory Act of 1988 when
the tribal-state compacts between the State of California and fifty-seven
California tribes, including the Tribe, were approved. In July, 2002, the
United States District Court for the Eastern District of California granted
summary judgment to the defendants, holding that the compacts were valid, on
the grounds that Article IV, section 19(e) of the California Constitution
properly authorized the governor to execute the compacts, and that the
exemption of Indian tribes from California's general ban on casino gaming did
not violate the equal protection or due process rights of non-Indians. This
decision has been appealed to the Court of Appeals for the 9th Circuit and
there can be no assurance as to the outcome of this appeal. In addition, in
Kansas and Arizona, courts have held that tribal-state compacts which had been
executed by the state's governor were void. See "Risk Factors--Risks Relating
to the Indian Gaming Industry--There is pending litigation challenging the
validity of the tribal-state gaming compacts."
On October 18, 2002, two federally recognized tribes filed a suit in
federal court against, among other defendants, the State of California and the
California Gambling Control Commission. The suit alleges that non-compacting
tribes have not received regular quarterly trust payments, as required under
the tribal-state gaming compacts and that the State of California has
attempted to unilaterally impose a limitation on the available pool of
licenses, and as such, the non-compacting tribes are being deprived of
50
revenue under the tribal-state gaming compact. We do not believe that the
outcome of this suit would have a material adverse affect on us.
Governmental Approvals
Under the Tribe's gaming ordinance, the Tribal Gaming Commission may
grant temporary gaming business licenses and temporary financial source
licenses for a period of up to ninety days, or standard gaming business
licenses and standard financial source licenses for a period of up to two
years. Once a temporary license has expired, the Tribal Gaming Commission may
issue either additional temporary licenses or standard licenses. Cascade
Entertainment Group received a temporary gaming business license and a
temporary financial source license from the Tribal Gaming Commission both of
which expire on May 5, 2003. The persons and entities to whom the senior
subordinated PIK notes, the subordinates PIK note, the L/C note and the
Manager repayment note were issued have also received temporary financial
source licenses from the Tribal Gaming Commission which also expire on May 5,
2003. It is anticipated that the Tribal Gaming Commission will issue new
temporary licenses prior to the expiration of the presently effective
temporary licenses.
In accordance with the tribal-state gaming compact, applications have
been made to the California Gambling Control Commission for a finding of
suitability by Cascade Entertainment, its officers, key employees, and owners,
and the persons and entities to whom the senior subordinated PIK notes, the
subordinated PIK note, the L/C note and the Manager repayment note. Those
applications are pending. The California Gambling Control Commission has not
indicated when it will complete the processing of the applications, and there
is no legally required date by which the California Gambling Control
Commission must complete the processing of those applications. If the
California Gambling Control Commission ultimately finds an applicant to be
unsuitable, and if that finding is not successfully appealed, under the
tribal-state gaming compact the Tribal Gaming Commission must terminate any
gaming or financial source license it has issued to such applicant.
51
PICAYUNE RANCHERIA OF CHUKCHANSI INDIANS
General
The Picayune Rancheria of Chukchansi Indians is a federally
recognized Indian tribe with over 1,100 enrolled members. The Tribe operates
under a constitution adopted by its members and is governed by a seven member
Tribal Council elected by the Tribe. The Tribal Council has enacted tribal
ordinances to establish the Chukchansi Economic Development Authority for the
purpose of furthering the economic prosperity of the Tribe through the
development and ownership of a gaming enterprise and related business and
assets. The Tribal Council also created the Tribal Gaming Commission to
exercise all regulatory powers of the Tribe over the operation, financing,
management and licensing of gaming.
Governance of the Tribe
The Tribe's constitution provides that the Tribe be governed by a
seven member Tribal Council that is elected by the General Council. The
General Council consists of all enrolled members of the Tribe, eighteen years
of age or older. Tribal Council elections are held in November of each year,
and are conducted in accordance with the Tribe's election ordinance. The
Tribal Council terms are staggered, with an elected member serving a term of
two years. The Tribal Council annually elects its officers - a Chairperson, a
Vice-Chairperson, a Secretary and a Treasurer. Officers of the Tribal Council
must be at least 25 years of age, reside within a 75-mile radius of the
Tribe's rancheria land and must have demonstrated an active involvement in
tribal affairs. Presently the officers and members of the Tribal Council are
as follows:
Name Age Position
- ---- --- --------
Dixie Jackson.................................... 66 Chairperson
Mary Martinez.................................... 70 Vice-Chairperson
Herbert Punkin................................... 72 Treasurer
Beverly Graham................................... 71 Secretary
Dustin Graham.................................... 31 Member
Belinda Jones.................................... 48 Member
Morris Reid...................................... 62 Member
The Tribal Council exercises the executive and legislative powers of
government. Tribal Council meetings are held monthly in accordance with the
Tribe's constitution, and special meetings may be called by the Chairperson or
a minimum of three members of the Tribal Council. Regular General Council
meetings, which consist of all adult members of the Tribe, are convened
quarterly.
Chukchansi Economic Development Authority
We were created pursuant to an ordinance of the Tribal Council to own
the Chukchansi Gold Resort & Casino and to own and manage the distributable
revenues generated by the Chukchansi Gold Resort & Casino. We are a
wholly-owned enterprise of the Tribe, and an authorized agency of the Tribe
within the terms of the tribal-state gaming compact. The term "wholly owned
unincorporated enterprise of the Tribe" means that the Tribal Government
retains, and will always retain, one hundred percent (100%) of the ownership
interest in the Authority. This insures that the benefits of the Chukchansi
Gold Resort & Casino will be controlled by the Tribe as a sovereign nation.
The term "enterprise" means that the Authority was created primarily for
economic and business purposes. The resolution and ordinance creating the
Authority provide for its perpetual existence and the Tribe and the Authority
have convenanted not to dissolve the Authority at any time while the notes
remain outstanding. Should the Authority be dissolved, the holders of the
notes are entitled to receive payment in full with respect to all principal,
premium, interest and other amounts owing before any payment or distribution
to the Tribe. Once all of the notes and other indebtedness have been paid in
full, the Tribe will have the right to all assets of the Authority upon an
event of dissolution.
Our powers are derived by delegation from the Tribal Council of
certain of its enumerated powers set forth in the Tribe's constitution. A
seven-member Board of Directors serves as our governing body. The composition
of the Board of Directors is identical to that of the Tribal Council, with all
officers and
52
members of the Tribal Council holding the same position on our Board of
Directors as they hold on the Tribal Council. The Board of Directors is
governed in its decision-making by the ordinance of the Tribal Council which
created it, and its bylaws. The Authority bylaws are very similar to the
bylaws of a corporation. Meetings are presided over by the Chairperson,
following Roberts Rules of Order, and decisions are made by majority vote of a
quorum.
So long as any obligation under the notes remains outstanding, our
activities are limited to the ownership of the Chukchansi Gold Resort & Casino
and the ownership and management of our assets. Our assets may not be
commingled with those of the Tribe generally or any tribal entity. The
Authority has covenanted that its assets are restricted to use in connection
with the operation of the Chukchansi Gold Resort & Casino. Certain payments
from the Authority are guaranteed, including certain payments to the Manager
and Credit Provider Group. In addition, the Authority must make a minimum
guaranteed monthly payment to the Tribe as required by the indenture governing
the notes and the Indian Gaming Regulatory Act of 1988. The Authority may not
make any other payments to the Tribe or the Manager except as permitted under
the indenture.
We are the sole obligor under the notes, and are a party to the
development agreement and the management agreement with Cascade Entertainment.
Although the management agreement gives Cascade Entertainment the exclusive
right to conduct and direct all business and affairs in connection with the
day-to-day operation, management and maintenance of the Chukchansi Gold Resort
& Casino, the Authority retains the sole proprietary interest in and ultimate
responsibility for the conduct of all class II and III gaming conducted by the
Chukchansi Gold Resort & Casino.
Management of the Authority
The composition of the Board of Directors is identical to that of the
Tribal Council, with all officers and members of the Tribal Council holding
the same position on our Board of Directors as they hold on the Tribal
Council. The following table provides information as of January 31, 2003, with
respect to each of the (i) executive officers of the Authority and (ii)
members of the Authority's Board.
Name Age Position Expiration of Term
- ---- --- -------- ------------------
Dixie Jackson................ 66 Chairperson December 2004
Mary Martinez................ 70 Vice-Chairperson December 2003
Herbert Punkin............... 72 Treasurer December 2004
Beverly Graham............... 71 Secretary December 2003
Dustin Graham................ 31 Member December 2004
Belinda Jones................ 48 Member December 2003
Morris Reid.................. 62 Member December 2004
Dixie Jackson is the Chairperson of the Authority. Ms. Jackson also
serves as the Chairperson of the Picayune Rancheria of Chukchansi Indians
Tribal Council, and has served in that capacity since 2000, prior to that she
was a member of the Tribal Council for one year. Ms. Jackson was employed by
the Internal Revenue Service in Fresno, California, from 1974 to 2000, ending
her employment there as a Senior Tax Examiner; she is currently retired. Ms.
Jackson has served on the Central Valley Indian Health Board for over thirty
years, and currently serves as the Chairperson of that Board. Ms. Jackson has
served on the California Rural Indian Health Board for fifteen years, the
Ladies Auxiliary of VFW for twenty years, and the California Nations Indian
Gaming Association Board for three years. Ms. Jackson has worked as a Madera
County Election Inspector for twenty years. Ms. Jackson has also been a cattle
rancher for more than thirty-five years.
Mary Martinez is the Vice-Chairperson of the Authority. Ms. Martinez
is also the Vice-Chairperson of the Picayune Rancheria of Chukchansi Indians
Tribal Council. From 2001 to January 2003 Ms. Martinez served as Secretary of
the Authority and of the Picayune Rancheria of Chukchansi Indians Tribal
Council, and previously served as Secretary of the Tribal Council in 1992. Ms.
Martinez also currently serves as a Commissioner for the Chukchansi Indian
Housing Authority, which is an affiliate of the Authority. Ms. Martinez is a
retired surgery technician from the Fresno Community Hospital and the
53
Clovis Indian Health Clinic. Ms. Martinez is a 1981 graduate of San Joaquin
Valley College in Fresno, California, where she earned her certification as a
emergency room medical assistant. In 1998-1999, and in 1992-1993, Ms. Martinez
served as the Interim Director of the Fresno Indian Health Clinic, and in
1994-1995 she served as the Interim Director of the California Indian Health
Consortium, based in Sacramento. Ms. Martinez has served in a variety of
volunteer positions: Fresno Equal Opportunity Commission Board, Associated
Indian Health Board Chair and Vice-Chair, California Indian Legal Services
Board, Fresno Indian Health Association Board, National Indian Health Council
Executive Board, Western Region Indian Health Association Board, and Sierra
Tribal Consortium Vice-Chair. Ms. Martinez comes from a long line of
basketweavers.
Herbert Punkin is the Treasurer of the Authority. Mr. Punkin is also
the Treasurer of the Picayune Rancheria of Chukchansi Indians Tribal Council.
Prior to his election as Treasurer, Mr. Punkin was a member of the Authority
board of directors and of the Picayune Rancheria of Chukchansi Indians Tribal
Council. Mr. Punkin has served on the Tribal Council for the past seven years.
Mr. Punkin was the Vice-Chairperson of the Tribal Council from 2001 to 2002.
Mr. Punkin has been retired for seven years, prior to which he was employed as
a logger for over thirty years.
Beverly Graham is the Secretary of the Authority. Ms. Graham is also
the Secretary of the Picayune Rancheria of Chukchansi Indians Tribal Council.
From 1995 to January 2003, Ms. Graham served has Treasurer of the Authority
and of the Picayune Rancheria of Chukchansi Indians Tribal Council. Ms. Graham
is currently retired. Ms. Graham worked as a medical receptionist for the
Central Valley Indian Health Clinic, and the school liaison for the Fresno
Unified School District. Ms. Graham has assisted the Tribe with its newsletter
from 1994 to the present. Ms. Graham has also been a teacher of the Chukchansi
Language since 1984. Ms. Graham is the aunt of Mr. Dustin Graham.
Dustin Graham is a member of the Authority. Mr. Graham is also a
member of the Picayune Rancheria of Chukchansi Indians Tribal Council since
January 2003. Mr. Graham was the Vice-Chairman of the Authority and of the
Picayune Rancheria of Chukchansi Indians Tribal Council from 2002 to 2003.
Prior to that, Mr. Graham was a member of the Tribal Council from 2000 to
2001. Mr. Graham is currently employed as a Project Manager with the
Chukchansi Indian Housing Authority, which is an affiliate of the Authority, a
position he also held in 2000. Mr. Graham has been employed as: a climber,
tree faller, and as an equipment operator for Graham Tree Service in 2001; the
Interim Executive Director of the Chukchansi Indian Housing Authority in 2000;
a maintenance specialist with the Picayune Rancheria of Chukchansi Indians in
1999; a top foreman with the Asplund Tree Company in 1998; and a top foreman,
supervisor, and vegetation management specialist with Trees Incorporated from
1994 to 1997. Mr. Graham served as Vice-Chairperson of the Board of Directors
of the Chukchansi Indian Housing Authority from 2000 to 2001, the Chairperson
from 1998 to 2000, and as a Member-at-Large from 1997 to 1998. Mr. Graham has
been the Vice-Chairperson for the First Native American Housing Authority of
Fresno, California from 2001 to the present. Mr. Graham has also been the
California State Representative for the Southwest Indian Housing Association
from 1999 to the present. Mr. Graham attended Fresno City College from 1997 to
2000, and Kingsview-Oakhurst Community College in 2001. Mr. Graham is the
nephew of Ms. Beverly Graham.
Belinda Jones is a member of the Authority. Ms. Jones is also a
member of the Picayune Rancheria of Chukchansi Indians Tribal Council, and has
served on the Tribal Council for the past six years. Ms. Jones was Secretary
of the Tribal Council from 1999 to 2002. Ms. Jones was employed as a truck
driver for Armadillo Trucking from 1991 to 2001. Ms. Belinda Jones has no
family relationship to Ms. Kenilyn Jones, the Vice President of Gaming for
Cascade Entertainment.
Morris Reid is a member of the Chukchansi Economic Development
Authority. Mr. Reid is also a member of the Picayune Rancheria of Chukchansi
Indians Tribal Council. Mr. Reid served on the Tribal Council from 1989 to
1991 as its Secretary, in 2000 as its Vice-Chairperson, and from 2001 to the
present as a member. Mr. Reid has been employed as a journeyman electrician
for the City of Fresno from 1984 to the present, and has worked as an
electrician since 1965. Mr. Reid served as Chairperson of the Fresno Indian
Health Association from 1990 to 1993, the Parent Committee of the Indian
Education Program OSA from 1994 to 1996, the Chukchansi Housing Authority as
liaison to the Board of Commissioners from 2000 to 2002, delegate to the
California Nations Indian Gaming Association from 1999 to 2002, 2002
54
Member-at-Large to the Executive Committee of the California Nations Indian
Gaming Association representing the California Eastern District, and Member of
the Board of Directors of the California Indian Manpower Consortium from 1996
to 1999.
Executive Compensation
The individual members of the Authority's Board of Directors do not
receive any direct compensation from the Authority in their capacity as such.
However, starting in October 2002, each member of the Board of Directors
receives a stipend of $250 for each meeting attended. The Board of Directors
averages one meeting per week.
Tribal Gaming Commission
The Tribe enacted a tribal gaming ordinance on October 5, 2001, which
was approved by the NIGC on December 3, 2001. The Tribe adopted an amendment
to that tribal gaming ordinance on December 27, 2001, which was approved by
the NIGC on February 15, 2002. Under that tribal gaming ordinance, the Tribe
has created and established the Tribal Gaming Commission as a governmental
subdivision of the Tribe. Pursuant to the tribal-state gaming compact and the
tribal gaming ordinance, the Tribal Gaming Commission, consisting of three
members, is vested with the authority to regulate all gaming activity
conducted by the Tribe on tribal lands. The initial terms of the members of
the Tribal Gaming Commission are staggered. The members of the Tribal Gaming
Commission were appointed by the Tribal Council on July 9, 2002. A tribal
gaming commissioner is appointed by the Tribal Council annually. Upon the
expiration of the initial term of each original tribal gaming commissioner,
subsequent commissioners are appointed for a term of three years. The tribal
gaming ordinance and tribal-state gaming compact require that each tribal
gaming commissioner undergo a comprehensive background check prior to his or
her assuming office. Pursuant to the tribal gaming ordinance, the Tribal
Gaming Commission is responsible for, among other matters, inspection of all
gaming operations within the Tribe's rancheria boundaries, enforcement of all
provisions of the tribal gaming ordinance, investigation of all allegations of
violations of the tribal gaming ordinance, conducting or arranging for
background investigations of all applicants for tribal gaming licenses and
issuing gaming licenses in accordance with the tribal gaming ordinance and the
compact.
THE MANAGER
Under the development and management agreements, Cascade
Entertainment has the exclusive right to develop, conduct and direct all
business and affairs in connection with the day-to-day operation, management
and maintenance of the Chukchansi Gold Resort & Casino.
Selection of the Manager
The Tribe reviewed informal expressions of interest regarding parties
who were interested in assisting the Tribe with development of a casino. Prior
to the selection of Cascade, the Tribe attempted to contract with several
investment groups who later proved to be unable to meet their commitments. In
1998, the Tribe selected Cascade based upon (i) the prior experience of its
principals, (ii) the financial holdings disclosed by the principals of
Cascade, (iii) the financial commitments made by the principals of Cascade
prior to obtaining financing, and (iv) Cascade's commitment to raising the
capital necessary to complete the development and operation of the Chukchansi
Gold Resort & Casino. The Tribe then contracted with Cascade as manager of the
Chukchansi Gold Resort & Casino as part of the development agreements entered
into between the Tribe and Cascade.
Management of Cascade Entertainment
The name, age and respective positions of each of the executive
officers of Cascade Entertainment is as follows:
Name Age Position
- ---- --- --------
Warren K. Novick................... 68 Manager of Cascade Entertainment
Russell S. Pratt................... 53 President and Chief Executive Officer
55
Peter M. Fordham................... 43 Senior Vice President of Operations
Kathy J. Reiner.................... 35 Chief Financial Officer
P. Douglas Shipley................. 42 Vice President of Project Development
and Hospitality Operations
Kenilyn Jones...................... 52 Vice President of Gaming
Susan R. Mayer..................... 36 Vice President for Tribal Relations
Warren K. Novick has been the Manager of Cascade Entertainment since
its inception in October 1998. From January 1987 to September 1998, Mr. Novick
was an independent investor, advising corporations in which he had investments
on financial and administrative matters. During that period, and through the
present, he has invested and/or given advice to private corporations and
partnerships including Topspin Partners, LLP, an investment vehicle/hedge
fund, Optim Corp., a manufacturer of fiber optic devices for the medical and
security industries, Manchester Motor Cars, LLP, a car restoration and sales
facility, Samoset Partners, LLC, a majority member of Cascade Entertainment
and, indirectly through Samoset Partners, LLC, Cascade Entertainment. From
September 1998 to the present, Mr. Novick has devoted his time and attention
to Tribal Gaming Investors, LLC and Cascade Entertainment. Mr. Novick also
currently owns 25% of a company which operates a series of artificial marble
manufacturing plants across the U.S. and Mexico. Mr. Novick is an attorney and
has been a member of the Connecticut Bar since 1963. Mr. Novick was the past
Chairman of the Board of Dawn Special Systems, Inc. which filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code on September 18,
1998. From 1974 to 1981, Mr. Novick also served as Vice President, as
President and as Chief Executive Officer for American Technical Industries,
Inc., a manufacturer of artificial Christmas trees and a company that was
traded on the American Stock Exchange. From 1982 to 1986, Mr. Novick served as
Executive Vice President and Chairman of the Board for Heritage Savings &
Loan, a company traded on NASDAQ.
Russell S. Pratt has been the President and Chief Executive Officer
of Cascade Entertainment since its inception in October 1998. Mr. Pratt has
over 25 years of experience in large-scale project design, development and
construction management, having devoted the past 12 years exclusively to the
development, construction and operation of Indian gaming and resort
facilities. From 1995 to 1998, Mr. Pratt worked as an independent consultant
and as Vice President of Development with Excelsior Gaming, where he focused
on the development of new Indian gaming markets, including developing and
opening a casino for the Chehalis Tribe, one of the first Indian gaming
facilities in the state of Washington, and leading the effort for the passage
of the first Indian community referendum in favor of Indian gaming in Quebec,
Canada including the approval of an Indian gaming facility in that province.
From 1990 to 1994, Mr. Pratt worked as the General Coordinator of the
development team for Foxwoods Casino and Resort in Ledyard, Connecticut and
supervised approximately $400 million of development. Mr. Pratt is also an
attorney, with a law degree from the University of Connecticut School of Law
and is a member of the Connecticut Bar.
Peter M. Fordham joined Cascade Entertainment in May 2001 as Senior
Vice President of Operations. From 1997 to March 2001, Mr. Fordham served as
Executive Vice President and General Manager at Grand Casino Coushatta in
Kinder, Louisiana. From 1993 to 1997, Mr. Fordham served as Vice President of
Guest Services at Grand Casino Hinckley in Hinckley, Minnesota. He was
subsequently promoted to Senior Vice President at Grand Casino Coushatta. At
both Grand properties, Mr. Fordham supervised substantial facility expansions
and enhancements. From 1981 to 1993, Mr. Fordham held various management
positions with Resorts International at the Paradise Island Resort and Casino
in Nassau, Bahamas. From 1977 to 1981, Mr. Fordham served as Training Manager
and Supervisor of Table Games and Cage for the Continental Casino in Leeds,
England.
Kathy J. Reiner has served as Chief Financial Officer of Cascade
Entertainment since July 2000. From January to July 2000, Ms. Reiner served as
Corporate Vice President of Financial Operations for the Mille Lacs Band
Gaming Management Group, the operator of Grand Casino Mille Lacs and Grand
Casino Hinckley. From October 1995 to December 1999, Ms. Reiner served as Vice
President of Finance and Chief Financial Officer for Grand Casino Hinckley
where she supervised the financial aspects of a series of expansions and
redevelopments. From May 1994 until September 1995, Ms. Reiner served as
Casino Controller for Grand Casino Hinckley. Prior to that time, Ms. Reiner
held various management positions at Grand Casino Mille Lacs.
56
P. Douglas Shipley joined Cascade Entertainment in May 2001 as Vice
President of Project Development and Hospitality Operations. From 1999 to May
2001, Mr. Shipley served as Corporate Vice President of Operations of
Ameristar Casinos in Las Vegas, Nevada, a publicly traded company, where he
was responsible for directing hospitality operations, strategic planning and
development for the company, including the initial design of Ameristar's
relocated facility in St. Charles, Missouri. From 1995 until 1999, Mr. Shipley
served as Corporate Director of Food and Beverage for all Grand Casino
properties after serving one year as Vice President of Food and Beverage at
Grand Casino Hinckley. Grand Casino is a publicly traded company. Between 1991
and 1994, Mr. Shipley held the position of Assistant General Manager and
Executive Vice President of Operations for the Gold River Resort and Casino in
Laughlin, Nevada. At various times between 1987 and 1991, Mr. Shipley held the
positions of Financial Controller and Director of Food and Beverage at Caesars
Tahoe in South Lake Tahoe, Nevada. In 1979, Mr. Shipley served as Accounting
Manager during the opening of Bally's Park Place in Atlantic City, New Jersey,
a position he held until 1983. From 1983 until 1987, Mr. Shipley served as
Food and Beverage Controller.
Kenilyn Jones has been Cascade Entertainment's Vice President of
Gaming since May 2000, and served as Vice President of Administration and
Human Resources of Cascade Entertainment from May 2000 to present. From 1999
to 2000, she acted as a Gaming Consultant to the Mandalay Resort Group for the
development of its Motor City Casino in Detroit. Ms. Jones served as Corporate
Director for Casino Operations for Grand Casinos, Inc. from 1996 to 1999. From
1994 to 1996, Ms. Jones served as Grand Casinos' Corporate Director of
Management Development for all properties, which included direct involvement
in expansion and development projects at five Grand properties. At various
times between 1992 and 1994, Ms. Jones held the positions of Vice President of
Training and Development and Casino Shift Officer at Grand Casino Hinckley.
From 1977 to 1989, Ms. Jones held various mid-level to senior management
positions at Boomtown Casino near Reno, Nevada. Ms. Kenilyn Jones has no
family relationship to Ms. Belinda Jones, a Member of the Tribal Council and
the Board of Directors of the Authority.
Susan R. Mayer has served as Cascade Entertainment's Vice President
for Tribal Relations since January 2000, acting as liaison between Cascade
Entertainment and tribal leadership on all business, regulatory,
administrative and protocol matters. Prior to that time, Ms. Mayer served as
Chief Financial Officer of Cascade Entertainment since January 1999. From 1997
to 1998, Ms. Mayer provided financial management services consisting of
designing and implementing internal control systems and training financial
management staff to Khronos Capital, a fund administration firm in Caracas,
Venezuela.
Employment Agreements
Cascade Entertainment has entered into employment agreements with
each of its executive officers, the material terms of which are summarized
below. Each of these employment agreements provides for a fixed term of
employment with customary benefits and an increase in base salary upon the
completion of specified project targets. All of the compensation discussed
below will be paid by Cascade Entertainment and not by us or the Tribe. With
the exception of Mr. Pratt and Ms. Mayer (who each own a direct equity
interest in Cascade Entertainment), the executive officers of Cascade
Entertainment are entitled to equity participation in Cascade Entertainment in
the form of stock profit participation rights. These stock profit
participation rights are distributed pursuant to the terms of each executive's
employment agreement and may be converted at the option of the holder, subject
to the terms and conditions of such rights, into non-voting shares of stock of
Cascade Entertainment at a predetermined conversion price. All ownership
percentage data assumes that all stock profit participation rights are granted
in accordance with each employment agreement and that no other stock profit
participation rights or shares of Cascade Entertainment are issued.
Cascade Entertainment has entered into a management agreement and a
development agreement with Buena Vista Rancheria of Me-Wuk Indians to develop
and construct a casino for the Buena Vista tribe. Each of the employment
agreements described below was executed in contemplation of the construction
of both the Chukchansi Gold Resort & Casino and an additional gaming facility
to be owned by the Buena Vista tribe.
57
Russell S. Pratt. Mr. Pratt and Cascade Entertainment entered into an
employment agreement on June 1, 2001, and amended on July 1, 2002, pursuant to
which Mr. Pratt will serve as Cascade Entertainment's President and Chief
Executive Officer through May 31, 2008, unless his employment is earlier
terminated pursuant to the terms of the agreement. Mr. Pratt is entitled to a
base salary of $350,000 per year, which will increase to $380,000 per year on
the earlier of the date that the Chukchansi Gold Resort & Casino or the Buena
Vista casino first opens to the public. Mr. Pratt is entitled to receive an
annual performance bonus equal to 125% of the combined performance bonus and
profit participation payment paid to the highest ranking operations manager of
Cascade Entertainment, currently Peter Fordham.
If Mr. Pratt is terminated without cause, he will be entitled to
receive his then current salary for 24 months or the remaining term of his
agreement, whichever is longer. Mr. Pratt will not be entitled to any
severance if he is terminated for cause.
Peter M. Fordham. Mr. Fordham and Cascade Entertainment entered into
an employment agreement on March 1, 2001, pursuant to which Mr. Fordham will
serve as Cascade Entertainment's Senior Vice President--Operations through
February 28, 2006, unless his employment is earlier terminated pursuant to the
terms of the agreement. Mr. Fordham is entitled to a base salary of $240,000
per year, which will increase to $255,000 per year on the earlier of the date
that the Chukchansi Gold Resort & Casino or the Buena Vista casino first opens
to the public. Mr. Fordham is entitled to receive an annual performance bonus
which will be determined at the end of each fiscal year and will be based on
Cascade Entertainment's financial performance during the year. Mr. Fordham
will be entitled to receive stock profit participation rights on each
anniversary date of his agreement. Assuming Mr. Fordham receives all of the
stock profit participation rights provided for under his agreement and
converts each stock profit participation right to shares of Cascade
Entertainment, he will have an approximate 0.971% ownership interest in
Cascade Entertainment.
If Mr. Fordham is terminated without cause, he will be entitled to
receive his then current salary and benefits for one year following the date
of termination. Mr. Fordham will not be entitled to any severance if he is
terminated for cause.
Kathy J. Reiner. Ms. Reiner and Cascade Entertainment entered into an
employment agreement on June 1, 2001, and amended on July 1, 2002, pursuant to
which Ms. Reiner will serve as Cascade Entertainment's Chief Financial Officer
through May 31, 2006, unless her employment is earlier terminated pursuant to
the terms of the agreement. Ms. Reiner is entitled to a base salary of
$180,000 per year. Ms. Reiner's salary will increase to $200,000 per year upon
the opening of either the Chukchansi Gold Resort & Casino or the Buena Vista
casino. Ms. Reiner is also entitled to receive an annual performance bonus,
which will be determined at the end of each fiscal year and will be based on
Cascade Entertainment's financial performance during the year. Ms. Reiner will
be entitled to receive stock profit participation rights upon the completion
of this offering, on the date that either the Chukchansi Gold Resort & Casino
or the Buena Vista casino are operating and on each anniversary date of her
agreement. Assuming Ms. Reiner receives all of the stock profit participation
rights provided for under her agreement and converts each stock profit
participation right to shares of Cascade Entertainment, she will have an
approximate 0.728% ownership interest in Cascade Entertainment.
If Ms. Reiner is terminated without cause, she will be entitled to
receive her then current salary and benefits for one year following the date
of termination. Ms. Reiner will not be entitled to any severance if she is
terminated for cause.
P. Douglas Shipley. Mr. Shipley and Cascade Entertainment entered
into an employment agreement on May 1, 2001, and amended on July 1, 2002,
pursuant to which Mr. Shipley will serve as Cascade Entertainment's Vice
President--Development and Hospitality through April 31, 2006, unless his
employment is earlier terminated pursuant to the terms of the agreement. Mr.
Shipley is entitled to a base salary of $195,000 per year, which will increase
to $200,000 per year on the date that either the Chukchansi Gold Resort &
Casino or the Buena Vista casino is opened to the public. He will also receive
a one time payment of $12,500 if the Chukchansi Gold Resort & Casino opens
on-time and on-budget. Mr. Shipley is entitled to receive an annual
performance bonus, which will be determined at the end of each fiscal year
58
and will be based on Cascade Entertainment's financial performance during the
year. Mr. Shipley will be entitled to receive stock profit participation
rights on each anniversary date of his agreement and if the Chukchansi Gold
Resort & Casino opens on-time and on-budget. Assuming Mr. Shipley receives all
of the stock profit participation rights provided for under his agreement and
converts each stock profit participation right to shares of Cascade
Entertainment, he will have an approximate 0.801% ownership interest in
Cascade Entertainment.
If Mr. Shipley is terminated without cause, he will be entitled to
receive his then current salary and benefits for one year following the date
of termination. Mr. Shipley will not be entitled to any severance if he is
terminated for cause.
Kenilyn Jones. Ms. Jones and Cascade Entertainment entered into an
employment agreement on October 1, 2001, and amended on July 1, 2002, pursuant
to which Ms. Jones will serve as Cascade Entertainment's Vice President of
Gaming through September 30, 2006, unless her employment is earlier terminated
pursuant to the terms of the agreement. Ms. Jones is entitled to a base salary
of $145,000 per year. Ms. Jones' salary will increase to $155,000 upon the
opening of the Chukchansi Gold Resort & Casino. Ms. Jones is also entitled to
receive an annual performance bonus, which will be determined at the end of
each fiscal year and will be based on Cascade Entertainment's financial
performance during the year. Ms. Jones will be entitled to receive stock
profit participation rights upon the completion of this offering, on the date
that either the Chukchansi Gold Resort & Casino or the Buena Vista casino are
operating and on each anniversary date of her agreement. Assuming Ms. Jones
receives all of the stock profit participation rights provided for under her
agreement and converts each stock profit participation right to shares of
Cascade Entertainment, she will have an approximate 0.485% ownership interest
in Cascade Entertainment.
If Ms. Jones is terminated without cause, she will be entitled to
receive her then current salary and benefits for one year following the date
of termination. Ms. Jones will not be entitled to any severance if she is
terminated for cause.
Susan R. Mayer. Ms. Mayer and Cascade Entertainment entered into an
employment agreement on June 1, 2001, pursuant to which Ms. Mayer will serve
as Cascade Entertainment's Vice President--Tribal Relations through May 31,
2008, unless her employment is earlier terminated pursuant to the terms of the
agreement. Ms. Mayer is entitled to a base salary of $140,000 per year. Ms.
Mayers's salary will increase to $175,000 per year upon the opening of either
the Chukchansi Gold Resort & Casino or the Buena Vista casino. Ms. Mayer is
also entitled to receive an annual performance bonus, which will be determined
at the end of each fiscal year and will be based on Cascade Entertainment's
financial performance during the year.
Ms. Mayer received vested shares of Cascade Entertainment's stock on
each of the execution of her employment agreement, the execution of the
management and development contracts with the Tribe and the Buena Vista tribe
and the execution of each tribe's compact. Ms. Mayer will receive additional
vested shares of Cascade Entertainment upon the closing of this offering and
on the date the Chukchansi Gold Resort & Casino opens to the public. Assuming
receipt of all such vested shares, Ms. Mayer will have an approximate 2.422%
ownership interest in Cascade Entertainment in addition to her ownership
interests through Samoset Partners, LLC.
If Ms. Mayer is terminated without cause, she will be entitled to
receive her then current salary for 24 months or the remaining term of her
agreement, whichever is longer. Ms. Mayer will not be entitled to any
severance if she is terminated for cause.
59
Executive Compensation
The following table sets forth the compensation paid or accrued by
Cascade Entertainment to the Chief Executive Officer and each of the four most
highly compensated executive officers (collectively, the "named executive
officers") for their services for the years ended December 31, 2002, 2001 and
2000.
- ------------------------------------------- ---------- -------------------------------------------------------------
Annual Compensation
- ------------------------------------------- ---------- -------------------------------------------------------------
Name and Principal Position Year Salary ($) Bonus ($) Other Annual
Compensation ($)
(1)
- ------------------------------------------- ---------- ------------------- --------------------- -------------------
- ------------------------------------------- ---------- ------------------- --------------------- -------------------
Russell S. Pratt 2000 380,000.00 -- --
Chief Executive Officer and President ......... .................. ..................... ...................
2001 320,000.00 -- 67,265.00
......... .................. ..................... ...................
2002 332,382.45 70,000.00 66,515.00 .
- ------------------------------------------- ---------- ------------------- --------------------- -------------------
Peter M. Fordham 2000 -- -- --
Senior Vice President of Operations ......... .................. ..................... ...................
2001 160,000.00 -- --
......... .................. ..................... ...................
2002 240,000.00 8,000.00 --
- ------------------------------------------- --------- ------------------- --------------------- -------------------
P. Douglas Shipley 2000 -- -- --
Vice President of Project Development .......... .................. ..................... ..................
and ospitality Operations 2001 130,000.00 -- 14,934.92
.......... .................. ..................... ...................
2002 195,000.00 10,000.00 --
- ------------------------------------------- ---------- ------------------- --------------------- -------------------
Kathy J. Reiner 2000 84,394.80 -- --
Chief Financial Officer ........ .................. ..................... ...................
2001 165,833.32 -- --
........ .................. ..................... ...................
2002 172,069.51 15,000.00 --
- ------------------------------------------- --------- ------------------- --------------------- ------------------
Susan R. Mayer 2000 125,045.00 -- 33,141.00
Vice President for Tribal Relations ......... ................... ..................... ...................
2001 142,934.00 -- --
......... ................... ..................... ...................
2002 142,936.00 15,000.00 --
- ------------------------------------------- --------- ------------------- --------------------- -------------------
Patrick Minchey 2000 133,103.66 -- --
Vice President of Operations ......... ................... ..................... ...................
2001 -- -- --
......... ................... ..................... ...................
2002 -- -- --
- ------------------------------------------- --------- ------------------- --------------------- -------------------
(1) Certain of Cascade Entertainment's named executive officers receive
personal benefits in addition to salary and bonuses. The amounts for Mr. Pratt
in 2001 and 2002 includes $54,000 in housing allowances. The amounts for Ms.
Mayer in 2000 includes $26,900 in housing allowances. The amount for Mr.
Shipley in 2001 includes $14,934.92 in relocation allowances. The amount of
personal benefits has been omitted from the table for each named executive
officer for whom the aggregate amount of any benefits did not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus reported for
such named executive officer. Personal benefit amounts paid that do not exceed
25% of the total personal benefits received have been omitted from this
footnote.
Indemnification of Cascade Entertainment
Under the management agreement, all liabilities, costs and expenses,
including reasonable attorneys' fees and disbursements incurred in defending
and/or settling any claim or legal action brought against Cascade
Entertainment in connection with the operation of the Chukchansi Gold Resort &
Casino will be treated as an operating expense of the Chukchansi Gold Resort &
Casino and will be paid out of the assets of the Chukchansi Gold Resort &
Casino.
60
OWNERSHIP OF CASCADE ENTERTAINMENT
The following table sets forth, as of October 8, 2002, certain
information regarding the beneficial ownership of Cascade Entertainment's
shares entitled to vote by each of its members and named executive officers
and by all of its members and executive officers as a group.
Ownership of
Shares (1)
Number of Percentage
Name (2) Shares (3) Ownership
-------- ---------- ---------
Samoset Partners, LLC (4)............................... 75,000 75.0%
Russell S. Pratt........................................ 23,500 23.5
Susan R. Mayer.......................................... 2,000 2.0
Warren K. Novick (5).................................... -- *
Kathy J. Reiner......................................... 258 *
Peter M. Fordham ....................................... 267 *
P. Douglas Shipley...................................... 146 *
Kenilyn Jones........................................... 125 *
Members and executive officers as a group (8 persons)... 100,000 100.0%
______________
* Indicates ownership of less than 1%.
(1) Not all persons owning shares have the right to vote. Holders of shares
have the right to share in Cascade Entertainment's income gains, losses,
deductions, credit, or similar items, and to receive distributions from
Cascade Entertainment but do not have other rights of a member including
the right to vote or to participate in management, or any right to
information concerning the business and affairs of Cascade Entertainment,
except as provided under applicable law relating to information and
inspection rights. Cascade Entertainment's operating agreement provides
that Russell S. Pratt and Samoset Partners, LLC must approve the
admission or withdrawal of any member, transactions between Cascade
Entertainment and a member, management contracts, mergers, sales or
transfers of all or substantially all of the assets of Cascade
Entertainment or any of its projects, dissolutions and bankruptcy
petitions.
(2) The address for each person or entity listed above is c/o Cascade
Entertainment Group, LLC, 7915 Folsom Blvd., Sacramento, California
95826.
(3) Unless otherwise indicated in this table and these footnotes and subject
to community property laws where applicable, all the persons named in
this table have voting and investment power with respect to all shares
shown as owned by them.
(4) Pursuant to the Samoset Partners, LLC Operating Agreement, the following
are those persons or entities who own more than 5% of voting membership
interests in Samoset Partners, LLC: Susan R. Mayer--26.3%; Clarion
Capital Partners, LLC--24.0%; S7 Associates, LLC--24.0%; and Warren K.
Novick--11.4%. James H. Simons and members of his family directly or
indirectly own all of the outstanding membership interests of S7
Associates, LLC.
(5) Mr. Novick is the sole manager of Cascade Entertainment and owns his
interests in Cascade Entertainment via a membership interest in Samoset.
61
REGULATION OF INDIAN GAMING
General
We and the Tribe are subject to federal, tribal and certain state laws
applicable to commercial relationships with Indian tribes, Indian gaming and
the management and financing of Indian casinos. In addition, our gaming
operations are regulated by federal, tribal and certain state laws applicable
to the gaming industry and to the distribution of gaming equipment. The
following description of the regulatory environment is only a summary and not
a complete recitation of all applicable law. Moreover, since this gaming
regulatory environment is particularly susceptible to interpretation and
change as the result of public policy considerations, it is impossible to
predict how certain provisions of applicable laws will be interpreted in the
future or whether and how they will be modified. Unexpected interpretations
of, or changes in, applicable law could have a material adverse impact on our
operations. See "Risk Factors--Risks Relating to the Indian Gaming Industry."
Tribal Law and Legal Systems
Tribal Law; Applicability of State and Federal Law
Federally recognized Indian tribes are independent governments,
subordinate to the United States, with sovereign powers. As sovereign
entities, Indian tribes enact their own laws and maintain their own
governmental systems, often including their own judicial systems. Indian
tribes have the right to tax persons and enterprises conducting business on
Indian lands, and also have the right to require licenses and to impose other
forms of regulation and regulatory fees on persons and businesses operating on
their lands.
Notwithstanding the foregoing, Indian tribes are subject to many
federal laws and, under limited circumstances, to certain state laws. The U.S.
Constitution entrusts the U.S. Congress with the power to promulgate laws
regulating Indian affairs. While principles of federalism and sovereignty make
state laws generally inapplicable to Indian tribes, Congress has the power to
subject tribes to state and federal law, and to waive a tribe's sovereign
immunity as it deems necessary.
Waiver of Sovereign Immunity; Jurisdiction; Exhaustion of Tribal Remedies
Indian tribes and their agencies and instrumentalities, enjoy
sovereign immunity from non-consensual suits similar to that of the individual
states and the United States. To sue an Indian tribe, either Congress or a
tribe must have effectively waived the tribe's sovereign immunity with respect
to the matter in dispute. The United States Supreme Court recently ruled that
when an Indian tribe has contractually agreed to arbitrate disputes according
to the law of a state, including the enforcement of arbitration awards in any
court with jurisdiction over such matters, the tribe has waived its sovereign
immunity and is amenable to suit in state court to enforce an arbitrator's
award.
In matters involving Indian gaming, the relationship between the
jurisdiction of state courts and federal courts is not completely clear. In
one recent case where a gaming management company sued an Indian tribe for
claims arising from a gaming management agreement, the California appellate
court upheld dismissal of the action on the grounds that federal courts have
exclusive jurisdiction to review issues involving Indian gaming and Indian
gaming contracts, because the federal Indian Gaming Regulatory Act of 1988, or
IGRA, has completely preempted state court jurisdiction in this area of the
law. However, federal courts in California have not conclusively ruled on the
issue of whether IGRA completely preempts state law claims regarding contracts
related to Indian gaming. Federal courts in other jurisdictions have held that
IGRA only preempts state law with regard to those matters specifically
governed by IGRA, such as gaming management contracts and gaming licensing.
There are no reported rulings by a federal court that IGRA preempts state law
with respect to agreements that relate solely to financing Indian gaming. In
apparent conflict with the California case, a New York federal district court
in July 2002 dismissed a case for lack of federal jurisdiction in an action
claiming breach of an Indian gaming management contract. The New York court,
by footnote, commented that the New York state court was a proper forum for
the dispute. Nevertheless, if this California preemption rule were applied in
a dispute related to the notes, a state court would not accept jurisdiction
with respect to the arbitration. However, based on the recent New York case,
it is possible that the federal court would conclude that a federal issue was
not involved and would decline
62
<page>
jurisdiction. It is unclear how this question of jurisdiction would apply with
respect to awards and proceedings related to arbitrable disputes.
In most commercial disputes with Indian tribes, the jurisdiction of
the federal courts, which are courts of limited jurisdiction, may be difficult
or impossible to obtain unless the court determines that a question of federal
law exists. Federal courts typically only have jurisdiction over cases in
which either a question of federal or constitutional law is at issue (also
known as "federal question jurisdiction") or in which citizens of different
states are parties (also known as "diversity jurisdiction"). A non-gaming
tribal dispute is unlikely to present a federal question, and some courts have
ruled that Indian tribes are not citizens of any state for purposes of
establishing diversity jurisdiction in the federal courts.
Whether a federal court will exercise jurisdiction over a dispute
involving an Indian tribe may also depend on a policy known as the "exhaustion
doctrine," which generally requires that disputes involving tribes or disputes
in which tribal jurisdiction is being challenged be first heard by a tribal
forum. However, exhaustion of tribal remedies is not required where it is
unmistakably clear that tribal forums have no jurisdiction, and in certain
other very limited circumstances. When the exhaustion doctrine is applied,
only after a litigant exhausts his or her remedies in a tribal forum can
relief be sought in federal court, and then a federal court will review only
the tribal forum's determination regarding the scope of tribal jurisdiction,
and will not review the merits of the underlying dispute.
State courts may also lack jurisdiction over suits brought by
non-Indians against Indian tribes in California. State courts are courts of
general jurisdiction, however, and such actions have previously been brought
in state courts where tribes have consented to state court jurisdiction. The
exhaustion doctrine may not apply in state courts; however, a few state courts
have deferred cases involving tribes or challenges to tribal jurisdiction to
tribal forums as a matter of comity, without a right to later review the
matter.
We and the Tribe have waived our rights to have disputes concerning
the notes heard in a tribal forum. The Tribe does not presently have a tribal
court, but a federal or state court could still defer to a tribal dispute
resolution process, and the Tribe has the right to create such a court in the
future. Further, there is at least one federal judicial decision suggesting a
waiver for federal court purposes might not be valid, although the federal
Court of Appeals for the Second Judicial Circuit (which has jurisdiction over
the State of New York) and at least one lower New York state court have held
that if no prior tribal court proceedings are pending, the federal or state
court may adjudicate a dispute involving tribal matters without deferring to
any tribal court.
Indian Gaming Regulatory Act of 1988
Regulatory Authority
Generally, the operation of casinos and other forms of gaming on
Indian lands in California is subject to IGRA. IGRA is administered by the
National Indian Gaming Commission, or the NIGC, an independent agency within
the U.S. Department of Interior, exercising primary federal regulatory
responsibility for Indian gaming. The NIGC has the exclusive federal authority
to issue regulations governing tribal gaming activities, approve tribal
ordinances regulating class II and class III gaming (as described below), and
approve management agreements for tribal gaming facilities. The NIGC also has
authority to conduct investigations and generally monitor tribal gaming. The
NIGC is empowered to inspect and audit all Indian gaming facilities, conduct
background checks on all persons associated with class II or class III Indian
gaming, hold hearings, issue subpoenas, take depositions, adopt regulations
and assess fees and impose civil penalties for IGRA violations. Certain
responsibilities under IGRA (such as the approval of transfer of lands into
trust status for gaming) are retained by the Bureau of Indian Affairs, or BIA.
The BIA is also responsible for reviewing and approving certain agreements
relating to Indian lands. Criminal enforcement of IGRA is the exclusive
responsibility of the United States Department of Justice, except to the
extent such enforcement responsibility is shared with the State of California
under the compacts and, with respect to crimes committed by tribal members,
retained by the Tribe.
The NIGC has adopted rules implementing certain provisions of IGRA.
These rules govern, among other things, the submission and approval of tribal
gaming ordinances or resolutions, the adoption of tribal minimum internal
control standards, and the requirement that an Indian tribe have the sole
proprietary
63
<page>
interest in and responsibility for the conduct of any gaming. Tribes are
required to issue gaming licenses only under articulated standards, to conduct
or commission financial audits of their gaming enterprises, and to perform or
commission background investigations for primary management officials and key
employees. These rules also set out review and reporting procedures for tribal
licensing of gaming employees.
Tribal Ordinances
Under IGRA, except to the extent otherwise provided in a tribal-state
gaming compact, Indian tribal governments have primary regulatory authority
over class III gaming on land within a tribe's jurisdiction. Therefore, gaming
operations, and all persons engaged in gaming activities at the gaming
facilities, are guided by and subject to the provisions of the Tribe's
ordinances and regulations regarding gaming. However, IGRA requires that the
NIGC review tribal gaming ordinances and authorizes the NIGC to approve such
ordinances only if they meet certain requirements relating to:
o the ownership, security, personnel background, record-keeping
and auditing of a tribe's gaming enterprises;
o the use of the revenues from such gaming operations; and
o the protection of the environment and the public health and
safety.
The Tribe adopted its tribal gaming ordinance on October 5, 2001 and
the NIGC approved the tribal gaming ordinance on December 3, 2001. The Tribe
adopted an amendment to that ordinance on December 27, 2001, which was
approved by the NIGC on February 15, 2002.
Classes of Gaming
IGRA classifies gaming activities that Indians may conduct on their
tribal lands into three categories. Class I gaming includes social games
solely for prizes of minimal value or traditional forms of Indian gaming
engaged in by individuals as part of, or in connection with, tribal ceremonies
or celebrations. Class II gaming includes bingo, pulltabs, lotto, punch
boards, tip jars, certain non-banked card games (if such games are played
legally elsewhere in the state), instant bingo and certain other games similar
to bingo, if those games are played at the same location in which bingo is
played. Class III gaming includes all other forms of gaming, such as slot
machines, video casino games (e.g., video slots, video black jack and video
poker), so-called "table games" (e.g., blackjack, craps, roulette) and other
commercial gaming (e.g., sports betting and pari-mutuel wagering).
Only class II and class III gaming is subject to IGRA. Class I gaming
is within the exclusive jurisdiction of Indian tribes. IGRA permits class II
gaming on Indian lands if, among other things:
o the state in which the Indian lands lie permits such gaming for
any purpose by any person, organization or entity;
o such gaming is not otherwise specifically prohibited on Indian
lands by federal law;
o such gaming is conducted in accordance with a tribal ordinance
or resolution that has been approved by the NIGC;
o an Indian tribe has sole proprietary interest and responsibility
for the conduct of gaming; and
o the primary management officials and key employees are tribally
licensed.
IGRA permits class III gaming if the conditions applicable to class
II gaming are met and such gaming is conducted in conformity with the terms of
a tribal-state gaming compact (a written agreement between the tribal
government and the government of the state within whose boundaries the tribe's
lands lie).
64
<page>
Tribal-State Gaming Compacts
IGRA requires states to negotiate in good faith with Indian tribes
that seek to enter into tribal-state gaming compacts to conduct class III
gaming. Such compacts may include provisions for the allocation of criminal
and civil jurisdiction between the state and the Indian tribe necessary for
the enforcement of applicable laws and regulations, taxation of the gaming
activities by the tribe in amounts comparable to those amounts assessed by the
state for comparable activities, remedies for breach of the compact, standards
for the operation of gaming and maintenance of the gaming facility, including
licensing, and any other subjects that are directly related to the operation
of gaming activities. While the terms of these compacts vary from
state-to-state, compacts within one state usually are substantially similar.
Compacts usually specify the types of gaming permitted, establish technical
standards for video gaming machines, set maximum and minimum machine payout
percentages, entitle the state to inspect casinos, require background
investigations and the licensing of casino employees and may require the tribe
to pay a portion of the state's expense for establishing and maintaining
regulatory agencies. Some compacts are for set terms, while others are for an
indefinite duration. The Tribe's compact expires on December 31, 2020, but
beginning 18 months prior to the expiration date, the Tribe may request to
enter into negotiations to extend its respective compact or enter into a new
compact. The Tribe's compact will automatically be extended until June 30,
2022 if the Tribe and the State have not agreed to extend the expiration date
or have not entered into a new compact.
As with the other tribal-state gaming compacts in California, the
Tribe's compact with the State requires that the Tribe be subject to
California's workers' compensation (unless the Tribe develops its own
ordinances regarding workers' compensation), labor and unemployment and
disability compensation laws, federal occupational health and safety and
discrimination laws, and county building and safety codes and standards. The
Tribe's compact also requires the Tribe to make reasonable provisions for
adequate emergency, fire, medical and related relief and disaster services for
its gaming patrons and employees, and to consider the off-reservation
environmental impacts of its casino development.
In addition, under the terms of its compact, the Tribe was required
to adopt a labor relations ordinance which provides that eligible employees,
have, among other things, the right to self-organization, to bargain
collectively through representatives of their choosing, and the right to
refrain from any such activities. The labor relations ordinance also prohibits
the Tribe from interfering with these rights and requires, among other things,
the Tribe to provide any unions access to the facility for the purpose of
organizing employees as long as that access does not interfere with normal
operations.
California Constitution
On March 7, 2000, California voters approved Proposition 1A which
amended the California Constitution to exempt Indian gaming in California from
the constitutional provision prohibiting Nevada-style casino gaming in
California. The Amendment also authorized the Governor to negotiate and
execute tribal-state gaming compacts for the operation of slot machines and
for the conduct of lottery games and banking and percentage card games by
federally recognized Indian tribes on Indian land in California. Subsequently,
the California legislature ratified each of the compacts entered into in
September 1999 with each of the 57 tribes (including the Tribe) and the State
of California.
Licensing and Registration Requirements of the Compact and State Regulation
In California, licensing and registration requirements for tribal
financing sources are governed by the compact and by regulations adopted by
the California Gambling Control Commission and the Tribal Gaming Commission.
Compact
The Tribe's compact requires that any person who directly or indirectly
extends financing to the Tribe's gaming facility or gaming operation must be
licensed as a "financial source" by the Tribal Gaming Commission. However, as
permitted by the compact, the Tribal Gaming Commission may, pursuant to the
Tribal Gaming Ordinance, exempt federally and state regulated banks, savings
and loan associations and other federally and state regulated lending
institutions, as well as persons who hold less than 10% of the
65
<page>
notes. For an applicant who is a non-exempted business entity, these licensing
provisions also apply to the entity's officers, directors, principal
management employees, owners (if an unincorporated entity), partners and
greater than 10% shareholders. Under the compact, a permanent license cannot
be issued unless the Tribal Gaming Commission has conducted an investigation
as to the suitability of the applicant. Any application for a gaming license
may be denied, and any license issued may be revoked, if the Tribal Gaming
Commission determines the applicant to be unsuitable or otherwise unqualified
for a gaming license. Each license is subject to review for compliance at
least every two years.
Prior to receiving a license, an applicant must apply to the
California Gambling Control Commission for a determination of suitability. If
the Tribal Gaming Commission receives notice that the Commission has
determined that a person is unsuitable, the compact requires that the Tribal
Gaming Commission revoke any license it has issued to such person.
The compact states that any agreement between the Tribe and a
financial source terminates upon revocation or non-renewal of the financial
source's license because of a determination of unsuitability by the California
Gambling Control Commission. Upon such a termination, the Tribe's only
liability is for repayment of all outstanding sums owed as of the termination
date, exclusive of unpaid accrued interest.
Further, the Tribe is not permitted to enter into, or continue to
make payments under, any financing agreement with anyone whose application to
the California Gambling Control Commission for a determination of suitability
has been denied or has expired without renewal.
State Regulation
On July 17, 2002, a regulation proposed by the California Gambling
Control Commission and approved by the association for state and tribal gaming
regulators went into effect. This regulation simplifies the licensing and
registration process for certain large institutional investors, both in the
initial distribution of the notes and the secondary market. Under this
regulation, certain regulated financial institutions with at least $100.0
million in securities of issuers not affiliated with such financial
institutions have the advantage of a simplified licensing and certification of
suitability process. Such qualifying institutions, once licensed by the Tribal
Gaming Commission, may become certified by the California Gambling Control
Commission by submitting an application and providing certain information.
Further, the regulation does not require any licensing or
registration for persons purchasing bonds in the secondary market. However,
unless a holder of bonds is licensed or exempted from licensing, neither the
holder nor the trustee on the holder's behalf will have any right to enforce
any payment obligation relating to the bonds. In addition, the trustee, the
Tribe and we may not make any payment of principal or interest on the bonds as
a result of any enforcement action or default acceleration of bond payments,
except to a person who is licensed or exempted from licensing.
Possible Changes in Federal Law
Several bills have been introduced in Congress that would amend IGRA.
While there have been a number of technical amendments to IGRA, to date there
have been no material changes. Any amendment of IGRA could change the
governmental structure and requirements within which the Tribe could conduct
gaming.
66
<page>
MATERIAL AGREEMENTS
Tribal-State Gaming Compact
The Tribe has entered into a gaming compact with the State of
California on terms substantially as described below. On May 16, 2000, the
Assistant Secretary of the Interior--Indian Affairs published a notice that
the Tribe's compact had been approved in accordance with IGRA. The compact
will be effective until December 31, 2020, unless it is earlier terminated in
accordance with its terms or extended through negotiation of the parties.
Gaming Activities Permitted. The compact permits the Tribe to offer
certain types of class III gaming. Specifically, subject to licensing and
other requirements described below, the Tribe may operate:
o gaming devices, which the compact describes as slot machines,
including electronic, electrotechnical, electrical, or video
devices;
o banking or percentage card games; and
o any devices or games that are authorized under California state
law to be operated by the California lottery.
Gaming Device Licenses. The tribal-state gaming compacts permit any
California Indian tribe with a signed compact, including the Tribe, to operate
up to 350 gaming devices. The compacts also provide a mechanism whereby tribes
with a signed compact may have an opportunity to acquire licenses for
additional gaming devices. The compacts specify that no tribe may operate more
than 2,000 gaming devices. The compacts also establish a state-wide limit on
the total number of gaming devices permitted in California, and sets forth a
procedure for allocating gaming devices to tribes over the
automatically-authorized 350 gaming devices. The aggregate limit on gaming
devices, and the procedure for allocating gaming devices, have been the
subject of some dispute, among the Office of the Legislative Analyst of the
State of California, the Special Counsel for Tribal Affairs to the Governor of
California, and the various tribes which signed tribal-state gaming compacts.
Each compact establishes a window of time, between March 8, 2003 and March 31,
2003, in which either party to the compact may request the other party to
commence negotiations in good faith concerning matters concerning the numbers
of gaming devices that may be licensed under the compacts, the mechanisms by
which licenses are allocated and the fees paid for licenses.
The compact also places limitations on the Tribe's gaming operations.
The Tribe may not:
o provide complimentary or discount alcoholic beverages, food or
lodging;
o permit persons under 18 years of age to be present in any room
where class III gaming is offered or persons under 21 years of
age if alcohol is sold in such rooms; or
o extend credit to any of its gaming patrons.
Sharing of Gaming Revenue With Other Tribes. The compacts created the
Revenue Sharing Trust Fund, which requires that tribes that acquire licenses
to operate more than 350 gaming devices after September 1, 1999 pay gaming
device fees to the State of California. The State of California then deposits
those fees into a revenue sharing trust fund and allocates the fees in an
equal distribution among all California tribes operating fewer than 350 gaming
devices. While the compacts expect this fund will provide for annual
distributions to California tribes that operate fewer than 350 gaming devices,
the revenue sharing funds are not guaranteed, and there is no requirement that
any tribe or other party compensate for any shortfall in distributions.
The tribal-state gaming compacts require tribes operating 350 or more
gaming devices to pay two fees into the Revenue Sharing Trust Fund: (1) a
one-time pre-payment license fee for each gaming device licensed over 350; and
(2) a fee assessed each calendar quarter to maintain each gaming device
67
<page>
license over 350. The Tribe has obtained licenses to operate a total of 1,800
gaming devices. Because the Tribe did not have any existing gaming devices
when the compact was signed, it is permitted to operate 350 gaming devices,
which are not subject to the licensing process. Therefore, in order to permit
the Tribe to operate 1,600 gaming devices, the Tribe was required to make the
one-time pre-payment fee for an additional 1,250 gaming device licenses. The
one-time pre-payment fee of $1,250 per license ($1,562,500 in aggregate) was
paid on May 8, 2000.
On September 5, 2002, the Tribe was awarded an additional 200 gaming
device licenses in a draw conducted by the California Gambling Control
Commission. The Tribe paid a one-time pre-payment fee of $1,250 per license
($250,000 in aggregate) on September 5, 2002.
The Tribe must also pay an annual fee (on a quarterly basis) into the
Revenue Sharing Trust Fund to maintain its 1,450 gaming device licenses. The
quarterly fee is based on a graduated scale and equals $2.2 million annually.
The Tribe does not pay a fee on its first 700 gaming devices because 350
gaming devices are not subject to licensure and there is no fee on its first
350 licensed devices.
The California Gambling Control Commission has adopted a policy that
quarterly payments begin from the date the Tribe drew the gaming device
licenses (which, solely for this purpose, is deemed to be May 15, 2000), and
that the payment for the initial quarter is pro rated for the amount of time
the gaming device license is in effect during that calendar quarter. As of
June 30, 2002, the Tribe's total payment liability to the Revenue Sharing
Trust Fund from May 16, 2000 was $2.8 million. The Commission has also adopted
the policy that the "pre-payment" fee is deemed a pre-payment for the Revenue
Sharing Trust Fund, and is therefore to be credited against quarterly payments
owed by the Tribe. Accordingly, the Tribe's "pre-payment" fee in the amount of
$1.6 million shall be deducted from the Tribe's quarterly payments, which
means, as of September 30, 2002, the Tribe has a balance of approximately $1.3
million.
Sharing of Gaming Revenue with the State. The compacts also require
certain other California gaming tribes to make quarterly contributions to a
Special Distribution Fund, which is a fund established for the State's
purposes, beginning after the second anniversary of the effective date of the
compact. The only tribes required to make payments into the Special
Distribution Fund, however, are those tribes that operated gaming devices
prior to September 1, 1999. Accordingly, because the Tribe did not operate any
gaming devices prior to September 1, 1999, the Tribe will not be subject to
make payments into the Special Distribution Fund.
Gaming Licenses. Each compact requires the following persons to be
licensed by the Tribal Gaming Commission:
o all persons required to be licensed under IGRA;
o all gaming employees;
o any suppliers who have sold gaming related goods to or received
payments from the Tribe in excess of $25,000;
o persons or entities which provide financing, directly or
indirectly, to the Tribe's gaming operations, provided that the
Tribe in its discretion can exclude from such licensing
federally or state regulated lending institutions, any agency
of the federal, state or local government, or any investor who,
alone or with others holds less than 10% of any outstanding
indebtedness evidenced by bonds issued by the Tribe other than
certain entities that fall under the exemption as described
under "Regulation of Indian Gaming--Licensing and Registration
Requirements of the Compact and State Regulation"; and
o any other persons having a significant influence over the
Tribe's gaming operations.
68
<page>
In each of the above cases, the tribal-state gaming compacts require
that such licenses be reviewed and renewed every two years. In addition, the
Tribal Gaming Commission is required to forward each license application that
it receives, along with its determination that it intends to issue the
applicant a license, to the State Gaming Agency for review.
The compacts require the State Gaming Agency to certify that a
license applicant is suitable for licensing under the California Gambling
Control Act. If the State Gaming Agency revokes or otherwise determines that a
person is unsuitable, the Tribal Gaming Commission must revoke any license
previously issued. However, the Tribe may refuse to revoke a license if:
o the person holds a valid tribal gaming license;
o the unsuitability determination is based solely on activities
that predate the filing of the person's application with the
State Gaming Agency;
o the person is not employed by another gaming operation; and
o the person was continuously employed by the Tribe for at least
three years prior to the effective date of the compact.
Other Regulations. The Tribe's gaming operations are generally
subject to California's workers' compensation (unless the Tribe develops its
own ordinances regarding workers' compensation), labor and unemployment and
disability compensation laws, federal occupational health and safety and
discrimination laws and county building and safety codes and standards. In
addition, the Tribe must make reasonable provisions for adequate emergency,
fire, medical and related relief and disaster services for its gaming patrons
and employees. To ensure uniformity of class III gaming regulations, the State
Gaming Agency will promulgate regulations to outline the Tribe's
responsibilities with respect to licensing, its compliance efforts with
respect to its compact and establishing rules and regulations for the
operation and management of the Tribe's gaming operations. The Tribe can
object to any such regulations on the grounds that such regulations are
unnecessary, unduly burdensome, or unfairly discriminatory and may seek to
have them repealed under the dispute resolution process of its compact.
Off-reservation Environmental Impacts. The compact requires the Tribe
to adopt an ordinance providing for the creation of environmental impact
reports concerning potential off-reservation environmental impacts. At any
time after January 1, 2003 and not later than March 1, 2003, the State may
request negotiations for an amendment to the provisions of the compact
relating to off-reservation environmental impacts, if the State believes the
compact's provision concerning these matters have proved to be inadequate. The
compact provides that if such a request is made, and if by January 1, 2005
either an agreement to amend the compact with respect to off-reservation
environmental impacts has not been reached, or a federal court has not
determined that the State's negotiations have not been in good faith, then the
Tribe must cease construction and all other activities on all projects then in
progress that have the potential to cause off-reservation environmental
impacts.
Dispute Resolution-Remedies for Breach. The tribal-state gaming
compact contains several provisions relating to dispute resolution and breach.
The compact requires that disputes first be subjected to a process of meeting
and negotiation, preceded by a written notice that sets forth the issues to be
resolved; however, parties are not prohibited from first seeking injunctive
relief in appropriate circumstances. If that process does not yield a
resolution within 30 days, then a binding arbitration process, under the
Commercial Arbitration Rules of the American Arbitration Association, may be
invoked by either party. However, that process is not exclusive of any other
remedy that is otherwise available to either party, and the compact provides
that either the State or the Tribe may bring an action in federal court, after
having provided 60 days written notice and an opportunity to cure any alleged
breach, for a declaration that the other party has materially breached the
compact's terms. Material breach is not defined in the compact. However, the
compact provides that upon issuance of such a declaration, the complaining
party may unilaterally terminate the compact upon service of written notice on
the other party. In the event that the federal courts lack jurisdiction over
such an action, the parties have waived their sovereign immunity from
69
<page>
suit to permit an action for such a declaration in the California Superior
Court for the county in which the Tribe's gaming facility is located.
Right of the Tribe to Terminate its Tribal-State Gaming Compact. If
the California Constitution is subsequently amended to permit Nevada-style
gaming (including slot machines and house banked card games) on property other
than Indian reservations, the Tribe may terminate the tribal-state gaming
compact at its discretion. However, upon termination, the Tribe will lose its
right to operate video slot machines and other forms of class III gaming in
California. If the Tribe elects not to terminate the compact, it can negotiate
a reduction of the rates it is required to pay to the State of California
under the compact.
Manager Agreement
The Manager has entered into a Manager Agreement with the trustee.
The agreement contains covenants that restrict the Manager's ability to incur
indebtedness, incur liens on its property, merge, consolidate or sell assets,
enter into sale and leaseback transactions or create subsidiaries. In
addition, the agreement limits the Manager's ability to engage in businesses
other than pursuant to the development agreement and management agreement, and
the development and management of one additional gaming facility which is not
materially larger in size and scope in terms of development costs than the
Chukchansi Gold Resort & Casino until the Chukchansi Gold Resort & Casino has
opened and certain financial tests have been satisfied.
Pursuant to this agreement, the Manager has also agreed to, among
other things:
o furnish to us all quarterly and annual financial information
that would be required to be filed with the SEC if the Manager
were a reporting company, including a "Management's Discussion
and Analysis of Financial Results and Operations" and a report
by the Manager's certified independent accountants;
o furnish us with all current reports that would be required to
be filed with the SEC if the Manager were a reporting company;
o certify on an annual basis to the trustee under the indenture
that the Manager has observed all covenants and fulfilled all
of its obligations under the Manager Agreement and the other
security agreements to which the Manager is a party for the
benefit of the holders of the notes;
o provide a written statement from the Manager's certified public
accountants to the effect that, in examining the annual
financial statements of the Manager, nothing has come to their
attention that would indicate that the Manager has violated any
of the foregoing agreements; provided that the rules governing
accountants permit them to deliver such a written statement;
and
o pay all material taxes prior to delinquency, unless such taxes
are contested in good faith.
Cash Accumulation Account Contribution Agreement
We have entered into a Cash Accumulation Account Contribution
Agreement with the Manager, the Tribe, the disbursement agent and the trustee.
Pursuant to this agreement, the Manager has agreed to deposit a portion of its
management fees and development fees that are paid to it pursuant to the
management agreement and the development agreement, respectively, into a
Manager security account for the benefit of the holders of the notes. See
"--Management Agreement" and "--Development Agreement." These funds, less any
amounts utilized to pay the taxes and expenses of the Manager, will be
available to fund any shortfalls in the $3.0 million per quarter that we are
required to contribute to the cash accumulation account for the benefit of the
holders of the notes following the opening of the Chukchansi Gold Resort &
Casino. Additionally, if any offer to repurchase or redeem outstanding notes
is made, the Authority is permitted to use a percentage of the funds deposited
into the cash accumulation account for
70
<page>
such repurchase or redemption in an amount equal to the percentage of notes
being repurchased or redeemed. All amounts drawn on the Manager security
account to fund shortfalls in our required cash accumulation amount will be
added to the balance of the Manager repayment note described in "Description
of Other Indebtedness--Manager Repayment Note," and we will be obligated to
repay such amounts pursuant to the terms of the Manager repayment note. At
such time as the cash accumulation account has been fully funded, we may repay
amounts due under the Manager repayment note.
All funds remaining in the Manager security account will be released
to the Manager without any continuing interest in such funds by holders of the
notes and the Manager will cease to be directly responsible for shortfalls in
the required cash accumulation amount on the first date that the following
conditions, referred to as the Release Conditions, are satisfied:
o the Chukchansi Gold Resort & Casino is operating;
o our fixed charge coverage ratio (as defined in the indenture)
has been at least 2.5 to 1.0 for the immediately preceding four
fiscal quarters, and, if the Chukchansi Gold Resort & Casino
was closed for more than five days during such period, our
fixed charge coverage ratio for the most recent fiscal quarter
was at least 2.5 to 1.0;
o the cash accumulation account contains at least the minimum
required cash accumulation amount; o no event of default has
occurred and is continuing; and
o the Chukchansi Gold Resort & Casino has not ceased operating
for more than five days since the end of the last fiscal
quarter.
Prior to the final release of funds described above, funds deposited
into the Manager security account will be released to the Manager to:
o under certain circumstances, fund the Manager's members' tax
liability attributable to the management fees and development
fees in an amount not to exceed, together with other tax
amounts, $2.1 million per year; and
o reimburse specified expenses incurred by the Manager in
connection with its performance of its obligations under the
management agreement and the development agreement in amounts
of up to $3.4 million per year.
The Cash Accumulation Account Contribution Agreement also provides
for a pledge in favor of the trustee of the Manager security account, certain
related assets and the Manager repayment note to secure performance of Cascade
Entertainment's obligations under certain agreements and our obligations to
make payments on the notes.
Letter of Credit Drawdown Agreement
We have entered into a Letter of Credit Drawdown Agreement with the
Tribe, Credit Provider Group and the trustee. Pursuant to this agreement,
Credit Provider Group has agreed to provide us with a letter of credit in an
initial amount equal to $15.0 million.
We may draw on the letter of credit if we are unable to otherwise
satisfy our obligations to:
o fund shortfalls in the construction budget of the Chukchansi
Gold Resort & Casino;
o complete construction of the Chukchansi Gold Resort & Casino
within 18 months of the closing of this offering (if the
independent construction consultant does not certify that the
construction budget for the Chukchansi Gold Resort & Casino has
not been exceeded
71
<page>
by more than $2.5 million);
o in certain circumstances, make payments of principal and
interest on the notes; or
o in any case, complete construction of the Chukchansi Gold
Resort & Casino within 21 months of the closing of this
offering.
We may also draw upon the letter of credit:
o upon the occurrence of specified bankruptcy events involving
us; or
o if the letter of credit is due to expire within 30 days and has
not been replaced.
If we do not draw on the letter of credit upon the occurrence of any
of the above events, then the trustee must draw on the letter of credit
without our participation. All amounts drawn on the letter of credit will be
added to the balance of the L/C note described in "Description of Other
Indebtedness--Letter of Credit Note" and we shall be obligated to repay such
amounts pursuant to the terms of the L/C note.
The amount of the letter of credit will be reduced to the lesser of
$10.0 million and the undrawn amount under the letter of credit at such time
as the following conditions have been satisfied:
o the Chukchansi Gold Resort & Casino is operating and has been
operating for at least 30 days;
o all amounts required to be paid to contractors in connection
with the construction and development of the Chukchansi Gold
Resort & Casino have been paid; and
o there are no liens against the Chukchansi Gold Resort & Casino
by any contractor or any other party other than those permitted
by the indenture governing the notes.
The letter of credit will terminate upon the later of (1) the final
repayment of the notes under the indenture or (2) the final repayment of our
obligations under the L/C note, or at such time as we experience a fixed
charge coverage ratio of at least 2.5 to 1.0 during the preceding four
consecutive fiscal quarters beginning after the initial operating date of the
Chukchansi Gold Resort & Casino.
Credit Provider Group has pledged all of its rights under the Letter
of Credit Drawdown Agreement, the letter of credit and the L/C note to the
trustee for the benefit of the holders of the notes, as security for the
obligations of Credit Provider Group under the Letter of Credit Drawdown
Agreement and our obligations under the indenture.
In consideration of the provision of the letter of credit, we will
pay a commitment fee to Credit Provider Group from time to time equal to the
commitment fee paid by Credit Provider Group to the bank that issues the
letter of credit.
Cash Collateral and Disbursement Agreement
Pursuant to the Cash Collateral and Disbursement Agreement entered
into among the disbursement agent, the trustee, the independent construction
consultant, us and the Tribe, the net proceeds of the Financing Transactions
were placed into a construction disbursement account and an interest reserve
account, to be disbursed by a disbursement agent pursuant to the Cash
Collateral and Disbursement Agreement.
Interest Reserve Account. Approximately $32.6 million of the net
proceeds of the Financing Transactions were deposited into an interest reserve
account. Funds in this account will be invested in securities by the
disbursement agent as directed by the trustee from time to time. Funds and
other assets held in the interest reserve account have been pledged to the
trustee for the benefit of itself and the holders
72
<page>
of notes. These funds will be used for payments of interest on the notes
during the construction period in accordance with the indenture.
Construction Disbursement Account. Approximately $111.4 million of
the net proceeds of the Financing Transactions were deposited into a
construction disbursement account and will be used to fund the development,
construction and opening of the Chukchansi Gold Resort & Casino. All such
funds are held in the construction disbursement account and pledged to the
trustee for the benefit of itself and the holders of the notes until disbursed
in accordance with the Cash Collateral and Disbursement Agreement.
Subject to certain exceptions, the disbursement agent will disburse
funds from the construction disbursement account only upon the satisfaction of
the disbursement conditions set forth in the Cash Collateral and Disbursement
Agreement.
The Cash Collateral and Disbursement Agreement will permit advance
disbursements from the construction disbursement account up to $2.5 million in
the aggregate outstanding at any time subject to certain conditions.
Contingent Interest Account. On each interest payment date on which
the Release Conditions are not met, the Authority will deposit contingent
interest earned on the senior subordinated PIK notes, the subordinated PIK
note and the L/C note into the contingent interest account. All funds in the
contingent interest account have been pledged to the trustee for the benefit
of the holders of the notes until released. These funds will be released (1)
on any interest payment date on which the Release Conditions are met to pay
deferred contingent interest on the senior subordinated PIK notes, the
subordinated PIK note and the L/C note, (2) if and to the extent necessary to
ensure that management fees (net of tax amounts), together with the amounts
released, are at least $2 million per year, and (3) to pay tax amounts due
under these instruments. Amounts released under clause (2) above will be
deemed to have been loaned to the Manager by the Authority pursuant to a note.
This note has been pledged to the trustee for the benefit of the holders of
the notes.
Construction Budget. The Cash Collateral and Disbursement Agreement
provides that the construction budget may be amended only upon the
satisfaction of certain conditions set forth in the Cash Collateral and
Disbursement Agreement. In addition, construction line items in the
construction budget may only be increased if the funds for such increase are
made available in the construction budget from certain specified sources,
provided, that the line item established for "finishes" in the construction
budget may not be reduced by more than 35%. We have also agreed to cure any
anticipated cost overrun during the construction of the Chukchansi Gold Resort
& Casino using funds from certain specified sources and to provide certain
certifications from time to time regarding project costs.
Final Disbursement of Funds. Pursuant to the Cash Collateral and
Disbursement Agreement, once the disbursement agent receives an officer's
certificate from us, the Manager and the independent construction consultant
confirming that (1) the Chukchansi Gold Resort & Casino has been operating
uninterrupted for at least 30 days prior to the date of certification, (2) all
amounts required to be paid to the contractors in connection with the
Chukchansi Gold Resort & Casino have been paid and (3) that there are no
mechanic's liens or other liens filed against the Chukchansi Gold Resort &
Casino, then the disbursement agent will disburse all remaining funds in the
interest reserve account and the construction disbursement account, if any, to
the account specified by us.
Investments; Pledge of Accounts. The disbursement agent shall invest
any money held by it in the collateral accounts established pursuant to the
Cash Collateral and Disbursement Agreement in cash equivalents as directed in
writing by the trustee from time to time. Any income or gain realized as a
result of any such investment shall be held as part of the applicable account
and reinvested as provided in the Cash Collateral and Disbursement Agreement.
All funds, securities and other assets in the securities accounts and the
deposit accounts established pursuant to the Cash Collateral and Disbursement
Agreement will be pledged to the trustee for the benefit of the holders of
notes.
73
<page>
Intercreditor Agreement
We and the Tribe have entered into an Intercreditor Agreement with
the trustee, the trustee under the indenture governing the senior subordinated
PIK notes (the "Senior Subordinated PIK Notes Trustee"), and the trustee under
the indenture governing the subordinated PIK notes (the "Subordinated PIK
Notes Trustee"), Credit Provider Group, as lender under the L/C note and
Cascade Entertainment, as lender under the Manager repayment note. See
"Description of Other Indebtedness" for a description of these notes. Under
the Intercreditor Agreement, each of the Subordinated PIK Notes Trustee (on
behalf of the holders of the subordinated PIK notes), Cascade Entertainment
and Credit Provider Group, (the "Junior Lenders"), have agreed that the
payment of any amounts payable under the subordinated PIK notes, the Manager
repayment note or the L/C note, respectively, is subordinate and subject in
right of payment to the prior payment in full of the notes and the senior
subordinated PIK notes. In addition, the Senior Subordinated PIK Notes Trustee
has agreed that the payment of any amounts owed pursuant to the senior
subordinated PIK notes is subordinate and subject in right of payment to the
prior payment in full of the notes.
Payments on Subordinated Notes. Pursuant to the Intercreditor
Agreement, while the notes are outstanding, cash payments may be made on the
senior subordinated PIK notes only upon satisfaction of the Release Conditions
(described under "--Cash Accumulation Account Contribution Agreement"), except
with respect to certain tax amounts. While the notes and the senior
subordinated PIK notes are outstanding, cash payments may be made on the
Manager repayment note, the subordinated PIK notes and the L/C note only as
follows:
o except with respect to certain tax amounts, payments may be
made on the Manager repayment note only if we have made all of
the deposits required to be made into the cash accumulation
account as of such date and such payment on the Manager
repayment note would not cause the cash accumulation account to
become funded at less than the required level; and
o except with respect to certain tax amounts, payments may be
made on the subordinated PIK notes and the L/C note only if the
Release Conditions have been satisfied as of such date.
Restrictions on Receipt of Payments by Subordinated Claimants. If
all or any part of our assets are subject to any distribution, division or
application to our creditors, then any payment or distribution in connection
therewith that is payable or deliverable to any Junior Lender will be paid or
delivered to the trustee until the notes are paid in full. Thereafter, any
remaining amounts shall be paid to the holders of the senior subordinated PIK
notes until the senior subordinated PIK notes are paid in full.
Until such time as the notes have been paid in full, if the holders
of the senior subordinated PIK notes or any Junior Lender receives any
payment, distribution or other investment property with respect to any of
their respective notes in violation of the indenture or the Intercreditor
Agreement, the holders of the senior subordinated PIK notes or such Junior
Lender, as applicable, must hold the same in trust for the benefit of the
holders of the notes and must deliver the same to the trustee for the benefit
of the holders of the notes. Any amounts delivered by any Junior Lender to the
trustee in excess of the amounts required to pay the notes in full will be
delivered to the holders of the senior subordinated PIK notes for application
to the senior subordinated PIK notes. If any amounts remain after the payment
in full of the senior subordinated PIK notes, such amounts will be returned to
us for application to the subordinated PIK notes, the L/C note and the Manager
repayment note in accordance with the terms of such notes.
Following the payment in full of the notes, until such time as the
senior subordinated PIK notes have been paid in full, if any Junior Lender
receives any payment, distribution or other investment property with respect
to their respective notes in violation of the terms of the senior subordinated
PIK notes or the Intercreditor Agreement, such Junior Lender must hold the
same in trust for the benefit of the holders of the senior subordinated PIK
notes and shall deliver the same to the Senior Subordinated PIK Notes Trustee
for the benefit of the holders of the senior subordinated PIK notes.
The Intercreditor Agreement also provides that none of the Junior
Lenders, or the holders of the senior subordinated PIK notes will have any
lien, claim, right, title or interest in or to the collateral securing
74
<page>
our obligations under the notes, except as expressly set forth in the Cash
Accumulation Account Contribution Agreement or the Letter of Credit Drawdown
Agreement. Should any of the Junior Lenders or the holders of the senior
subordinated PIK notes obtain any right, title, interest or lien in such
collateral, other than those permitted rights or interests described in the
previous sentence, the Intercreditor Agreement requires such party to
terminate and release its interest or assign it to the trustee. If the Junior
Lenders or the holders of the senior subordinated PIK notes fail to terminate
and release or to assign its interest to the trustee, the trustee may, at its
option, deem our obligations under the subordinated PIK notes or the senior
subordinated PIK notes to be deemed paid and satisfied in full.
The Intercreditor Agreement prohibits the holders of the senior
subordinated PIK notes or the Junior Lenders from assigning all or any portion
of their respective notes unless the assignee executes and delivers to the
trustee an agreement to be bound by the terms of the Intercreditor Agreement.
Cascade Entertainment may only assign its obligations under the Manager
repayment note to a "Permitted Replacement Manager" who agrees to be bound by
the terms and conditions of the Intercreditor Agreement. See "Description of
the New Notes--Certain Definitions" for the definition of Permitted
Replacement Manager.
The Intercreditor Agreement also provides for a pledge of the
subordinated PIK notes in favor of the trustee to secure the performance by
the Subordinated PIK Notes Trustee (on behalf of the holders of the
subordinated PIK notes) of its obligations under the Intercreditor Agreement
and our obligations under the notes.
The Intercreditor Agreement will terminate automatically upon payment
in full of the notes and the senior subordinated PIK notes.
Development Agreement
General. We, the Tribe and Cascade Entertainment entered into an
Amended and Restated Development Agreement, dated June 15, 2001, as amended,
providing for the management of the development, design, furnishing, equipping
and construction of the Chukchansi Gold Resort & Casino by Cascade
Entertainment on behalf of us and the Tribe.
Exclusive Rights of Cascade Entertainment; Restrictions on Collateral
Development. Subject to certain design and budget approval rights retained by
us under the development agreement, we have granted to Cascade Entertainment
the exclusive right to develop the Chukchansi Gold Resort & Casino. During the
term of the development agreement, Cascade Entertainment is restricted from
developing, operating or managing any gaming facility within 75 miles of the
Chukchansi Gold Resort & Casino exclusive of a possible gaming facility to be
owned by the Buena Vista tribe.
Development Plan. Under the development agreement, Cascade
Entertainment is responsible for various development matters. We have approved
a comprehensive development plan submitted to us and the Tribe, which
development plan includes a schedule of critical dates, a budget and a
prioritized list of development activities.
Development Fees. In connection with services rendered by Cascade
Entertainment under the development agreement, Cascade Entertainment will
receive a development fee in the amount of 4% of the total cost of developing
the Chukchansi Gold Resort & Casino, not to exceed $4.5 million which cost
will be defined in budgets approved by us pursuant to the terms of the
development agreement. Prior to the commencement of construction, Cascade
Entertainment is entitled to a monthly fee of $20,000 as a portion of and not
in addition to the development fee to be paid to Cascade Entertainment.
Thereafter, the development fees will be payable in proportion to the
disbursement of funds for payment of construction costs.
Employment of Architects and Design Team. Cascade Entertainment has
pre-qualified and we have approved a design team, including Morris & Brown,
the architect, Walton Construction, the construction manager, and Rider Hunt
Levett & Bailey, the construction consultant, which shall be employed to
prepare design and engineering plans and specifications for the Chukchansi
Gold Resort &
75
<page>
Casino. The development agreement grants Cascade Entertainment the right and
responsibility to directly supervise and administer the duties and activities
of the design team.
Design and Construction Budgets; Funding Requirements; Cost
Overruns. Cascade Entertainment is responsible for the preparation of a
development budget for the design, development, construction, furnishing,
equipping and opening of the Chukchansi Gold Resort & Casino, which will be
subject to our approval. The development budget is subject to revision from
time to time by Cascade Entertainment (with prior notice to and approval by
us) to reflect unpredicted changes, variables or events or to include
additional modifications to the conceptual design of the Chukchansi Gold
Resort & Casino. Cascade Entertainment is permitted, upon notice to us, to
reallocate the amounts set forth in any line items of the development budget
or make other modifications to the development budget, provided, that unless
our approval has been obtained, such modifications do not result in an
increase in the aggregate amount of the development budget as Cascade
Entertainment deems necessary or appropriate or otherwise conflict with the
terms of the development agreement. In addition to the development budget,
during the pre-construction phase of the Chukchansi Gold Resort & Casino,
Cascade Entertainment is required to submit to us a statement of legal
compliance requirements and a preliminary evaluation of the proposed
development of the Chukchansi Gold Resort & Casino. The development agreement
provides that the design, construction and maintenance of the Chukchansi Gold
Resort & Casino shall, except to the extent a particular requirement or
requirements may be waived by us, meet or exceed all reasonable minimum
standards pertaining to the Tribe and federal building codes, fire codes and
safety and traffic requirements which would be imposed on us by existing
Federal statutes and regulations. We and Cascade Entertainment will have
approval rights with respect to the plans and specifications for the
Chukchansi Gold Resort & Casino.
Construction Phase--Contractor Selection; Employment Preference;
Cascade Entertainment Oversight. Cascade Entertainment is required to
pre-qualify a construction team consisting of all prospective contractors,
sub-contractors and vendors and submit the list of the construction team to us
for approval. Special consideration is to be given to qualified Native
American owned companies or companies with a program of effective employment
of Native Americans. In addition, in entering into contracts for the supply of
goods and services, Cascade Entertainment shall give preference to Native
Americans, their spouses and children, and business entities controlled by
members of the Tribe, who or which, in Cascade Entertainment's opinion,
possess sufficient skills and competence, and can meet reasonable bonding
requirements. Cascade Entertainment selected and we approved Walton
Construction as the construction manager and Rider, Hunt, Levett & Bailey as
the construction consultant for the Chukchansi Gold Resort & Casino. Following
Cascade Entertainment's review of proposals from other prospective contractors
and our approval of the remainder of the construction team, we will enter into
contracts with the construction team. The construction team will be paid
solely out of the proceeds from the issuance of the notes.
Cascade Entertainment is responsible for the administration and
supervision of all contracts and agreements with the construction team and
will act as our representative, with full power and authority to act on our
behalf, in connection with any such contracts. Specifically, Cascade
Entertainment will be responsible for all persons performing work on the site
of the Chukchansi Gold Resort & Casino, inspecting the progress of
construction, determining completion dates and reviewing contractor payment
requests submitted to us. All contractors will be required to warrant that
their construction is free of defects and constructed in a workmanlike manner
for a period of at least one year from the date of completion and Cascade
Entertainment will have the authority to reject any work that does not comply
with the applicable contracts.
Furnishings and Equipment. Furnishings and equipment for the
Chukchansi Gold Resort & Casino will be purchased by us from vendors selected
by Cascade Entertainment in conformance with specifications approved by
Cascade Entertainment and us, or at our election, leased on terms arranged by
Cascade Entertainment and approved by us.
Engagement Fees; Tribal Advances. Cascade Entertainment has paid the
Tribe $75,000 in initial engagement fees. Cascade Entertainment paid an
additional $25,000 engagement fee on August 26, 2002 and another $50,000
engagement fee on October 25, 2002. Upon commencement of construction of the
76
<page>
Chukchansi Gold Resort & Casino, the amount of the monthly advance to the
Tribe increased from the current amount of $10,000 to approximately $35,000.
Termination, Default and Disputes. The development agreement may be
terminated at any time by mutual agreement of the Tribe, us and Cascade
Entertainment. We have the right to terminate the development agreement in the
event that a material breach or failure to perform any material duty or
obligation by Cascade Entertainment, and Cascade Entertainment has the right
to terminate the development agreement in the event that a material breach or
failure to perform any material duty or obligation by us or the Tribe remains
uncured for at least 30 days, in each case following notice to the
non-performing party of such breach or failure to perform. The development
agreement may be involuntarily terminated upon a determination by either the
appropriate body of the federal government or a court of competent
jurisdiction that any material aspect of gaming at the Chukchansi Gold Resort
& Casino is unlawful under federal law. Cascade Entertainment has the right to
terminate the development agreement if:
o any regulatory agency has notified Cascade Entertainment that
the performance of its obligations under the development
agreement will jeopardize the retention of any license;
o Cascade Entertainment has reason to believe that the
performance of any obligation under the development agreement
may reasonably be expected to result in the breach of any
future and present rulings, decisions, laws, regulations,
permits, licenses and certificates; or
o through its own actions we fail to make any payment to Cascade
Entertainment pursuant to the development agreement when due.
Disputes between the parties with respect to the development
agreement may be submitted by any party to binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
and, if necessary, orders to compel arbitration or aid arbitration, enforce an
award of an arbitrator or provide any necessary remedies in aid of arbitration
may be sought before the state or federal courts sitting in the State of
California. Notwithstanding the foregoing, an arbiter shall not have the power
to compel, negate, assume, usurp or in any manner affect any resolution,
ordinance, statute, regulation, order or decision, regardless of how
constituted, having the force of law or legal authorization of the Tribe, us
or any instrumentality or agency of the Tribe, unless such action(s), or
failure to take such action(s) constitutes a breach of the development
agreement by us or the Tribe. In the event of a dispute between the parties or
the termination of the development agreement, any of the Tribe, us and Cascade
Entertainment may pursue any remedies at law or equity.
Limited Waiver of Sovereign Immunity. Under the development
agreement, we and the Tribe have waived any recourse to tribal court and any
argument that exhaustion of tribal court remedies is required before dispute
resolution can commence in another forum. We and the Tribe have agreed that
arbitration of disputes under the Commercial Arbitration Rules of the American
Arbitration Association will be the mechanism for dispute resolution, and that
the law of the State of California will govern the development agreement. We
and the Tribe have irrevocably waived our sovereign immunity from suit to
permit such arbitration. We and the Tribe have also waived our sovereign
immunity in state or federal courts to compel arbitration, aid arbitration, or
enforce awards from arbitration. We and the Tribe have agreed that arbitrators
can award injunctive relief, including temporary and emergency injunctive
relief. The Tribe's and our waiver of immunity is limited to enforcement of
money damages from net revenues not yet distributed to the Tribe. Funds earned
and paid over to the Tribe prior to any judgment or award are not subject to
the waiver and would not be available for levy pursuant to any judgment or
award.
Management Agreement
General. To provide for the management of the Chukchansi Gold Resort
& Casino, we, the Tribe and Cascade Entertainment have entered into the Second
Amended and Restated Management Agreement, dated July 16, 2002, pursuant to
which we and the Tribe have retained and engaged Cascade Entertainment, and
granted Cascade Entertainment the exclusive right and obligation, to develop,
operate, manage and maintain the Chukchansi Gold Resort & Casino and to train
members of the Tribe and others in the
77
<page>
operation and maintenance of the Chukchansi Gold Resort & Casino. The term of
the management agreement is seven years commencing upon the date that the
Chukchansi Gold Resort & Casino opens to the public. The management agreement
provides that there are a number of conditions precedent to its effectiveness,
all of which have been met, including:
o approval by the Chairperson of the NIGC of the management
agreement (which was received on July 25, 2002);
o the satisfactory completion of all necessary feasibility
studies necessary for the development, construction and
operation of the Chukchansi Gold Resort & Casino;
o receipt of all applicable licenses for or related to the
development, construction or management of the Chukchansi Gold
Resort & Casino;
o approval by the Tribe, the State of California and the NIGC
with respect to the background investigations of Cascade
Entertainment and its officers; and
o receipt by Cascade Entertainment of our approval of all plans
and specifications related to the Chukchansi Gold Resort &
Casino.
We, Cascade Entertainment and the Tribe have agreed to cooperate and
use our best efforts to satisfy all the above-referenced conditions at the
earliest possible date.
Cascade Entertainment has agreed to use its best efforts to promote
and manage the Chukchansi Gold Resort & Casino and the Tribe and we have
agreed that, except as required by law, neither will adopt any amendments to
the constitution, the tribal ordinances creating us, the tribal-state
ordinance or any other law or ordinance that would materially adversely affect
Cascade Entertainment's right to operate and maintain the Chukchansi Gold
Resort & Casino or to affect our jurisdiction, power, composition,
independence or compensation. The management agreement provides that neither
the Tribe nor we nor any of our agents, affiliates or representatives, will
impose any taxes, fees, assessments or other charges on payments of any debt
service to Cascade Entertainment or any lender, on the Chukchansi Gold Resort
& Casino or the revenues therefrom or on the management fee payable to Cascade
Entertainment thereunder. The management agreement provides, however, that the
Tribe and we shall have the right to assess license fees that reflect
reasonable regulatory costs incurred by the Tribe and us.
Management Duties and Related Obligations of Cascade Entertainment.
The management agreement provides that Cascade Entertainment will be
responsible for the day-to-day management, operation and maintenance of the
Chukchansi Gold Resort & Casino, with the intention that the Chukchansi Gold
Resort & Casino is to be open 24 hours per day, 7 days per week. The
management agreement provides that we and Cascade Entertainment will consult
and select a general manager to fulfill certain of Cascade Entertainment's
responsibilities thereunder. Cascade Entertainment has agreed to operate the
Chukchansi Gold Resort & Casino in compliance with all legal requirements of
the Tribe and other applicable laws and that Cascade Entertainment and all of
Cascade Entertainment's executive officers shall be licensed by the Tribe
pursuant to its tribal gaming ordinance.
Contracts; Funding; Marketing. The management agreement provides
that the general manager will have the authority to enter into contracts for
the operation of the Chukchansi Gold Resort & Casino on our behalf. Any
contract that requires annual expenditures in excess of $50,000 or that is
entered into with affiliates of Cascade Entertainment must be approved by us.
In addition, Cascade Entertainment has agreed to assist us in obtaining
funding necessary for the operation of the Chukchansi Gold Resort & Casino and
will be responsible for the marketing, advertisement and promotion thereof.
Cascade Entertainment will have the right to sell alcoholic beverages and
tobacco products at the Chukchansi Gold Resort & Casino in accordance with the
tribal-state gaming compact and legal requirements of the Tribe. The Tribe has
agreed to enact the necessary tribal legislation to allow the sale of
alcoholic beverages and tobacco at the Chukchansi Gold Resort & Casino to the
full extent permitted by the compact.
78
<page>
Pursuant to the management agreement and subject to the law
enforcement authority of the Tribe, Cascade Entertainment will be responsible
for all aspects of the security at the Chukchansi Gold Resort & Casino. The
parties have agreed that we and Cascade Entertainment will have 24-hour access
to the entire gaming facility, including all security and surveillance
facilities and records. In addition, Cascade Entertainment will be responsible
for maintaining, on our behalf, insurance coverage for the Chukchansi Gold
Resort & Casino satisfactory to Cascade Entertainment and us and to the extent
provided for in the management agreement, including "all risk," general
commercial liability, workers' compensation and employer liability. All such
policies will name Cascade Entertainment, Cascade Entertainment's affiliates
and us as named insureds and/or loss payees to the extent provided in the
management agreement.
Casino Employees; Employment Preference. Cascade Entertainment will
have the exclusive responsibility and authority to select, retain, train and
discharge all employees hired to perform services for the Chukchansi Gold
Resort & Casino. Cascade Entertainment has agreed to establish standardized
personnel policies and procedures, including a job classification system with
salary levels and scales, which will be subject to our approval and include a
grievance procedure to promote fair and uniform standards for all persons
employed at the Chukchansi Gold Resort & Casino. All employees will be our
employees and not of Cascade Entertainment, and such employees will be subject
to all labor, employment and unemployment insurance laws of California which
would apply to employees not working on an Indian reservation. In order to
maximize the benefits enjoyed by the Tribe, Native Americans, their spouses
and children will be given preference in recruiting, employment and training
with respect to all job categories in connection with the operation of the
Chukchansi Gold Resort & Casino, including management positions. Cascade
Entertainment has agreed to conduct applicable background investigations with
respect to each applicant for employment at the Chukchansi Gold Resort &
Casino. Cascade Entertainment will have the sole responsibility for
determining whether a prospective employee possesses necessary skills for any
position and the level of compensation to be paid to such individual. Cascade
Entertainment has agreed that any discharge, demotion or discipline of
employees will be conducted in accordance with such policies and procedures.
Operating and Capital Budgets; Replacement Reserve Fund. Four months
prior to the scheduled opening of the Chukchansi Gold Resort & Casino, Cascade
Entertainment is required to commence a pre-opening program, which shall
include all activities necessary to financially and operationally prepare the
Chukchansi Gold Resort & Casino for opening. At least three months prior to
the scheduled opening of the Chukchansi Gold Resort & Casino, Cascade
Entertainment must prepare a comprehensive pre-opening budget to be submitted
to us, which pre-opening budget shall set forth expenses which Cascade
Entertainment anticipates to be necessary or desirable in order to prepare the
Chukchansi Gold Resort & Casino for opening. Prior to the scheduled opening
date of the Chukchansi Gold Resort & Casino, Cascade Entertainment is required
to submit to us a proposed operating budget and annual plan for the then
current fiscal year, and thereafter not less than 60 days prior to the
commencement of each fiscal year, submit a proposed operating budget and
annual plan for the next fiscal year. The operating budget and annual plan are
subject to our approval, which approval shall not be unreasonably withheld or
delayed.
After approval of the operating budget and annual plan, Cascade
Entertainment may, after notice to us, without our approval, reallocate any
budgeted line items to another line item and make other modifications as
Cascade Entertainment deems necessary, provided that the total adjustments to
the operating budget and annual plan do not exceed 110% of the prior approved
operating budget and annual plan. Similarly, Cascade Entertainment is required
to submit to us not less than 60 days prior to the commencement of each fiscal
year, a recommended capital budget describing the present value, useful life
and estimated replacement costs for the physical plant, furnishings and
equipment and ordinary capital replacement items of the Chukchansi Gold Resort
& Casino, which budget shall be approved by us. We are responsible for
spending the funds necessary to make capital replacements out of a capital
replacement reserve fund, which shall be funded monthly by Cascade
Entertainment making deposits in amount equal to 2% of the gross revenues from
the Chukchansi Gold Resort & Casino during the first two years of operations
and 3% of the gross revenues from the Chukchansi Gold Resort & Casino during
the remaining term of the Chukchansi management agreement.
79
<page>
Bank Accounts and Accounting Procedures; Inspection by Tribe. Under
the management agreement, Cascade Entertainment is authorized to establish
such bank accounts, for our benefit, as Cascade Entertainment shall deem
necessary for the operation of the Chukchansi Gold Resort & Casino at such
bank or banks selected by us. The management agreement provides for the
establishment of depositary and disbursement accounts and authorizes Cascade
Entertainment to pay from the disbursement accounts such funds as are
necessary to cover the operating expenses of the Chukchansi Gold Resort &
Casino, debt service payments on the notes, management fees payable to Cascade
Entertainment and disbursements to the Tribe and us. In addition, Cascade
Entertainment will be responsible for the installation of internal control
systems for the monitoring of all funds, which systems will be subject to
approval and review by the Tribal Gaming Commission and us. The Tribal Gaming
Commission is entitled to appoint an inspector, who will have the right to
inspect and oversee such internal control systems at all times.
The management agreement requires Cascade Entertainment to maintain,
in accordance with generally accepted accounting principles, books and records
reflecting the operations of the Chukchansi Gold Resort & Casino and to
prepare monthly, quarterly and annual statements for us. An annual audit of
the Chukchansi Gold Resort & Casino will be conducted by an independent
certified public accounting firm selected by us. In addition, the NIGC will
have all rights to inspect such books and supporting business records as are
afforded to it by law.
Management Fee; Reimbursement and Disbursement. The management
agreement provides that Cascade Entertainment is entitled to a management fee
equal to 30% of the net revenues (as defined below) of the Chukchansi Gold
Resort & Casino less 70% of all contingent interest payable under the senior
subordinated PIK notes and the subordinated PIK note, provided, that the
aggregate amount of all past and present management fees and the development
fee to be paid to Cascade Entertainment may not exceed in total 30% of the
aggregate net revenues (including interest on bank accounts) of the Chukchansi
Gold Resort & Casino at any time. Any management fees withheld from payment as
being in excess of such cap shall accrue until such time as the foregoing
requirement is satisfied. Under this formula, management fees shall accrue
until such time as the aggregate contingent interest paid under the senior
subordinated PIK notes and the subordinated PIK notes exceed the Chukchansi
development fee to be paid to Cascade Entertainment. As defined in the
Chukchansi management agreement, "net revenues" of the Chukchansi Gold Resort
& Casino means the amount of the gross revenues of the Chukchansi Gold Resort
& Casino, less operating expenses (including interest expense, depreciation
and amortization) and certain specified categories of revenue, such as income
from any financing or refinancing, taxes or charges received from patrons on
behalf of and remitted to a governmental entity, proceeds from the sale of
capital assets, insurance proceeds and interest on bank accounts. Within 21
days after the end of each calendar month, Cascade Entertainment is required
to calculate and report to us the gross revenues, operating expenses and net
revenues of the Chukchansi Gold Resort & Casino for the previous month's
operations and the year's operations to date. Cascade Entertainment is
required to pay to the Tribe from net revenues of the Chukchansi Gold Resort &
Casino, or, if insufficient, from its own funds, a minimum guaranteed monthly
payment of not less than $100,000 per month during the term of the management
agreement, which minimum guaranteed monthly payment has priority over the
management fee to be paid to Cascade Entertainment and payment due on the
notes.
Under the management agreement, net revenues (less any amount
reasonably required to maintain the house bank) are required to be disbursed,
to the extent due and payable and earned, in the following order of priority:
o the minimum guaranteed monthly payment. In the event that net
revenues for any given month are less than the minimum
guaranteed monthly payment, Cascade Entertainment will be
required to fund any deficiency from its own funds. Minimum
guaranteed monthly payments shall be made for any month during
which any gaming is conducted, even if only for part of a month
but will be reduced pro rata in proportion to the portion of
the month in which gaming does not occur. No minimum guaranteed
monthly payment will be required to be made for any month
during which gaming at the Chukchansi Gold Resort & Casino is
80
<page>
suspended or terminated for the full month;
o payments due on the notes and other debt service payments (or a
reserve for a proportionate amount of debt service payments
which are not payable on a monthly basis);
o deposits to the capital reserve fund;
o payments due on the interim promissory note to Cascade
Entertainment and the reimbursement of amounts advanced by
Cascade Entertainment; and
o payment of the management fee to Cascade Entertainment.
All remaining net revenues, if any, and cash may be distributed to
us subject to the restrictions contained in the indenture governing the notes.
See "Description of the New Notes--Restricted Payments."
Liens; Taxes. Under the management agreement, we, the Tribe and
Cascade Entertainment have represented and warranted to the others that none
of us will act directly or indirectly, to cause any party, other than Cascade
Entertainment and the holders of the notes, to become a lienholder of any
property of the Chukchansi Gold Resort & Casino, or to allow any party to
obtain any such interest under the management agreement without the prior
consent of Cascade Entertainment, the Tribe or us, as the case may be, and, if
required, the United States. In addition, we and Cascade Entertainment have
agreed to keep the Chukchansi Gold Resort & Casino free and clear of any
liens, whether resulting from the construction of the Chukchansi Gold Resort &
Casino or otherwise. We have retained the right to grant security interests in
the Chukchansi Gold Resort & Casino revenues to the extent such interests are
subordinated to all loans made by Cascade Entertainment to us and to the
notes, and to grant security interests in any physical assets of the
Chukchansi Gold Resort & Casino other than personal property purchased with
proceeds from the issuance of the notes but only if such security interests
are permissible under the notes granted to secure loans made to and for the
benefit of the Chukchansi Gold Resort & Casino and Cascade Entertainment has
been offered a prior opportunity to make such loans on similar terms.
The parties have agreed that in the event that any governmental
entity attempts to impose taxes upon any party to the management agreement or
upon the property or operations of the Chukchansi Gold Resort & Casino, we may
resist such attempt on behalf of such party or entity through appropriate
legal proceedings. The costs of such proceedings and any tax or other payment
required to be made will be treated as an operating expense of the Chukchansi
Gold Resort & Casino. We and the Tribe have agreed not to impose any taxes,
fees, assessments or other charges (1) on payments of any debt service to us
or any other lender furnishing financing to the Chukchansi Gold Resort &
Casino, (2) on the Chukchansi Gold Resort & Casino or any revenues paid or
management fees owed thereunder and (3) on the salaries, benefits or dividends
paid to any of Cascade Entertainment's stockholders, partners, officers,
directors or any employees of the Chukchansi Gold Resort & Casino. The
management agreement provides, however, that we and the Tribe shall have the
right to assess license fees that reflect reasonable regulatory costs incurred
by us and the Tribe.
Relationship among Tribe, Authority and Cascade Entertainment. We
and the Tribe shall have joint and several liability under the management
agreement. Under the management agreement, Cascade Entertainment has agreed
not to interfere in or attempt to wrongfully influence the internal
governmental affairs of the Tribe. Furthermore, Cascade Entertainment has
agreed that it will not make any payments to any Tribe official, which
includes any member of the tribal government or other official of the Tribe,
us or our relatives, for the purpose of obtaining any special privilege, gain,
advantage or consideration. Finally, no Tribe official may have any direct or
indirect interest in the Chukchansi Gold Resort & Casino greater than the
interest of any other member of the Tribe.
Operating Capital. If gross revenues of the Chukchansi Gold Resort &
Casino, after application of any reserves established pursuant to the
management agreement or the collateral documents, are insufficient to pay
operating expenses of the Chukchansi Gold Resort & Casino, Cascade
Entertainment will be obligated to loan to us operating capital in the amount
of the shortfall. Cascade Entertainment will
81
<page>
only be obligated to contribute such sums as are necessary to continue the
operation of the Chukchansi Gold Resort & Casino in conformance with the
Chukchansi Gaming Code adopted by the Tribal Gaming Commission, the Chukchansi
compact and any other legal requirements.
Termination and Default. The management agreement may be terminated
by mutual written consent of Cascade Entertainment, the Tribe and us. Each
party has the right to terminate the management agreement for cause, which
includes, without limitation, termination by us due to a default or failure by
Cascade Entertainment, or by Cascade Entertainment due to a default or failure
by the Tribe or us, to perform any material duty or obligation that remains
uncured for at least 60 days following notice to such non-performing party of
such breach or failure to perform and the intent of the performing party to
terminate the management agreement as a result thereof. In addition, we and
the Tribe may terminate the management agreement if Cascade Entertainment
commits fraud or has its gaming license withdrawn as a result of the
conviction of any director or officer of Cascade Entertainment for a criminal
felony or misdemeanor offense directly related to the performance of Cascade
Entertainment's duties under such agreement. The management agreement may also
be terminated in the event that any change in law renders the operation of the
Chukchansi Gold Resort & Casino unlawful. All disputes as to the occurrence of
a default or breach or right of termination under the management agreement
shall be submitted to binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association and, if necessary,
orders to compel arbitration or aid arbitration, enforce an award of an
arbitrator or provide any necessary remedies in aid of arbitration may be
sought before the state or federal courts sitting in the State of California.
Notwithstanding the foregoing, an arbitrator shall not have the power to
compel, negate, assume, usurp or in any manner affect any resolution,
ordinance, statute, regulation, order or decision, regardless of how
constituted, having the force of law or legal authorization of the Tribe, us
or any instrumentality or agency of the Tribe, unless such action(s), or
failure to take such action(s), constitutes a breach of the management
agreement by the Tribe or us.
Waiver of Tribal Sovereign Immunity. Under the management agreement,
we and the Tribe have waived any recourse to tribal court and any argument
that exhaustion of tribal court remedies is required before dispute resolution
can commence in another forum. We and the Tribe have agreed that arbitration
of disputes under the Commercial Arbitration Rules of the American Arbitration
Association will be the mechanism for dispute resolution, and that the law of
the State of California will govern the management agreement. We and the Tribe
have waived our sovereign immunity from suit to permit such arbitration. We
and the Tribe have also waived our sovereign immunity in state or federal
courts to compel arbitration, aid arbitration, or enforce awards from
arbitration. We and the Tribe have agreed that arbitrators can award
injunctive relief, including temporary and emergency injunctive relief. The
Tribe's and our waiver of sovereign immunity is limited to enforcement of
money damages from net revenues not yet distributed to the Tribe. Funds earned
and paid over to the Tribe prior to any judgment or award are not subject to
the waiver and would not be available for levy pursuant to any judgment or
award.
Cap on Development Costs. We, Cascade Entertainment and the Tribe
have agreed that the aggregate cost recoupable by the Manager to design,
develop, construct and equip the Chukchansi Gold Resort & Casino will in no
event exceed $170.0 million.
Construction Manager Agreement
General. We entered into a construction management agreement with
Walton Construction, dated July 26, 2002, providing for the construction of a
portion of the Chukchansi Gold Resort & Casino by Walton Construction. We have
given Walton Construction a notice to proceed with the construction of the
project and groundbreaking occurred in early October.
Responsibility of Construction Manager. Under the construction
manager agreement, Walton Construction will act as the construction manager
and be responsible for various pre-construction and construction requirements
with respect to completion of the Chukchansi Gold Resort & Casino. All work
other than the general conditions work (as defined below) will be performed
under subcontracts or by other appropriate agreements with Walton Construction
except to the extent Walton Construction submits a bid for such work and
Cascade Entertainment approves such bid.
82
<page>
Completion Date. Walton Construction has agreed to substantially
complete construction of the Chukchansi Gold Resort & Casino (except for
certain portions of the hotel as described below under "--Amendment to
Construction Manager Agreement.") on or before June 25, 2003, and to perform
its work in accordance with an approved schedule, including various milestone
dates set forth therein. If substantial completion of the casino is not
achieved by June 25, 2003, Walton Construction will pay $17,500 to us as
liquidated damages for each day substantial completion is delayed beyond such
date. If substantial completion of the hotel is not achieved by August 22,
2003, Walton Construction will pay $5,000 for each day substantial completion
is delayed beyond such date. In addition, we have the right to terminate the
construction manager agreement with Walton Construction at that time. If
substantial completion is achieved on or before June 25, 2003, we will pay
$10,000 to Walton Construction for each day of early delivery as an early
completion bonus. The date for achieving substantial completion will be
extended by a reasonable time if Walton Construction's performance of its
obligations is materially delayed by any act or neglect on our part, or the
architect, or an employee of either us or the architect, or of a separate
contractor employed by us, or by changes ordered in Walton Construction's
obligations or by certain other events that are beyond the control of Walton
Construction or any of its subcontractors.
Walton Construction's Compensation. Subject to a "guaranteed maximum
price" of $71.0 million, Walton Construction has agreed to complete its
portion of the work for the "contract sum" which equals the sum of (1) the
reasonable and necessary costs of all material and labor properly incurred by
Walton Construction, in good faith, in the proper performance of the work,
collectively referred to as the "cost of the work," and (2) $5.2 million
referred to as the "construction manager's fees" which compensates Walton
Construction for its profit and overhead and for all costs of performing
certain administrative and support services ("general condition work"). Upon
final completion, if the contract sum is less than the guaranteed maximum
price (excluding amounts reserved as a contingency), then 80% of such savings
will be retained by us, with the remainder payable to Walton Construction
concurrently with receipt of final payment.
The guaranteed maximum price is subject to adjustment in the event
changes approved by us and Cascade Entertainment are made to the construction
plans or specifications. As the construction plans and specifications are not
complete, some modifications to the guaranteed maximum price may be required
as such plans and specifications are completed. In addition, if a change order
represents (1) a material increase in the scope of the project, (2) an
increase in the construction budget that directly results in additional
supervisory expense to Walton Construction in excess of 6% of the total
budgeted amount or (3) an increase in the square footage of the project by
more than 3%, then the guaranteed maximum price may also be adjusted in the
manner provided for in the construction manager agreement to account for
additional overhead and costs of Walton Construction in lieu of an increase in
the construction manager's fees. In addition, if we, the architect or any of
our separate contractors suspends, delays or interrupts work that is later
recommenced, then the guaranteed maximum price will be adjusted for increases
in the cost and time of performing such obligations that is caused by such
circumstances.
Bonds. We may require Walton Construction to furnish bonds covering
its faithful performance of the construction manager agreement, each
subcontract and payment of obligations arising thereunder. Costs of such bonds
will be included in the cost of the work.
Payment Process. We are to make monthly progress payments to Walton
Construction on account of the contract sum in proportion to Walton
Construction's progress in completing the work. The amount of such progress
payments will be reduced by an amount equal to 10% of the progress payment as
retainage (which percentage will be reduced to 5% once the total progress
payments exceeds 50% of the guaranteed maximum price). When the work is fully
performed under the contract documents (other than nonconforming work that is
to be corrected by Walton Construction), we will make the final payment to
Walton Construction after approval by Cascade Entertainment and the architect.
Responsibility of Separate Contractors. We may remove certain work,
including, without limitation, the sewage treatment plant, from the scope of
Walton Construction's work, and retain separate contractors to perform the
excluded work. Walton Construction will continue to be responsible for
supervising and coordinating all portions of the construction of the
Chukchansi Gold Resort & Casino,
83
<page>
including the work of the separate contractors, in the same manner as its
supervision and coordination of its own subcontractors and suppliers.
Correction of Work. Walton Construction will promptly correct any
work rejected by either Cascade Entertainment, the architect or any
governmental authority, or any work that does not conform to the requirements
of the contract documents, whether discovered before or up to one year after
substantial completion of the work. Such one year period for corrections will
be extended for any work or any corrective work completed after substantial
completion by the period of time between substantial completion and the actual
performance of the work. We also may choose to accept the nonconforming work,
in which case the contract sum will be reduced as is appropriate and
equitable.
Termination of construction manager agreement. We may terminate the
construction manager agreement for cause if Walton Construction substantially
breaches its obligations under the construction manager agreement or certain
other events occur. Walton Construction may stop its work if certain events
occur, including our failure to pay amounts owing to Walton Construction when
due. Walton Construction may terminate the construction manager agreement if
the work is stopped for a period of 60 consecutive days through no act or
fault of its own or its subcontractors.
Disputes. Any claim by a party under the construction manager
agreement must be made by written notice within 21 days after occurrence of
the event giving rise to such claim or within 21 days after the claimant first
recognizes the condition giving rise to the claim, whichever is later. We have
expressly and irrevocably waived our immunity from suit as to (1) all
arbitration proceedings arising under the construction manager agreement and
conducted in accordance with the terms of the construction manager agreement
and (2) any action to enforce any award made pursuant to such arbitration that
is brought in the United States District Court for the Eastern District of
California (or, if that court finds it lacks jurisdiction after Walton
Construction has made reasonable efforts to argue for the jurisdiction of the
federal court, an action in the Superior Court for Madera County). The
construction manager agreement is governed by California law.
Binding Authority of Cascade Entertainment. Cascade Entertainment has
express authority to bind us under the contract documents with respect to all
matters requiring our approval or authorization (other than change orders and
amendments or modifications to the construction manager agreement itself).
Trustee's Interest In Work. Notwithstanding anything to the contrary
contained in the construction manager agreement, the terms of the Cash
Collateral and Disbursement Agreement prevail in all respects with respect to
any matters dealing with the Chukchansi Gold Resort & Casino, including,
without limitation, progress payments, retainage, change orders, inspections
and changes to the contract documents.
Amendment to Construction Manager Agreement. On September 23, 2002,
Cascade Entertainment and Walton Construction entered into a letter agreement
pursuant to which they agreed and we approved, among other things, to cause a
change order to be executed in order to extend the completion date of the
hotel portion of the Chukchansi Gold Resort & Casino only to August 22, 2003;
provided, that the lobby and lower level of the hotel and all exteriors
visible to the public must be completed no later than June 25, 2003 and at
least one floor of the hotel must be delivered by July 21, 2003. In addition,
Cascade Entertainment and Walton Construction agreed that if delays are the
result of the failure of Cascade Entertainment or us to fulfill certain
obligations under the letter agreement, Walton Construction shall be entitled
to $10,000 for each day of such delay. Finally, Walton Construction shall be
entitled to receive a bonus of $250,000 should all portions of the Chukchansi
Gold Resort & Casino required to be substantially completed before June 25,
2003 are substantially completed on or before June 25, 2003.
Architect Agreement
General. We entered into an architect agreement with Morris & Brown,
dated as of January 17, 2000, providing for certain services relating to the
Chukchansi Gold Resort & Casino.
84
<page>
Designated Services for Architect. Under the architect agreement,
Morris & Brown will provide various designated services (collectively,
"designated services") which include project administration and management
services, site development services, design services, assisting Cascade
Entertainment with bidding or negotiation services and contract administration
services such as the processing of submittals, claim dispute resolution and
project closeout services. In addition, Morris & Brown has reviewed that
certain Cash Collateral and Disbursement Agreement, dated as of October 8,
2002, and agrees to deliver the disbursement certificates attached thereto, as
and when required by the Authority or Cascade Entertainment.
Pursuant to the architect agreement, the Authority has agreed to pay
Morris & Brown $3,521,573 for the performance of the designated services
within 48 months of the date of the architect agreement. If an extension
beyond such period is required through no fault of the Morris & Brown, then
the Authority has agreed to provide additional compensation to the Morris &
Brown based on an hourly fee or a quoted fee, as approved in advance by
Cascade Entertainment. Progress payments for the designated services will be
on a monthly basis. If any amount remains unpaid 45 days after the invoice
date, such amount will bear interest at an interest rate equal to the then
prime rate.
Contingent Additional Services for Architect. Under the architect
agreement, if necessary, Morris & Brown will provide certain contingent
additional services (collectively, "contingent additional services") which are
services that are not designated services but which may nevertheless be
required due to circumstances beyond Morris & Brown's control (e.g., changes
in the project scope, work damaged during construction, services necessitated
by the default of the Authority's other consultants or Walton Construction).
If such services are required, Morris & Brown must notify Cascade
Entertainment prior to commencement and Cascade Entertainment will give prompt
written notice to Morris & Brown as to whether it deems such services as not
being required.
If Cascade Entertainment agrees that the services are required, the
contingent additional services will be billed at either an hourly rate or a
quoted fee, as approved in advance by Cascade Entertainment.
Architect's Reimbursable Expenses. In addition to the compensation
paid for the designated services and the contingent additional services, the
Authority has agreed to reimburse Morris & Brown and its employees and
consultants for certain expenses actually incurred by such parties in
connection with the Chukchansi Gold Resort & Casino.
The Authority's Representative. The Authority has designated Cascade
Entertainment as its sole representative with respect to Morris & Brown.
Pursuant to the architect agreement, Cascade Entertainment has express
authority to bind the Authority with respect to all matters requiring the
Authority's approval or authorization under the architect agreement.
The Responsibilities of the Authority and/or Cascade Entertainment.
The Authority and/or Cascade Entertainment have certain responsibilities under
the architect agreement, including (a) the preparation of a preliminary
estimate of the total cost or estimated cost to the Authority of all elements
of the Chukchansi Gold Resort & Casino to be included in the architect
agreement, the agreements with the construction manager and other documents
listed in the architect agreement (such documents referred to as the "contract
documents") as provided by Cascade Entertainment (the "cost of the work"), (b)
certain site development planning and (c) certain contract award services such
as processing of insurance certificates, bonds and similar documents. The
Authority must also furnish (i) various tests, inspections and reports not
otherwise provided for by Morris & Brown, (ii) legal, accounting and insurance
services, (iii) suitable space for the receipt, inspection and storage of
materials and equipment, (iv) relocation or removal of existing facilities,
materials and equipment and (v) payment for the drawings, specifications,
services and reports required of the Authority under the architect agreement.
The Cost of the Work. The architect agreement requires Morris & Brown
to complete the graphic and pictorial portions of the contract documents
showing the design, location and dimensions of the work, generally including
plans, elevations, sections, details, schedules and diagrams consistent with
the contract documents and the overall budget for the Chukchansi Gold Resort &
Casino (including construction costs and the Authority's other costs and
contingencies related to all such costs) such that the design intent can
85
<page>
be accomplished for an amount less than or equal to the guaranteed maximum
price. Because neither Morris & Brown nor the Authority has control over
market conditions, Morris & Brown does not warrant or represent that bids or
negotiated prices will not vary from the Authority's overall budget for the
Chukchansi Gold Resort & Casino or from any estimate of the cost of the work.
Dispute Resolution. Upon the written notice given by either Morris &
Brown or the Authority, the parties will have a good faith meeting to attempt
resolution of an alleged breach within 15 days of the date of service of the
written request. If, after such period, the complaining party remains
unsatisfied, it can provide written notice to the other identifying and
describing the alleged breaches and, if available, setting forth the required
remedy. The recipient of the notice of disagreement must deliver a written
response within 15 days, either denying or admitting the allegations. If
resolution is still unavailable and/or the recipient of the notice of
disagreement fails to respond, then either party has the right to submit the
matter to the American Arbitration Association for arbitration. The
arbitration will be binding. The arbitrator will be empowered to grant
equitable and injunctive relief and specific performance, but it will not have
the power to award punitive damages. The parties will equally split the cost
of the arbitration.
Waiver of Immunity. Pursuant to the architect agreement, the
Authority expressly and irrevocably waives its immunity from suit and from any
cross suits or third party suits by Morris & Brown against the Authority
arising from any indemnification obligation to Morris & Brown by the Authority
or any allegation by Morris & Brown of the Authority's breach under the
architect agreement .
Exclusivity. Morris & Brown and any parent, affiliate or subsidiary
of Morris & Brown, whether directly or indirectly, are prohibited under the
architect agreement from working on any casino or hotel project within a 50
mile radius emanating from the site of the Chukchansi Gold Resort & Casino.
The prohibition expires upon the earlier of (a) the first anniversary of
substantial completion of the Chukchansi Gold Resort & Casino and (ii) the
hiring by the Authority of another architect for the Chukchansi Gold Resort &
Casino after the termination of the architect agreement by the Authority
without cause. If Morris & Brown violates the restriction, the Authority can
seek injunctive relief in and/or treat such violation as a default under the
architect agreement.
86
<page>
RELATED PARTY TRANSACTIONS
Pre-Construction and Development Loans
Since August 1999, Cascade Entertainment has loaned funds to the
Tribe for the design, development and pre-construction expenses of the
Chukchansi Gold Resort & Casino as well as to purchase certain of the Tribe's
the gaming device licenses. See "Material Agreements--Tribal-State Gaming
Compact."
As of October 8, 2002, the Tribe had outstanding loans of $18.0
million from Cascade Entertainment, pursuant to eight credit agreements
entered into between Cascade Entertainment and the Tribe. In addition,
affiliates of the Manager advanced certain amounts to the Authority that was
loaned to the Authority pursuant to the senior subordinated PIK notes. The
Tribe satisfied its obligations under these loans by issuing, concurrently
with the closing of the old notes offering, $6.0 million of senior
subordinated PIK notes and $12.0 million of subordinated PIK notes to Cascade
Holdings, LLC, an affiliate of Cascade Entertainment. See "Description of
Other Indebtedness--Senior Subordinated Pay-in-Kind Notes due 2009 with
Contingent Interest" and "--Subordinated Pay-in-Kind Notes due 2009 with
Contingent Interest."
Land Purchase
Cascade Entertainment purchased seven parcels of land that are
situated adjacent to, but outside the boundaries of the Tribe's rancheria.
Pursuant to the development agreement, Cascade Entertainment caused the land
to be transferred to the Tribe. On September 24, 2002, Cascade Entertainment
transferred approximately 21 acres to the Tribe and concurrently with the
closing of the Financing Transactions on October 8, 2002, Cascade
Entertainment transferred approximately 59 acres of additional land to the
Tribe. On October 8, 2002, the Tribe reimbursed Cascade Entertainment in an
amount of $2,173,700 for the costs of the land acquisition, including the
purchase price of the land plus interest at a rate equal to the prime rate
plus two percent (the total not to exceed 10%) and any associated costs
incurred while holding the land before it is transferred to the Tribe or to
the United States to be held in trust for the Tribe. Cascade Entertainment
initially purchased the land from third parties for approximately $1.6
million.
Letter of Credit Agreement
The Authority and the Tribe entered into a letter of credit drawdown
agreement with Credit Provider Group, LLC, an affiliate of Cascade
Entertainment which provides for a letter of credit for up to $15.0 million
issued by HSBC Bank USA to the Trustee to provide additional available capital
for the construction of the Chukchansi Gold Resort & Casino for the payment of
interest on the notes. In connection with the letter of credit, the Authority
issued the L/C note to Credit Provider Group, with an initial principal
balance of zero. This note contains the terms of the agreement to repay any
amounts that may be loaned under the letter of credit. See "Material
Agreements--Letter of Credit Drawdown Agreement" and "Description of Other
Indebtedness--Letter of Credit Note."
87
<page>
DESCRIPTION OF OTHER INDEBTEDNESS
Our debt consists of the notes and approximately $25.0 million of
notes that are subordinated in right of payment to the notes. Each of the
following debt obligations is subject to the terms of the Intercreditor
Agreement. See "Material Agreements--Intercreditor Agreement."
Senior Subordinated Pay-In-Kind Notes due 2009 with Contingent Interest
We issued $14.8 million aggregate principal amount of our senior
subordinated PIK notes due 2009 pursuant to an indenture with U.S. Bank, N.A.
as trustee. The senior subordinated PIK notes were issued in a private
transaction pursuant to an exemption from the registration requirements
provided by Section 4(2)of the Securities Act. The senior subordinated PIK
notes are our general unsecured obligations, subordinated in right of payment
to all of our existing and future senior debt, including the notes, and senior
in right of payment to all of our existing and future subordinated debt
including the subordinated PIK notes. We will not pay interest in cash on the
senior subordinated PIK notes (except with respect to certain tax amounts)
until such time as we have satisfied the Release Condition. Fixed interest,
that is due on a date when the following conditions, known as the Release
Condition, are met:
o the Chukchansi Gold Resort & Casino is operating;
o our fixed charge coverage ratio (as defined in the indenture)
has been at least 2.5 to 1.0 for the immediately preceding four
fiscal quarters, and, if the Chukchansi Gold Resort & Casino
was closed for more than five days during such period, our
fixed charge coverage ratio for the most recent fiscal quarter
was at least 2.5 to 1.0;
o the cash accumulation account contains at least the minimum
required cash accumulation amount; o no event of default has
occurred and is continuing; and
o the Chukchansi Gold Resort & Casino has not ceased operating
for more than five days since the end of the last fiscal
quarter,
will be paid in cash. Contingent interest payments, including all deferred
contingent interest accrued before the Release Condition was met, that is due
on a date when the Release Condition is met, will be paid in cash. Fixed
interest and contingent interest are payable or shall accrue, as the case may
be, semiannually in arrears each April 1 and October 1 of each year.
The senior subordinated PIK notes will accrue fixed interest at the
rate of 16.75% per annum, will accrue contingent interest on up to $50 million
of net revenues at a rate of 3.0% of net revenues per annum and will mature on
September 15, 2009. Contingent interest shall accrue following the opening of
the Chukchansi Gold Resort & Casino and will be based upon our net revenues
(as defined in "Material Agreements--Management Agreement"). The only
condition to the accrual of contingent interest is that we have net revenues
during the period the senior subordinated PIK notes are outstanding.
The senior subordinated PIK notes are redeemable at our option, in
whole or in part, at any time after October 1, 2006 at prices indicated below:
Year Percentage
---- ----------
October 1, 2006...............................................108.375%
October 1, 2007...............................................104.188%
October 1, 2008 and thereafter................................100.000%
In addition, upon the occurrence of a change of control of us or the Manager,
we will be required to make an offer to purchase the senior subordinated PIK
notes at 101% of principal amount, together with accrued and unpaid interest
to the date of repurchase. The senior subordinated PIK notes indenture
contains covenants which restrict our ability to, among other things, incur or
refinance debt, make distributions to
88
<page>
the Tribe, its members or related parties, make investments, loans or
advances, engage in other businesses, create liens on our assets, merge,
consolidate or sell substantially all of our assets, enter into sale-leaseback
transactions and enter into transactions with our affiliates.
Subordinated Pay-In-Kind Notes due 2009 with Contingent Interest
We issued $12.0 million aggregate principal amount subordinated PIK
notes due 2009 pursuant to an indenture with U.S. Bank, N.A. as trustee. The
subordinated PIK notes are our general unsecured obligations, subordinated in
right of payment to all of our existing and future senior debt, including the
notes and the senior subordinated PIK notes. We will not to pay interest in
cash on the subordinated PIK notes (except with respect to certain tax
amounts) until such time as we have satisfied the Release Condition. Fixed
interest that accrues and is payable during any time that the Release
Condition is met will be paid in cash. All fixed interest that is deferred
during the time that the Release Condition is not met will be added to the
balance of the subordinated PIK notes. All current and deferred contingent
interest will be paid in cash at the time that the Release Condition is met,
unless the total manager compensation cap (which is equal to 30% of the sum of
net revenues and interest on any bank accounts) less any contingent interest
payment is less than $2.0 million (on an annualized basis), in which case such
excess amount shall be deferred until payable without causing such difference
to fall below $2.0 million.
The subordinated PIK notes will accrue fixed interest at the rate of
17.0% per annum, will accrue contingent interest on up to $50 million of net
revenues at the rate of 11.0% of net revenues per annum in the same manner as
the senior subordinated PIK notes. Fixed interest and contingent interest are
payable or shall accrue, as the case may be, semiannually in arrears each
April 1 and October 1 of each year and the senior subordinated PIK notes will
mature on September 15, 2009. The only condition to the accrual of contingent
interest is that we have net revenues during the period the subordinated PIK
notes are outstanding. We may prepay the subordinated PIK notes at our option,
in whole or in part, at any time after October 1, 2006 at prices indicated
below:
Year Percentage
---- ----------
October 1, 2006............................................108.500%
October 1, 2007............................................104.250%
October 1, 2008 and thereafter.............................100.000%
The subordinated PIK notes indenture contains covenants which restrict our
ability to, among other things, incur or refinance debt, make distributions to
the Tribe, its members or related parties, make investments, loans or
advances, engage in other businesses, create liens on our assets, merge,
consolidate or sell substantially all of our assets, enter into sale-leaseback
transactions and enter into transactions with our affiliates.
Letter of Credit Note
We issued a zero balance note, referred to as the "L/C note," to
Credit Provider Group, LLC, an affiliate of the Manager, on October 8, 2002.
The L/C note contains the terms of our agreement to repay any amounts that are
loaned to us by Credit Provider Group under its letter of credit. See
"Material Agreements--Letter of Credit Drawdown Agreement." All amounts
outstanding under the L/C note, if any, will mature on September 15, 2009. The
L/C note is our general unsecured obligation, subordinated in right of payment
to all of our existing and future senior debt and senior subordinated debt,
including the notes and the senior subordinated PIK notes. The L/C note will
rank equally with the subordinated PIK notes. As of the date of this
prospectus, there are no amounts outstanding under the L/C note.
The L/C note accrues fixed interest at the rate of 17.0% per annum on
the outstanding principal amount and accrues contingent interest at the same
rate and in the same manner as the subordinated PIK notes. See "--Subordinated
Pay-in-Kind Notes due 2009 with Contingent Interest." The only condition to
the accrual of contingent interest is that we have net revenues during the
period the L/C note is outstanding. We will not pay interest in cash on the
L/C note (except with respect to certain tax amounts) until such time as we
have satisfied the Release Condition. Fixed interest and contingent interest
are payable or shall accrue, as the case may be, semiannually in arrears each
April 1 and October 1 of each year.
89
<page>
Amounts outstanding under the L/C note, if any, are redeemable at
our option, in whole or in part, at any time after October 1, 2006 at prices
indicated below:
Year Percentage
---- ----------
October 1, 2006.............................................108.500%
October 1, 2007.............................................104.250%
October 1, 2008 and thereafter..............................100.000%
Manager Repayment Note
We issued a zero balance note, referred to as the "Manager repayment
note," to Cascade Entertainment, which note will contain the terms of our
agreement to repay any amounts that are loaned to us by Cascade Entertainment
to make up specified shortfalls in our required quarterly contribution to the
cash accumulation account for the benefit of the holders of the notes. All
outstanding amounts outstanding under the Manager repayment note, if any, will
mature on September 15, 2009. The Manager repayment note is our general
unsecured obligation, subordinated in right of payment to all of our existing
and future senior debt and senior subordinated debt, including the notes and
the senior subordinated PIK notes. Though interest will continue to accrue, we
will not pay interest in cash on the Manager repayment note (other than with
respect to certain tax amounts) until such time as we have achieved a fixed
charge coverage ratio of at least 2.5 to 1.0 for four consecutive fiscal
quarters, and have met certain other performance criteria.
The Manager repayment note will accrue interest at a rate equal to
the weighted average interest rate accruing on the amount contributed by
Cascade Entertainment to the shortfall account. Interest is payable or shall
accrue, as the case may be, semiannually in arrears each April 1 and October 1
of each year. Amounts outstanding under the Manager repayment note, if any,
may be prepaid at our option without penalty. As of the date of this
prospectus, there are no amounts outstanding under the Manager repayment note.
90
<page>
DESCRIPTION OF THE NEW NOTES
The form and the terms of the new notes and the old notes are
identical in all material respects, except that transfer restrictions and
registration rights applicable to the old notes do not apply to the new notes.
The new notes will be issued under an indenture, dated as of October 8, 2002,
among us, the Tribe and U.S. Bank, N.A., a national banking association, as
trustee. This is the same indenture under which the old notes were issued. The
terms of the new notes include those stated in the indenture and those made
part of the indenture by reference to the Trust Indenture Act of 1939, as
amended. The new notes are secured obligations of the Authority. The
Collateral Documents referred to under the caption "--Security" define the
terms of the agreements that will secure the new notes.
The following description is a summary of the material provisions of
the indenture, the Registration Rights Agreement and the Collateral Documents.
It does not restate any of those agreements in their entirety. We urge you to
read the indenture, the Registration Rights Agreement and the Collateral
Documents because they, and not this description, define your rights as
holders of the new notes. Copies of the indenture, the Registration Rights
Agreement and the Collateral Documents are available as set forth below under
the caption "Additional Information." You can find the definitions of certain
terms used in this description under the caption "Certain Definitions."
Certain defined terms used in this description but not defined below under the
caption "Certain Definitions" have the meanings assigned to them in the
indenture.
The registered holder of a new note will be treated as the owner of
it for all purposes. Only registered holders will have rights under the
indenture.
Brief Description of the New Notes
The notes:
o are secured by (1) a first priority security interest in the
Collateral Accounts, (2) a first priority lien on all of the
Authority's furniture, equipment, accounts receivable,
inventory and other personal property, other than certain
furniture and equipment financed with purchase money
indebtedness or capital lease obligations and (3) a collateral
assignment of the Authority's rights in certain agreements
relating to the development, construction, operation and
management of the Chukchansi Gold Resort & Casino;
o rank equal in right of payment with all of the Authority's
existing and future senior indebtedness; and
o rank senior in right of payment to any of the Authority's
existing and future subordinated indebtedness.
Principal, Maturity and Interest
The Authority may issue notes with a maximum aggregate principal
amount of $178.0 million, of which $153.0 million was issued on October 8,
2002. The Authority will issue up to a principal amount of $153.0 million of
new notes. The Authority may issue additional notes from time to time. Any
offering of additional notes is subject to the covenant described below under
the caption "--Certain Covenants--Incurrence of Indebtedness." The notes and
any additional notes subsequently issued under the indenture will be treated
as a single class for all purposes under the indenture, including, without
limitation, waivers, amendments, redemptions and offers to purchase. The
Authority will issue notes in denominations of $1,000 and integral multiples
of $1,000. The new notes will mature on June 15, 2009.
Interest on the new notes will accrue at the rate of 14 1/2% per
annum and will be payable semiannually in arrears on each April 1 and October
1 (each, an "Interest Payment Date") beginning on April 1, 2003. The Authority
will make each interest payment to the holders of record on the immediately
preceding March 15 and September 15 (each, a "Record Date"). Interest on the
notes will accrue from the date of the old notes' 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.
91
<page>
Methods of Receiving Payments on the Notes
If a holder has given wire transfer instructions to the Authority,
the Authority will pay all principal, interest, premium and Liquidated
Damages, if any, on that holder's new notes in accordance with those
instructions. See "Book Entry, Delivery and Form--Same Day Settlement and
Payment." All other payments on new 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 Authority 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 New Notes
The trustee will initially act as paying agent and registrar. The
Authority may change the paying agent or registrar without prior notice to the
holders, and the Authority may act as paying agent or registrar.
Transfer and Exchange
A holder may transfer or exchange new 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 in
connection with a transfer of new notes. Holders will be required to pay all
taxes due on transfer. The Authority is not required to transfer or exchange
any new note selected for redemption. Also, the Authority is not required to
transfer or exchange any new note for a period of 15 days before a selection
of new notes to be redeemed.
The registered holder of a new note will be treated as the owner of
it for all purposes.
Security
Subject to the Liens permitted by the Collateral Documents and the
limitations discussed under the caption "Special Provisions Regarding
Unlicensed and Non-Exempt Holders" below, the new notes will be secured by:
(1) a first priority security interest in the Collateral Accounts;
(2) a first priority lien on all of the Authority's furniture,
equipment, accounts receivable, inventory and other personal
property owned by the Authority, whether now owned or hereafter
acquired, other than certain furniture and equipment financed
with purchase money indebtedness or capital lease obligations;
and
(3) a collateral assignment of the Authority's rights in the Letter
of Credit Drawdown Agreement, the Cash Accumulation Account
Contribution Agreement and certain other agreements relating to
the development, construction, operation and management of the
Chukchansi Gold Resort & Casino.
The Collateral Documents will define the terms of the security
interests that will secure the new notes. These security interests will secure
the payment and performance when due of all of the Obligations of the
Authority under the indenture and the new notes as provided in the Collateral
Documents.
If an Event of Default occurs and is continuing, the trustee may, in
addition to any rights and remedies available to it under the indenture and
the Collateral Documents, take such action as it deems advisable to protect
and enforce its rights in the Collateral, including the institution of sale or
foreclosure proceedings.
So long as no Event of Default will have occurred and be continuing,
and subject to certain terms and conditions in the indenture and the
Collateral Documents, the Authority will be entitled to receive the benefit of
all cash dividends, interest and other payments made upon or with respect to
the Collateral pledged by it and to exercise any voting and other consensual
rights pertaining to the Collateral pledged by it. Upon the occurrence and
continuation of an Event of Default:
1) all rights of the Authority to exercise such voting or other
consensual rights will cease, and all such
92
<page>
rights will become vested in the trustee, which, to the extent
permitted by law, will have the sole right to exercise such
rights;
2) all rights of the Authority to receive all cash dividends,
interest and other payments made upon or with respect to the
Collateral will cease and such cash dividends, interest and
other payments will be paid to the trustee; and
(3) the trustee may sell the Collateral or any part of the
Collateral in accordance with the terms of the Collateral
Documents.
Under the terms of the indenture and the Collateral Documents, so
long as an Event of Default is continuing, the trustee will determine the
circumstances and manner in which the Collateral will be disposed of,
including, but not limited to, the determination of whether to release all or
any portion of the Collateral from the Liens created by the Collateral
Documents and whether to foreclose on the Collateral following an Event of
Default. Moreover, upon the full and final payment and performance of all
Obligations of the Authority under the indenture and the notes, the Collateral
Documents will terminate and the Collateral will be released.
Certain Bankruptcy Limitations
If the Authority or the Tribe are subject to federal bankruptcy laws,
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 Authority prior to the trustee having repossessed and disposed
of the Collateral. See "Risk Factors--Risks Relating to this Offering--We may
not be subject to federal bankruptcy laws." Under bankruptcy law, a secured
creditor such as the trustee is prohibited from repossessing its security from
a debtor in a bankruptcy case, or from disposing of security repossessed from
such debtor, without bankruptcy court approval. Moreover, bankruptcy law
permits the debtor to continue to retain and to use collateral (and the
proceeds, products, offspring, rents or profits of such collateral) even
though the debtor is in default under the applicable debt instruments,
provided, that the secured creditor is given "adequate protection." The
meaning of the term "adequate protection" may vary according to circumstances,
but it is intended in general to protect the value of the secured creditor's
interest in the collateral and may include, if approved by the court, cash
payments or the granting of additional security for any diminution in the
value of the collateral as a result of the stay of repossession or the
disposition or any use of the collateral by the debtor during the pendency of
the bankruptcy case. The court has broad discretionary powers in all these
matters, including the valuation of collateral. In addition, because the
enforcement of the lien of the trustee in cash, deposit accounts and cash
equivalents may be limited in a bankruptcy proceeding, the holders of the new
notes may not have any consent rights with respect to the use of those funds
by the Authority during the pendency of the proceeding. In view of these
considerations, it is impossible to predict how long payments under the new
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 of the new notes would be compensated for any delay in
payment or loss of value of the Collateral.
Special Provisions Regarding Unlicensed and Non-Exempt Holders
The Compact requires that any person or entity that directly or
indirectly extends financing to an Indian tribe's gaming facility or gaming
operation must apply to the California Gambling Control Commission for a
finding of suitability, unless such person or entity is purchasing less than
ten percent of a tribal bond financing. California Gambling Control Commission
regulation CGCC-2, which was approved on July 2, 2002, authorizes certain
entities that are actual or prospective holders of any bond issued by a
compacted tribe to register with the California Gambling Control Commission as
a Financial Source. Entities eligible to register must own, for their own
account or the accounts of other specified entities, at least $100.0 million
of securities of issuers that are not affiliated with the entities, and also
must be (i) a federally-regulated or state-regulated bank, savings association
or lending institution, (ii) a state-regulated insurance company whose primary
and predominant business activity is writing of insurance or reinsuring risks
underwritten by insurance companies, (iii) an investment company registered
under the Federal Investment Company Act of 1940, as amended (iv) a retirement
plan established and maintained by the United States, an agency or
instrumentality thereof, or by a state, its political subdivisions, or any
agency or
93
<page>
instrumentality thereof, (v) an employee benefit plan within the meaning of
Title I of the Federal Employee Retirement Income Security Act of 1974, (vi) a
securities dealer registered pursuant to the Exchange Act, or (vii) an entity
all of whose equity owners individually meet one or more of the foregoing
criteria. If an entity is properly registered Financial Source, under
regulation CGCC-2, it will by its registration be deemed suitable by the
California Gambling Control Commission under the Compact, and can purchase
properly registered bonds of a tribe. Under the regulation, a tribe can
register its bonds, making them eligible for purchase by a Financial Source,
by providing the Gambling Control Commission with prior written notice of the
bond issue, which notice was made in connection with the issuance of the old
notes.
If any new notes are transferred to a holder (or Beneficial Owner)
that is not licensed or exempted from licensing by the Tribal Gaming
Commission in accordance with the Compact, then neither the transferee holder
(or Beneficial Owner) nor any person acting on behalf of that transferee
holder (or Beneficial Owner), including the trustee, will have any right to
enforce any payment obligation relating to the new notes against any revenues,
property or rights of the Authority or the Tribe, or any branch, department,
agency, instrumentality, division, subsidiary, enterprise, authority or
wholly-owned corporation or business of the Tribe (whether through the
exercise of voting rights or otherwise), until such time as the transferee
holder is licensed or exempted from licensing by the Tribal Gaming Commission
in accordance with the Compact. Notwithstanding any other provision of the
indenture, the trustee, the Authority and the Tribe are prohibited from making
any payment on the new notes (1) as a result of any enforcement action
commenced by or on behalf of the trustee or any holder or (2) after payment of
the new notes has been accelerated because of a default under the indenture,
except in each case to a holder that is licensed or exempted from licensing by
the Tribal Gaming Commission in accordance with the Compact.
Optional Redemption
Subject to the second sentence under the caption "Special Provisions
Regarding Unlicensed and Non-Exempt Holders," at any time on or after October
1, 2006, the Authority 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 thereon and Liquidated Damages, if any, on the notes redeemed through
and including the applicable redemption date, if redeemed during the periods
indicated below:
Year Percentage
---- ----------
October 1, 2006 to September 30, 2007.................... 113.000%
October 1, 2007 to September 30, 2008.................... 108.667%
October 1, 2008 to June 14, 2009......................... 104.333%
provided, that after any such redemption there is at least the Required
Accumulation Amount in cash and Cash Equivalents remaining in the Cash
Accumulation Account.
Mandatory Redemption
The Authority is not required to make mandatory redemption or sinking
fund payments with respect to the new notes.
Repurchase at the Option of Holders
Change of Control
Subject to the second sentence under the caption "Special Provisions
Regarding Unlicensed and Non-Exempt Holders," if a Change of Control occurs,
each holder of notes will have the right to require the Authority to
repurchase all or any part (equal to $1,000 or an integral multiple thereof)
of that holder's notes pursuant to a Change of Control Offer. In the Change of
Control Offer, the Authority will offer a Change of Control Payment in cash
equal to 101% of the aggregate principal amount of notes repurchased plus
accrued and unpaid interest and Liquidated Damages, if any, thereon, to and
including the date of purchase.
Within ten business days following any Change of Control, the
Authority will mail a notice to each holder describing the transaction or
transactions that constitute the Change of Control and offering to
94
<page>
repurchase notes on the Change of Control Payment Date specified in the
notice, which date will 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.
Any Change of Control Offer will be made in compliance with all
applicable laws, rules and regulations, including, if applicable, Regulation
14E under the Exchange Act and the rules and regulations thereunder and all
other applicable Federal and state securities laws. To the extent that the
provisions of any securities laws or regulations conflict with the provisions
of this covenant, compliance with such laws and regulations will not in and of
itself cause a breach of the Authority's obligations under this covenant.
On the Change of Control Payment Date, the Authority 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 Authority.
The paying agent will promptly mail to each holder of notes 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 Authority 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 Authority 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 to require that the
Authority repurchase or redeem notes in the event of a takeover,
recapitalization or similar transaction.
The Authority 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
Authority and purchases all notes validly tendered and not withdrawn under
such Change of Control Offer.
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 assets of the Authority or the Manager.
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 of notes to require
the Authority 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
Authority or the Manager to another Person or group may be uncertain.
Excess Cash Offers
If, at any time after the Initial Operating Date and prior to October
1, 2006, the amount of the Authority's Restricted Funds exceeds the Excess
Cash Flow Threshold by $10.0 million (such excess will constitute "Excess Cash
Flow"), the Chukchansi Gold Resort & Casino is Operating and has not ceased
Operating for more than five days during the Mandatory Operating Period or for
more than five days during the Stub Period and no Default or Event of Default
has occurred and is continuing under the indenture (i) the Authority may,
subject to the second sentence under the caption "Special Provisions Regarding
Unlicensed and Non-Exempt Holders," make an offer (an "Optional Excess Cash
Offer") to holders of the notes to purchase the outstanding principal amount
of notes, in whole or in part, with up to 100% of the Authority's Excess Cash
Flow at a purchase price equal to the greater of (a) 100% of the
95
<page>
principal amount thereof and (b) the Make-Whole Price, in each case together
with accrued and unpaid interest thereon and Liquidated Damages, if any,
through and including the applicable purchase date or (ii) if the Authority
does not make an Optional Excess Cash Offer, it must, subject to the second
sentence under the caption "Special Provisions Regarding Unlicensed and
Non-Exempt Holders," make an offer (a "Mandatory Excess Cash Offer") to
holders of the notes to purchase the outstanding principal amount of notes, in
whole or in part, with up to 100% of the Authority's Excess Cash Flow at a
purchase price equal to 100% of the principal amount of the notes plus accrued
and unpaid interest and Liquidated Damages, if any, to the date of purchase;
provided, that, in either case, after any such purchase there is at least the
Required Accumulation Amount in cash and Cash Equivalents remaining in the
Cash Accumulation Account. Any Excess Cash Flow remaining after consummation
of an Optional Excess Cash Offer may be used to make Restricted Payments in
accordance with the covenant entitled "Restricted Payments" or used for any
purpose not prohibited by the indenture and the Collateral Documents and will
no longer be deemed to be Restricted Funds. Any Excess Cash Flow remaining
after consummation of a Mandatory Excess Cash Offer may be used for any
purpose not prohibited by the indenture and the Collateral Documents and will
no longer be deemed to be Restricted Funds. Upon completion of any Optional
Excess Cash Offer or Mandatory Excess Cash Offer, the amount of Excess Cash
Flow will be reset at zero.
The Authority will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Excess Cash Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Excess Cash
Offer provisions of the indenture, the Authority will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Excess Cash Offer provisions of the
indenture by virtue of such conflict.
Asset Sales
The Authority will not consummate an Asset Sale unless:
(1) the Chukchansi Gold Resort & Casino is operating;
(2) the Authority receives consideration at the time of such Asset Sale
at least equal to the fair market value of the assets sold or
otherwise disposed of;
(3) such fair market value is determined by the Authority's Management
Board and evidenced by a resolution of that Management Board set
forth in an Officers' Certificate delivered to the trustee; and
(4) at least 85% of the consideration therefor received by the Authority
is in the form of cash. For purposes of this provision and not for
purposes of the definition of "Net Proceeds" (except to the extent
set forth in that definition with respect to the conversion of
non-cash proceeds to cash), each of the following will be deemed to
be cash:
(a) any liabilities (as shown on the Authority's most recent balance
sheet) of the Authority (other than contingent liabilities and
liabilities that are by their terms subordinated to
the notes) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the
Authority from further liability with respect thereto;
(b) any securities, notes or other obligations received by the
Authority from such transferee that are (subject to ordinary
settlement periods) converted by the Authority into cash (to the
extent of the cash received in that conversion) within 30 days of
the receipt thereof; and
(c) any assets the Authority would be permitted to acquire with the
Net Proceeds of an Asset Sale pursuant to the terms of this
covenant.
In addition, the Authority may not consummate an Asset Sale with
respect to Key Project Assets.
96
<page>
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Authority may apply such Net Proceeds, at its option, to make a
capital expenditure with respect to the Chukchansi Gold Resort & Casino or
acquire long-term assets used or useful in connection with the operation of
the Chukchansi Gold Resort & Casino; provided, however, that the Authority
promptly grants to the trustee, on behalf of the holders of notes, a first
priority perfected security interest, subject to any Permitted Liens, on such
property or assets on the terms set forth in, and to the extent required by,
the indenture and the Collateral Documents. Pending the final application of
any such Net Proceeds, the Authority will temporarily invest such Net Proceeds
in Cash Equivalents which will be held in an account in which the trustee will
have a first priority perfected security interest, subject to Permitted Liens,
for the benefit of the holders of notes in accordance with the indenture and
the Collateral Documents.
Any Net Proceeds from Asset Sales that are not applied as provided
in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Authority will,
subject to the second sentence under the caption "Special Provisions Regarding
Unlicensed and Non-Exempt Holders," make an Asset Sale Offer to all holders of
notes, and all holders of other Indebtedness that is pari passu with the notes
containing provisions similar to those set forth in the indenture with respect
to offers to purchase or redeem such other Indebtedness with the proceeds of
sales of assets, to purchase the maximum principal amount of notes and such
other pari passu Indebtedness 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 Liquidated Damages, if
any, to the date of purchase, and will be payable in cash. If any Excess
Proceeds remain after consummation of an Asset Sale Offer, the Authority may
use those Excess Proceeds for any purposes not otherwise prohibited by the
indenture and the Collateral Documents. If the aggregate principal amount of
notes and other pari passu Indebtedness tendered into such Asset Sale Offer
exceeds the amount of Excess Proceeds, the trustee will select the notes and
such other pari passu Indebtedness to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds will be
reset at zero.
The Authority will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent those 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 Sale
provisions of the indenture, the Authority 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
conflict.
Events of Loss
Within 365 days after any Event of Loss with respect to all or any
portion of the Chukchansi Gold Resort & Casino with a fair market value (or
replacement cost, if greater) in excess of $1.0 million, the Authority may
apply the Net Loss Proceeds from such Event of Loss to the rebuilding, repair,
replacement or construction of improvements to the Chukchansi Gold Resort &
Casino, with no concurrent obligation to make any purchase of any notes;
provided, that:
(1) the Authority delivers to the trustee within 60 days of such Event of
Loss a written opinion from a reputable contractor that the
Chukchansi Gold Resort & Casino with at least the Minimum
Facilities can be rebuilt, repaired, replaced or constructed, and in
a condition to be Operating, within 360 days of the Event of Loss;
(2) the Authority delivers to the trustee an Officers' Certificate
certifying that the Authority has available from Net Loss Proceeds or
other sources sufficient funds to complete the rebuilding,
repair, replacement or construction described in clause (1) above; and
(3) the Net Loss Proceeds are less than $40.0 million.
Any Net Loss Proceeds that are not reinvested or are not permitted to
be reinvested as provided in the first sentence of this covenant will be
deemed "Excess Loss Proceeds." Within ten days following the date that the
aggregate amount of Excess Loss Proceeds exceeds $5.0 million, the Authority
will, subject to the second sentence under the caption "Special Provisions
Regarding Unlicensed and Non-Exempt
97
<page>
Holders," make an offer (an "Event of Loss Offer") to all holders of notes,
and all holders of other Indebtedness that is pari passu with the notes
containing provisions similar to those set forth in the indenture with respect
to offers to purchase or redeem such other Indebtedness with the proceeds of
events of loss, to purchase the maximum principal amount of notes and such
other pari passu Indebtedness that may be purchased out of the Excess Loss
Proceeds. The offer price in any Event of Loss Offer will be equal to 100% of
principal amount plus accrued and unpaid interest and Liquidated Damages, 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 Authority
may use such Excess Loss Proceeds for any purpose not otherwise prohibited by
the indenture and the Collateral Documents. If the aggregate principal amount
of notes and other pari passu Indebtedness tendered into such Excess Loss
Offer exceeds the amount of Excess Loss Proceeds, the trustee will select the
notes and such other pari passu Indebtedness to be purchased on a pro rata
basis. Upon completion of any such Event of Loss Offer, the amount of Excess
Loss Proceeds will be reset at zero.
Any Event of Loss Offer will be made in compliance with all
applicable laws, rules and regulations, including, if applicable, Regulation
14E under the Exchange Act and the rules and regulations thereunder and all
other applicable Federal and state securities laws. To the extent that the
provisions of any securities laws or regulations conflict with the provisions
of this covenant, compliance with such laws and regulations will not in and of
itself cause a breach of the Authority's obligations under this covenant.
Pending the final application of any Net Loss Proceeds, the
Authority will deposit such Net Loss Proceeds into an account in which the
trustee will have a first priority perfected security interest, subject to
Permitted Liens, and may invest such Net Loss Proceeds only in Cash
Equivalents; provided that such Cash Equivalents are held in such account.
These pledged funds will be released to the Authority to pay for or reimburse
the Authority for the actual cost of a permitted use of the Net Loss Proceeds
as provided above, or the Event of Loss Offer, in each case pursuant to the
terms of the Collateral Documents.
In the event of an Event of Loss pursuant to clause (3) of the
definition of "Event of Loss" with respect to any assets that have a fair
market value (or replacement cost, if greater) in excess of $1.0 million, the
Authority will be required to receive consideration (1) at least equal to the
fair market value (evidenced by a resolution of the Authority's Management
Board set forth in an Officers' Certificate delivered to the trustee) of the
property or assets subject to the Event of Loss and (2) with respect to any
"Event of Loss" of any portion of the Chukchansi Gold Resort & Casino, at
least 85% of which is in the form of Cash Equivalents.
Mandatory Disposition Pursuant to Gaming Laws
Each holder, by accepting a new note, will be deemed to have agreed
that if any Gaming Authority determines, and a holder or the Beneficial Owner
of the new notes is notified, that:
(1) the holder or Beneficial Owner must obtain a license, qualification
or finding of suitability under any applicable Gaming Law and the
holder or Beneficial Owner does not apply for that license,
qualification or finding of suitability within 30 days, or any
shorter period as may be required by such Gaming Authority; or
(2) the holder or Beneficial Owner will not be licensed, qualified or
found suitable under an applicable Gaming Law, or any license,
qualification or finding of suitability is not renewed upon its
expiration or is revoked; or
(3) the holder or Beneficial Owner has been found to be unsuitable for
licensing
then, the Authority, at its option, may:
(1) require that the holder or Beneficial Owner dispose of the holder's
or Beneficial Owner's new notes within 30 days, or any earlier date
as may be required by the Gaming Authority, of (A) the termination of
the 30-day period described above for the holder or Beneficial Owner
to apply for a license, qualification or finding of suitability, or
(B) the receipt of the notice from the Gaming Authority that the
holder or Beneficial Owner will not be licensed, qualified or found
suitable; or
98
<page>
(2) subject to the second sentence under the caption "Special Provisions
Regarding Unlicensed and Non-Exempt Holders," redeem the holder's or
Beneficial Owner's new notes at a price equal to the least of (A)
100% of the principal amount thereof, (B) the price at which the
holder or Beneficial Owner acquired the new notes and (C) the fair
market value of the new notes, together with, in each case, to the
extent permitted by the Compact, accrued and unpaid interest and
Liquidated Damages, if any, thereon to the earlier of the date of
redemption or such earlier date as may be required by the Gaming
Authority or the date of the finding of unsuitability by such Gaming
Authority, which may be less than 30 days following the notice of
redemption, if so ordered by the Gaming Authority.
Immediately upon a determination that a holder or Beneficial Owner
will not be licensed, qualified or found suitable, or that such license,
qualification or finding of suitability has been revoked or will not be
renewed, the holder or Beneficial Owner will, to the extent required by
applicable law, have no further rights:
(1) to exercise any right conferred by the new notes, directly or
indirectly, through any trustee, nominee or any other person or
entity; or
(2) to receive any interest, dividends, economic interests or any other
distributions or payments with respect to the new notes or any
remuneration in any form from the Authority for services rendered or
otherwise, except the redemption price of the notes.
Any holder or Beneficial Owner of new notes that is required to apply
for a license, qualification or finding of suitability may be required to pay
all fees and costs of the licenses and any investigation for the qualification
or finding of suitability by the applicable Gaming Authorities. The Authority
is not required to pay or reimburse any holder or Beneficial Owner of new
notes who is required to apply for any license, qualification or finding of
suitability.
The Authority will notify the trustee in writing of any disposition
pursuant to this section as soon as is practicable. The trustee will be
required to report the names of the record holders of notes to any Gaming
Authority when required by law.
Selection and Notice
The notes will not be listed on any national securities exchange. If
less than all of the notes are to be redeemed at any time, the trustee will
select notes for redemption on a pro rata basis.
No notes of $1,000 or less will be redeemed in part. Notices of
redemption will be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each holder of notes to be redeemed at its
registered address, except that redemption notices may be mailed more than 60
days prior to a redemption if the notice is issued in connection with a
satisfaction and discharge of the indenture. 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 will 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 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
Except as provided in the next two paragraphs, the Authority will
not, directly or indirectly:
(1) make any payment or distribution to the Tribe, any agency,
instrumentality or political subunit of the Tribe, any member of the
Tribe (other than customary salaries, benefits, loans, commissions,
99
<page>
fees, expense reimbursements and travel and other advances, in each
case, made in the ordinary course of business), Holdings, any direct
or indirect holders of Holdings' Equity Interests in their capacity
as such, the Manager, any direct or indirect holder of the Manager's
Equity Interests in their capacity as such, the L/C Provider, any
Affiliate of the Tribe, any Affiliate of a member of the Tribe (other
than payments made in the ordinary course of business at customary
rates with respect to goods or services provided to the Authority) or
any Affiliate of the Manager, other than payments to the Manager of
amounts due under the Management Agreement, the Development
Agreement, the Manager Agreement and the Cash Accumulation Account
Contribution Agreement, payments to the L/C Provider of the
Commitment Fee and payments on the date of the indenture to Holdings
with respect to deferred interest earned prior to the date of the
indenture; provided, however, this provision will not prohibit,
within five days following each applicable Quarterly Payment Date if
on such date the Authority's Fixed Charge Coverage Ratio is at least
1.5 to 1.0, the payment of Tax Amounts to holders of the Senior
Subordinated PIK Notes, the Subordinated PIK Notes, the Manager
Repayment Note, the Cash Accumulation Account Contribution Agreement
or the Letter of Credit Note (collectively, the "Tax Amount
Recipients"), as the case may be, with respect to any period
beginning on or after the date of the indenture; provided, further,
that Tax Amounts that are permitted to be paid to Tax Amount
Recipients during any particular taxable year will be the lesser of
(i) Tax Amounts that are required to be paid to such recipients
pursuant to the terms of the Senior Subordinated PIK Notes, the
Subordinated PIK Notes, the Manager Repayment Note, the Cash
Accumulation Account Contribution Agreement and the Letter of Credit
Note as the case may be and (ii) $2.1 million per year;
(2) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
expressly subordinated to the notes, except a payment of interest or
principal at the Stated Maturity thereof; or
(3) make any Restricted Investment (all such payments and other actions
set forth in these clauses (1) through (3) being collectively
referred to as "Restricted Payments");
provided, however, that if (i) no Default or Event of Default has occurred and
is continuing and (ii) no amounts are outstanding under the Manager Repayment
Note, the Authority may, within two Business Days after the completion of any
Optional Excess Cash Offer made pursuant to the section entitled "--Repurchase
at the Option of Holders--Excess Cash Offers," make Restricted Payments with
any Excess Cash Flow not utilized to make payments on the notes in connection
with such Optional Excess Cash Offer.
So long as no Default has occurred and is continuing or would be
caused thereby, the preceding provisions will not prohibit:
(1) the making of a Restricted Payment described in clauses (1) through
(3) of the first paragraph of this covenant if, at the time thereof,
(a) the Chukchansi Gold Resort & Casino is Operating, (b) the
Authority's Fixed Charge Coverage Ratio was at least 2.5 to 1.0
during the Mandatory Operating Period and, if the Chukchansi Gold
Resort & Casino was closed for an aggregate of more than five days
during the Mandatory Operating Period, the Authority's Fixed Charge
Coverage Ratio was at least 2.5 to 1.0 for the last full fiscal
quarter of the Mandatory Operating Period, (c) the aggregate amount
of cash and Cash Equivalents in the Cash Accumulation Account is at
least equal to the Required Accumulation Amount and (d) the
Chukchansi Gold Resort & Casino will not have ceased Operating for
more than five days during the Stub Period;
(2) the making of any payment pursuant to and consistent with the terms
of any development agreement between the Authority and the Manager
executed after the date of the indenture which agreement: (i) relates
to the expansion of the Chukchansi Gold Resort & Casino or any
additions thereto; (ii) provides for payments and/or fees to the
Manager that are consistent with the Development Agreement, relative
to the size of the proposed expansion or addition to the Chukchansi
Gold Resort & Casino as measured by projected gaming positions; and
(iii) is on terms that are no less favorable to the Authority than
the terms of the Development Agreement; provided, that (A) the
Authority delivers to the trustee a resolution of the Management
Board set forth in an Officers' Certificate certifying that the terms
of such agreement are, taken as a whole,
100
<page>
no less favorable to the Authority than the terms of the Development
Agreement and that the agreement has been approved by a majority of
the disinterested members of the Management Board and (B) if such
agreement provides for payments and/or fees to the Manager in excess
of $5.0 million, the Authority delivers to the trustee an opinion as
to the fairness to the Authority of such agreement from a financial
point of view issued by an accounting, appraisal or investment
banking firm of national standing; and
(3) the making of any payments to Holdings, any direct or indirect
holders of Holdings' Equity Interests in their capacity as such, the
Manager, any direct or indirect holder of the Manager's Equity
Interests in their capacity as such, the L/C Provider, or any
Affiliate of the Manager if such payments are made in the ordinary
course of business at customary rates with respect to goods or
services provided to the Authority.
Beginning with the end of the Authority's first full fiscal quarter
commencing after the Initial Operating Date (provided, that solely for
purposes of this paragraph, Minimum Facilities will not include the hotel,
restaurants or parking area), the Authority will, to the extent available,
distribute all Available Funds in cash within 40 days after the end of each of
its full fiscal quarters (except with respect to the Minimum Monthly
Guaranteed Payment to the Tribe, which will be paid in monthly installments as
and when required by the terms of the Management Agreement) as follows:
(1) first, the Authority will distribute the Minimum Monthly Guaranteed
Payment (in an amount equal to $100,000 per month) to the Tribe;
(2) second, the Authority will deposit 100% of the remaining Available
Funds for such fiscal quarter or other cash held by the Authority
into the Capital Replacement Reserve Account until the amount in the
Capital Replacement Reserve Account equals the amount required to be
on deposit in the Capital Replacement Reserve (as defined in the
Management Agreement) if the Manager, as of such date, had fully
complied with its obligations under the Management Agreement with
respect to the Capital Replacement Reserve;
(3) third, the Authority will deposit 100% of the remaining Available
Funds for such fiscal quarter or other cash held by the Authority
into the Cash Accumulation Account until the amount in the Cash
Accumulation Account equals the Required Accumulation Amount,
excluding the fiscal quarter with respect to which such distribution
is being made;
(4) fourth, the Authority will distribute 25% of the remaining Available
Funds for such fiscal quarter to the Tribe and deposit 75% of such
funds into the Cash Accumulation Account until the amount in the Cash
Accumulation Account equals the Required Accumulation Amount;
(5) fifth, of the next $3.0 million of Available Funds for such fiscal
quarter, the Authority will distribute 50% to the Tribe; and
(6) sixth, of any remaining Available Funds for such fiscal quarter, the
Authority will distribute 75% to the Tribe.
Notwithstanding the foregoing, (i) if any Default or Event of Default has
occurred and is continuing, (ii) if the Authority is not able to incur $1.00
of additional Indebtedness under the first paragraph of the covenant described
under the caption "Incurrence of Indebtedness" at the time the Available Funds
are required to be distributed with respect to any fiscal quarter under this
paragraph or (iii) if at the time of such distribution there is any amount
outstanding under the Manager Repayment Note, no Restricted Payment may be
made to the Tribe pursuant to clauses (4) through (6) of this paragraph;
provided, however, that in the event the Authority would be permitted to make
a distribution under any of clauses (4) through (6) of this paragraph but for
the existence of amounts outstanding under the Manager Repayment Note, the
Authority will be permitted to repay the Manager Repayment Note from the
Available Funds that would have otherwise been distributed to the Tribe
pursuant to clauses (4) through (6) of this paragraph; provided, further, that
any Available Funds used to repay such Manager Repayment Note will be deemed
to have been distributed to the Tribe pursuant to this paragraph.
101
<page>
The Authority may use the Restricted Funds for any purpose not otherwise
prohibited by the indenture.
Funds in the Cash Accumulation Account may be invested only in Cash
Equivalents. Funds in the Cash Accumulation Account may be used by the
Authority to make payments on the notes in accordance with the Cash
Accumulation Account Contribution Agreement. Distributions to the Tribe will
be deposited by the Authority in a Tribal bank account designated by the
Authority. IN NO EVENT SHALL THE MINIMUM MONTHLY GUARANTEED PAYMENT BE
RESTRICTED BY THIS COVENANT.
The amount of all Restricted Payments (other than cash) will 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 Authority pursuant to the
Restricted Payment. The fair market value of any assets or securities that are
required to be valued by this covenant will be determined by the Management
Board whose resolution with respect thereto will be delivered to the trustee.
The Management Board's determination must be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if the fair market value exceeds $5.0 million. Not later
than the date of making any Restricted Payment in excess of $5.0 million, the
Authority will 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
The Authority will not, 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; provided, however, that the Authority may incur Indebtedness if:
(1) the Fixed Charge Coverage Ratio for the Authority'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 would have been at least 2.5 to
1.0, 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; and
(2) the Indebtedness is expressly subordinated in right of payment to the
notes; provided, however, that this clause (2) will apply only to
Indebtedness to be incurred under this paragraph to the extent that
such incurrence will cause the aggregate amount of Indebtedness
incurred and still outstanding under this paragraph immediately after
such incurrence to be in excess of $25.0 million; and
(3) the Weighted Average Life to Maturity of the Indebtedness is greater
than the remaining Weighted Average Life to Maturity of this Note.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Authority of (a) Indebtedness represented by
(i) the notes to be issued on the date of the indenture and the notes
to be issued in exchange for the notes pursuant to the Registration
Rights Agreement and (ii) the Senior Subordinated PIK Notes, (b) its
obligations arising under the Collateral Documents to the extent such
obligations would represent Indebtedness and (c) Indebtedness
incurred from time to time pursuant to the Subordinated PIK Notes,
the Manager Repayment Note, the Manager Agreement or the Letter of
Credit Note;
(2) the incurrence by the Authority of letters of credit and related
reimbursement agreements, bankers acceptances and performance
completion bonds (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the
Authority under the related reimbursement or other similar agreement)
in an aggregate principal amount not to exceed $2.0 million at any
one time outstanding under this clause (2);
(3) the incurrence by the Authority of Indebtedness represented by
Purchase Money Indebtedness or
102
<page>
Capital Lease Obligations incurred in connection with the purchase or
capital lease of furniture, fixtures and equipment in an aggregate
principal amount or accreted value, as applicable, including all
Permitted Refinancing Indebtedness incurred to extend, refinance,
renew, replace, defease or refund any Indebtedness incurred pursuant
to this clause (3), not to exceed $25.0 million at any time
outstanding under this clause (3); provided, that such incurrence
does not cause the aggregate amount of Indebtedness outstanding
pursuant to this clause (3) and clause (4) of this paragraph to
exceed $25.0 million;
(4) the incurrence by the Authority of any Indebtedness in an aggregate
principal amount, or accreted value, as applicable, including all
Permitted Refinancing Indebtedness incurred to extend, refinance,
renew, replace, defease or refund any Indebtedness incurred pursuant
to this clause (4), not to exceed $5.0 million at any time
outstanding under this clause (4); provided, that such incurrence
does not cause the aggregate amount of Indebtedness outstanding
pursuant to this clause (4) and clause (3) of this paragraph to
exceed $25.0 million;
(5) the incurrence by the Authority of Permitted Refinancing Indebtedness
in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund Indebtedness that was
permitted to be incurred under the first paragraph of this covenant,
clause (1), (3) or (4) of this paragraph or this clause (5); and
(6) the incurrence by the Authority of Indebtedness represented by loans
from Holdings (other than the Subordinated PIK Notes); provided, that
(A) the payment of principal, interest and premium, if any, on such
Indebtedness is expressly subordinate in right of payment to the
notes, the Senior Subordinated PIK Notes and the Manager Repayment
Note, (B) the maturity date of such Indebtedness occurs after
September 14, 2009 and (C) Holdings is not entitled to receive any
payment on such Indebtedness until all of the Authority's obligations
to the holders of the notes, the Senior Subordinated PIK Notes and
the Manager Repayment Note will have been paid in full.
The Authority will not incur any Indebtedness (including Permitted Debt)
that is contractually subordinated in right of payment to any other
Indebtedness of the Authority unless such Indebtedness is also contractually
subordinated in right of payment to the notes on substantially identical
terms; provided, however, no Indebtedness of the Authority will be deemed to
be contractually subordinated in right of payment to any other Indebtedness of
the Authority solely by virtue of its being unsecured.
For purposes of determining compliance with this Incurrence of
Indebtedness covenant, in the event that an item of proposed Indebtedness
meets the criteria of more than one of the categories of Permitted Debt
described in clauses (1) through (6) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Authority will be
permitted to classify such item of Indebtedness on the date of its incurrence,
or later reclassify all or a portion of such item of Indebtedness, in any
manner that complies with this covenant.
Liens
The Authority will not, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind on any assets now owned or hereafter
acquired by the Authority, or any proceeds, income or profits therefrom, or
collaterally assign the income therefrom, except Permitted Liens.
Merger, Consolidation or Sale of Assets
The Authority will not sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in
one or more transactions. The Authority will not consolidate or merge with or
into any other Person.
Transactions with Affiliates
The Authority will not 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, the
103
<page>
Tribe, any agency, instrumentality or political subunit of the Tribe, any
member of the Tribe, Holdings or any direct holder or Beneficial Owner of five
percent or more of Holdings' Equity Interests, the Manager or any direct
holder or Beneficial Owner of five percent or more of any of the Manager's
Equity Interests, the L/C Provider or any Affiliate of the Tribe, any
Affiliate of any member of the Tribe, any Affiliate of the Manager or any
Affiliate of the L/C Provider (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
the Authority than those that would have been obtained in a
comparable transaction by the Authority with an unrelated Person; and
(2) the Authority delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $1.0 million, a resolution of the Management Board 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 Management Board; provided, that if there are no
disinterested members of the Management Board, such Affiliate
Transaction must be approved unanimously by the members of the
Management Board; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, an opinion as to the fairness to the
holders of notes of such Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment
banking firm of national standing.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) entering into customary employee compensation arrangements that are
approved by a majority of disinterested members of the Management
Board; provided, that if there are no disinterested members of the
Management Board, such compensation arrangements must be approved
unanimously by the members of the Management Board;
(2) the execution of, or taking actions or making payments contemplated
by, the Collateral Documents, the Senior Subordinated PIK Notes, the
Subordinated PIK Notes, the Manager Repayment Note, the Letter of
Credit Note, the Registration Rights Agreement, the Development
Agreement, the Manager Agreement or the Management Agreement;
(3) Permitted Investments and Restricted Payments that are not prohibited
by the covenant entitled "Restricted Payments"; and
(4) the making of any payments to Holdings or any direct or indirect
holders of Holdings' Equity Interests, the Manager or any direct or
indirect holder of the Manager's Equity Interests, the L/C Provider,
or any Affiliate of the Manager if such payments are made in the
ordinary course of business at customary rates with respect to goods
or services provided to the Authority.
Limitation on Subsidiaries
The Authority will not create any instrumentality, subdivision or
subunit. The Authority will not form, acquire or own any Subsidiary.
Limitation on Status as Investment Company
The Authority will not become an investment company (as that term is
defined in the Investment Company Act of 1940, as amended), or otherwise
become subject to regulation under the Investment Company Act of 1940, as
amended.
Sale and Leaseback Transactions
104
<page>
The Authority will not enter into any sale and leaseback transaction
unless:
(1) the Authority could have (a) 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 (b) incurred a Lien to secure such
Indebtedness pursuant to the covenant described above under the
caption "--Liens";
(2) the gross cash proceeds of the sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by
the Management Board and set forth in an Officers' Certificate
delivered to the trustee, of the property that is the subject of such
sale and leaseback transaction; and
(3) the transfer of assets in such sale and leaseback transaction is
permitted by, and the Authority applies the proceeds of such
transaction in compliance with, the covenant described above under
the caption "--Repurchase at Option of Holders--Asset Sales".
Insurance
The Authority will 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. Customary insurance coverage will
be deemed to include, without limitation, the following:
(1) workers' compensation insurance to the extent required to comply with
all applicable state, territorial or United States laws and
regulations, or the laws and regulations of any other applicable
jurisdiction;
(2) comprehensive general liability insurance with minimum limits of $1.0
million;
(3) umbrella or excess liability insurance providing excess liability
coverages over and above the foregoing underlying insurance policies
up to a minimum limit of $25.0 million;
(4) business interruption insurance at all times for a period of at least
365 days; and
(5) property insurance protecting the property against losses or damages
as is customarily covered by an "all-risk" policy or a property
policy covering "special" causes of loss for a business of similar
type and size; provided, however, that such insurance will provide
coverage of not less than the lesser of (a) 120% of the outstanding
principal amount of the notes plus accrued and unpaid interest and
(b) 100% of actual replacement value (as determined at each policy
renewal based on the F.W. Dodge Building Index or some other
recognized means) of any improvements customarily insured consistent
with industry standards and, in each case, with a deductible no
greater than 2% of the insured value of the Chukchansi Gold Resort &
Casino or such greater amount as is available on commercially
reasonable terms (other than earthquake or flood insurance, for which
the deductible may be up to 10% of such replacement value).
All insurance required by this covenant (except worker's compensation)
will name the trustee as additional insured or loss payee, as the case may be,
with losses in excess of $1.0 million payable jointly to the Authority and the
trustee (unless a Default or Event of Default has occurred and is then
continuing, in which case all losses are payable solely to the trustee), with
no recourse against the trustee for the payment of premiums, deductibles,
commissions or club calls, and for at least 30 days notice of cancellation.
All such insurance policies will be issued by carriers having an A.M. Best &
Company, Inc. rating of A or higher and a financial size category of not less
than X, or if such carrier is not rated by A.M. Best & Company, Inc., having
the financial stability and size deemed appropriate by an opinion from a
reputable insurance broker. The Authority will deliver to the trustee on the
date of the indenture and each anniversary of the indenture a certificate of
an insurance agent describing the insurance policies obtained by the
105
<page>
Authority together with an Officer's Certificate stating that such policies
comply with this covenant and the related applicable provisions of the
Collateral Documents.
Line of Business
The Authority will not engage in any business, development or investment
activity, other than a Permitted Business.
Governmental Existence
The Authority will do or cause to be done all things necessary to
preserve and keep in full force and effect (1) its existence in accordance
with the respective organizational, statutory, constitutional or legal
documents, in each case as amended from time to time, of the Authority and the
Tribe and (2) all material rights (charter and statutory), licenses and
franchises of the Authority.
Construction
The Authority will construct the Chukchansi Gold Resort & Casino,
including the furnishing, fixturing and equipping thereof, with diligence and
continuity in a good and workmanlike manner substantially in accordance with
the Plans and within the Authority Budget. If on any of January 15, February
15, or March 15, 2003, any of the Manager, the Construction Manager or the
Independent Construction Consultant has not delivered an officers' certificate
to the trustee certifying that construction of the Chukchansi Gold Resort &
Casino is proceeding substantially in accordance with the Plans and within the
Authority Budget and that, as of such date, it reasonably believes that the
Chukchansi Gold Resort & Casino will be Operating by the Gaming Device
Operating Deadline, the Authority will use its reasonable efforts to cause the
Construction Manager to accelerate construction of the casino and the buffet
or, if the Authority determines that with such acceleration it would still be
unable to open the casino and the buffet by the Gaming Device Operating
Deadline, the Authority will direct the Construction Manager to accelerate
construction of the Events Center, such that 1,250 of the Tribe's gaming
devices can be placed in commercial operation by the Gaming Device Operating
Deadline.
Use of Proceeds
The Authority deposited approximately $111.4 million into the
Construction Disbursement Account and approximately $32.6 million into the
Interest Reserve Account. Funds in the Interest Reserve Account will be used
only to pay the first three interest payments on the notes. The funds in the
Construction Disbursement Account and the Interest Reserve Account may be
invested only in Cash Equivalents. All funds in the Construction Disbursement
Account and the Interest Reserve Account will be disbursed only in accordance
with the Cash Collateral and Disbursement Agreement.
Gaming Licenses and Other Permits
The Authority will use its best efforts to obtain and retain in full
force and effect at all times all Gaming Licenses and all other
authorizations, rights, franchises, privileges, consents, approvals, orders,
licenses, permits or registrations from or with any governmental authority
that are necessary for the operation of the Chukchansi Gold Resort & Casino;
provided, that if in the course of the exercise of its governmental or
regulatory functions the Tribal Gaming Commission is required to suspend or
revoke any consent, permit or license or close or suspend any operation of any
part of the Chukchansi Gold Resort & Casino as a result of any noncompliance
with law, the Authority will use its best efforts to promptly and diligently
correct such noncompliance or replace any personnel causing such noncompliance
so that the Chukchansi Gold Resort & Casino will be opened and fully operating
as promptly as practicable.
The Authority will provide the trustee, promptly after receipt by the
Authority, with any notice of non-compliance, violation, temporary closure
order or assessment of civil fines from the NIGC (pursuant to IGRA) and any
notice of non-compliance, violation of any Gaming Laws by any other Gaming
Authority, including the State Gaming Agency and the Tribal Gaming Commission.
Modification or Transfer of Certain Agreements
106
<page>
The Authority will not amend, waive or modify, or take or refrain from
taking any action that has the effect of amending, waiving or modifying, any
provision of the Development Agreement or the Management Agreement; provided,
however, that either agreement may be amended or modified so long as the
payments to be made to the Manager thereunder as so amended or modified are no
greater in the aggregate than the payments provided for the Manager pursuant
to the terms of such agreements on the date of the indenture.
Ownership Interests in the Authority
The Authority will not permit any Person other than the Tribe to acquire
any right to elect or appoint any members of the Management Board or any
executive officer of the Authority.
Further Assurances
The Authority will execute and deliver such additional instruments,
certificates or documents, and use commercially reasonable efforts to 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) subject to the Liens created by any of the Collateral Documents any
of the properties, rights or interests required to be encumbered
thereby;
(3) 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
(4) better assure, convey, grant, assign, transfer, preserve, protect and
confirm to the trustee any of the rights granted or intended to be
granted to the trustee under any other instrument executed in
connection therewith or granted to the Authority under the Collateral
Documents or 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, without limitation,
any Gaming Authority), the Authority will execute and deliver all
applications, certifications, instruments and other documents and papers that
may be required from the Authority for such governmental consent, approval,
recording, qualification or authorization.
No Payments for Consent
The Authority will not, directly or indirectly, pay or cause to be paid
any consideration to or for the benefit of any holder of notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of the indenture, the notes or any Collateral Document unless such
consideration is offered to be paid and is paid to all holders of notes that
consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the Commission, so long as any notes are
outstanding, the Authority will have its annual financial statements audited,
and its interim financial statements reviewed, by a nationally recognized firm
of independent accountants and will furnish to the holders of notes, within
the time periods specified in the Commission's rules and regulations for such
filings:
(1) all quarterly and annual financial information of the Authority and
the Manager that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Authority and the
Manager 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 of the
Authority and the Manager only, a report on the annual financial
statements by their respective certified independent accountants; and
107
<page>
(2) all current reports that would be required to be filed by the
Authority and the Manager with the Commission on Form 8-K if the
Authority and the Manager 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 Authority will file a copy of all of the information and
reports referred to in clauses (1) and (2) 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 Authority has agreed that, for so
long as any notes remain outstanding, it will furnish to the holders of notes
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 with respect to the Authority and the Manager if not obtainable
from the Commission. The Authority has also agreed that on or prior to the
fifth Business Day of each calendar month during the Construction Period,
beginning November 1, 2002, it will issue a press release generally describing
the progress of construction on the Chukchansi Gold Resort & Casino and
whether, during the prior month, the construction had proceeded substantially
in accordance with the Construction Schedule.
Covenants of the Tribe
Except as required by federal, state or local law, the Tribe will not,
and will not permit any of its representatives, political subunits or
councils, agencies or instrumentalities, to, directly or indirectly:
(1) increase or impose any tax, levy or other similar monetary payment or
reimbursement obligation on the Authority or on any patrons of the
Chukchansi Gold Resort & Casino or on any activity at the Chukchansi
Gold Resort & Casino (gaming or otherwise), other than:
(a) any payments due under any agreement in effect on the date of the
indenture or any such payments that are not materially adverse to
the economic interests of holders pursuant to
the notes or any of the Collateral Documents or the ability of
the Authority to timely perform in full all of its obligations
under the indenture, the notes or the Collateral Documents; or
(b) those which are reasonable nondiscriminatory charges for
utilities or other governmental services supplied by the Tribe
and used by the Authority in an amount not to exceed the
reasonable cost of such services and a reasonable allowance for
administrative costs;
(2) subject to the following three paragraphs, amend the Tribal Gaming
Ordinance, the Authority Ordinance, the arbitration code or uniform
commercial code in effect on the date of the indenture in any manner
that would be materially adverse to the interests or rights of
holders under the notes or any of the Collateral Documents, restrict
or eliminate the exclusive right of the Authority to conduct gaming
operations on behalf of the Tribe, conduct or permit any other entity
to conduct gaming operations on any property owned, directly or
beneficially, or controlled by the Tribe or materially and adversely
alter, modify or amend any regulation relating to the holder's rights
under the notes or any of the Collateral Documents;
(3) take any other action, enter into any agreement, amend its
Constitution or enact any ordinance, law, rule or regulation that
would adversely prejudice or have a material adverse effect on any of
the rights of the holders under the indenture, the notes or any of
the Collateral Documents;
(4) assert that any waiver of the Authority or the Tribe, any choice of
judicial forum, designation of governing law or any remedy expressly
authorized in the indenture or in any Collateral Document is void or
unenforceable; or
(5) fail to timely pay or cause to be paid any tax, imposition, judgment,
award or charge of any nature which, if not paid, would permit
enforcement of a lien on the Site or the Chukchansi Gold Resort &
Casino, other than any such payment that is being contested in good
faith and, during the time such payment is being contested, does not
create any risk of foreclosure or forfeiture of the Site or the
Chukchansi Gold Resort & Casino.
108
<page>
In addition, except as specifically provided in the indenture, the
Tribe will not, and will not permit the Authority or any of the Tribe's
representatives, political subunits, councils, agencies or instrumentalities
to, directly or indirectly impose, levy, tax or otherwise make any charge on
the indenture, the notes, the Collateral Documents or any payments or deposits
to be made thereunder, including without limitation upon the payment of any
principal, premium, interest or Liquidated Damages, if any. Notwithstanding
the foregoing, or any other provision of the indenture, the Tribal Gaming
Commission will be permitted to reasonably exercise in good faith its
governmental and regulatory functions authorized or required under the Compact
or the Tribal Gaming Ordinance.
Any action taken by the Tribe to comply with federal or state law
that would otherwise violate the first paragraph of this covenant will be
taken only after prior written notice to the trustee accompanied with an
Officers' Certificate and opinion of counsel that such action is required by
federal or state law.
The Tribe agrees that any amendments made to the Tribal Gaming
Ordinance will be a legitimate effort to comply with the Compact or IGRA or to
ensure that the Authority conducts its gaming operations in a manner that
adequately protects the environment, the public health and safety or the
integrity of the Authority or operation of the Chukchansi Gold Resort & Casino
and not with the purpose of delaying or hindering the repayment of the notes.
The Tribe and the Authority agree that any licensure or investigation of any
holder of notes, in its capacity as such holder or otherwise, will be
conducted in good faith and with a reasonable basis therefor.
To the extent within its lawful power, the Tribe will take all such
action and will refrain from taking such action as is necessary to cause the
Authority at all times to be a wholly-owned or wholly-controlled entity
created under the laws of the Tribe, permitted under all other applicable
laws, including IGRA, to have access to the Site and to operate the business
of the Authority (including such gaming as permitted under IGRA and the
Compact) and to timely perform all of the Authority's obligations under the
indenture, the notes and the Collateral Documents. The Tribe will not convey
or encumber, or permit to be conveyed or encumbered, any interest in land
constituting all or a portion of the Site, other than a transfer of fee title
in the land to the U.S. government to be held in trust for the benefit of the
Tribe, and except for the creation of Permitted Liens.
The Tribe will not permit or incur any consensual liability of the
Tribe (or of any other instrumentality or subunit of the Tribe) that is a
legal obligation of the Authority, or for which the Authority's assets may be
bound, other than a liability that the Authority is permitted or not
prohibited from incurring on its own behalf under the indenture.
In the event that the Tribe receives any payment from the Authority
at a time when such payment is prohibited by the terms of the indenture, such
payment will be held by the Tribe in trust for the benefit of, and will be
paid forthwith over and delivered to, the Authority promptly, and in any event
immediately upon receipt of a written request from the trustee or the
Authority.
The Tribe will not, pursuant to or within the meaning of any
Bankruptcy Law, appoint or consent to the appointment of a custodian of the
Authority or for all or substantially all of the property of the Authority.
The Tribe agrees that it will not enact any Bankruptcy Law or
similar law for the relief of debtors that would impair, limit, restrict,
delay or otherwise adversely affect any of the rights and remedies of the
holders provided for in the indenture or the Collateral Documents.
The Tribe will not and will not permit the Authority or any of the
Tribe's representatives, political subunits, councils, agencies or
instrumentalities to, exercise any power of eminent domain over any property
that is used or useful in connection with the operations of the Chukchansi
Gold Resort & Casino. Except as required by federal or state law, the Tribe
will not enact any statute, law, ordinance or rule that would have a material
adverse effect on the rights of the holders under the indenture or any of the
Collateral Documents.
109
<page>
The Tribe agrees that upon any payment or distribution of assets
upon any liquidation, dissolution, winding up, reorganization, assignment for
the benefit of creditors, marshalling of assets or any bankruptcy, insolvency
or similar proceedings of the Authority or the Chukchansi Gold Resort &
Casino, the holders shall be entitled to receive payment in full with respect
to all principal, premium, interest, Liquidated Damages, if any, and other
amounts owing in respect of each of the notes before any payment or any
distribution to the Tribe.
The Tribe agrees that the Authority will have sole and exclusive
jurisdiction to operate any Gaming enterprise on behalf of the Tribe or any
political subunit thereof and the Tribe will not permit any Person other than
the Tribe to acquire any right to elect or appoint any members of the
Management Board or any executive office of the Authority.
The Tribe hereby consents, agrees and acknowledges to the creation
of the Liens securing the Obligations under the notes, the indenture and the
Collateral Documents created under the notes, the indenture or the Collateral
Documents.
The Tribal Gaming Commission will at all times provide a complete
exclusion from the licensing requirements of Section 6.4.6 of the Compact for
(1) all federally-regulated or state-regulated banks, savings and loans or
other federally- or state- regulated lending institutions, (2) any agency or
federal, state or local government or (3) any investor, who, alone or in
conjunction with another, holds less than 10% of any outstanding indebtedness
evidenced by bonds issued by the Tribe or the Authority.
Events of Default and Remedies
Each of the following is an Event of Default under the indenture:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the notes;
(2) default in payment when due of the principal of, or premium, if any,
on the notes;
(3) failure to perform or comply with the provisions described under
"--Repurchase at Option of Holders --Change of Control,"
"--Repurchase at Option or Holders--Asset Sales," "--Repurchase at
the Option of Holders--Events of Loss," "--Certain Covenants--Merger,
Consolidation or Sale of Assets," "--Certain Covenants--Use of
Proceeds," and "Governmental Existence";
(4) failure by the Authority for 30 days after notice thereof to perform
or comply with the provisions described under "Certain
Covenants--Restricted Payments" or "Certain Covenants--Incurrence of
Indebtedness," or any of the covenants set forth in the Collateral
Documents;
(5) failure by the Authority or the Tribe (with respect to its
obligations under the indenture) for 60 days after notice thereof to
observe or perform any covenant, representation, warranty or other
agreement in the indenture not set forth in clause (3) or (4) above;
(6) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Authority (or the payment of
which is guaranteed by the Authority), whether such Indebtedness or
guarantee now exists, or is created after the date of the indenture
(other than a default under the Senior Subordinated PIK Notes, the
Subordinated PIK Notes, the Manager Repayment Note or the Letter of
Credit Note resulting from the Authority's failure to make a change
of control offer or an asset sale offer, as applicable, to the
holders of such notes), 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
110
<page>
(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, as applicable, aggregates to $5.0
million or more;
(7) failure by the Authority 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;
(8) any of the Collateral Documents will cease, for any reason (other
than pursuant to the terms thereof), to be in full force and effect,
or the Authority will so assert, or any security interest created, or
purported to be created, by any of the Collateral Documents will
cease to be enforceable and of the same effect and priority purported
to be created thereby;
(9) any representation or warranty made by the Authority in any
Collateral Document or that is contained in any certificate, document
or financial or other statement furnished by the Authority at any
time under or in connection with any such Collateral Document will
prove to have been inaccurate in any material respect on or as of the
date made or deemed made;
(10) default by the L/C Provider in the performance of its obligations set
forth in, or repudiation of its obligations under, the Letter of
Credit Drawdown Agreement and such default is not cured within 30
days;
(11) an Event of Default occurs and is continuing under the Manager
Agreement;
(12) the Manager (A) defaults in the performance of its obligations set
forth in, or repudiates its obligations under, the Development
Agreement, Management Agreement or Cash Accumulation Account
Contribution Agreement and either (1) such default is not cured
within 30 days or (2) a new manager meeting the requirements of a
Permitted Replacement Manager has not assumed and complied with the
Manager's obligations under such agreements as required by the
definition of Permitted Replacement Manager within 30 days thereof,
unless in any such event, either (x) the Manager continues in all
material respects to provide services to the Authority in compliance
with the Management Agreement, or (y) such transaction constitutes a
Change of Control or (B) is terminated or resigns as manager of the
Chukchansi Gold Resort & Casino or otherwise ceases to be the manager
other than as set forth in clause (A) above of the Chukchansi Gold
Resort & Casino and either (1) a Permitted Replacement Manager has
not assumed and complied with the Manager's obligations under the
Development Agreement, Management Agreement and Cash Accumulation
Account Contribution Agreement as required by the definition of
Permitted Replacement Manager within 30 days thereof, or (2) such
termination or withdrawal constitutes a Change of Control;
(13) the Initial Operating Date does not occur by the Operating Deadline
or any Gaming License is lost, revoked or suspended and, as a result,
the Chukchansi Gold Resort & Casino ceases Operating for a period of
more than 90 consecutive days; and
(14) certain events of bankruptcy or insolvency with respect to the
Authority.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Authority, all outstanding notes
will become due and payable immediately without further action or notice,
subject to the second sentence under the caption "Special Provisions Regarding
Unlicensed and Non-exempt Holders." 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, subject to the second sentence under the
caption "Special Provisions Regarding Unlicensed and Non-Exempt Holders,"
declare all the notes to be due and payable immediately.
111
<page>
Following an Event of Default (other than an Event of Default
described in clause (14) of the definition of Event of Default), and only
until the holders of at least 25% in principal amount of the then outstanding
notes direct the trustee to cease the disbursement of funds in the Deposit
Accounts to pay Operating Expenses, the trustee will not prohibit funds in the
Deposit Account to be disbursed to the Authority for the payment of Operating
Expenses if the Authority delivers to the trustee (a) a certificate executed
by at least two officers of the Authority that states that such funds will be
used to pay Operating Expenses and identifies the payees of such funds and the
basis for such payments and (b) a certificate executed by at least two
officers of the Manager confirming the information provided in the Authority's
certificate.
Holders of notes 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 of notes 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 Liquidated Damages) if it determines that withholding notice is in their
interest, except a Default or Event of Default relating to the payment of
principal or interest or Liquidated Damages.
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
consequences under the indenture, except a continuing Default or Event of
Default in the payment of interest or Liquidated Damages 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
Authority with the intention of avoiding payment of the premium that the
Authority would have had to pay if the Authority then had elected to redeem
the notes pursuant to the optional redemption provisions of the indenture, an
equivalent premium will also become and be immediately due and payable to the
extent permitted by law upon the acceleration of the notes. If an Event of
Default occurs prior to October 1, 2006, by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Authority with the
intention of avoiding the prohibition on redemption of the notes prior to
October 1, 2006, then the premium specified in the indenture will also become
immediately due and payable to the extent permitted by law upon the
acceleration of the notes, subject to second sentence under the caption
"Special Provisions Regarding Unlicensed and Non-exempt Holders."
The Authority 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 Authority is required to deliver to the
trustee a statement specifying such Default or Event of Default.
As promptly as practicable following any acceleration of the notes,
the trustee will send a written notice to all holders advising the holders of
the following:
(1) an acceleration of the notes has occurred; and
(2) under the terms of the indenture and the notes, neither the trustee
nor the Authority may make any payments of principal or interest on
the notes (i) as a result of any enforcement action commenced by or
on behalf of the trustee or any holder or (ii) after payment of the
notes has been accelerated because of a default under the
indenture, except, in each case, to a holder that is licensed or
exempted from licensing by the Tribal Gaming Commission in
accordance with the Compact.
No Personal Liability of the Tribe, Directors, Officers, Employees and Members
Neither the Tribe nor any director, member, officer, officeholder,
employee, agent, representative or member of the Authority or the Tribe, as
such, will have any liability for any obligations of the Authority under the
notes, the indenture, the Collateral Documents or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each holder
of notes 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.
112
<page>
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the
indenture, the notes or the Collateral Documents may be amended or
supplemented by the Authority and the trustee with the consent of the holders
of 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, the notes or the Collateral
Documents 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 Liquidated Damages, if any, on the notes
(except a rescission of acceleration of the notes by the holders of
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 of notes to
receive payments of principal of, or interest or premium or
Liquidated Damages, 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 all or substantially all of the Collateral from the Lien of
the indenture or the Collateral Documents (except in accordance
with the provisions thereof); or
(9) make any change in the preceding amendment and waiver provisions.
Any amendment to, or waiver of, the provisions of any of the
Collateral Documents relating to the covenant entitled "Liens" or the security
provisions of the indenture will require the consent of the holders of at
least 662/3% in principal amount of the notes then outstanding.
Notwithstanding the preceding, without the consent of any holder of
notes, the Authority and the trustee may amend or supplement the indenture,
the notes or the Collateral Documents:
(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 Authority's obligations to
holders of notes in the case of a merger or consolidation or sale
of all or substantially all of the Authority's assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely affect
the legal rights under the indenture of any such holder;
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust
Indenture Act of 1939, as amended;
(6) to enter into additional or supplemental Collateral Documents;
113
<page>
(7) to comply with applicable rules and orders of the NIGC, the BIA or
any governmental authority; or
(8) to comply with the provisions of DTC, Euroclear or Clearstream or
the trustee with respect to the provisions of the indenture or the
notes relating to the transfers and exchanges of notes or
beneficial interests therein.
Legal Defeasance and Covenant Defeasance
The Authority may, at its option and at any time, elect to have all
of its obligations discharged with respect to the outstanding notes ("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 Liquidated
Damages, if any, on such notes when such payments are due from the
trust referred to below;
(2) the Authority'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 Authority's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, the Authority may, at its option and at any time, elect
to have the obligations of the Authority released with respect to certain
covenants that are described in the indenture ("Covenant Defeasance") and
thereafter any omission to comply with those covenants will not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including nonpayment, 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 addition, the Liens securing the Collateral will be released upon
Covenant Defeasance or Legal Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Authority must irrevocably deposit with the trustee, in trust,
for the benefit of the holders of notes, 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, interest and premium and Liquidated Damages, if any,
on the outstanding notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Authority
must specify whether the notes are being defeased to maturity or to
a particular redemption date;
(2) in the case of Legal Defeasance, the Authority will have delivered
to the trustee an opinion of counsel reasonably acceptable to the
trustee confirming that:
(a) the Authority 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 will 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 Authority has 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
114
<page>
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 has occurred and be continuing 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);
(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
Authority is a party or by which the Authority is bound;
(6) the Authority must deliver to the trustee an Officers' Certificate
stating that the deposit was not made by the Authority with the
intent of preferring the holders of notes over the other creditors
of either of the Authority with the intent of defeating, hindering,
delaying or defrauding creditors of the Authority or others; and
(7) the Authority must deliver to the trustee an Officers' Certificate
confirming satisfaction of the conditions in clauses (1) through
(6) above, and an opinion of counsel confirming the satisfaction of
the conditions in clauses (1) (with respect to validity and
perfection of the security interest), (2), (3) and (5) above.
Notwithstanding the above, the trustee will pay to the Authority from
time to time at the Authority's request any cash or Government Securities held
by it that, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to
the trustee, are in excess of the amount thereof that would then be required
to be deposited to effect a Legal Defeasance or Covenant Defeasance.
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 Authority) 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 Authority has
irrevocably deposited or caused to be deposited with the
trustee as trust funds in trust solely for the benefit of the
holders of notes, 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, interest, premium and Liquidated
Damages, if any, to the date of maturity or redemption;
(2) no Default or Event of Default will have occurred and be continuing
on the date of such deposit or will 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 Authority is a party or by which the Authority is bound;
(3) the Authority has paid or caused to be paid all other sums due by
it under the indenture; and
(4) the Authority 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 Authority must deliver an Officers' Certificate and an
opinion of counsel to the trustee confirming the satisfaction of the
conditions in clause (2).
115
<page>
Notwithstanding the above, the trustee will pay to the Authority from
time to time upon the request of the Authority any cash or Government
Securities held by it as provided in this section which, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification delivered to the trustee, are in excess of the amount
thereof that would then be required to be deposited to effect a satisfaction
and discharge.
Concerning the Trustee
If the trustee becomes a creditor of the Authority, 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 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
will 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 of notes, unless such holder will have offered to the
trustee security and indemnity satisfactory to it against any loss, liability
or expense.
Governing Law
The indenture will provide that it and the notes will be governed and
construed in accordance with the laws of the State of New York, provided, that
with respect to the creation, attachment, perfection or priority of the
security interest in any collateral securing the notes, the governing law will
be the Uniform Commercial Code of New York, unless no perfected security
interest is recognized under that law, in which case the Uniform Commercial
Code of the State of California, as adopted and modified by the Tribe as its
law, will apply. The Tribe and the Authority agree that the transactions under
the indenture, including the execution of the indenture, the lending of money
and the issuance of the notes, occurred outside the Tribe's rancheria in the
State of New York.
Waiver of Sovereign Immunity; Waiver of Tribal Courts and Forums
Each of the Authority and the Tribe have agreed to unconditionally
and irrevocably waive their sovereign immunity and all defenses based thereon
with respect to Permitted Claims. This waiver will permit (a) the
interpretation, enforcement and the seeking of legal or equitable relief and
remedies (whether through an award or granting of specific performance,
injunction, mandamus, damages or otherwise) through arbitration proceedings as
described below and (b) judicial actions to compel, enter judgment upon,
enforce, modify or vacate any award or interim injunctive relief related to
the arbitration proceedings in any of the courts described below. This waiver
will commence on the date the notes are issued and continue until one year
after all obligations of the Authority and the Tribe under the indenture, the
notes and the Collateral Documents have been completely performed and amounts,
if any, owed hereunder from the Authority have been indefeasibly paid in full.
The only assets or rights against which any award, judgment or other order for
relief arising from this waiver may be enforced are Authority Assets (as
defined in the Authority Ordinance), whether held in the name of the
Authority, the Tribe or any branch, department, agency, instrumentality,
division, subsidiary, authority, enterprise, corporation, business or other
entity directly or indirectly owned or controlled in whole or in part by
either the Authority or the Tribe. Notwithstanding the foregoing, any revenues
or other property transferred by the Authority to any other tribal party in
compliance with the notes, the indenture and the Collateral Documents will
upon such transfer no longer constitute Authority Assets.
Each of the Authority and the Tribe will unconditionally and
irrevocably waive the jurisdiction of any tribal courts or other tribal forums
for the resolution of disputes now or hereafter existing or created with
respect to any Permitted Claim, except as provided below in connection with
the enforcement of an arbitration award. Each of the Authority and the Tribe
will unconditionally and irrevocably waive the
116
<page>
application of any judicial rule or doctrine relating to the exhaustion of
tribal remedies, abstention or comity that might otherwise require that a
Permitted Claim be heard in a tribal court.
Mandatory Arbitration of Permitted Claims; Permitted Court Actions
All Permitted Claims must be resolved by binding arbitration under the
commercial arbitration rules of the American Arbitration Association (the
"AAA"), as modified by the arbitration provisions of the indenture, except as
provided below. The arbitration will be conducted before a single arbitrator
who must be an attorney admitted to practice and in good standing before the
highest court of a state, who is experienced in advising clients in connection
with commercial borrowings or the issuance of debt securities. Any party will
be permitted to engage in any discovery permitted under the rules of the AAA,
but all discovery must be completed within 90 days after commencement of the
arbitration process. The hearing on the arbitration must be held in the City
of Los Angeles, California, and be completed no more than 30 days after the
close of discovery. The arbitrator must render an award in writing within 30
days of the completion of the hearing. No arbitrator will have the power to
award punitive damages.
Proceedings to enter judgment upon, enforce, modify or vacate any award
or interim injunctive relief may be commenced in (a) the United States
District Court for the Southern District of New York, and all courts to which
any appeal therefrom may be available; (b) any court of the State of New York,
and all courts to which any appeal therefrom may be available; (c) if none of
the foregoing courts will have or accept jurisdiction, then any other federal
or state court, and all courts to which any appeal therefrom may be available,
(d) if none of the foregoing courts will have or accept jurisdiction, any
court of the Tribe (in the case of any Permitted Claim to which the Tribe or
Authority is a party). An arbitration proceeding may be commenced only by the
Tribe, the Authority, the trustee, or, to the extent remedies may be enforced
directly by a holder under the indenture, the holder. Notwithstanding the
foregoing, if any foregoing court should determine that an issue or matter
that is otherwise a Permitted Claim is nevertheless not a proper subject for
arbitration, then suit in any of the foregoing courts with respect to such
issue or matter is allowed.
Additional Information
Anyone who receives this prospectus may obtain a copy of the
indenture, the Registration Rights Agreement and each of the Collateral
Documents without charge by writing to the Manager at 7915 Folsom Boulevard,
Sacramento, California 95826-2611, Attention: Chief Financial Officer.
Book-Entry, Delivery and Form
The old notes are, and the new notes will be, issued in the form of
one or more global certificates, known as "Global Notes." Except as described
below, the new notes will be initially represented by one or more Global Notes
in fully registered form without interest coupons. The Global Notes will be
deposited with, or on behalf of DTC, and registered in the name of DTC or its
nominee.
Ownership of beneficial interests in each Global Note will be limited
to persons who have accounts with DTC ("Direct Participants") or persons who
hold interests through Direct Participants. We expect that under procedures
established by DTC, ownership of beneficial interests in each Global Note will
be shown on, and transfer of ownership of those interests will be effected
only though records maintained by DTC (with respect to interests of Direct
Participants) and the records of Direct Participants (with respect to other
owners of beneficial interests in the Global Note).
Depositary 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. The Authority takes no responsibility for these
operations and procedures and urge investors to contact the system or their
participants directly to discuss these matters.
DTC has advised the Authority that DTC is a limited-purpose trust
company created to hold securities for its Direct Participants and to
facilitate the clearance and settlement of transactions in those
117
<page>
securities between Direct Participants through electronic book-entry changes
in accounts of its Direct Participants. The Direct 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 Direct Participant, either directly or indirectly
(collectively, the "Indirect Participants"). Persons who are not Direct
Participants may beneficially own securities held by or on behalf of DTC only
through the Direct 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 Direct Participants and
Indirect Participants.
DTC has also advised the Authority that, pursuant to procedures
established by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Direct Participants designated by the initial purchasers with
portions of the principal amount of the Global Notes; and
(2) 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 Direct
Participants) or by the Direct Participants and the Indirect
Participants (with respect to other owners of beneficial interest
in the Global Notes).
All interests in a Global Note may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or Clearstream may
also be subject to the procedures and requirements of such systems. The laws
of some states require that certain Persons take physical delivery 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 Direct 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 interest 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, the Authority 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, none of the Authority, the
trustee or any agent of the Authority or the trustee has or will have any
responsibility or liability for:
(1) any aspect of DTC's records or any Direct 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
Direct 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 Direct Participants or Indirect Participants.
DTC has advised the Authority that its current practice, upon receipt
of any payment in respect of securities such as the notes (including principal
and interest), is to credit the accounts of the relevant Direct 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 Direct 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 Direct 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
Direct Participants or the Indirect Participants and will not be the
responsibility of DTC, the trustee or
118
<page>
the Authority. Neither the Authority nor the trustee will be liable for any
delay by DTC or any of its Direct Participants in identifying the beneficial
owners of the notes, and the Authority 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 Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in same-day funds, and
transfers between participants in Euroclear and Clearstream will be effected
in accordance with their respective rules and operating procedures.
Cross-market transfers between the Direct Participants in DTC, on the
one hand, and Euroclear or Clearstream participants, on the other hand, will
be effected through DTC in accordance with DTC's rules on behalf of Euroclear
or Clearstream, as the case may be, by its respective depositary; however,
such cross-market transactions will require delivery of instructions to
Euroclear or Clearstream, as the case may be, by the counterparty in such
system in accordance with the rules and procedures and within the established
deadlines (Brussels time) of such system. Euroclear or Clearstream, as the
case may be, will, if the transaction meets its settlement requirements,
deliver instructions to its respective depositary to take action to effect
final settlement on its behalf by delivering or receiving interests in the
relevant Global Note in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC.
Euroclear participants and Clearstream participants may not deliver
instructions directly to the depositories for Euroclear or Clearstream.
DTC has advised the Authority that it will take any action permitted
to be taken by a Holder of notes only at the direction of one or more Direct
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 notes as to which such Direct Participant or Direct Participants has or
have given such direction. However, if there is an Event of Default under the
notes, DTC reserves the right to exchange the Global Notes for legended notes
in certificated form, and to distribute such notes to its Direct Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation
to perform or to continue to perform such procedures, and may discontinue such
procedures at any time. None of the Authority, the trustee or any of their
respective agents will have any responsibility for the performance by DTC,
Euroclear or Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
The information in this section concerning DTC, Euroclear and
Clearstream and the book-entry system has been obtained from sources that the
Authority believes to be reliable, but the Authority takes no responsibility
for the accuracy thereof.
Certificated Notes
A Global Note may be exchanged for definitive notes in registered,
certificated form without interest coupons ("Certificated Notes") if:
(1) DTC (a) notifies the Authority and the Authority delivers DTC's
notice to the trustee, 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, the Authority fails to appoint a successor depositary within
120 days;
(2) the Authority, at its option, notifies the trustee in writing that
it elects to cause the issuance of the Certificated Notes; or
(3) there will have occurred and be continuing a Default or Event of
Default with respect to the notes.
119
<page>
In any such case, the Authority will notify the trustee in writing that, upon
surrender by the Direct and Indirect Participants of their interest in such
Global Note, Certificated Notes will be issued to each person that such Direct
or Indirect Participants and DTC identify as being the beneficial owner of the
related notes.
In addition, beneficial interests in a Global Note held by any Direct
or Indirect Participant may be exchanged for Certificated Notes upon request
through DTC, by such Direct Participant (for itself or on behalf of an
Indirect Participant), to the trustee in accordance with customary DTC
procedures and 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 DTC on behalf of such Direct or Indirect Participants (in accordance with
DTC's customary procedures).
Same Day Settlement and Payment
The indenture requires that payments in respect of the 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 holder of interests in such
Global Note. With respect to Certificated Notes, if requested by a holder of
at least $1.0 million in aggregate principal amount of notes, the Authority
will make all payments of principal, premium, if any and interest and
Liquidated Damages, if any, by wire transfer of immediately available funds to
the accounts specified by the holders of the Certificated Notes or, if no such
account is specified, by mailing a check to each such holder's registered
address. The notes represented by the Global Notes are expected to be eligible
to trade in The PORTAL Market and to trade in DTC's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such notes
will, therefore, be required by DTC to be settled in immediately available
funds. The Authority expects that secondary trading in any Certificated Notes
will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear
or Clearstream participant purchasing an interest in a Global Note from a
Direct Participant in DTC will be credited, and any such crediting will be
reported to the relevant Euroclear or Clearstream participant, during the
securities settlement processing day (which must be a business day for
Euroclear and Clearstream) immediately following the settlement date of DTC.
DTC has advised the Authority that cash received in Euroclear or Clearstream
as a result of sales of interests in a Global Note by or through a Euroclear
or Clearstream participant to a Direct Participant in DTC will be received
with value on the settlement date of DTC but will be available in the relevant
Euroclear or Clearstream cash account only as of the business day for
Euroclear or Clearstream following DTC's settlement date.
Registration Rights; Liquidated Damages
The following description is a summary of the material provisions of the
Registration Rights Agreement. It does not restate that agreement in its
entirety. We urge you to read the proposed form of Registration Rights
Agreement in its entirety because it, and not this description, defines your
registration rights as holders of notes. See "--Additional Information."
The Authority, the Tribe and the initial purchasers entered into a
registration rights agreement. Pursuant to the Registration Rights Agreement,
the Authority agreed to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to the Exchange Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Authority will offer to the holders of Transfer
Restricted Securities pursuant to the Exchange Offer who are able to make
certain representations the opportunity to exchange their Transfer Restricted
Securities for Exchange Notes.
If:
(1) the Authority is not permitted to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or
Commission policy; or
(2) any holder of Transfer Restricted Securities notifies the Authority
prior to the 20th day following consummation of the Exchange Offer
that:
(a) it is prohibited by law or Commission policy from participating
in the Exchange Offer;
120
<page>
(b) that it may not resell the Exchange Notes acquired by it in
the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for
such resales; or
(c) that it is a broker-dealer and owns notes acquired directly
from the Authority or an affiliate of the Authority;
the Authority will file with the Commission a Shelf Registration
Statement to cover resales of the notes by the holders thereof
who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration
Statement.
The Authority will use its reasonable best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission.
For purposes of the preceding, "Transfer Restricted Securities" means
each note until the earliest of:
(1) the date on which such note has been exchanged by a Person other
than a broker-dealer for an Exchange Note in the Exchange Offer;
(2) following the exchange by a broker-dealer in the Exchange Offer of
a note for an Exchange Note, the date on which such Exchange Note
is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of the prospectus contained
in the Exchange Offer Registration Statement;
(3) the date on which such note has been effectively registered under
the Securities Act and disposed of in accordance with the shelf
registration statement; and
(4) the date on which such note is distributed to the public pursuant
to Rule 144 under the Securities Act.
The Registration Rights Agreement will provide that:
(1) the Authority will file an Exchange Offer Registration Statement
with the Commission on or prior to 90 days after the closing of
this offering;
(2) the Authority will use its reasonable best efforts to have the
Exchange Offer Registration Statement declared effective by the
Commission on or prior to 210 days after the closing of this
offering;
(3) unless the Exchange Offer would not be permitted by applicable law
or Commission policy the Authority will:
(a) commence the Exchange Offer; and
(b) use its reasonable best efforts to issue on or prior to 30
business days, or longer, if required by the federal
securities laws, after the date on which the Exchange Offer
Registration Statement was declared effective by the
Commission, Exchange Notes in exchange for all notes tendered
prior thereto in the Exchange Offer; and
(4) if obligated to file the Shelf Registration Statement, the
Authority will use its reasonable best efforts to file the Shelf
Registration Statement with the Commission on or prior to 30 days
after such filing obligation arises and to cause the Shelf
Registration Statement to be declared effective by the Commission
on or prior to 90 days after such obligation arises.
If:
(1) the Authority fails to file any of the registration statements
required by the Registration Rights Agreement on or before the date
specified for such filing;
(2) any of such registration statements is not declared effective by
the Commission on or prior to the date specified above for such
effectiveness (the "Effectiveness Target Date");
121
<page>
(3) the Authority fails to consummate the Exchange Offer within 30
business days of the Effectiveness Target Date, or longer, if
required by the federal securities laws, with respect to the
Exchange Offer Registration Statement; or
(4) the Exchange Offer Registration Statement or the Shelf Registration
Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer
Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in
clauses (1) through (4) above, a "Registration Default");
then the Authority will pay Liquidated Damages to each holder of notes, with
respect to the first 90-day period immediately following the occurrence of the
first Registration Default in an amount equal to $.05 per week per $1,000
principal amount of notes held by such holder.
The amount of the Liquidated Damages will increase by an additional $.05
per week per $1,000 principal amount of notes with respect to each subsequent
90-day period until all Registration Defaults have been cured, up to a maximum
amount of Liquidated Damages for all Registration Defaults of $.50 per week
per $1,000 principal amount of notes. The Authority will not be required to
pay Liquidated Damages for more than one Registration Default at any given
time.
All accrued Liquidated Damages will be paid by the Authority on each
interest Payment Date to the Global Note holder by wire transfer of
immediately available funds or by federal funds check and to holders of
Certificated Notes by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified.
Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of notes will be required to make certain representations to the
Authority (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver certain
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time
periods set forth in the registration rights agreement in order to have their
notes included in the shelf registration statement and benefit from the
provisions regarding Liquidated Damages set forth above. By acquiring Transfer
Restricted Securities, a holder of notes will be deemed to have agreed to
indemnify the Authority against certain losses arising out of information
furnished by such holder in writing for inclusion in any shelf registration
statement. Holders of notes will also be required to suspend their use of the
prospectus included in the shelf registration statement under certain
circumstances upon receipt of written notice to that effect from the
Authority.
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.
"Adjustment Event" means any adjustment by the Internal Revenue Service
(or state or local tax authority) in respect of any income inclusion arising
from or attributable to the Senior Subordinated PIK Notes, the Subordinated
PIK Notes, the Manager Repayment Note or the Letter of Credit Note held by a
Tax Amounts Recipient which adjustment becomes a final "determination" under
section 1313 of the Code (or similar state or local tax law).
"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, will 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, however, that beneficial
ownership of 10% or more of the voting securities of a Person will be deemed
to be control. For purposes of this definition, the terms "controlling,"
"controlled by" and "under common control with" will have correlative
meanings; provided, further, that the Manager, on the one hand, and the
Authority and the Tribe, on the other hand, will not be deemed to be
Affiliates of each other.
122
<page>
"Applicable Income Tax Rate" means an amount equal to the sum of (a) the
highest marginal Federal income tax rate applicable to an individual, plus (b)
an amount equal to the sum of the highest marginal state and local income tax
rates applicable to any individual resident in New York, New York multiplied
by a factor equal to 1 minus such highest marginal Federal income tax rate.
"Asset Sale" means the sale, lease, conveyance or other disposition of
any assets or rights of the Authority; provided, that the sale, conveyance or
other disposition of all or substantially all of the assets of the Authority
will be governed by the provisions of the indenture described above under the
caption "--Certain Covenants --Merger, Consolidation or Sale of Assets" and
not by the provisions of the Asset Sale covenant.
Notwithstanding the preceding, the following items will 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 $1.0
million;
(2) the sale or other disposition of cash or Cash Equivalents;
(3) the sale, conveyance, exchange or other disposition of equipment,
inventory, accounts receivable or other assets or rights in the
ordinary course of business, including, without limitation, sales
and exchanges of gaming equipment;
(4) sales, conveyances or other dispositions of property in the
ordinary course of business pursuant to an established program for
the maintenance and upgrading of such property;
(5) a Restricted Payment or Permitted Investment that is permitted by
the covenant described above under the caption "--Certain
Covenants--Restricted Payments";
(6) a surrender or waiver of contract rights or settlement, release or
surrender of contract, tort or other litigation claims in the
ordinary course of business;
(7) any sale or transfer of land to the U.S. federal government to hold
in trust for the Tribe; and
(8) the grant of Permitted Liens.
"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 will be calculated using a discount rate equal to
the rate of interest implicit in such transaction, determined in accordance
with GAAP.
"Authority Assets" means all right, title and interest of the Authority
or the Tribe in and to the Chukchansi Gold Resort & Casino and all assets,
rights and revenues related to or arising therefrom, other than Authority
Assets permitted to be distributed to the Tribe under the indenture and the
Collateral Documents.
"Authority Budget" has the meaning set forth in the Cash Collateral and
Disbursement Agreement.
"Authority Ordinance" means the ordinance adopted by the Tribal Council
creating the Authority, as amended through the date of the indenture.
"Available Funds" means, with respect to any full fiscal quarter of the
Authority, the sum of:
(1) the Authority's Net Revenues for such period; plus
(2) depreciation, amortization (including amortization of goodwill and
other intangibles, but excluding amortization of prepaid cash
expenses that were paid in a prior period), accrued and unpaid
interest (other than contingent interest) 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
123
<page>
the Authority for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing
such Net Revenues; plus
(3) interest income on cash and Cash Equivalents received during such
period (other than cash or Cash Equivalents contained in the Cash
Accumulation Account, the Interest Reserve Account and the
Contingent Interest Account); plus
(4) decreases in Working Capital during such period; less
(5) all amounts payable pursuant to the Management Agreement with
respect to such period; less
(6) capital expenditures made by the Authority during such period (only
to the extent such amount is not paid from the Capital Replacement
Reserve Account) to maintain the condition of the Chukchansi Gold
Resort & Casino; less
(7) contingent interest paid in cash during such period on the Senior
Subordinated PIK Notes (as defined therein), contingent interest
paid in cash during such period on the Subordinated PIK Notes (as
defined therein) and contingent interest paid in cash during such
period on the Letter of Credit Note (as defined therein), in each
case, for such period to the extent that such contingent interest
was not deducted in computing Net Revenues; less
(8) increases in Working Capital during such period; less
(9) any prepayment of principal made during such period on Indebtedness
that was permitted to be incurred pursuant to the covenant entitled
"Certain Covenants--Incurrence of Indebtedness" other than any
prepayment made with the proceeds from Permitted Refinancing
Indebtedness.
"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" will 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"
have a corresponding meaning.
"BIA" means the Bureau of Indian Affairs of the Department of the
Interior.
"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;
(3) with respect to the Authority, the Management Board; and
(4) 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 prepared
in accordance with GAAP.
"Capital Replacement Reserve Account" has the meaning ascribed thereto
in the Cash Collateral and Disbursement Agreement.
"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 (whether general or limited) or membership interests;
and
124
<page>
(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.
"Cash Accumulation Account" means a cash accumulation account maintained
and held by an Eligible Institution into which Available Funds will be
deposited by the Authority pursuant to the provisions of the covenant
described under the caption "--Restricted Payments."
"Cash Accumulation Account Contribution Agreement" means the Cash
Accumulation Account Contribution Agreement dated as of the date of the
indenture, among the Authority, the trustee, the Manager, the Tribe and the
Disbursement Agent, as in effect on the date of the indenture or as amended in
accordance with the section entitled "Amendment, Supplement and Waiver."
"Cash Collateral and Disbursement Agreement" means the Cash Collateral
and Disbursement Agreement dated as of the date of the indenture, among the
Authority, the trustee, the Tribe and the Disbursement Agent, as in effect on
the date of the indenture or as amended in accordance with the section
entitled "--Amendment, Supplement and Waiver."
"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 one year from the date of acquisition;
(3) securities issued by any state of the United States of America or
any political subdivision thereof having the highest rating
obtainable from either Moody's Investors Service, Inc. or Standard
& Poor's Rating Services and having maturities of not more than one
year from the date of acquisition;
(4) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case, with any domestic commercial
bank having capital and surplus in excess of $500.0 million and a
Thomson Bank Watch Rating of "B" or better;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (4)
above entered into with any financial institution meeting the
qualifications specified in clause (4) above;
(6) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in
each case maturing not more than one year after the date of
acquisition; and
(7) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (6)
of this definition.
"Cash Flow" means, with respect to any specified Person for any period,
the 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 in connection with an Asset Sale, to the
extent such losses were deducted in computing such Net Income; plus
(2) the interest expense of such Person for such period, whether paid
or accrued and whether or not capitalized (excluding the Commitment
Fee, but 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 other than the Commitment Fee, and net of the
effect of all
125
<page>
payments made or received pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Net
Income; plus
(3) any preopening expenses to the extent that such preopening expenses
were deducted in computing Net Income and determined in accordance
with GAAP; 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, other than
pre-opening expenses, that was paid in a prior period) of such
Person for such period, to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing
such Net Income; plus
(5) Management Fees to the extent that such Management Fees were
deducted in computing Net Income; minus
(6) non-cash items increasing such Net Income for such period other
than the accrual of revenue in the ordinary course of business, in
each case as determined in accordance with GAAP; plus
(7) taxes deducted for the purposes of determining Net Income.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one
or a series of related transactions, of all or substantially all of
the assets of the Manager relating to the Chukchansi Gold Resort &
Casino, other than pursuant to a Permitted Change of Control
Transaction;
(2) the Authority ceases to be a wholly-owned unit, instrumentality,
enterprise or subdivision of the government of the Tribe;
(3) the Authority ceases to have the exclusive legal right to operate
the Chukchansi Gold Resort & Casino;
(4) the Principals and their Related Parties cease to collectively
Beneficially Own more than 50% of the Voting Stock of Cascade
Entertainment Group, LLC, measured by voting power rather than
number of shares, or more than 50% of the outstanding Equity
Interests of Cascade Entertainment Group, LLC, in either case,
other than as a result of a Permitted Change of Control
Transaction;
(5) the adoption of a plan relating to the liquidation or dissolution
of the Authority or the Manager, other than pursuant to a Permitted
Change of Control Transaction; or
(6) the first day on which a majority of the members of Management
Committee of Cascade Entertainment Group, LLC are not Continuing
Members.
"Chukchansi Gold Resort & Casino" means the project to design, develop,
construct, equip and operate a casino, hotel and related amenities on the
Tribe's rancheria near Coarsegold, California, as generally described in this
prospectus.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means all "collateral" referred to in the Collateral
Documents.
"Collateral Accounts" means the Construction Period Accounts, the
Operating Period Accounts, the Deposit Account, the Collateral Reserve
Account, the Interest Payment Account, the Principal Payment Account and the
Manager Security Account.
"Collateral Documents" means, collectively, the Pledge and Security
Agreement, the Pledge and Security Agreement (Tribal UCC), the Intercreditor
Agreement, the Letter of Credit Drawdown Agreement, the Letter of Credit, the
Letter of Credit Note, the Cash Accumulation Account Contribution Agreement,
126
<page>
the Manager Repayment Note, the Cash Collateral and Disbursement Agreement,
each Deposit Account Control Agreement executed pursuant to the Cash
Collateral and Disbursement Agreement, all UCC filings related to the security
interests granted by any of the foregoing documents and any other document or
instrument providing for a lien on or security interest in any real or
personal tangible or intangible property as security for any or all of the
obligations of the Authority and the Tribe under the indenture and the notes
or any of the foregoing documents.
"Collateral Reserve Account" has the meaning set forth in the Cash
Collateral and Disbursement Agreement.
"Commitment Fee" has the meaning set forth in the Letter of Credit
Drawdown Agreement.
"Compact" means the Tribal State Gaming Compact dated as of September
10, 1999, between the Tribe and the State of California, as amended from time
to time.
"Constitution" means the Constitution of the Tribe duly and validly
adopted by the Tribe on November 7, 1988.
"Construction Disbursement Account" means the construction disbursement
account to be maintained by the Disbursement Agent and pledged to the trustee
pursuant to the terms of the Cash Collateral and Disbursement Agreement.
"Construction Period" has the meaning set forth in the Cash Collateral
and Disbursement Agreement.
"Construction Period Accounts" has the meaning set forth in the Cash
Collateral and Disbursement Agreement.
"Construction Schedule" has the meaning set forth in the Cash Collateral
and Disbursement Agreement.
"Contingent Interest Account" means the contingent interest account to
be maintained by the Authority pursuant to the Cash Collateral and
Disbursement Agreement containing all unpaid contingent interest on the Senior
Subordinated PIK Notes, the Subordinated PIK Notes and the Letter of Credit
Note, the payment of which is deferred until the Release Conditions are met.
"Continuing Members" means, as of any date of determination, any member
of the Management Committee of Cascade Entertainment Group, LLC, as
applicable, who (1) was a member of such Management Committee on the date of
the indenture or (2) was nominated for election or elected to such Management
Committee with the approval of a majority of the members of Cascade
Entertainment Group, LLC.
"Current Assets" means all amounts (other than cash and Cash
Equivalents) which would, in conformity with GAAP, be set forth opposite the
caption "total current assets" (or any like caption) on a consolidated balance
sheet of the Authority.
"Current Liabilities" means all amounts that would, in conformity with
GAAP, be set forth opposite the caption "total current liabilities" (or any
like caption) on a consolidated balance sheet of the Authority.
"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.
"Deposit Account" has the meaning set forth in the Cash Collateral and
Disbursement Agreement.
"Deposit Account Control Agreement" has the meaning set forth in the
Cash Collateral and Disbursement Agreement.
"Development Agreement" means the Amended and Restated Development
Agreement dated June 15, 2001, among the Authority, the Tribe and the Manager,
as amended from time to time in accordance with the indenture.
127
<page>
"Disbursement Agent" means U.S. Bank, N.A. or the then acting
Disbursement Agent under the Cash Collateral and Disbursement Agreement.
"Eligible Institution" means a domestic commercial banking institution
that has combined capital and surplus of not less than $500 million, and whose
debt is rated "A" or higher by Standard & Poor's Rating Service or Moody's
Investors Service, Inc. at the time any investment or rollover therein is
made.
"Equity Interests" of any Person means any shares, interests,
participations or other equivalents (however designated) in such Person's
equity, and will in any event include any Capital Stock (but excluding any
debt security that is convertible into, or exchangeable for, Capital Stock)
issued by, or partnership, participation or membership interests in, such
Person.
"Event of Loss" means, with respect to any asset, any (1) loss,
destruction or damage of such asset, (2) condemnation, seizure or taking by
exercise of the power of eminent domain or otherwise of such property or
asset, or confiscation of such asset or the requisition of the use of such
asset or (3) settlement in lieu of clause (2) above.
"Excess Cash Flow Threshold" means $15.0 million.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Cash Flow of such Person for such period to the Fixed
Charges of such Person for such period. In the event that the Authority
incurs, assumes, Guarantees, repays, repurchases or redeems or otherwise
retires any Indebtedness (other than ordinary working capital borrowings)
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 will be
calculated giving pro forma effect to such incurrence, assumption, Guarantee,
repayment, repurchase, redemption or retirement of Indebtedness 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 Authority, 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 will be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Cash Flow for such reference period will be calculated on a pro
forma basis in accordance with Regulation S-X under the Securities
Act;
(2) the Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of on or prior to the Calculation Date, will be excluded;
and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of on or prior to the Calculation Date, will be excluded,
but only to the extent that the obligations giving rise to such
Fixed Charges will not be obligations of the Authority 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 (excluding interest and
contingent interest, if any, whether paid or accrued, on the Senior
Subordinated PIK Notes, the Subordinated PIK Notes or the Letter of
Credit Note) of such Person 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
128
<page>
respect to Attributable Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers'
acceptance financings (excluding the Commitment Fee), and net of
the effect of all payments made or received pursuant to Hedging
Obligations; plus
(2) the consolidated interest of such Person that was capitalized
during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or secured by a Lien on assets of such
Person, whether or not such Guarantee or Lien is called upon.
"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" means any and all activities defined as class II and class III
Gaming (as defined in IGRA).
"Gaming Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States federal government, any foreign government, any applicable
tribal government, any state, province or city or other political subdivision
or otherwise, whether now or hereafter in existence, or any officer or
official thereof, including, without limitation, the NIGC and the BIA, any
division of the Tribe or any other agency, in each case, with authority to
regulate any gaming operation (or proposed gaming operation) owned, managed or
operated by the Authority or the Tribe.
"Gaming Device Operating Deadline" means June 25, 2003, or such later
date that the Authority is required to have 1,250 of its gaming devices in
commercial operation pursuant to Section 4.3.2.2 of the Compact, as set forth
in an opinion of counsel.
"Gaming Law" means the provisions of the Compact and gaming laws or
regulations of any jurisdiction or jurisdictions to which the Authority or the
Tribe is, or may at any time after the date of the indenture, be subject.
"Gaming License" means any license, permit, franchise or other
authorization required to own, lease, or operate or otherwise conduct gaming
activities of the Authority or the Tribe, other than gaming device licenses.
"Government Securities" means securities that are:
(1) direct obligations of the United States of America, the timely
payment of which its full faith and credit is pledged; or
(2) obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America;
which, in either case, are not callable or redeemable at the option of the
issuer thereof, and also includes a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act of 1933, as amended), as
custodian with respect to any such Government Security or a specific payment
of principal of or interest on any such Government Security held by such
custodian for the account of the holder of such depository receipt; provided
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt
from any amount received by the custodian in respect of the Government
Security or the specific payment of principal of or interest on the Government
Security evidenced by such depository receipt.
"Gross Gaming Revenue (Win)" means the net win from Gaming which is the
difference between Gaming wins and losses before deducting costs and expenses.
"Gross Revenues" means all revenues of any nature derived directly or
indirectly from the Chukchansi Gold Resort & Casino including, without
limitation, Gross Gaming Revenue (Win), food and
129
<page>
beverage sales, and other rental payments or other receipts from lessees,
sublessees, licensees and concessionaires (but not the gross receipts of such
lessees, sublessees, licensees or concessionaires, provided that such lessees,
sublessees, licensees and concessionaires are not subsidiaries or Affiliates
of the Manager), and revenue recorded for Promotional Allowances, but
excluding any taxes the Tribe is allowed to assess pursuant to Section 7 of
the Management Agreement.
"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.
"Hedging Obligations" means, with respect to any specified Person, the
net 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.
"Holdings" means Cascade Holdings, LLC, a Delaware limited liability
company.
"IGRA" means the Indian Gaming Regulatory Act of 1988, PL 100-497, 25
U.S.C. 2701 et seq., as amended from time to time.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) obligations evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in
respect thereof);
(3) banker's acceptances;
(4) Capital Lease Obligations;
(5) 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) net obligations under 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 all Indebtedness of others secured by a Lien on any
assets of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will 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.
"Independent Construction Consultant" means Professional Associates
Construction Services, Inc. and its successors or replacements as provided in
the Cash Collateral and Disbursement Agreement.
"Initial Operating Date" means, with respect to the Chukchansi Gold
Resort & Casino, the first time that:
130
<page>
(1) all Gaming Licenses have been granted and have not been revoked or
suspended;
(2) all Liens (other than Permitted Liens), if any, related to the
development, construction and equipping of, and beginning
operations at, the Chukchansi Gold Resort & Casino have been
discharged or, if payment is not yet due or if such payment is
contested in good faith by the Authority, sufficient funds remain
in the Construction Period Account (as defined in the Cash
Collateral and Disbursement Agreement) to discharge such Liens;
(3) the Independent Construction Consultant will have delivered a
certificate to the trustee certifying that the Chukchansi Gold
Resort & Casino is substantially complete in all material respects
in accordance with the Plans and all applicable building laws,
ordinances and regulations;
(4) the Chukchansi Gold Resort & Casino is in a condition (including
the installation of furnishings, fixtures and equipment) to receive
customers in the ordinary course of business;
(5) the Chukchansi Gold Resort & Casino is open to the general public
and operating with the Minimum Facilities;
(6) the Chukchansi Gold Resort & Casino is open to the general public
and operating in accordance with applicable law in all material
respects; and
(7) a permanent or temporary certificate of occupancy has been issued
for the Chukchansi Gold Resort & Casino by the appropriate
governmental authorities.
"Intercreditor Agreement" means the Intercreditor Agreement dated as of
the date of the indenture among the trustee, the Senior Subordinated PIK Notes
Trustee, the Subordinated PIK Notes Trustee, the L/C Provider, the Manager,
the Authority and the Tribe, as in effect on the date of the indenture, or as
amended in accordance with the section entitled "Amendment, Supplement and
Waiver."
"Interest Payment Account" means the interest reserve account to be
maintained by the Disbursement Agent and pledged to the trustee pursuant to
the terms of the Cash Collateral and Disbursement Agreement.
"Interest Reserve Account" means the interest reserve account to be
maintained by and pledged to the trustee pursuant to the Cash Collateral and
Disbursement Agreement into which an amount, together with interest earned on
such amount, sufficient to pay the first three interest payments on the notes
will be deposited on the date of the indenture.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the
forms of loans (including Guarantees or other obligations), advances or
capital contributions (excluding commission, travel and advances to directors,
officers and employees and prepayment of expenses, in each case, made in the
ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP. The acquisition by the Authority of a
Person that holds an Investment in a third Person will be deemed to be an
Investment by the Authority 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 entitled "Certain Covenants--Restricted Payments", without
duplication.
"Key Project Assets" means (1) any tribal gaming land or land necessary
for access to or the operation of the Chukchansi Gold Resort & Casino and (2)
any improvements (including buildings, but excluding personal property,
fixtures and improvements determined by the Authority to no longer be useful
or necessary to the operations or support of the Chukchansi Gold Resort &
Casino) on any tribal gaming land or land necessary for the Chukchansi Gold
Resort & Casino.
"L/C Provider" means Credit Provider Group, LLC, a Delaware limited
liability company.
"L/C Provider Tax Amounts" means an amount equal to the excess of (x)
the Minimum Tax Payment Amount (as defined in Exhibit B of the Letter of
Credit Drawdown Agreement) with respect to the Letter of
131
<page>
Credit Note over (y) the cumulative amount of interest payments previously
made with respect to the Letter of Credit Note, to be paid to the holder of
the Letter of Credit Note.
"Letter of Credit" means the irrevocable $15.0 million letter of credit
provided by the L/C Provider to the Authority in accordance with the Letter of
Credit Drawdown Agreement and any replacement thereof pursuant to the
provisions of the Letter of Credit Drawdown Agreement; provided, that any such
replacement does not have a drawdown limit in excess of $15.0 million.
"Letter of Credit Drawdown Agreement" means the Letter of Credit
Drawdown Agreement dated as of the date of the indenture, among the L/C
Provider, the Authority, the Manager, the Tribe and the trustee, as in effect
on the date of the indenture or as amended in accordance with the section
entitled "Amendment, Supplement and Waiver."
"Letter of Credit Note" means the Promissory Note executed by the
Authority in favor of the L/C Provider pursuant to the terms of the Letter of
Credit Drawdown 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 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.
"Liquidated Damages" has the meaning ascribed thereto in the
Registration Rights Agreement.
"Make-Whole Price" means, with respect to any note at any purchase date
or redemption date, the sum of the present values of (1) the principal and
premium, if any, that would be payable on such note on October 1, 2006, if
such note were purchased or redeemed on such date, and (2) all remaining
interest payments (not including any portion of such interest payments accrued
as of the purchase date or redemption date, as applicable) to and including
October 1, 2006, in each case discounted on a semiannual bond equivalent basis
from October 1, 2006 to the purchase date or redemption date, as applicable,
at a per annum interest rate equal to the sum of the Treasury Yield
(determined on the Business Day immediately preceding the purchase date or
redemption date, as applicable), plus 50 basis points.
"Management Agreement" means the Second Amended and Restated Management
Agreement dated July 16, 2002, among the Authority, the Tribe and the Manager,
as amended from time to time in accordance with the indenture.
"Management Board" means the Board of Directors created under the tribal
ordinance establishing the Authority.
"Management Committee" means (a) for so long as Cascade Entertainment
Group, LLC is a limited liability company, the management committee or
managing member of such entity and (b) otherwise the Board of Directors of
Cascade Entertainment Group, LLC, as applicable.
"Management Fees" means any fees payable by the Authority to the Manager
pursuant to the Management Agreement.
"Manager" means Cascade Entertainment Group, LLC, a California limited
liability company in its capacity as manager of the Chukchansi Gold Resort &
Casino, or any Permitted Replacement Manager in its capacity as manager of the
Chukchansi Gold Resort & Casino.
"Manager Agreement" means the Manager Agreement as in effect on the date
of the indenture by and between the Manager and the trustee.
"Manager Repayment Note" means the Promissory Note executed by the
Authority in favor of the Manager pursuant to the terms of the Cash
Accumulation Account Contribution Agreement.
132
<page>
"Manager Repayment Note Tax Amounts" means an amount equal to the excess
of (x) the Minimum Tax Payment Amount (as defined in Exhibit E of the Cash
Accumulation Account Contribution Agreement) over (y) the cumulative amount of
interest payments previously made with respect to the Manager Repayment Note,
to be paid to the holder of the Manager Repayment Note.
"Manager Security Account" has the meaning set forth in the Cash
Accumulation Account Contribution Agreement.
"Manager Tax Amounts" means an amount equal to the excess of (x) the
Manager Minimum Tax Payment Amount (as defined in the Cash Accumulation
Account Contribution Agreement) over (y) the cumulative amount of cash
payments previously made pursuant to Section 3.1 of the Cash Accumulation
Account Contribution Agreement.
"Mandatory Operating Period" means, as of any date of determination, the
four consecutive fiscal quarters of the Authority ended immediately prior
thereto; provided, that such period will not commence prior to the Initial
Operating Date.
"Minimum Facilities" means a casino which has in operation at least
1,500 slot machines, 25 table games, a hotel with at least 180 rooms,
restaurants with seating for at least 734 people and parking area for at least
1,700 vehicles.
"Minimum Monthly Guaranteed Payment" means a guaranteed monthly payment
to the Tribe as required by Section 2711(b)(3) of IGRA, which will be $100,000
per month as set forth in the Management Agreement as in effect on the date of
the indenture.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss) realized in connection with (a) any Asset
Sale; or (b) the disposition of any securities by such Person or
the extinguishment of any Indebtedness of such Person; and
(2) any extraordinary gain (but not loss).
"Net Loss Proceeds" means the aggregate cash proceeds received by the
Authority in respect of any Event of Loss, including, without limitation,
insurance proceeds from condemnation award or damages awarded by any judgment,
net of the direct costs in recovery of such proceeds (including, without
limitation, legal, accounting, appraisal and insurance adjuster fees and any
relocation expenses incurred as a result thereof), taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), Tax Amounts paid or payable as a
result thereof, and amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Event of Loss.
"Net Proceeds" means the aggregate cash proceeds received by the
Authority 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, relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), Tax
Amounts paid or payable as a result thereof and amounts required to be applied
to the repayment of Indebtedness secured by a 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.
"Net Revenues" means the sum of Net Revenues (Gaming) and Net Revenues
(Other).
"Net Revenues (Gaming)" means Gross Gaming Revenue (Win) of the
Authority from Gaming less all Gaming related operating expenses (including
interest expense, depreciation, amortization and the other operating expenses
set forth in the Management Agreement), excluding the Management Fee, and less
the
133
<page>
retail value of any Promotional Allowances, and less the following revenues
actually received by the Authority and included in Gross Revenues:
(1) any gratuities or service charges added to a customer's bill;
(2) any credits or refunds made to customers, guests or patrons;
(3) any sums and credits received by the Authority for lost or damaged
merchandise;
(4) any sales taxes, excise taxes, gross receipt taxes, admission
taxes, entertainment taxes, tourist taxes or charges received from
patrons and passed on to a governmental or quasi governmental
entity;
(5) any proceeds from the sale or other disposition of furnishings and
equipment or other capital assets;
(6) any fire and extended coverage insurance proceeds other than for
business interruption;
(7) any condemnation awards other than for temporary condemnation;
(8) any proceeds of financing or refinancing; and
(9) any interest on bank account(s).
It is intended that this definition be consistent with 25 U.S.C.
ss.2703(9).
"Net Revenues (Other)" means all Gross Revenues of the Authority from
all other sources in support of Gaming not included in Net Revenues (Gaming),
such as food and beverage, entertainment and retail, less all other non-Gaming
related operating expenses (including interest expense, depreciation,
amortization and other operating expenses set forth in the Management
Agreement), excluding the Management Fee, and less the retail value of
Promotional Allowances, if any, and less the following revenues actually
received by the Authority and included in Gross Revenues:
(1) any gratuities or service charges added to a customer's bill;
(2) any credits or refunds made to customers, guests or patrons;
(3) any sums and credits received by the Authority for lost or damaged
merchandise;
(4) any sales taxes, excise taxes, gross receipt taxes, admission
taxes, entertainment taxes, tourist taxes or charges received from
patrons and passed on to a governmental or quasi governmental
entity;
(5) any proceeds from the sale or other disposition of furnishings and
equipment or other capital assets;
(6) any fire and extended coverage insurance proceeds other than for
business interruption;
(7) any condemnation awards other than for temporary condemnation;
(8) any proceeds of financing or refinancing; and
(9) any interest on bank account(s).
It is intended that this definition be consistent with 25 U.S.C.
ss.2703(9).
"NIGC" means the National Indian Gaming Commission.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Operating" means that:
(1) no Gaming License has been revoked or suspended;
134
<page>
(2) all Liens (other than Permitted Liens), if any, related to the
development, construction and equipping of, and beginning
operations at, the Chukchansi Gold Resort & Casino have been
discharged or, if payment is not yet due or if such payment is
contested in good faith by the Authority, sufficient funds remain
in the Construction Period Accounts (as defined in the Cash
Collateral and Disbursement Agreement) to discharge such Liens;
(3) the Chukchansi Gold Resort & Casino is in a condition (including
the installation of furnishings, fixtures and equipment) to receive
customers in the ordinary course of business;
(4) the Chukchansi Gold Resort & Casino is open to the general public
and operating with the Minimum Facilities in accordance with
applicable law; and
(5) the Chukchansi Gold Resort & Casino is open to the general public
and operating in accordance with applicable law in all material
respects.
"Operating Deadline" means 21 months from the date of the indenture.
"Operating Expenses" means the current expenses of operation,
maintenance and repair of the Chukchansi Gold Resort & Casino. "Operating
Expenses" will include wages, salaries, benefits and bonuses to personnel, the
cost of materials and supplies used for current operation and maintenance,
security costs, utility expenses, trash removal, cost of goods sold and
advertising and marketing expenses and insurance premiums. "Operating
Expenses" will not include any of the following: interest expense or any other
payment in respect of any Indebtedness, capital lease payments (excluding
capital lease payments with respect to gaming devices and other equipment
required for the regular operations of the Chukchansi Gold Resort & Casino),
any allowance for depreciation, renewals or replacement of capital assets and
any other non-cash charges.
"Operating Period Accounts" has the meaning set forth in the Cash
Collateral and Disbursement Agreement.
"Permitted Business" means Gaming at or in connection with the
Chukchansi Gold Resort & Casino and any other businesses, necessary for,
incident to, connected with, arising out of, that is a reasonable extension of
or developed or operated to permit, facilitate or enhance the conduct or
pursuit of such activities, including, but not limited to lodging,
entertainment and related transportation; provided that the Authority will not
conduct any gaming operations other than at the Chukchansi Gold Resort &
Casino.
"Permitted Change of Control Transaction" means, with respect to any
Person (other than Cascade Entertainment Group, LLC), (1) the sale, transfer,
conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or
substantially all of its assets to a Qualified Gaming Company or a
wholly-owned subsidiary of a Qualified Gaming Company or (2) any transaction
pursuant to which a Qualified Gaming Company becomes the Beneficial Owner of
50% or more of such Person's Voting Stock, measured by voting power rather
than number of shares; provided, that with respect to clause (1) above, such
Qualified Gaming Company (a) has been licensed, qualified and found suitable
by all appropriate Gaming Authorities and (b) has assumed all of such Person's
obligations under the Development Agreement, Management Agreement,
Intercreditor Agreement and Cash Accumulation Account Contribution Agreement.
"Permitted Claims" mean any claim, demand, dispute, action or cause of
action or defense arising under or in any way connected with or related or
incidental to the indenture, the notes or the Collateral Documents, as the
same may be amended or modified from time to time, whether now existing or
hereafter arising and whether sounding in tort, contract or otherwise that is
asserted by any party to the indenture, the notes or the Collateral Documents,
and their successors and assigns.
"Permitted Investments" means:
(1) any Investment in Cash Equivalents, other than with respect to
funds held in the Interest Reserve Account, which will be invested
solely in non-callable Government Securities that mature prior to
April 1, 2004;
135
<page>
(2) 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 entitled "Repurchase at the Option of
Holders--Asset Sales";
(3) any Investment made in settlement of gambling debts incurred by
patrons to the Chukchansi Gold Resort & Casino which settlements
have been entered into in the ordinary course of business;
(4) if permitted pursuant to Gaming Laws, the extension of credit to
customers of the Chukchansi Gold Resort & Casino consistent with
industry practice in the ordinary course of business; and
(5) accounts and notes receivable if created or acquired in the
ordinary course of business and which are payable or dischargeable
in accordance with customary trade terms.
"Permitted Liens" means:
(1) Liens on the assets of the Authority created by the indenture and
the Collateral Documents securing the notes;
(2) Liens in favor of the Authority;
(3) Liens existing on the date of the indenture;
(4) Liens on property existing at the time of acquisition thereof by
the Authority; provided, however, that such Liens were not incurred
in contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like
nature incurred in the ordinary course of business;
(6) Liens to secure Indebtedness permitted by clause (3) of the second
paragraph of covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness" covering only the assets
acquired with such Indebtedness and any refinancing thereof;
provided, that any Liens incurred to secure such refinancing debt
are no broader than the Liens incurred to secure the Indebtedness
being refinanced;
(7) Liens for taxes, assessments or governmental charges, claims or
judgments that are not yet delinquent or that are being contested
in good faith by appropriate proceedings promptly instituted and
diligently concluded; provided that any reserve or other
appropriate provision as will be required in conformity with GAAP
will have been made therefore;
(8) easements, rights of way, zoning, similar restrictions and other
similar encumbrances or title defects incurred in the ordinary
course of business, consistent with industry practices that do not
in any case materially detract from the value of the property
subject thereto (as such property is used by the Authority) or
interfere with the ordinary conduct of the business of the
Authority;
(9) Liens arising by operation of law in connection with judgments,
only to the extent, for an amount and for a period not resulting in
an Event of Default with respect thereto;
(10) leases or subleases granted to other Persons in the ordinary course
of business not materially interfering with the conduct of the
business of the Authority or materially detracting from the value
of the relative assets of the Authority;
(11) Liens in favor of carriers, warehousemen, mechanics, materialmen,
repairmen, contractors or landlords or other similar Liens arising
in the ordinary course of business that are not yet delinquent or
that are being contested in good faith by appropriate proceedings;
and
(12) title to land (or improvements or structures thereon) held in trust
in the name of the United States federal government for the benefit
of the Tribe.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Authority issued in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund other Indebtedness of the
Authority; provided, however, that:
136
<page>
(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
equal to 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 of notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
(4) such Indebtedness is incurred by the Authority.
"Permitted Replacement Manager" means (1) a Person that (a) has equity
securities listed on the New York Stock Exchange, the American Stock Exchange
or quoted on the Nasdaq National Market, (b) has a market capitalization of at
least $250.0 million and (c) derived at least $100.0 million of operating
income (as defined by GAAP but excluding depreciation and amortization) for
each of its last four fiscal quarters from activities relating to the gaming
business, other than Internet gaming, or (2) a privately held entity that (a)
derived at least $100.0 million of operating income (as defined by GAAP but
excluding depreciation and amortization) for each of its last four fiscal
quarters from activities relating to the gaming business, other than Internet
gaming, and (b) is actively engaged in the management of one or more casinos
located in the United States; provided, that a Person meeting the requirements
of clauses (1) or (2) above will not be deemed to be a Permitted Replacement
Manager unless and until such Person (x) is licensed, qualified and found
suitable by all appropriate Gaming Authorities and (y) has assumed all of the
Manager's obligations under the Development Agreement, Management Agreement,
Intercreditor Agreement and Cash Accumulation Account Contribution Agreement.
"Permitted Tax Distributions" means, in the case of the Senior
Subordinated PIK Notes and the Subordinated PIK Notes, with respect to any
taxable year, the product of (A) the taxable income arising from or
attributable to the Senior Subordinated PIK Notes and the Subordinated PIK
Notes for such year and (B) the Applicable Income Tax Rate. For purposes of
calculating "Permitted Tax Distributions," the taxable income described in
clause (A) of the immediately preceding sentence that is attributable to any
particular taxable year will be multiplied by the Applicable Income Tax Rate
prevailing for such year. For purposes of this definition of "Permitted Tax
Distributions," the calculation of taxable income will (i) take into account
any applicable True-up Amounts and (ii) amounts of taxable income will be
determined by the Tax Amounts CPA.
Estimated tax distributions are permitted to be made within five days
following each Quarterly Payment Date based upon an estimate of the excess of
(x) the Permitted Tax Distributions that would be payable for the period
beginning on January 1 of such year (or the date of the indenture in the first
year) and ending on March 31, May 31, August 31 and December 31 if such period
were a taxable year over (y) distributions attributable to all prior periods
during such taxable year.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or any agency or political subdivision thereof
or other entity.
"Plans" means the Final Plans (as defined in the Cash Collateral and
Disbursement Agreement).
"Pledge and Security Agreement" means the Pledge and Security Agreement
dated as of the date of the indenture among the Authority, the Tribe and the
trustee as in effect on the date of the indenture or as amended in accordance
with the section entitled "Amendment, Supplement and Waiver."
137
<page>
"Pledge and Security Agreement (Tribal UCC)" means the Pledge and
Security Agreement dated as of the date of the indenture among the Authority,
the Tribe and the trustee whereby the Tribal UCC is the sole controlling
uniform commercial code, as in effect on the date of the indenture or as
amended in accordance with the section entitled "Amendment, Supplement and
Waiver."
"Principal Payment Account" has the meaning set forth in the Cash
Collateral and Disbursement Agreement.
"Principals" means Clarion Cascade, LLC and its Related Parties, James
H. Simons and his Related Parties, M. Mark Silber and his Related Parties and
Russell S. Pratt and his Related Parties.
"Promotional Allowances" means the retail value of complimentary food,
beverages, merchandise and tokens for gaming provided to patrons as
promotional items.
"Purchase Money Indebtedness" means Indebtedness of the Authority
incurred for the purpose of financing all or any part of the purchase price or
cost of the installation, construction or improvement of any property.
"Qualified Gaming Company" means either (A) a company that (1) has
equity securities listed on the New York Stock Exchange, the American Stock
Exchange or quoted on the Nasdaq National Market, (2) has a market
capitalization of at least $250.0 million and (3) derived at least $100.0
million of operating income (as defined by GAAP, but excluding depreciation
and amortization) for each of its last four fiscal quarters from activities
relating to the gaming business, other than Internet gaming, or (B) a
privately held entity that derived at least $100.0 million of operating income
(as defined by GAAP, but excluding depreciation and amortization) for each of
its last four fiscal quarters from activities relating to the gaming business,
other than Internet gaming.
"Quarterly Payment Date" means each March 31, May 31, August 31 and
December 15.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the date of the indenture among the Authority, the Tribe and the
initial purchasers of the notes set forth on the signature pages thereto.
"Related Party" means:
(1) any controlling stockholder, 80% (or more) owned subsidiary, or
immediate family member or heirs (in the case of an individual) 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).
"Required Accumulation Amount" means at the time of determination (1) an
amount in cash equal to $3.0 million, multiplied by the number of completed
full fiscal quarters since the Initial Operating Date, less (2) any amounts
contained in the Cash Accumulation Account that are used to prepay the notes
in accordance with the terms of the Cash Accumulation Account Contribution
Agreement.
"Restricted Funds" means any Available Funds that are not (1)
distributable to the Tribe pursuant to clauses (4), (5) and (6) of the third
paragraph of the covenant entitled "Restricted Payments", (2) required to be
deposited into the Cash Accumulation Account and (3) used to purchase notes in
connection with an Optional Excess Cash Offer or a Mandatory Excess Cash
Offer, as adjusted in accordance with the last two sentences of the first
paragraph of the covenant entitled "Excess Cash Offers".
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Senior Subordinated PIK Notes" means the Senior Subordinated
Pay-In-Kind Notes due 2009 with contingent interest, issued on the date of the
indenture by the Authority, as in effect on the date of the indenture.
138
<page>
"Senior Subordinated PIK Notes Indenture" means the indenture with
respect to the Senior Subordinated PIK Notes, dated as of the date of the
indenture, among the Authority, the Tribe and U.S. Bank, N.A., as trustee, as
in effect on the date of the indenture.
"Senior Subordinated PIK Notes Trustee" means the then acting trustee
under the Senior Subordinated PIK Notes Indenture.
"Site" means each parcel of land on which all or any portion of the
Chukchansi Gold Resort & Casino is to be located, from time to time.
"State Gaming Agency" has the meaning ascribed thereto in the Compact.
"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 will 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.
"Stub Period" will mean, on any date of determination, the period from
the end of the Mandatory Operating Period through and including such date of
determination.
"Subordinated PIK Notes" means the Subordinated Pay-in-Kind Notes due
2009 with contingent interest, issued on the date of indenture, executed by
the Authority, as in effect on the date of the indenture.
"Subordinated PIK Notes Indenture" means the indenture with respect to
the Subordinated PIK Notes, dated as of the date of the indenture, among the
Authority, the Tribe and U.S. Bank, N.A., as trustee, as in effect on the date
of the indenture.
"Subordinated PIK Notes Trustee" means the then acting trustee under the
Subordinated PIK Notes Indenture.
"Subsidiary" means:
(1) any instrumentality, subdivision or subunit of the Authority that
has a separate legal existence or status; or
(2) with respect to any specified Person:
(a) 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 of the corporation, association or other business
entity is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and
(b) any partnership (1) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of
such Person or (2) the only general partners of which are that
Person or one or more Subsidiaries of such Person (or any
combination thereof).
"Tax Amounts" means (1) Manager Tax Amounts, (2) Manager Repayment Note
Tax Amounts, (3) L/C Provider Tax Amounts and (4) Permitted Tax Distributions.
"Tax Amounts CPA" means any nationally recognized independent accounting
firm jointly selected by the Manager and the Authority.
"Treasury Yield" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled by
and published in the most recent Federal Reserve Statistical Release H.15
(519) which has become publicly available at least two business days prior to
the purchase date or redemption date (or, if such Statistical Release is no
longer published, any publicly available source of similar data)) most nearly
equal to the then remaining average life of the notes
139
<page>
measured from the prepayment date to October 1, 2006, provided, that if the
average life of the notes is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the
Treasury Yield will be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the
average life of the notes is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year will be used.
"Tribal Council" means the governing body of the Tribe established
pursuant to Article IV Section 2 of the Constitution.
"Tribal Gaming Commission" means the Tribal Gaming Commission
established pursuant to Section 4 of the Tribal Gaming Ordinance.
"Tribal Gaming Ordinance" means the duly and validly adopted Tribal
Gaming Ordinance of the Tribe adopted by the Tribal Council on October 5,
2001, as amended on December 27, 2001 and approved by the NIGC on February 15,
2002, as required by IGRA.
"Tribe" means the Picayune Rancheria of the Chukchansi Indians, a
sovereign tribe recognized by the United States of America pursuant to 25
C.F.R. Part 83.
"True-up Amount" means, in respect of a particular taxable year, an
amount determined by the Tax Amounts CPA equal to the difference between (1)
the aggregate Tax Amounts actually distributed in respect of such taxable year
for the note in respect of which the True-up Amount is being determined and
(2) the aggregate Tax Amounts permitted to be distributed in respect of such
year for the note in respect of which the True-up Amount is being determined;
provided, however, that if there is an Adjustment Event, clause (1) will mean
the aggregate Tax Amounts as adjusted by the aggregate True-up Amounts
actually distributed in respect of such taxable year and clause (2) will mean
the aggregate amount permitted to be distributed in respect of such year, as
adjusted to take into account the results of the Adjustment Event.
Within 45 days following the immediately preceding calendar year or
within ten days following an Adjustment Event, the Tax Amounts CPA will file
with the trustee a written statement indicating in reasonable detail the
calculation of the True-up Amount. In the case of a True-up Amount due to the
Tax Amount Recipients, the Tax Amounts payable on the immediately following
Quarterly Payment Date will be increased by such True-up Amount. If the
available cash is not sufficient to pay the Tax Amounts payable on a Quarterly
Payment Date, the amount unpaid will be carried over and increase the Tax
Amounts payable on the following Quarterly Payment Date. In the case of a
True-up Amount due to the Authority, the Tax Amounts payable on the
immediately following Quarterly Payment Date will be reduced by such True-up
Amount and the excess, if any, of the True-up Amount over such Tax Amounts
will be applied to reduce the immediately following Tax Amounts until such
True-up Amount is entirely offset.
"True-up Amount due to the Authority" means an amount equal to the
excess, if any, of the amount described in clause (1) of the definition of
True-up Amount over the amount described in clause (2) of the definition of
True-up Amount.
"True-up Amount due to the Tax Amount Recipients" means an amount equal
to the excess, if any, of the amount described in clause (2) of the definition
of True-up Amount over the amount described in clause (1) of the definition of
True-up Amount.
"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 or management committee 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 of the Indebtedness, by (b) the number of
years (calculated
140
<page>
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.
"Working Capital" means, on any date, the excess of Current Assets on
such date less Current Liabilities on such date.
141
<page>
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the anticipated material United States
federal income tax consequences to a holder of old notes relating to the
exchange of old notes for new notes. This summary is based upon existing
United States federal income tax law, which is subject to change, possibly
with retroactive effect. This summary does not discuss all aspects of United
States federal income taxation which may be important to particular investors
in light of their individual investment circumstances, such as notes held by
investors subject to special tax rules (e.g., financial institutions,
insurance companies, broker-dealers, tax-exempt organizations, and persons who
are members or affiliates of the Tribe or the Authority) or to persons that
hold the old notes as part of a straddle, hedge, conversion, constructive
sale, or other integrated security transaction for United States federal
income tax purposes or that have a functional currency other than the United
States dollar, all of whom may be subject to tax rules that differ
significantly from those summarized below. In addition, this summary does not
address any foreign, state, or local tax considerations. Each prospective
investor is urged to consult his tax advisor regarding the United States
federal, state, local, and foreign income and other tax considerations of the
acquisition, ownership, and disposition of the new notes.
Exchange of Old Notes for New Notes
An exchange of old notes for new notes pursuant to the exchange offer
will be ignored for United States federal income tax purposes, assuming, as
expected, that the terms of the new notes are substantially identical to the
terms of the old notes. Consequently, a holder of old notes will not recognize
gain or loss, for United States federal income tax purposes, as a result of
exchanging old notes for new notes pursuant to the exchange offer. The holding
period of the new notes will be the same as the holding period of the old
notes and the tax basis in the new notes will be the same as the adjusted tax
basis in the old notes as determined immediately before the exchange.
142
<page>
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of these 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 old notes where
the old notes were acquired as a result of market-making activities or other
trading activities. We have agreed, that for a period of one year after the
consummation of the exchange offer, we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
resale.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account in
the exchange offer may be sold from time to time in one or more transactions:
o in the over-the-counter market,
o in negotiated transactions,
o through the writing of options on the new notes, or
o a combination of methods of resale, at market prices prevailing
at the time of resale, at prices related to the prevailing
market prices or at negotiated prices.
Any 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 broker-dealer or the purchasers of any 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 new notes may be considered an underwriter
within the meaning of the Securities Act and any profit of any resale of new
notes and any commissions or concessions received by any person may be deemed
to be underwriting compensation under the Securities Act. Any broker-dealer
that resells new notes that were received by it for its own account in the
exchange offer and any broker-dealer that participates in a distribution of
those new notes may be considered an underwriter within the meaning of the
Securities Act and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
including the delivery of a prospectus that contains information with respect
to any selling holder required by the Securities Act in connection with any
resale of the new notes. 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.
Furthermore, any broker-dealer that acquired any of the old notes
directly from us:
o may not rely on the applicable interpretation of the staff of
the SEC's position contained in Exxon Capital Holdings Corp.,
SEC no-action letter (April 13, 1988), Morgan, Stanley Co.
Inc., SEC no-action letter (June 5, 1991) and Shearman
Sterling, SEC no-action letter (July 2, 1993); and
o must also be named as a selling noteholder in connection with
the registration and prospectus and delivery requirements of
the Securities Act relating to any resale transaction.
For a period of one years after the consummation of the exchange
offer, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
these documents in the letter of transmittal. We have agreed to pay all
expenses incident to the exchange offer other than commissions or concessions
of any broker-dealer and will indemnify the holders of the old notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
143
<page>
LEGAL MATTERS
Certain legal matters relating to this offering, including the
validity and enforceability of the new notes will be passed upon for the
Authority by Monteau & Peebles, L.L.P., Sacramento, California, and by counsel
for Cascade Entertainment, Skadden, Arps, Slate, Meagher & Flom LLP, Los
Angeles, California.
EXPERTS
The financial statements of the Chukchansi Economic Development
Authority as of December 31, 2001, and for the period from June 15, 2001
(commencement of operations) through December 31, 2001, have been included
herein and in the registration statement in reliance upon the report of
Burnett + Company LLP, independent certified public accountants, appearing
elsewhere herein, which includes an explanatory paragraph about the Chukchansi
Economic Development Authority's ability to continue as a going concern and
upon the authority of said firm as experts in accounting and auditing.
The financial statements of Cascade Entertainment Group, LLC as of
December 31, 2001 and 2000, and for each of the years in the three-year period
ended December 31, 2001, have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified
public accountants, appearing elsewhere herein, which includes an explanatory
paragraph about Cascade Entertainment Group, LLC's ability to continue as a
going concern and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-4 that
we have filed with the SEC under the Securities Act. This prospectus does not
contain all of the information set forth in the registration statement. For
further information about us and the new notes, you should refer to the
registration statement. This prospectus summarizes material provisions of
contracts and other documents to which we refer you. Since this prospectus may
not contain all of the information that you may find important, you should
review the full text of these documents. We have filed these documents as
exhibits to our registration statement.
We are not currently subject to the periodic reporting and other
informational requirements of the Exchange Act. The indenture governing the
notes requires that we file reports under the Exchange Act with the SEC and
furnish information to the trustee and holders of the notes. See "Description
of the New Notes--Certain Covenants--Reports." Information may be obtained
from the Manager at Cascade Entertainment Group, LLC, 7915 Folsom Boulevard,
Sacramento, California, 95826-2611, Attention: Chief Financial Officer. To
ensure timely delivery, please make your request as soon as practicable and,
in any event, no later than five business days prior to the expiration of the
exchange offer.
Upon the effectiveness of the registration statement, we will become
subject to the information and periodic reporting requirements of the Exchange
Act and, accordingly, will file periodic reports and other information with
the SEC. Such periodic reports and other information will be available for
inspection and copying at the SEC's public reference room and through the
SEC's Internet site at http://www.sec.gov.
You may read and copy any document we file with the SEC at the
following SEC public reference room: Public Reference Room, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. You may obtain information on the
operation of the public reference room by calling the SEC at 1-800-SEC-0330.
144
<page>
<table>
<caption>
INDEX TO FINANCIAL STATEMENTS
Chukchansi Economic Development Authority
Page
Financial Statements ----
<s> <c>
Independent Auditors' Report.................................................................. ..F-2
Balance Sheet at December 31, 2001............................................................ ..F-3
Statement of Operations and Accumulated Deficit for the period from June 15, 2001 F-4
(commencement of operations) through December 31, 2001...........................................
Statement of Cash Flows for the period from June 15, 2001 (commencement of operations) F-5
through December 31, 2001........................................................................
Notes to Financial Statements................................................................. ..F-6
Unaudited Financial Statements
Condensed Balance Sheet at September 30, 2002 (Unaudited)..................................... .F-12
Condensed Statement of Operations and Accumulated Deficit as of F-13
September 30, 2002 (Unaudited)...................................................................
Condensed Statement of Cash Flows as of September 30, 2002 (Unaudited)....................... .F-14
Notes to the Condensed Financial Statements (Unaudited)....................................... .F-15
Cascade Entertainment Group, LLC
Page
Financial Statements ----
Independent Auditors' Report.................................................................. F-18
Balance Sheets at December 31, 2001 and 2000.................................................. F-19
Statements of Operations for the years ended December 31, 2001, 2000 and 1999................. F-20
Statements of Members' Deficit for the years ended December 31, 2001, 2000 and 1999........... F-21
Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999................. F-22
Notes to Financial Statements................................................................. F-23
Unaudited Financial Statements
Condensed Balance Sheet at September 30, 2002 (Unaudited) and December 31, 2001............... .F-33
Condensed Statements of Operations for the Three and Nine Months ended September 30, 2002 and F-34
2001 (Unaudited).................................................................................
Condensed Statement of Members' Deficit for the Nine Months ended September 30, 2002 F-35
(Unaudited)......................................................................................
Condensed Statements of Cash Flows for the Nine Months ended September 30, 2002 and 2001 F-36
(Unaudited)......................................................................................
Notes to the Condensed Financial Statements (Unaudited)....................................... .F-37
</table>
F-1
<page>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Chukchansi Economic Development Authority:
We have audited the accompanying balance sheet of the Chukchansi
Economic Development Authority as of December 31, 2001, and the related
statement of operations and accumulated deficit, and cash flows for the period
from June 15, 2001 (commencement of operations) through December 31, 2001.
These financial statements are the responsibility of the Authority's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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
audit provides a reasonable basis for our opinion.
As discussed in Note 1, the accompanying financial statements present
the financial position, results of operations, and cash flows of Chukchansi
Economic Development Authority and are not intended to present fairly the
financial position of the Picayune Rancheria of Chukchansi Indians and the
results of its operations and the cash flows of its proprietary fund types in
conformity with accounting principles generally accepted in the United States
of America.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Chukchansi
Economic Development Authority as of December 31, 2001, and the results of its
operations and its cash flows for the period from June 15, 2001 (commencement
of operations) through December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that
Chukchansi Economic Development Authority will continue as a going concern. As
discussed in Note 5 to the financial statements, Chukchansi Economic
Development Authority has incurred substantial losses and has not raised the
necessary capital to complete its casino project. These conditions raise
substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 5. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Burnett + Company LLP
Rancho Cordova, CA
July 17, 2002
F-2
<page>
CHUKCHANSI ECONOMIC DEVELOPMENT AUTHORITY
(An Unincorporated Enterprise of the Picayune Rancheria of Chukchansi Indians)
(A Development Stage Enterprise)
BALANCE SHEET
DECEMBER 31, 2001
ASSETS
Construction in progress (note 2)...................................$7,647,923
Total assets............................................$7,647,923
LIABILITIES AND ACCUMULATED DEFICIT
Liabilities
Accounts payable..............................................$1,706,267
Interest payable (note 4)........................................946,714
Loans payable (note 4).........................................8,192,701
------------
Total liabilities.......................................10,845,682
------------
Accumulated deficit..................................... --
Deficit accumulated during the development stage..............................
(3,197,759)
Total accumulated deficit...............................(3,197,759)
Commitments and contingencies (note 5).............................. --
------------
Total liabilities and accumulated deficit...........................$7,647,923
============
See accompanying notes to financial statements.
F-3
<page>
CHUKCHANSI ECONOMIC DEVELOPMENT AUTHORITY
(An Unincorporated Enterprise of the Picayune Rancheria of Chukchansi Indians)
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
PERIOD FROM JUNE 15, 2001 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 2001
Operating expenses
Gaming device license fees...................................$ 2,177,497
General and administrative................................... 721,220
------------
Total operating expenses............................... 2,898,717
------------
Loss from operations................................... (2,898,717)
Other expense--interest............................................ (299,042)
------------
Net loss............................................... (3,197,759)
Accumulated deficit, June 15, 2001.....................
--
------------
Accumulated deficit, December 31, 2001.................$(3,197,759)
============
See accompanying notes to financial statements.
F-4
<page>
CHUKCHANSI ECONOMIC DEVELOPMENT AUTHORITY
(An Unincorporated Enterprise of the Picayune Rancheria of Chukchansi Indians)
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
PERIOD FROM JUNE 15, 2001 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 2001
<table>
<caption>
Cash flows from operating activities:
<s> <c>
Net loss.................................................................................$(3,197,759)
Adjustments to reconcile net loss to net cash used in operating
activities:
Accumulated expenses transferred in................................................ 2,263,040
Increase in cash resulting from changes in:
Prepaid expenses............................................................. 118,688
Accounts payable............................................................. 524,385
Interest payable............................................................. 291,646
-----------
Net cash used in operating activities.................................................... --
-----------
Increase in cash and cash equivalents.................................................... --
Cash and cash equivalents at beginning of period......................................... --
-----------
Cash and cash equivalents at end of period...............................................$ --
===========
Supplemental disclosure of cash flow information:
Cash paid for interest.............................................................$ --
===========
Supplemental disclosure of non-cash investing and financing activities:
As discussed in note 1, the Authority received, from the Tribe, assets
under construction totaling $5,178,826 and assumed loans payable of
$6,786,798 and interest payable of $655,068. Non-cash investing and
financing activities consisted of purchasing construction in progress
through loans payable totaling $7,647,923.
</table>
See accompanying notes to financial statements.
F-5
<page>
CHUKCHANSI ECONOMIC DEVELOPMENT AUTHORITY
(An Unincorporated Enterprise of the Picayune Rancheria of Chukchansi Indians)
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
(1) Description of Business and Summary of Significant Accounting Policies and
Practices
(a) Form of Organization, Basis of Accounting and Description of Business
Chukchansi Economic Development Authority (the "Authority") is a
development stage enterprise established by ordinance of the Picayune
Rancheria of Chukchansi Indians (the "Tribe" or the "PRCI"), a federally
recognized Indian tribe, on June 15, 2001 as a body corporate and politic and
instrumentality of the Tribe. Subsequent to year-end, the Tribe amended the
ordinance to define the Authority as a wholly-owned unincorporated enterprise
of the Tribe. The term "wholly owned unincorporated enterprise of the Tribe"
means that the Tribal Government retains, and will always retain, one hundred
percent (100%) of the ownership interest in the Authority. This insures that
the benefits of the Chukchansi Gold Resort & Casino will be controlled by the
Tribe as a sovereign nation. Finally, the term "enterprise" means that the
Authority was created primarily for economic and business purposes. The term
"body corporate and politic and instrumentality of the Tribe" was intended to
convey the same meaning as "wholly owned unincorporated enterprise of the
Tribe." In either event, the descriptions are intended to convey the fact that
the enterprise is wholly owned and controlled by the Tribe. The Tribe revised
the former into the latter in an effort to better describe the Authority and
its relationship with the Tribe. The Authority was formed solely to own
certain casino gaming property (the "Property" or the "Project") currently
under development. In connection with the establishment of the Authority on
June 15, 2001, the Tribe transferred certain assets totaling $5,178,826 and
liabilities totaling $7,441,866 to the Authority.
The Tribe and the Authority have engaged Cascade Entertainment Group,
LLC ("Cascade") to manage all aspects of the development process of the
Property which includes: obtaining regulatory approvals; obtaining funding;
master planning; design and engineering; construction; interior and exterior
decor; furniture, fixtures and equipment procurement; staffing and training;
and all other pre-opening activities. Cascade is also to prepare all necessary
budgets, financial projections, schedules, design concepts, final plans,
staffing and training strategies, and any other required components of the
development process for the Tribe's review and approval.
Cascade has also been hired as manager of the Property once opened.
Upon commencement of operations of the Property, Cascade shall conduct and
direct all business affairs in connection with the day-to-day operation,
management, and maintenance of the Property.
(b) Construction in Progress
Construction in progress is stated at cost and represents costs of
pre-development of the Property incurred to date consisting of legal,
architectural, engineering fees, interest and related costs for environmental
and regulatory approvals needed to commence construction. During the period
when the activities take place that are necessary to prepare the Property for
its intended use, interest will be capitalized on all qualifying expenditures.
These assets will be placed in service when the Property opens. Property and
equipment will be stated at cost and depreciation will be provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated useful lives expecting to range between three and forty years
using the straight-line method. Maintenance and repairs will be charged to
operations as expense when incurred whereas major betterments will be
capitalized as depreciable assets.
(c) Income Taxes
The Authority is a wholly owned unincorporated enterprise of the
Picayune Rancheria of Chukchansi Indians, a federally recognized sovereign
Indian tribe, which is exempt from federal and state
F-6
<page>
income taxes. Therefore, no provision for income taxes has been made in the
accompanying financial statements.
(d) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make a number of 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. Such estimates and
assumptions affect the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, the Authority evaluates its estimates
and assumptions based upon historical experience and various other factors and
circumstances. Management believes that its estimates and assumptions are
reasonable under the circumstances; however, actual results may differ from
these estimates under different conditions.
(e) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Authority reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset, undiscounted and without interest. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(2) Construction in Progress
Construction in progress consists of various types of expenditures
relating to (i) obtaining requisite licenses and approvals for the Tribe to
conduct gaming, (ii) developing the necessary Tribal infrastructure and
organization to regulate and govern the gaming operation, and (iii) designing
and engineering of the Project. Interest expense capitalized in connection
with the Project amounted to $ 647,673 as of December 31, 2001.
Construction in progress consist of the following at December 31, 2001:
Legal fees........................................................ $ 1,660,413
Architectural and engineering fees................................ 2,763,638
Environmental impact costs........................................ 457,188
Development management fees....................................... 957,954
Funding-related costs.............................................. 63,038
Capitalized Interest.............................................. 647,673
Accrued development costs......................................... 1,098,019
------------
Total construction in progress.............................. $ 7,647,923
============
(3) Related Party Transactions
Transfers from Affiliates
Because the Authority was not established until June 15, 2001, all
Project expenditures made prior to that date were recorded by the Tribe, and
were subsequently transferred to the Authority. Additionally, accumulated
expenses through June 14, 2001 were also transferred to the Authority on June
15, 2001 and represent expenses relating to pre-opening of the Project and
other administrative and legal costs. All amounts transferred to the Authority
by the Tribe are payable to Cascade Entertainment Group, LLC, or to the State
of California (gaming device license fees).
F-7
<page>
At June 15, 2001, the amounts that comprised the accumulated expenses
transferred from the Tribe were as follows:
Gaming device license fees....................................... $ 1,450,562
Accounting fees.................................................. 21,583
Tribal administration costs...................................... 367,502
Legal and lobbying fees.......................................... 102,148
Office expenses.................................................. 54,539
Travel and other expenses........................................ 21,615
Property taxes expense........................................... 27,586
Interest expense................................................. 217,505
-------------
Total accumulated expenses at June 15, 2001................ $ 2,263,040
=============
(4) Loans Payable
Under the Pre-Construction Development Credit and Reimbursement
Agreement and subsequent amendments ("Funding Agreements"), Cascade is
required to provide the funding to the Tribe and Authority for the development
of the Project. The Funding Agreements require funding to (i) obtain requisite
approvals for the Tribe to conduct gaming; (ii) develop the necessary Tribal
infrastructure and organization to regulate and govern the gaming operation;
(iii) acquire land necessary for the development of the Project; and (iv)
design and construct the Project. The loans generally are collateralized by:
(a) future revenues of the Property and (b) inventory, equipment and accounts
receivable related to the Project.
As of December 31, 2001, all funds advanced to the Authority have been
subject to the Funding Agreements that are governed by different interest
rates. The initial loan bears annual interest at rates equal to the prime rate
plus two percent, not to exceed 10%, (7% at December 31, 2001). The subsequent
loans bear annual interest at rates equal to the prime rate plus one percent,
not to exceed 10% (6% at December 31, 2001).
The loans are expected to be repaid on the maturity date defined as
the earlier of (i) the date on which development loan proceeds are received or
(ii) the date on which the Tribe opens a revenue-generating gaming operation
("Maturity Date"). However, if the Maturity Date does not occur on or before
six years after any failure of the Project, Cascade has agreed to forgive all
obligations under the Funding Agreements.
<table>
<caption>
The total balance in loans payable at December 31, 2001 is comprised of:
<s>
Loan payable to Cascade Entertainment Group, LLC, with annual interest at the prime rate plus
two percentage points, not to exceed 10% (7% at December 31, 2001), principal and accrued
interest payable due upon Maturity Date, secured by future revenues of the Property and
inventory, equipment and accounts receivable related to the Project......................... $2,250,000
Loans payable to Cascade Entertainment Group, LLC, with annual interest at the prime rate plus
one percentage point, not to exceed 10% (6% at December 31, 2001), principal and accrued
interest payable due upon Maturity Date, secured by future revenues of the Property and
inventory, equipment and accounts receivable related to the Project......................... 5,942,701
Total loans payable............................................................................ $8,192,701
</table>
Interest accrued and expensed under the loan payable arrangements
during the period from June 15, 2001 through December 31, 2001 amounted to
$299,042.
(5) Subsequent Events, Commitments, and Contingencies
Legal Matters
As of December 31, 2001, a claim existed against the Tribe in which
the litigant claims that by a previous agreement, the Tribe had given the
company primary rights to a management contract in the event that the Tribe
pursues a gaming operation. Subsequent to December 31, 2001, a portion of the
claim was
F-8
<page>
settled and the litigant released the Tribe from the claim relating to the
management contract rights. No amount was paid to the litigant in connection
with the partial settlement. While the remainder of the claim remains in
arbitration, its disposition is not expected to have a material adverse impact
on the Authority.
Environmental Issues
In order to commence construction of the Project, the Authority must
complete significant environmental testing and obtain the requisite regulatory
approvals. While environmental testing has been completed, regulatory approval
is pending the completion of a public comment period, in which public concerns
are adequately addressed. The public comment period for the Project site ended
on September 30, 2001. In February of 2002, the NIGC issued a finding of no
significant impact (FONSI) for the Project. The FONSI gives the Authority the
permission needed in order to start construction of the Project.
Land
The Authority anticipates incurring additional indebtedness related
to certain land parcels that are currently held in escrow to be transferred
from Cascade. As of December 31, 2001, under the terms of the development
agreement with Cascade, the computed value of this land is $2,073,679. This
indebtedness will become effective at the time of the closing of escrow, which
is anticipated to be on or around the commencement of construction of the
Project.
Gaming Device Licenses
Under the Tribe's tribal-state gaming compact (the "Compact"), the
Tribe must receive a gaming license for each gaming device it operates. The
Compact permits the Tribe to receive licenses for up to 2,000 gaming devices
and automatically permits the Tribe to operate up to 350 gaming devices. The
Compact establishes a complex system under which drawings for licenses are to
be held, and license fees are to be paid into a revenue sharing trust fund
established by the State of California. The Compact also provides that a
license shall be cancelled if the gaming device authorized by the license is
not in commercial operation within twelve months of issuance of the license.
However, the Compact does not state what entity is to conduct the gaming
device license drawings, what entity is empowered to issue or to cancel
licenses, when the licenses are deemed issued, what constitutes commercial
operation of gaming devices or what procedure, if any, is involved in
cancellation.
In May 2000, the California Nations Indian Gaming Association
organized a procedure to allocate the pool of gaming device licenses among
California tribes that had executed compacts. The Tribe participated in the
first drawing conducted by a certified public accounting firm on May 15, 2000.
At the conclusion of that drawing, the Tribe was notified that it had received
the number of licenses it sought: 1,250 additional licenses for gaming devices
in excess of the automatically authorized 350 gaming devices.
Following the May 15, 2000 drawing, the California Attorney General
asserted that only the California Gambling Control Commission has the
authority to issue gaming device licenses under the compacts. The California
Gaming Commission has informed us that our gaming device licenses became
effective on June 26, 2002 for these purposes and therefore our gaming devices
must be in commercial operation by June 25, 2003. However, certain officials
of other tribes that have signed similar compacts with the State of California
have questioned whether licenses drawn on May 15, 2000 remain valid after May
14, 2001 if the tribes to which they were issued (which includes the Tribe)
did not have the gaming devices in commercial operation at that time. In
addition, certain California tribes have disputed the assertion that the
California Gambling Control Commission is the proper entity to issue gaming
device licenses under the compacts.
In the event the licenses issued by the California Gambling Control
Commission are held invalid, or if the date of issuance of such licenses is
deemed to be earlier than the date of the notice to us, we could be prevented
from operating gaming devices. In any case, if we fail to open our gaming
facility on or before June 25, 2003, we likely will be prevented from
operating more than 350 gaming devices. The
F-9
<page>
failure to operate additional gaming devices would materially, adversely
impact the financial position of the Authority.
Development and Management Agreements
The Authority has entered into a development agreement and a
management agreement with Cascade. Cascade is responsible for managing the
design, development, construction, staffing, pre-opening and ongoing operation
of the Project, as well as assisting in the regulatory approval process for
the facility.
The Tribe, the Authority and Cascade entered into an Amended and
Restated Development Agreement, dated June 19, 2001, as amended, providing for
the management of the development, design, furnishing, equipping and
construction of the Project by Cascade on behalf of the Tribe and the
Authority. In connection with services rendered under the development
agreement, Cascade shall receive a development fee in the amount of 4% of the
total cost of developing the Project, not to exceed $4,500,000, which cost
shall be defined in budgets approved by the Authority pursuant to the terms of
the development agreement.
To provide for the management of the Project, the Tribe, the
Authority and Cascade have entered into a Second Amended and Restated
Management Agreement, dated July 16, 2002 pursuant to which the Tribe and the
Authority have retained and engaged Cascade, and granted Cascade the exclusive
right and obligation, to develop, operate, manage and maintain the Project and
to train members of the Tribe and others in the operation and maintenance of
the Project. The term of the management agreement is seven years commencing
upon the date that the Project opens to the public.
The management agreement provides that there are a number of
conditions precedent to its effectiveness, including:
o approval by the Chairperson of the NIGC of the management agreement
and the development agreement with Cascade and the documents to be
executed in connection with the issuance of the notes;
o the satisfactory completion of all necessary feasibility studies
necessary for the development, construction and operation of the
Project;
o receipt of all applicable licenses for or related to the
development, construction or management of the Project;
o approval by the Tribe, the State of California and the NIGC with
respect to the background investigations of Cascade and its
officers; and
o receipt by Cascade of the Authority's approval of all plans and
specifications related to the Project.
Cascade, the Tribe and the Authority have agreed to cooperate and use
their best efforts to satisfy all the above-referenced conditions at the
earliest possible date.
The management agreement provides that Cascade is entitled to a
management fee equal to 30% of the net revenues (as defined in 25 C.F.R.
502.16) of the Project, less any interest on bank accounts, less 70% of all
contingent interest payable under the notes, provided, that the aggregate
amount of all past and present management fees and the development fee to be
paid to Cascade may not exceed in total 30% of the aggregate net revenues (as
defined in 25 C.F.R. 502.16) of the Project plus all contingent interest
payable under the notes.
Going Concern Matters
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Authority
has, at December 31, 2001, incurred substantial losses and has not raised the
necessary capital to
F-10
<page>
complete its casino project. These factors raise substantial doubt about their
ability to continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amount of liabilities that might be necessary
should we be unable to continue in existence.
To date, the Authority's operations and pre-development activities
relating to the Project have been funded solely from loans obtained from
Cascade. The Authority is currently seeking to raise $137.5 million in a
private placement offering for the Project that management expects to become
effective in fiscal 2002.
While the Authority has secured commitments from Cascade for
additional financing through mid-2002, the inability of the Authority to
secure the necessary financing to complete construction of the Project could
have a material adverse impact on the Authority's ability to continue as a
going concern. In the event that the Authority is unable to complete the
private placement offering for the Project as intended, management's plans
include researching alternative financing arrangements for the completion of
the Project. There is no assurance, however, that such plans will be completed
or, if completed, will generate sufficient funds to enable continued
operations for the next twelve months.
F-11
<page>
CHUKCHANSI ECONOMIC DEVELOPMENT AUTHORITY
(An Enterprise of the Picayune Rancheria of Chukchansi Indians)
(A Development Stage Enterprise)
CONDENSED BALANCE SHEET
September 30, 2002
(Unaudited)
ASSETS
------
Restricted Cash (note 2) ......................................... $ 4,000,200
Construction in progress (note 3)................................. 14,152,354
-------------
Total assets.......................................... $ 18,152,554
-------------
LIABILITIES AND ACCUMULATED DEFICIT
-----------------------------------
Liabilities
Accounts payable............................................ $ 4,001,254
Interest payable (note 4)................................... 1,387,418
Loans payable (note 4)...................................... 17,292,461
-------------
Total liabilities..................................... 22,681,133
-------------
Accumulated deficit................................... --
Deficit accumulated during the development stage.................. (4,528,579)
-------------
Total accumulated deficit............................. (4,528,579)
Commitments and contingencies (note 5)............................ --
-------------
Total liabilities and accumulated deficit............. $ 18,152,554
=============
See accompanying notes to condensed financial statements.
F-12
<page>
CHUKCHANSI ECONOMIC DEVELOPMENT AUTHORITY
(An Enterprise of the Picayune Rancheria of Chukchansi Indians)
(A Development Stage Enterprise)
CONDENSED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
September 30, 2002
(Unaudited)
<table>
<caption>
Cumulative for
Nine the period
months ended June 15, 2001 to
September 30, September 30,
2002 2002
-------------- ---------------
<s>
Operating expenses
Gaming device license fees........................................ $ 1,063,223 $ 3,240,720
General and administrative........................................ 231,895 953,115
-------------- ---------------
Total operating expenses.................................... 1,295,118 4,193,835
-------------- ---------------
Loss from operations: (1,295,118) (4,193,835)
Other expense--interest................................................. (35,702) (334,744)
-------------- ---------------
Net loss.................................................... (1,330,820) (4,528,579)
Accumulated deficit, beginning of the period................ (3,197,759)
-------------- ---------------
Accumulated deficit, end of the period...................... $(4,528,579) $(4,528,579)
============== ===============
</table>
See accompanying notes to condensed financial statements.
F-13
<page>
CHUKCHANSI ECONOMIC DEVELOPMENT AUTHORITY
(An Enterprise of the Picayune Rancheria of Chukchansi Indians)
(A Development Stage Enterprise)
CONDENSED STATEMENT OF CASH FLOWS
September 30, 2002
(Unaudited)
<table>
<caption>
Cumulative for
Nine the period
months ended June 15, 2001 to
September 30, September 30,
2002 2002
------------- ----------------
<s>
Cash flows from operating activities:
Net loss..................................................................$ (1,330,820) $ (4,528,579)
Adjustments to reconcile net loss to net cash used in operating
activities:
Accumulated expenses transferred in................................. -- 2,263,040
Increase in cash resulting from changes in:
Prepaid expenses............................................ -- 118,688
Accounts payable............................................ 890,316 1,414,701
Interest payable............................................ 440,704 732,350
------------- ----------------
Net cash provided by (used in) operating activities... 200 200
------------- ----------------
Cash flows from financing activities
Proceeds from loans payable............................................... 4,000,000 4,000,000
Amounts provided for restricted cash in escrow............................ (4,000,200) (4,000,200)
New cash provided by (used in) financing activities... (200) (200)
------------- ----------------
Increase in cash and cash equivalents........................................... -- --
Cash and cash equivalents at beginning of period................................ -- --
------------- ----------------
Cash and cash equivalents at end of period......................................$ -- $ --
============= ================
Supplemental disclosure of non-cash investing and financing activities:
</table>
Non-cash investing and financing activities for the nine months ended
September 30, 2002 and for the period June 15, 2001 to September 30, 2002
consisted of purchasing construction in progress through loans payable
totaling $6,504,431 and $14,152,354, respectively. The Authority received,
from the Tribe, assets under construction totaling $5,178,826 and assumed
loans payable of $6,786,798 and interest payable of $655,068.
See accompanying notes to condensed financial statements.
F-14
<page>
CHUKCHANSI ECONOMIC DEVELOPMENT AUTHORITY
(An Enterprise of the Picayune Rancheria of Chukchansi Indians)
(A Development Stage Enterprise)
Notes to the Condensed Financial Statements
September 30, 2002
------------------
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited, condensed financial statements of the
Chukchansi Economic Development Authority (the "Authority") have been prepared
in accordance with accounting principles generally accepted in the United
States of America for interim financial information. In the opinion of
management, all adjustments and normal recurring accruals considered necessary
for a fair presentation have been included. Operating results for the nine
months ended September 30, 2002 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2002. The interim
financial statements and notes thereto should be read in conjunction with the
Authority's audited financial statements and notes thereto for the year ended
December 31, 2001.
(2) Restricted Cash
Restricted cash consists of funds restricted in an escrow account for
the benefit of Walton Construction, construction manager to the Project, and
Kiewit Pacific, site work sub-contractor for the Project. These funds were
deposited to cause Walton & Kiewit to start construction of the Project prior
to the funding date. The terms of the escrow agreement call for the funds to
be reduced to $1.7 million at the closing of the financing.
(3) Construction in Progress
Construction in progress consists of various types of expenditures
relating to (i) obtaining requisite licenses and approvals for the Tribe to
conduct gaming, (ii) developing the necessary Tribal infrastructure and
organization to regulate and govern the gaming operation, and (iii) designing
and engineering of the Project. Interest expense capitalized in connection
with the Project was $405,002 for the nine months ended September 30, 2002.
Construction in progress consist of the following at September 30,
2002:
Environmental impact costs $ 536,368
Design and engineering fees 4,921,414
Hard construction costs 902,714
Development management fees 1,219,126
Other permits and fees 309,990
Land 1,046,942
Legal, insurance and accounting fees 3,647,906
Funding-related costs 515,219
Capitalized interest 1,052,675
----------------
Total construction in progress $ 14,152,354
================
(4) Loans Payable
Under the Pre-Construction Development Credit and Reimbursement
Agreement and subsequent amendments ("Funding Agreements"), Cascade is
required to provide the funding to the Tribe and Authority for the development
of the Project. The Funding Agreements require funding to (i) obtain
F-15
<page>
requisite approvals for the Tribe to conduct gaming; (ii) develop the
necessary Tribal infrastructure and organization to regulate and govern the
gaming operation; (iii) acquire land necessary for the development of the
Project; and (iv) design and construct of the Project. The loans are generally
collateralized generally by: (a) future revenues of the Property and (b)
inventory, equipment and accounts receivable related to the Project.
As of September 30, 2002, all funds advanced to the Authority have
been subject to the Funding Agreements that are governed by different interest
rates. The initial loan bears annual interest at rates equal to the prime rate
plus two percent, not to exceed 10%, (6.75% at September 30, 2002). The
subsequent loans bear annual interest at rates equal to the prime rate plus
one percentage point, not to exceed 10% (5.75% at September 30, 2002).
The loans are expected to be repaid on the maturity date defined as
the earlier of (i) the date on which development loan proceeds are received or
(ii) the date on which the Tribe opens a revenue-generating gaming operation
("Maturity Date"). However, if the Maturity Date does not occur on or before
six years after any failure of the Project, Cascade has agreed to forgive all
obligations under the Funding Agreements.
The total balance in loans payable at September 30, 2002 is
comprised of:
<table>
<caption>
<s>
Loan payable to Cascade Entertainment Group, LLC, with annual interest
at the prime rate plus two percentage points, not to exceed 10% (6.75%
at September 30, 2002), principal and accrued interest payable due
upon Maturity Date, secured by future revenues of the Property and
inventory, equipment and accounts receivable related to the Project. $ 3,296,942
Loans payable to Cascade Entertainment Group, LLC, with annual
interest at the prime rate plus one percentage point, not to exceed
10% (5.75% at September 30, 2002), principal and accrued interest
payable due upon Maturity Date, secured by future revenues of the
Property and inventory, equipment and accounts receivable related to
the Project. 13,995,519
---------------
$ 17,292,461
===============
</table>
Interest accrued and expensed under the loan payable arrangements
during the nine months ended September 30, 2002 amounted to $35,702.
(5) Commitments and Contingencies
Land
The Authority anticipates incurring additional indebtedness related
to certain land parcels that are currently held in escrow to be transferred
from Cascade. On September 24, 2002, four of these parcels closed out of
escrow and the Authority recorded $1,046,942 as the value of those parcels. As
of September 30, 2002, under the terms of the development agreement with
Cascade, the remaining computed value of this land is $1,124,163. This
indebtedness will become effective at the time of the closing of escrow, which
is anticipated to be on or around the closing of the private placement
offering described below.
Going Concern Matters
The accompanying unaudited, condensed financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
The Authority has, at September 30, 2002, incurred substantial losses. These
factors raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the amount
of liabilities that might be necessary should we be unable to continue in
existence.
F-16
<page>
To date, the Authority's operations and pre-development activities
relating to the Project have been funded solely from loans obtained from
Cascade. Effective October 2002 the Authority, through a bond offering, raised
$153 million of 14 1/2 % senior notes due October 8, 2009.
The Authority's ability to continue as a going concern is dependent
upon completion of the Project and generating profitable operations once the
Project is complete.
Subsequent Events
In October of 2002, the Authority made a private placement offering
of $153 million of 14 1/2 % senior notes due October 8, 2009. In concurrence
with this offering an additional $26.8 million of subordinated notes were sold
with varying rates but similar interest payable dates. Interest on all notes
is payable semi-annually on April 1 & October 1. The net proceeds from the
offering of senior and subordinated notes are approximately, $141 million
after deducting discounts to the underwriters and estimated expenses of the
offering. The Authority intends to use the net proceeds to construct the
Project and pay certain interest payments during the construction period.
F-17
<page>
INDEPENDENT AUDITORS' REPORT
The Managing Member
Cascade Entertainment Group, LLC:
We have audited the accompanying balance sheets of Cascade Entertainment
Group, LLC as of December 31, 2001 and 2000, and the related statements of
operations, members' deficit, and cash flows for each of the years in the
three-year period ended December 31, 2001. These financial statements are the
responsibility of Cascade'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, the financial statements referred to above present
fairly, in all material respects, the financial position of Cascade
Entertainment Group, LLC as of December 31, 2001 and 2000, and the results of
its operations and its cash flows for each of the years in the three-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that
Cascade will continue as a going concern. As discussed in note 1 to the
financial statements, Cascade has suffered recurring net losses from
operations, and has a net members' deficit that raises substantial doubt about
its ability to continue as a going concern. Management's plans with regards to
these matters are also described in note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ KPMG LLP
Phoenix, Arizona
May 1, 2002
F-18
<page>
<table>
<caption>
CASCADE ENTERTAINMENT GROUP, LLC
(A California Limited Liability Company)
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS 2001 2000
Current assets: ------ ---- ----
<s> <c> <c>
Cash and cash equivalents.......................................................... $ 480,798 $ 865,025
Tribal loans receivable, net (note 2).............................................. -- --
Member receivable (note 6)......................................................... 21,876 5,815
Prepaid expenses and other current assets.......................................... 93,886 143,258
------------ --------------
Total current assets......................................................... 596,560 1,014,098
Property and equipment, net (note 3)..................................................... 213,660 129,588
Land held for sale....................................................................... 1,745,490 1,717,528
Engagement fees (note 1)................................................................. 175,000 175,000
Contract value (note 1).................................................................. 600,000 600,000
------------ --------------
Total assets................................................................. $ 3,330,710 $ 3,636,214
============ ==============
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses.............................................. $ 2,288,058 $ 239,192
Current portion of capital lease obligations (note 4).............................. 10,988 1,547
------------ --------------
Total current liabilities.................................................... 2,299,046 240,739
Capital lease obligations, less current portion (note 4)................................. 25,889 6,807
Member loans payable (note 5)............................................................ 6,500,100 5,096,325
Loans payable (note 5)................................................................... 14,550,000 9,737,500
Interest payable (note 5)................................................................ 2,193,948 897,086
------------ --------------
Total liabilities............................................................ 25,568,983 15,978,457
------------ --------------
Members' deficit:
Members shares, no par value, 103,000 authorized,
100,000 issued and outstanding................................................. 2,475,000 2,298,775
Accumulated deficit................................................................ (24,713,273) (14,641,018)
------------ --------------
Total members' deficit....................................................... (22,238,273) (12,342,243)
Commitments, contingencies and subsequent events
(notes 1, 2, 4, 6, 7 and 8)........................................................... -- --
------------ --------------
Total liabilities and members' deficit....................................... $ 3,330,710 $ 3,636,214
============ ==============
See accompanying notes to financial statements.
</table>
F-19
<page>
<table>
<caption>
CASCADE ENTERTAINMENT GROUP, LLC
(A California Limited Liability Company)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
---- ---- ----
<s> <c> <c> <c>
Revenues--development fees (note 1)................................... $ -- $ -- $ --
Operating expenses:
Compensation and benefits (note 6).............................. 1,385,796 1,137,545 373,337
Professional fees............................................... 872,624 94,017 145,522
Gaming licensing costs.......................................... 106,088 60,493 17,521
Promotion and marketing (note 7)................................ 47,090 55,090 55,898
General and administrative (note 4)............................. 459,806 342,708 135,932
Provision for uncollectible receivables (note 2)................ 5,874,237 10,381,978 606,817
Depreciation and amortization................................... 53,729 13,035 3,539
------------- -------------- -------------
Total operating expenses.................................. 8,799,370 12,084,866 1,338,566
------------- -------------- -------------
Operating loss............................................ (8,799,370) (12,084,866) (1,338,566)
------------- -------------- -------------
Other income (expense):
Interest income from Tribal loans (note 2)...................... -- -- --
Interest income, other.......................................... 23,977 46,547 466
Interest expense (note 5)....................................... (1,296,862) (798,187) (93,348)
------------- -------------- -------------
Total other expense....................................... (1,272,885) (751,640) (92,882)
------------- -------------- -------------
Net loss.................................................. $(10,072,255) $(12,836,506) $(1,431,448)
============= ============== =============
See accompanying notes to financial statements.
</table>
F-20
<page>
<table>
<caption>
CASCADE ENTERTAINMENT GROUP, LLC
(A California Limited Liability Company)
STATEMENTS OF MEMBERS' DEFICIT
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Contributed Accumulated
Capital Deficit Totals
------- ------- ------
<s> <c> <c> <c>
Balances at December 31, 1998................................................$ 147,525 $ (373,064) $ (225,539)
Capital contributions.................................................. 1,300,000 -- 1,300,000
Net loss............................................................... -- (1,431,448) (1,431,448)
---------- -------------- --------------
Balances at December 31, 1999................................................ 1,447,525 (1,804,512) (356,987)
Capital contributions.................................................. 851,250 -- 851,250
Net loss............................................................... -- (12,836,506) (12,836,506)
---------- -------------- --------------
Balances at December 31, 2000................................................ 2,298,775 (14,641,018) (12,342,243)
Capital contributions.................................................. 176,225 -- 176,225
Net loss............................................................... -- (10,072,255) (10,072,255)
---------- -------------- --------------
Balances at December 31, 2001................................................$2,475,000 $(24,713,273) $(22,238,273)
========== ============== ==============
See accompanying notes to financial statements.
</table>
F-21
<page>
<table>
<caption>
CASCADE ENTERTAINMENT GROUP, LLC
(A California Limited Liability Company)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
---- ---- ----
<s>
Cash flows from operating activities:
Net loss............................................................... $(10,072,255) $(12,836,506) $(1,431,448)
Adjustments to reconcile net loss to net cash used in operating
activities:
Provision for uncollectible receivables.......................... 5,874,237 10,381,978 606,817
Depreciation and amortization.................................... 53,729 13,035 3,539
Increase (decrease) in cash resulting from changes in:
Member receivable................................................ (16,061) 7,027 (12,842)
Prepaid expenses and other current assets........................ 49,372 (100,899) (34,359)
Engagement fees.................................................. -- (50,000) (50,000)
Accounts payable and accrued expenses............................ 2,048,866 212,839 13,468
Interest payable................................................. 1,296,862 798,187 93,348
------------ ------------ -----------
Net cash used in operating activities.................................. (765,250) (1,574,339) (811,477)
------------ ------------ -----------
Cash flows from investing activities:
Purchases of land held for sale........................................ (27,962) (903,962) (813,566)
Decrease (increase) in funds held in escrow............................ -- 685,147 (685,147)
Purchases of property and equipment.................................... (105,566) (101,298) (28,023)
Amounts extended on tribal loans receivable............................ (5,874,237) (10,381,978) (606,817)
------------ ------------ -----------
Net cash used in investing activities.................................. (6,007,765) (10,702,091) (2,133,553)
------------ ------------ -----------
Cash flows from financing activities:
Proceeds from member capital contributions............................. 176,225 851,250 700,000
Proceeds from member loans............................................. 1,403,775 2,553,750 2,100,000
Proceeds from loans payable............................................ 4,812,500 9,737,500 --
Payments under capital lease obligations...............................
(3,712) (1,045) --
------------ ------------ -----------
Net cash provided by financing activities.............................. 6,388,788 13,141,455 2,800,000
------------ ------------ -----------
Increase (decrease) in cash and cash equivalents....................... (384,227) 865,025 (145,030)
Cash and cash equivalents at beginning of year......................... 865,025 -- 145,030
------------ ------------ -----------
Cash and cash equivalents at end of year............................... $ 480,798 $ 865,025 $ --
============= ============= ============
Supplemental disclosure of non-cash investing and financing activities:
During the years ended December 31, 2001 and 2000, Cascade entered into
capital lease obligations for certain equipment in the amounts of $32,235
and $9,399, respectively. During 1999, a member contributed agreements he
had previously entered into with the BV and PRCI tribes valued at $600,000
to Cascade in exchange for 24,000 shares.
See accompanying notes to financial statements.
</table>
F-22
<page>
CASCADE ENTERTAINMENT GROUP, LLC
(A California Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
(1) Summary of Significant Accounting Policies and Practices
(a) Form of Organization
Cascade Entertainment Group, LLC ("Cascade") initially commenced
operations on October 14, 1998 as a Connecticut limited liability company. On
February 23, 1999, Cascade was merged into a California limited liability
company of the same name, whereupon the Connecticut limited liability company
was dissolved (the "Merger"). The operation of Cascade is subject to an
operating agreement by and between its members, which among other things,
governs the following:
o Capitalization, including initial contributions, commitments,
additional contributions and loans.
o Distributions of cash, allocations of taxable income and loss and
other distributions and allocations.
o Management duties and responsibilities including appointment of
manager, designation of officers, approval requirements, and the
establishment of business plans.
o Member interests, including the admission, withdrawal, transfer or
expulsion of a member or a member's interests.
(b) Description of Business
On March 7, 2000, California voters passed Proposition 1A to amend the
California constitution to legalize the scope and nature of the gaming
operations allowed in state compacts. With the emerging gaming market in
California fueled by Proposition 1A, Cascade offers its services as a manager
for new and existing Native American casinos. Cascade is engaged primarily in
the development and management of Native American gaming and resort facilities
and related operations. Cascade is subject to regulation by various Federal,
state and tribal authorities. In jurisdictions where gaming has been recently
legalized, gaming cannot begin until a licensing and regulatory framework is
promulgated and regulatory commissions are appointed, staffed and funded. The
regulatory framework adopted by any jurisdiction may impose delays in
licensure, restrictions or costs that could materially affect the operations
of the gaming facility. Cascade must obtain the requisite gaming licenses for
each location where it intends to operate or manage a gaming facility, and
each of Cascade's members, officers, directors and managers are subject to
strict scrutiny and approval. In addition, gaming on Native American lands is
extensively regulated, and the terms and conditions of management contracts
must be approved by the respective Tribes and Federal regulatory agencies,
including the National Indian Gaming Commission ("NIGC") and the Bureau of
Indian Affairs ("BIA"). There can be no assurance that Cascade or any of its
members or key personnel will obtain the requisite licenses and approvals of
the various state and Federal authorities in a timely manner, if at all.
Cascade entered into pre-construction, development, credit and
management agreements, which were amended by similar agreements subsequent to
December 31, 2001 (collectively, the "Agreements"), with two Federally
recognized California Native American tribes, including the Buena Vista
Rancheria of the Me-Wuk Indians ("BV") and the Picayune Rancheria of the
Chukchansi Indians ("PRCI") (collectively, the "Tribes"). Cascade has been
engaged by the Tribes to develop and manage Class II and Class III (as
defined) gaming facilities (the "Projects") on land that Cascade believes
qualifies for the conduct of gaming operations on Indian Lands (as defined).
Each tribe has established an Economic Development Authority (collectively,
the "Authorities") that have been given sole responsibility and authority to
develop and operate the Projects on behalf of the Tribes. Cascade submitted
the original Agreements and licensing applications to the NIGC for approval,
which were subsequently amended and are pending approval by the NIGC.
Additionally, in accordance with the Indian Gaming Regulatory Act ("IGRA") the
Tribes have executed Tribal-State Gaming Compacts (the "Compacts") with the
state of California which outlines the scope and nature of gaming operations
that will be allowed. The BIA has approved the Compacts.
Under the Agreements, Cascade is responsible for and manages on
behalf of the respective Tribes and Authorities, the development process which
includes: regulatory approval; funding; land acquisition; master planning;
design and
F-23
<page>
engineering; construction; interior and exterior decor; furniture, fixtures
and equipment; staffing and training; and all other pre-opening activities.
Cascade also prepares all necessary budgets, financial projections, schedules,
design concepts, final plans, staffing and training strategies, and any other
required components of the development process for the Authorities' review and
approval. Upon commencement of operations of the Projects, Cascade will
conduct and direct all business and affairs in connection with the day-to-day
operation, management and maintenance of the Projects.
(c) Liquidity
To date, Cascade's operations and pre-development activities relating to
the Projects have been funded solely from loans obtained from Cascade members,
affiliates and third parties. The PRCI Authority, with Cascade's assistance,
is currently seeking to raise $137.5 million in a private placement offering
for the PRCI project that management expects to become effective in 2002.
Cascade will seek to raise an additional $120 million in a private placement
offering for the BV project once the pending tribal leadership issues have
been resolved.
While Cascade has secured commitments by its members for additional
financing through mid-2002, the inability of Cascade to secure the necessary
financing to complete construction of the PRCI project could have a material
adverse impact on Cascade's ability to continue as a going concern.
Additionally, if Cascade is unable to move forward on the BV project, the
development costs related to the project would be unrecoverable and may
adversely impact Cascade's ability to continue as a going concern. In the
event that Cascade is unable to complete the private placement offering for
PRCI as intended, management's plans include researching alternative financing
arrangements for the completion of the PRCI project. In the event that Cascade
is unable to move forward with the BV project, management's plans include
researching other viable Indian gaming projects within California and the
western region of the United States to utilize Cascade's expertise at project
development and gaming operations management.
(d) Cash Equivalents
For purposes of the statements of cash flows, Cascade considers all
highly liquid debt instruments with an original maturity of three months or
less to be cash equivalents.
(e) Tribal Loans Receivable
Tribal loans receivable are recorded at cost, less the related
allowance for uncollectible loans receivable. Management, considering current
information and events regarding the Tribes' ability to repay their
obligations, considers a loan to be impaired when it is probable that Cascade
will be unable to collect all amounts due according to the contractual terms
of the loan agreement, or when circumstances surrounding the collectibility of
the receivable are contingent on future uncertain events. When a loan is
considered to be impaired, the amount of the impairment is measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate. Impairment losses are included in the allowance for
doubtful accounts through a charge to the provision for uncollectible
receivables. Cash receipts on impaired loans receivable will be applied to
reduce the principal amount of such loans until the principal has been
recovered and, thereafter, are recognized as interest income.
(f) Property and Equipment
Property and equipment is stated at cost and consists of office
furniture and equipment, and computer equipment used in the operation of
Cascade. Property and equipment is depreciated using the straight-line method
over the estimated useful lives of related assets which range from three to
five years. Property purchased under capital leases is amortized over the
shorter of the useful life or lease term.
(g) Land Held for Sale
Land held for sale consists of various parcels of undeveloped land
purchased on behalf of the PRCI tribe for the development of the PRCI project.
Under the terms of the PRCI development agreement, Cascade is to cause the
land to be transferred to PRCI or to the United States to be held in trust by
the United States for the benefit of PRCI. Cascade is to be reimbursed for its
land acquisition, development and financing costs. The financing costs are to
be computed in the same manner as the tribal loan receivable and are to be
recorded as a gain on sale by Cascade at the time of transfer. Such costs
F-24
<page>
will then become part of the tribal loan receivable. While no financing costs
have been recorded by Cascade on the land held for sale, the computed
financing costs under the terms of the PRCI development agreement for the
years ended December 31, 2001, 2000 and 1999 amounted to $154,258, $156,385
and $17,545, respectively, and the total due as of December 31, 2001 and 2000
was $328,188 and $173,930, respectively.
(h) Revenue Recognition
Cascade expects to generate revenues primarily from development fees
during the pre-construction, construction and pre-opening phases of the
Projects and from management fees upon the commencement of operations of the
Projects.
Development Fees
Under the terms of the amended and restated development agreements
("Development Agreements"), Cascade is responsible for developing the Projects
which includes: regulatory approval; funding; land acquisition; master
planning; design and engineering; construction; interior and exterior decor;
furniture, fixtures and equipment; staffing and training; and all other
pre-opening activities. For fulfilling its obligations in developing the
Projects, Cascade shall receive a development fee equal to four percent of the
total cost of development (as defined in the development budget and agreed to
by the Authorities), not to exceed $4,500,000 for each project. Development
fees are payable in fixed monthly amounts of $20,000 for BV and $25,000 for
PRCI until the commencement of construction, whereupon the fee will be paid in
accordance with a construction draw schedule agreed to by the Authorities.
Prior to the commencement of construction, the development fees are to be
advanced to the Tribes by Cascade and added to the balance of tribal loans
receivable. No development fee revenues have been recorded during the
pre-construction phase, as the collectibility of such amounts is contingent on
the ability of Cascade to secure construction financing. Under the terms of
the Development Agreements, the development fees Cascade is entitled to
amounted to $540,000 for each of the years ended December 31, 2001, 2000 and
1999 and the total due as of December 31, 2001 and 2000 was $1,710,000 and
$1,170,000, respectively.
Management Fees
Under the terms of the amended and restated management agreements
("Management Agreements"), upon commencement of operations of the Projects and
continuing for a term of seven years, Cascade will be responsible for all
business and affairs in connection with the day-to-day operation, management
and maintenance of the Projects. For fulfilling its obligations in managing
the Projects, Cascade will receive a management fee of up to thirty percent of
the net revenues (as defined) of Class III and Class II gaming and all other
operations of the Projects, less any payments made under a revenue-based note
holder participation clause in the promissory notes to be executed in
connection with each tribe's anticipated private placement offering. In
connection with the $137.5 million private placement offering, Cascade has
entered into certain agreements to pledge certain of its management fees as
security for the notes issued in the private placement offering.
The payment of net revenues (as defined) to Cascade and the Tribes
will be made within twenty-one days after the previous month of operations
from the then available cash of the Projects. As a priority payment over the
management fees, the Tribes are to receive minimum guaranteed monthly payments
(as defined) of at least $100,000 per tribe, which shall be charged against
the Tribes' distribution of net revenues for each month provided. However,
where the net revenues in a given month are less than the minimum guaranteed
monthly payments, Cascade shall pay the funds necessary to compensate for the
deficiency from its own funds on a non-cumulative and non-recoverable basis.
No management fees were recorded in 2001, 2000 or 1999, as the Projects had
not commenced operations.
(i) Engagement Fees
Concurrent with the signing of the BV and PRCI Agreements, Cascade
agreed to pay non-refundable engagement fees to the Tribes totaling $325,000
for the exclusive right to enter into definitive agreements with the Tribes
for the funding, development and management of the gaming operations. The fees
are payable based on certain milestones outlined in the agreements. Engagement
fees are capitalized as incurred and will be amortized over the term of the
management agreement (seven years). In conjunction with this arrangement, the
total amount of engagement fees Cascade paid and capitalized are $175,000 as
of December 31, 2001 and 2000.
F-25
<page>
(j) Income Taxes
Cascade is a limited-liability company, which is treated as a
pass-through entity for federal and state income tax reporting purposes. As
such, the liability for taxes arising from the transactions of Cascade is the
responsibility of the individual members. Therefore, no provision for income
taxes has been made in the accompanying financial statements.
(k) Member Loan/Capital Accounts
The initial members of Cascade consisted of Russell Pratt ("Pratt"),
Warren Novick ("Novick") and S7 Associates ("S7"). On February 23, 1999, upon
the effective date of the Merger, Novick and S7 contributed their member
interests to Samoset Partners, LLC, a Delaware LLC ("Samoset"). Pratt's member
interest remained unchanged. On November 1, 1999, Susan Mayer ("Mayer") was
admitted as a member.
On November 1, 1999, an operating agreement ("Operating Agreement")
was established between Pratt, Mayer and Samoset. Pratt received 24,000 shares
of Cascade in exchange for his assignment of the agreements he had previously
entered into with the BV and PRCI tribes. These agreements were valued at
$600,000 based on the fair value of the shares received and recorded in the
Contract value account. Samoset received 75,000 shares of Cascade in exchange
for contributing capital in the amount of $1,875,000 to Cascade. Mayer
received 1,000 shares of Cascade from Pratt. Mayer received an additional 500
shares from Pratt upon signing of the Compacts and development and management
agreements. Mayer is entitled to an additional 995 shares from Pratt upon
funding of the first private placement offering and opening of the PRCI
project. There are 103,000 shares of authorized member interests, of which
100,000 shares were outstanding at December 31, 2001 and 2000. Cascade has
reserved the remaining 3,000 shares for certain employees of Cascade as
incentive compensation as described in Note 1(l). Any shares issued in excess
of 3,000 as incentive compensation are to be deducted from Pratt's shares.
None of the remaining shares have been distributed as of December 31, 2001.
Under the terms of the Operating Agreement, members may not sell,
transfer, pledge, encumber or otherwise dispose of all or any part of its
shares, unless certain conditions have been met. Any assignment that otherwise
meets the conditions may not be made until the proposed assignee has obtained
any and all licenses and/or findings of suitability that may be required under
the Indian Gaming Regulatory Act or other applicable laws.
Under the terms of the Operating Agreement, initial capitalization
funds contributed to Cascade by Samoset are to be allocated (i) 25% to member
capital accounts and (ii) 75% to member loan accounts. Samoset's maximum
commitment is $7,500,000, which has been allocated $1,875,000 to member
capital and $5,625,000 to loans. Any additional amounts contributed by
Samoset, beyond the $7,500,000 discussed in the Operating Agreement, are to be
allocated 100% to loans, of which $875,100 was received in fiscal 2001. The
members' liability is limited to the balance of the respective member's
capital account and no further contributions are required. As of December 31,
2001 and 2000, Samoset had made member contributions totaling $1,875,000 and
$1,698,775, respectively.
Also, under the terms of the Operating Agreement, Cascade is required
to distribute all distributable cash, as defined, not less than quarterly. No
distributions were made in 2001, 2000 or 1999. Income is to be distributed to
the members in proportion to their respective membership interest percentage.
Losses are allocated first to Samoset up to the amount of its capital
contributions, and then any remaining losses are allocated to the members
based on their proportionate ownership interests.
(l) Employment Agreements, Compensation and Benefits
Cascade has employment agreements with each of its key executives and
officers. Each of these employment agreements provides for a fixed term of
employment with medical and dental benefits, vacation and sick time benefits,
and incentive plan participation as well as an increase in base salary upon
the completion of specified targets within the development of the Projects.
Additionally, with the exception of Pratt and Mayer, the executive officers of
Cascade are entitled to equity participation in the form of Stock Profit
Participation Rights. These Stock Profit Participation Rights may be converted
at the option of the holder (subject to terms and conditions) into shares of
Cascade at a conversion price of $291 per Stock Profit Participation Right. As
of December 31, 2001, there were 3,075 Stock Profit Participation Rights
outstanding, of which 333 are vested. None were outstanding as of December 31,
2000.
F-26
<page>
Cascade accounts for the Stock Profit Participation Rights in
accordance with Accounting Principles Board (APB) Opinion No. 25 and related
Interpretations. Accordingly, no compensation cost has been recognized for its
fixed Stock Profit Participation Rights plan. Had compensation cost for this
plan been determined based on the fair value at the grant dates for awards
under this plan, consistent with the method of Financial Accounting Standards
Board No. 123, Cascade's net loss would have been approximately $10,092,000.
The fair value of the award was determined using a Black-Scholes Model with
the following assumptions: volatility--0%, annual dividend rate--0%, discount
rate--6%, and expected life of four years.
The employment agreements contemplate future benefits such as
performance and incentive bonuses, life and disability insurance, 401(k),
retirement plan and other benefits. Cascade intends to implement these
additional benefits in fiscal 2002.
As defined in the individual employment agreements, Cascade offers
vacation time to all employees based on agreed upon accrual rates. To record
the liability of vacation time accrued at year-end, but not yet paid, Cascade
has accrued $49,738, $0 and $0 for the years ended December 31, 2001, 2000 and
1999, respectively.
Future minimum payments due under the terms of the employment
agreements as of December 31, 2001 are as follows:
Year ending December 31:
2002......................................................... $1,190,000
2003......................................................... 1,190,000
2004......................................................... 1,190,000
2005......................................................... 1,190,000
2006......................................................... 729,500
Thereafter................................................... 651,000
Total minimum payments............................................. $6,140,500
(m) Use of Estimates
Management of Cascade has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities and the reporting of revenues and expenses,
to prepare these financial statements in conformity with accounting principles
generally accepted in the United States of America. Actual results could
differ from those estimates.
(n) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Cascade reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset, undiscounted and without interest. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(o) Recent Accounting Pronouncements
During and subsequent to fiscal 2001, the Financial Accounting
Standards Board ("FASB") issued Statements of Financial Standards ("SFAS")
No.'s 141, 142, 143 and 144, "Business Combinations," "Goodwill and Other
Intangible Assets," "Accounting for Asset Retirement Obligations" and
"Accounting for Impairment or Disposal of Long-Lived Assets," respectively.
SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 use the purchase method of accounting. SFAS No. 141 prohibits
and eliminates the pooling-of-interest accounting method for business
combinations. Cascade adopted SFAS No. 141 in 2001. However, the adoption of
SFAS No. 141 did not have an impact on Cascade, as Cascade has not initiated
any business combinations.
F-27
<page>
SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only method. Amortization of goodwill, including
goodwill recorded in past business combinations, will cease upon the adoption
of SFAS No. 142. Cascade adopted SFAS No. 142 in 2001. After December 31,
2001, goodwill can only be written down upon impairment discovered during
annual or transitional tests for fair value or discovered during tests taken
when certain triggering events occur. Additionally, an intangible asset
acquired individually or with a group of assets (but not those acquired in a
business combination) should be separately recognized if the benefit of the
intangible asset can be sold, transferred, licensed, rented or exchanged
regardless of the acquirers intent to do so. The adoption of this Statement
did not have a material impact on Cascade.
SFAS No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. The statement requires that the amount recorded as a liability be
capitalized by increasing the carrying amount of the related long-lived asset.
Subsequent to initial measurement, the liability is accreted to the ultimate
amount anticipated to be paid, and is also adjusted for revisions to the
timing or amount of estimated cash flows. 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. SFAS No. 143 will become effective January 1,
2003, with earlier application encouraged. The adoption of this Statement is
not expected to have a material impact on Cascade.
SFAS No. 144 will become effective for fiscal years beginning after
December 15, 2001. This statement supersedes SFAS 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". SFAS No. 144 retains the fundamental provisions of SFAS No. 121
for (a) recognition and measurement of the impairment of long-lived assets to
be held and used and (b) measurement of long-lived assets to be disposed of by
sale. SFAS No. 144 also retains the basic provisions APB Opinion No. 30 for
the presentation of discontinued operations in the income statement, but
broadens that presentation to include a component of an entity. The adoption
of this Statement is not expected to have a material impact on Cascade.
(2) Tribal Loans Receivable
Under the amended credit and reimbursement agreements ("Funding
Agreements"), Cascade is required to provide the funding for the development
of the Projects, which shall be used to (i) obtain requisite approvals for the
Tribes to conduct gaming, (ii) develop the necessary tribal infrastructure and
organization to regulate and govern the gaming operations, (iii) acquire land
necessary for the development of the Projects, (iv) acquire gaming licenses
and related costs and expenses, and (v) design and construct the Projects. The
Funding Agreements also requires Cascade to provide monthly advances to the
Tribes for internal tribal administration costs. The tribal loans are
collateralized generally by (a) the Tribes' right to receive disbursements of
any project loan, (b) revenues of the Projects and (c) inventory, equipment
and accounts receivable related to the Projects. The Funding Agreements
currently provide for a funding commitment of $21,300,100 by Cascade to the
Tribes, consisting of $11,470,833 for PRCI and $9,829,267 for BV.
All funds advanced to the BV tribe bear annual interest at rates
equal to the prime rate plus one percentage point, not to exceed 10% (6% and
10% at December 31, 2001 and 2000, respectively). Funds advanced to the PRCI
tribe bear interest at various rates. The initial $4,000,000 in funds advanced
to PRCI bears annual interest at rates equal to the prime rate plus two
percent, not to exceed 10% (7% and 10% at December 31, 2001 and 2000,
respectively). The subsequent funds advanced to the PRCI tribe bear annual
interest at rates equal to the prime rate plus one percentage point, not to
exceed 10% (6% and 10% at December 31, 2001 and 2000, respectively).
Funds are not considered advanced to the Tribes until they are actually
paid to the various project-related vendors. As such, until paid,
project-related liabilities are recorded in tribal loan receivable--unbilled
within tribal loans receivable and in Cascade's account payable.
All principal and accrued interest is payable on the maturity date,
which is defined as the first to occur of (i) the earliest date on which funds
first become available to the Tribes under any project loan, (ii) the date on
which the Tribes, through any means, open a revenue-generating gaming
operation, and (iii) May 15, 2008.
F-28
<page>
Tribal loans receivable (including unbilled amounts) at December 31,
2001 and 2000 is comprised of the following:
<table>
<caption>
2001 2000
---- ----
<s> <c> <c>
PRCI loan receivable--billed................................................. $ 7,242,701 $ 5,375,543
PRCI loan receivable--unbilled............................................... 1,101,687 35,680
BV loan receivable--billed................................................... 7,629,476 5,481,834
BV loan receivable--unbilled................................................. 949,168 155,739
------------- -------------
16,923,032 11,048,796
Less: allowance for uncollectible receivables................................ (16,923,032) (11,048,796)
------------- -------------
Tribal loans receivable, net................................................. $ -- $ --
============= =============
</table>
The enforceability of contracts with sovereign Indian tribes,
especially those involving the development and operation of gaming facilities,
requires the approval of the BIA, the NIGC, or both. However, the
collectibility of tribal loans receivable is largely contingent upon the
successful financing of the Projects. As a result, management has reserved
100% of the tribal loans receivable at December 31, 2001 and 2000.
Similarly, no interest income relating to tribal loans receivable
has been recorded as the collectibility of such amounts is contingent on the
ability of Cascade to secure construction financing. Under the terms of the
Funding Agreements, contractual interest due on the outstanding tribal loans
receivable was $1,137,529, $684,891 and $59,536 for the years ended December
31, 2001, 2000 and 1999, respectively, and the total due as of December 31,
2001 and 2000 was $1,882,888 and $745,359, respectively.
(3) Property and Equipment
Property and equipment consist of the following at December 31, 2001
and 2000:
<table>
<caption>
2001 2000
---- ----
<s> <c> <c>
Office furniture and equipment........................................................ $141,896 $65,558
Computer equipment.................................................................... 106,873 61,353
Leasehold improvements................................................................ 35,466 19,523
-------- ----------
284,235 146,434
Less: accumulated depreciation and amortization....................................... (70,575) (16,846)
-------- ----------
$213,660 $129,588
======== ==========
</table>
Property and equipment include $41,634 and $9,399 of assets under
capital leases at December 31, 2001 and 2000, respectively. Amortization
expense related to assets under capital leases was $4,566, $1,253 and $0 for
the years ended December 31, 2001, 2000 and 1999, respectively.
(4) Leases
Cascade has various noncancelable operating leases relating to office
space, equipment, company autos and executive housing with terms ranging from
one to five years. Cascade also has two capital leases for certain office and
computer equipment in the amounts of $6,790 (office equipment) and $30,087
(computer equipment) at December 31, 2001. Rental expense for operating leases
amounted to approximately $131,136, $108,250 and $110,200 for the years ended
December 31, 2001, 2000 and 1999, respectively, which is included in general
and administrative expense in the accompanying statements of operations.
The following summarizes future minimum lease payments required under
both capital and operating leases with remaining non-cancelable terms of one
year or more as of December 31, 2001:
<table>
<caption>
Capital Operating
leases leases
<s> <c> <c>
Year ending December 31:
2002............................................................................ $ 15,265 $119,300
2003............................................................................ 16,130 123,200
F-29
<page>
2004............................................................................ 13,871 127,200
2005............................................................................ 861 131,200
-------- --------
Total minimum lease payments.............................................. 46,127 $500,900
Less: amounts representing interest (13.35%-15.7%).................................... (9,250) ========
--------
Present value of net minimum lease payments........................................... 36,877
Less: current portion................................................................. (10,988)
--------
$ 25,889
=========
</table>
(5) Loans Payable
Under the Operating Agreement, Samoset is required to provide cash
necessary to meet costs and expenses required during the pre-construction
phase in the form of capital and loan contributions up to a maximum of
$7,500,000, all of which had been funded as of December 31, 2001. Of this
amount, 75% or $5,625,000 was allocated to loans and the remaining 25% or
$1,875,000 was allocated to contributed capital. In 2001, additional loans
totaling $875,100 were made from Samoset to Cascade under the same terms of
the loan made under the Operating Agreement, except that none is allocated to
contributed capital. The member loans bear annual interest at the prime rate
plus one percentage point, not to exceed 10%.
In addition, Cascade has entered into a credit and reimbursement
agreement with Samoset and other various lenders, some of whom are related
through their interests in Samoset. The credit and reimbursement agreement
provides for loan advances to be made to Cascade of up to $20,700,000, of
which $15,425,100 and $9,737,500 have been advanced as of December 31, 2001
and 2000, respectively. The use of such proceeds is to be used solely to fund
the tribal loans receivable and for Cascade operations related to the tribal
Projects. The loans bear annual interest at the prime rate plus one percentage
point, not to exceed 10%. However, the credit and reimbursement agreement
provides for an interest-free period from the date the advance is initially
provided from the lenders through the date that such funds are used to fund
the tribal loan receivable balance.
<table>
<caption>
Loans payable at December 31, 2001 and 2000 consisted of the following:
2001 2000
---- ----
<s>
Loans payable to Samoset Partners, LLC, with annual interest at the prime rate
plus one percentage point, not to exceed 10% (6% and 10% at December 31,
2001 and 2000, respectively), principal and accrued interest payable due
upon collection of all amounts due under the tribal loans receivable,
secured by Cascade security interest in tribal loan receivables.............. $6,500,100 $5,096,325
Loans payable to various individuals, with annual interest at the prime rate
plus one percentage point, not to exceed 10% (6% and 10% at December 31,
2001 and 2000, respectively), principal and accrued interest payable due
upon collection of all amounts due under the tribal loans receivable,
secured by Cascade security interest in tribal loan receivables.............. 14,550,000 9,737,500
Total loans payable............................................................. $21,050,100 $14,833,825
</table>
Interest accrued and expensed under the loan payable arrangements
during the years ended December 31, 2001, 2000 and 1999 amounted to
$1,296,862, $798,187 and $93,348, respectively. The loans payable and accrued
interest are expected to be paid in full when each of the tribe's anticipated
private-placement offerings become effective and are funded, which Cascade
expects to close in fiscal 2002 for PRCI and in fiscal 2003 for BV. As a
result, member loans and non-member loans payable have been classified as long
term as of December 31, 2001.
(6) Related Party Transactions
Member receivable consists of amounts due from Samoset for the
reimbursement of certain operating expenses of Samoset that were incurred by
the managing partner and paid for by Cascade. These expenses are primarily
health and dental insurance premiums for the managing partner. Member
receivable amounted to approximately $21,876 and $5,815 as of December 31,
2001 and 2000, respectively.
F-30
<page>
Member guaranteed payments represent compensation paid to members
under individual employment agreements. Compensation, as described in the
employment agreements, includes guaranteed payments, incentive compensation
payments, distributions for insurance benefit coverage and member housing
payments. These payments are expensed as a compensation and benefits cost and
amounted to $540,736, $594,356 and $215,931 for the years ended December 31,
2001, 2000 and 1999, respectively.
(7) Other Commitments
Cascade has entered into a consulting agreement relating to the BV
project. The consulting agreement provides for the payment of a "facility
opening bonus" to the consultant in the amount of $25,000 and a "facility
operating bonus" in the amount of $750,000 (or $900,000 depending on the
length of the contract), payable in quarterly installments over the term of
the contract. Beginning in 2000, payments began under this consulting
agreement. These payments are expensed as a promotion and marketing cost and
amounted to approximately $39,840 and $39,940 for the years ended December 31,
2001 and 2000, respectively. No services were provided in fiscal 1999.
Future minimum payments under the terms of the consulting agreement
as of December 31, 2001 (assuming a fiscal 2003 commencement date) are as
follows:
Year ending December 31:
2002............................................................ $20,220
2003............................................................ 75,000
2004............................................................ 150,000
2005............................................................ 225,000
2006............................................................ 225,000
Total minimum payments................................................ $695,220
As a result of the uncertainty of the BV project (see Note 8),
effective January 1, 2002 these payments have ceased.
(8) Subsequent Events and Contingencies
Legal Matters
As of December 31, 2001, a claim existed against the PRCI tribe in
which the litigant claims that by a previous agreement, the tribe had given
the litigant primary rights to a management contract in the event that the
PRCI tribe pursues a gaming operation. On March 25, 2002, a portion of the
claim relating to the management contract rights was settled and the litigant
released PRCI and Cascade from the claim. No amount was paid to the litigant
in connection with the settlement of the claim. The remainder of the claim is
still in arbitration, but its disposition has no impact on Cascade.
On December 27, 2001, the Superintendent of the Central California
Agency of the BIA determined that the leadership of the BV tribe, with which
the BIA had dealt for more than six years, in fact was not legally entitled to
govern the BV tribe, and that the BV tribe had not been properly organized
when its first constitution was adopted in 1994. There are two levels of
appeal within the BIA, for this decision, and the BIA's regulations provide
that the decision is not legally effective until all appeals are exhausted.
However, the validity of the BV tribe's leadership and organization also was
challenged in Federal Court in December 2001, and in January 2002, the Court
entered a preliminary injunction that forbids the current leadership from
entering into future loans or other commitments, or encumbering or
distributing any assets of the BV tribe, pending the BIA's resolution of the
dispute. The BV tribe has appealed both the administrative decision and the
Federal Court's injunction, and those appeals are pending. The BIA and the
Court have not ruled that the contractual obligations incurred by the BV
tribe's leadership prior to the BIA's ruling are invalid. However, if the
administrative ruling ultimately is upheld after all appeals, including court
appeals, Cascade may be unable to recover the funds advanced to the BV tribe
for project development costs.
F-31
<page>
Environmental Issues
In order to commence construction of the Projects, Cascade must
complete significant environmental testing and obtain the requisite regulatory
approvals. While environmental testing has been completed, regulatory approval
is pending the completion of a public comment period, in which public concerns
are adequately addressed. The public comment period for the PRCI site ended on
September 30, 2001, and the public comment period for the BV site ended on
November 11, 2001. In February 2002, the NIGC issued a finding of no
significant impact (FONSI) for the PRCI project. There can be no assurance
that regulatory approvals for the BV project will be obtained, which may
affect the ability of Cascade to secure the necessary construction financing
for the BV project.
F-32
<page>
<table>
<caption>
CASCADE ENTERTAINMENT GROUP, LLC
(A California Limited Liability Company)
CONDENSED BALANCE SHEETS
September 30, 2002 and December 31, 2001
(Unaudited)
September 30 December 31
ASSETS 2002 2001
------------ -----------
<s>
Current assets:
Cash and cash equivalents..................................................................... $ 443,491 $ 480,798
Restricted cash held in escrow ............................................................... 4,000,000 --
Accounts receivable, net (note 2)............................................................. -- --
Tribal loans receivable, net (note 2)......................................................... -- --
Member receivable (note 4).................................................................... 35,361 21,876
Prepaids and other current assets............................................................. 111,326 93,886
----------- -----------
Total current assets.................................................................... 4,590,178 596,560
----------- -----------
Property and equipment, net......................................................................... 183,641 213,660
Land held for sale.................................................................................. 707,539 1,745,490
Engagement fees (note 1)............................................................................ 200,000 175,000
Contract value (note 1)............................................................................. 600,000 600,000
----------- -----------
Total assets............................................................................ $ 6,281,358 $ 3,330,710
=========== ===========
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses......................................................... $ 2,956,694 $ 2,288,058
Deferred revenue--management fees............................................................. 2,115,000 --
Current portion of capital lease and loan obligations......................................... 17,036 10,988
----------- -----------
Total current liabilities............................................................... 5,088,730 2,299,046
Capital lease and loan obligations, less current portions........................................... 33,379 25,889
Member loans payable (note 3)....................................................................... 6,365,100 6,500,100
Loans payable (note 3).............................................................................. 26,700,000 14,550,000
Interest payable.................................................................................... 3,205,460 2,193,948
----------- -----------
Total liabilities....................................................................... 41,392,669 25,568,983
----------- -----------
Members' deficit:
Members shares, no par value, 103,000 authorized, 100,000 issued and outstanding.............. 2,475,000 2,475,000
Accumulated deficit........................................................................... (37,586,311) (24,713,273)
----------- -----------
Total members' deficit.................................................................. (35,111,311) (22,238,273)
----------- -----------
Commitments and contingencies (notes 1, 2 and 5).................................................... -- --
Total liabilities and members' deficit.................................................. $ 6,281,358 $ 3,330,710
=========== ===========
See accompanying notes to condensed financial statements.
</table>
F-33
<page>
<table>
<caption>
CASCADE ENTERTAINMENT GROUP, LLC
(A California Limited Liability Company)
CONDENSED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months ended September 30, 2002 and 2001
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
<s>
Revenues:
Development fees (note 1)........................$ -- $ -- $ -- $ --
Operating expenses:
Compensation and benefits (note 4)............... 357,338 368,554 1,106,658 983,058
Professional fees................................ 55,145 377,700 148,509 550,623
Gaming licensing costs........................... 12,010 90,786 12,172 106,088
Promotion and marketing.......................... -- 17,290 2,227 33,940
General and administrative....................... 118,562 100,822 352,553 354,439
Provision for uncollectible receivables
(note 2)...................................... 4,487,333 2,686,477 10,185,527 4,489,729
Depreciation and amortization.................... 19,484 14,282 58,135 36,585
---------- ---------- ------------ ------------
Total operating expenses................... 5,049,872 3,655,911 11,865,781 6,554,462
---------- ---------- ------------ ------------
Operating loss.............................(5,049,872) (3,655,911) (11,865,781) (6,554,462)
---------- ---------- ------------ ------------
Interest income (expense):
Interest income, other........................... 628 3,372 4,255 23,055
Interest expense................................. (390,715) (333,517) (1,011,512) (994,431)
---------- ---------- ------------ ------------
Total interest expense, net................ (390,087) (330,145) (1,007,257) (971,376)
---------- ---------- ------------ ------------
Net loss..................................$(5,439,959) $(3,986,056) $(12,873,038) $(7,525,838)
=========== ========== ============ ============
See accompanying notes to condensed financial statements.
</table>
F-34
<page>
<table>
<caption>
CASCADE ENTERTAINMENT GROUP, LLC
(A California Limited Liability Company)
CONDENSED STATEMENT OF MEMBERS' DEFICIT
For the Nine Months ended September 30, 2002
(Unaudited)
Contributed
Capital Accumulated Deficit Totals
------- ------------------- ------
<s> <c> <c> <c>
Balances at December 31, 2001...................................... $2,475,000 $(24,713,273) $(22,238,273)
Net loss........................................................... -- (12,873,038) (12,873,038)
Balances at September 30, 2002..................................... $2,475,000 $(37,586,311) $(35,111,311)
See accompanying notes to condensed financial statements.
</table>
F-35
<page>
<table>
<caption>
CASCADE ENTERTAINMENT GROUP, LLC
(A California Limited Liability Company)
CONDENSED STATEMENTS OF CASH FLOWS
For the Nine Months ended September 30, 2002 and 2001
(Unaudited)
2002 2001
---- ----
<s>
Cash flows from operating activities:
Net loss........................................................................... $(12,873,038) $(7,525,838)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for uncollectible receivables...................................... 10,185,527 4,489,729
Depreciation and amortization................................................ 58,135 36,585
Increase (decrease) in cash resulting from changes in:
Member receivable.................................................... (13,485) (14,116)
Prepaid expenses and other current assets............................ (17,440) 33,928
Engagement fees...................................................... (25,000) (3,600)
Accounts payable and accrued expenses................................ 668,636 495,422
Interest payable..................................................... 1,011,512 994,431
Net cash used in operating activities.......................... (1,005,153) (1,493,459)
Cash flows from investing activities:
Purchases of land held for sale.................................................... 1,037,951 (18,973)
Payments for funds held in escrow.................................................. (4,000,000) --
Purchases of property and equipment................................................ (3,056) (104,440)
Amounts extended on tribal loans receivable........................................ (8,070,527) (3,089,500)
Net cash used in investing activities.......................... (11,035,632) (3,212,913)
Cash flows from financing activities:
Proceeds from member capital contributions......................................... -- 20,000
Proceeds from or (payments) on member loans payable................................ (135,000) 60,000
Proceeds from loans payable 12,150,000 3,762,500
Payments under capital lease and loan obligations.................................. (11,522) (1,153)
Net cash provided by financing activities...................... 12,003,478 3,841,347
Increase (decrease) in cash and cash equivalents......................................... (37,307) (865,025)
Cash and cash equivalents at beginning of period......................................... 480,798 865,025
Cash and cash equivalents at end of period............................................... $ 443,491 $ --
Supplemental disclosure of non-cash investing and financing activities:
On January 20, 2002, Cascade Entertainment entered into a
capital lease arrangement for $25,060 for the purchase of a vehicle.
On September 24, 2002 Cascade Entertainment transferred
$1,046,942 in land held for sale to the PRCI loan receivable all of
which was reserved and expensed under a provision for uncollectible
receivables.
The Company recorded deferred revenue for management fees in
the amount of $2,115,000 for the nine months ended September 30, 2002
and $1,400,229 for the nine months ended on September 30, 2001, which
were not paid in cash.
See accompanying notes to condensed financial statements.
</table>
F-36
<page>
CASCADE ENTERTAINMENT GROUP, LLC
(A California Limited Liability Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2002 and 2001
(Unaudited)
(1) Summary of Significant Accounting Policies and Practices
(a) Basis of Presentation
The accompanying unaudited financial statements of Cascade
Entertainment Group, LLC ("Cascade") have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information. In the opinion of management, all adjustments
and normal recurring accruals considered necessary for a fair presentation
have been included. Operating results for the nine months ended September 30,
2002 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2002. The interim financial statements and notes
thereto should be read in conjunction with Cascade's audited financial
statements and notes thereto for the year ended December 31, 2001.
(b) Liquidity
To date, Cascade Entertainment's operations and pre-development
activities relating to the Projects have been funded solely from loans
obtained from Cascade Entertainment members, affiliates and third parties. On
October 8, 2002, Cascade Entertainment assisted the PRCI Authority in closing
on a $153 million private placement offering for the PRCI Project. As a result
of the closing, Cascade Entertainment will earn approximately $3.3 million in
development management fee revenue during the construction period of the PRCI
Project, currently expected to be completed in June, 2003.
The audit report on the December 31, 2001 financial statements for
Cascade Entertainment includes an explanatory paragraph about its ability to
continue as a going concern. Subsequent to September 30, 2002, due to the
closing of the PRCI Authority offering, Cascade Entertainment has secured the
necessary revenue sources to fund continuing development activities of the
PRCI Project, however, Cascade Entertainment will seek to raise an additional
$130 million in a private placement offering for the BV Project once the
pending tribal leadership issues have been resolved.
If Cascade Entertainment is unable to move forward on the BV Project,
the development costs related to the project would be unrecoverable and may
adversely impact Cascade Entertainment's ability to continue as a going
concern. In the event that Cascade Entertainment is unable to move forward
with the BV Project, management's plans include researching other viable
Indian gaming projects within California and the western region of the United
States to utilize their expertise at project development and gaming operations
management.
(c) Revenue Recognition
Cascade expects to generate revenues primarily from development fees
during the pre-construction, construction and pre-opening phases of the
Projects and from management fees upon the commencement of operations of the
Projects.
Development Fees
Under the terms of the amended and restated development agreements
("Development Agreements"), Cascade is responsible for developing the Projects
which includes: regulatory approval; funding; land acquisition; master
planning; design and engineering; construction; interior and exterior decor;
furniture, fixtures and equipment; staffing and training; and all other
pre-opening activities. For fulfilling its obligations in developing the
Projects, Cascade shall receive a development fee equal to four percent of the
total cost of development (as defined in the development budget and agreed to
by the Authorities), not to exceed $4,500,000 for each project. Development
fees are payable in fixed monthly amounts of $20,000 for BV and $25,000 for
PRCI until the commencement of construction, whereupon the fee will be paid in
accordance with a construction draw schedule agreed to by the Authorities.
Prior to the commencement of construction, the development fees are to be
advanced to the Tribes by Cascade and added to the balance of tribal loans
receivable. Development fee revenues have not been recognized as income during
the pre-funding phase, as the collectibility of such amounts is contingent on
the ability of Cascade to secure construction financing. Under the terms of
the Development Agreements, the development fees Cascade is entitled to
amounted to $405,000 for the nine months ended September 30, 2002 and 2001 and
the total due as of
F-37
<page>
September 30, 2002 was $2,115,000. As of September 30, 2002, these fees are
recorded as deferred revenues until such time as the construction financing
has been secured. See Note 6 - Subsequent Events.
(d) Restricted Cash
Restricted cash consists of funds restricted in an escrow account for
the benefit of Walton Construction, construction manager to the PRCI Project,
and Kiewit Pacific, site work sub-contractor for the PRCI Project. These funds
were deposited to cause Walton & Kiewit to start construction of the Project
prior to the closing of the PRCI offering. Once the PRCI offering closed, the
funds were not necessary and Cascade used the funds to repay certain of its
member loans payable (see Note 6 - Subsequent Events). The terms of the escrow
agreement gave Cascade access to these funds, with certain limitations and
conditions, until the closing date of the PRCI offering which occurred on
October 8, 2002.
(2) Tribal Loans Receivable
Under the amended credit and reimbursement agreements ("Funding
Agreements"), Cascade is required to provide the funding for the development
of the Projects, which shall be used to (i) obtain requisite approvals for the
Tribes to conduct gaming, (ii) develop the necessary tribal infrastructure and
organization to regulate and govern the gaming operations, (iii) acquire land
necessary for the development of the Projects, (iv) acquire gaming licenses
and related costs and expenses, and (v) design and construction of the
Projects. The Funding Agreements also requires Cascade to provide monthly
advances to the Tribes for internal tribal administration costs. The tribal
loans are collateralized generally by (a) the Tribes' right to receive
disbursements of any project loan, (b) revenues of the Projects and (c)
inventory, equipment and accounts receivable related to the Projects. The
Funding Agreements provide for a funding commitment of $21,300,100 by Cascade
to the Tribes, consisting of $11,470,833 for PRCI and $9,829,267 for BV.
Additional funding commitments were made to the PRCI tribe during the third
quarter that totaled $6,529,167.
All funds advanced to the BV tribe bear annual interest at rates
equal to the prime rate plus one percentage point, not to exceed 10% (5.75% at
September 30, 2002). Funds advanced to the PRCI tribe bear interest at various
rates. The initial $4,000,000 in funds advanced to PRCI bears annual interest
at rates equal to the prime rate plus two percent, not to exceed 10% (6.75% at
September 30, 2002). The subsequent funds advanced to the PRCI tribe bears
annual interest at rates equal to the prime rate plus one percentage point,
not to exceed 10% (5.75% at September 30, 2002).
Funds are not considered advanced to the Tribes until they are
actually paid to the various project-related vendors. As such, until paid,
project-related liabilities are recorded in tribal loan receivable - unbilled
within tribal loans receivable or in a separate account receivable and in
Cascade's accounts payable.
All principal and accrued interest is payable on the maturity date,
which is defined as the first to occur of (i) the earliest date on which funds
first become available to the Tribes under any project loan, (ii) the date on
which the Tribes, through any means, open a revenue-generating gaming
operation, and (iii) May 15, 2008.
Tribal loans receivable (including unbilled amounts) at September 30,
2002 is comprised of the following:
PRCI loan receivable - billed $ 13,292,461
PRCI account receivable - unbilled 93,891
PRCI loan receivable - unbilled 2,353,498
BV loan receivable - billed 11,070,520
BV loan receivable - unbilled 298,190
-------------------
27,108,560
Less: allowance for uncollectible receivables (27,108,560)
-------------------
Tribal loans receivable, net $ --
===================
The enforceability of contracts with sovereign Indian tribes,
especially those involving the development and operation of gaming facilities,
requires the approval of the BIA, the NIGC, or both. However, the
collectibility of tribal loans receivable is largely contingent upon the
successful financing of the Projects. As a result, management has reserved
100% of the tribal loans receivable. See Note 6 - Subsequent Events.
F-38
<page>
Similarly, no interest income relating to tribal loans receivable has
been recorded as the collectibility of such amounts is contingent on the
ability of Cascade to secure construction financing. Under the terms of the
Funding Agreements, total contractual interest due on the outstanding tribal
loans receivable as of September 30, 2002 was $2,759,193. See Note 6 -
Subsequent Events.
(3) Loans Payable
Under the Operating Agreement, Samoset is required to provide cash
necessary to meet costs and expenses required during the pre-construction
phase in the form of capital and loan contributions up to a maximum of
$7,500,000, all of which had been funded as of December 31, 2001. Of this
amount, 75% or $5,625,000 was allocated to loans and the remaining 25% or
$1,875,000 was allocated to contributed capital. In 2001, additional loans
totaling $875,100 were made from Samoset to Cascade under similar terms of the
loan made under the Operating Agreement, except that none is allocated to
contributed capital. Subsequent to December 31, 2001, Cascade has returned
$135,000 of the additional loan back to Samoset. No interest accrued on these
funds during the time that Cascade held them. The member loans bear annual
interest at the prime rate plus one percentage point, not to exceed 10%.
In addition, Cascade has entered into a credit and reimbursement
agreement with Samoset and other various lenders, some of whom are related
through their interests in Samoset. The credit and reimbursement agreement
provides for loan advances to be made to Cascade of up to $26,700,000, all of
which has been advanced as of September 30, 2002. The use of such proceeds is
to be used solely to fund the tribal loans receivable and for Company
operations related to tribal loans. The loans bear annual interest at the
prime rate plus one percentage point, not to exceed 10%. However, the credit
and reimbursement agreement provides for an interest-free period from the date
the advance is initially provided from the lenders through the date that such
funds are used to fund the tribal loan receivable balance. See Note 6 -
Subsequent Events.
<table>
<caption>
Loans payable at September 30, 2002 consisted of the following:
<s>
Loans payable to Samoset Partners, LLC, with annual interest at
the prime rate plus one percentage point, not to exceed 10%
(5.75% at September 30, 2002), principal and accrued interest
payable due upon collection of all amounts due under the
tribal loans receivable, secured by Cascade security interest
in tribal loan receivables $ 6,365,100
Loans payable to various individuals, with annual interest at the
prime rate plus one percentage point, not to exceed 10%
(5.75% at September 30, 2002), principal and accrued interest
payable due upon collection of all amounts due under the
tribal loans receivable, secured by Cascade security interest
in tribal loan receivables 26,700,000
--------------
Total loans payable $ 33,065,100
==============
</table>
(4) Related Party Transactions
Member receivable consists of amounts due from Samoset for the
reimbursement of certain operating expenses of Samoset that were incurred by
the managing partner and paid for by Cascade. These expenses are primarily
health and dental insurance premiums for the managing partner. Member
receivable amounted to $35,361 as of September 30, 2002.
Member guaranteed payments represent compensation paid to members
under individual employment agreements. Compensation, as described in the
employment agreements, includes guaranteed payments, incentive compensation
payments, distributions for insurance benefit coverage and member housing
payments. These payments are expensed as a compensation and benefits cost and
amounted to $392,840 and $397,783 for the nine months ended September 30, 2002
and 2001, respectively.
F-39
<page>
(5) Contingencies
Legal Matters
On December 27, 2001, the Superintendent of the Central California
Agency of the BIA determined that the leadership of the BV tribe, with which
the BIA had dealt for more than six years, in fact was not legally entitled to
govern the BV tribe, and that the BV tribe had not been properly organized
when its first constitution was adopted in 1994. There are two levels of
appeal within the BIA, for this decision, and the BIA's regulations provide
that the decision is not legally effective until all appeals are exhausted.
However, the validity of the BV tribe's leadership and organization also was
challenged in Federal Court in December 2001, and in January 2002, the Court
entered a preliminary injunction that forbids the current leadership from
entering into future loans or other commitments, or encumbering or
distributing any assets of the BV tribe, pending the BIA's resolution of the
dispute. The BV tribe has appealed both the administrative decision and the
Federal Court's injunction, and those appeals are pending. The BIA and the
Court have not ruled that the contractual obligations incurred by the BV
tribe's leadership prior to the BIA's ruling are invalid. However, if the
administrative ruling ultimately is upheld after all appeals, including court
appeals, Cascade may be unable to recover the funds advanced to the BV tribe
for project development costs. As of September 30, 2002, both appeals are
still pending.
Environmental Issues
In order to commence construction of the BV project, Cascade was
required to complete significant environmental testing and obtain certain
requisite regulatory approvals. While much of the environmental testing has
been completed, regulatory approval for the BV project is awaiting the
issuance of the finding of no significant impact (FONSI) for the project. The
public comment period for the BV project ended on November 11, 2001. There can
be no assurance that the final regulatory approvals for the BV project will be
obtained, which may affect the ability of Cascade to secure the necessary
construction financing.
(6) Subsequent Events
On October 8, 2002, the PRCI Authority completed a private placement
offering of $153 million of 14 1/2 % senior notes due October 8, 2009.
Simultaneously with this offering, an additional $26.8 million of subordinated
notes were sold by the PRCI Authority with varying rates but similar interest
payable dates. A portion of the proceeds from these subordinated notes were
used by PRCI to repay all outstanding principal balances of the PRCI loan
receivable and all interest payable in connection with these balances.
Consequently, in October 2002, Cascade has recognized approximately $1,408,000
in interest income. Additionally, Cascade received $2,173,700 from PRCI for
the land that was transferred to the Tribe, resulting in a gain on sale of
land of $419,000. Additionally, Cascade has recovered $15,739,850 of
previously reserved amounts related to the principal on the PRCI project loans
and has recognized $1,175,000 in PRCI development fees revenue that was
previously deferred. Concurrently with the repayment of the loan receivable,
certain amounts of the loans payable were repaid by Cascade to its members and
others. Cascade's repayment of principal on loans payable totaled $18,000,000
and interest payments on the loans totaled approximately $1,800,000.
F-40
<page>
===============================================================================
$153,000,000
CHUKCHANSI ECONOMIC DEVELOPMENT AUTHORITY
14 1/2% Senior Notes due 2009
_____________________________________
PROSPECTUS
Dated , 2003
______________________________________
Until , 2003, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
===============================================================================
<page>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Under Section 13 of the Ordinance of the Picayune Rancheria
Establishing and Governing the Chukchansi Economic Development Authority,
members of the Board of Directors may be indemnified by the Authority if such
member was or is a party to an action by reason of the fact of their
membership on the Authority's Board of Directors. To the extent that the
member has been successful on the merits or otherwise in defense of any
action, suit or proceeding brought by reason of the fact that they were a
member of the Board of Directors, the Authority shall indemnify the member
against expenses, including attorneys' fees, actually and reasonably incurred
by the member in connection with the defense to the extent that the member has
been successful on the merits or otherwise in defense of any action, suit or
proceeding brought by reason of the fact that they were a member of the Board
of Directors.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit No. Exhibit Description
1.1* Purchase Agreement, dated as of September 24, 2002, among the
Chukchansi Economic Development Authority, the Picayune
Rancheria of Chukchansi Indians, Dresdner Kleinwort
Wasserstein -- Grantchester, Inc. and Banc of America
Securities LLC, as the Initial Purchasers.
3.1* Constitution of the Picayune Rancheria of Chukchansi Indians.
3.2* Ordinance of the Picayune Rancheria Establishing and
Governing the Chukchansi Economic Development Authority,
enacted June 15, 2001, as amended on July 13, 2002 and July
30, 2002.
3.3* Tribal Gaming Ordinance of the Picayune Rancheria of
Chukchansi Indians.
4.1* Indenture dated October 8, 2002, among the Chukchansi
Economic Development Authority, the Picayune Rancheria of
Chukchansi Indians and U.S. Bank, N.A., as trustee, relating
to the 14 1/2% Senior Notes due 2009.
4.2* Form of Global 141/2% Senior Note due 2009 (included in
Exhibit 4.1)
4.3* Registration Rights Agreement, dated October 8, 2002, among
the Chukchansi Economic Development Authority, the Picayune
Rancheria of Chukchansi Indians, Dresdner Kleinwort
Wasserstein-- Grantchester, Inc. and Banc of America
Securities LLC.
4.4* Intercreditor Agreement, dated October 8, 2002, among U.S.
Bank, N.A., as senior notes trustee, U.S. Bank, N.A., as
senior subordinated notes trustee, U.S. Bank, N.A., as
subordinated notes trustee, Credit Provider Group, LLC,
Cascade Entertainment Group, LLC, the Chukchansi Economic
Development Authority and the Picayune Rancheria of
Chukchansi Indians.
4.5* Indenture dated October 8, 2002, among the Chukchansi
Economic Development Authority, the Picayune Rancheria of
Chukchansi Indians and U.S. Bank, N.A., as trustee, relating
to the 16.75% Senior Subordinated Pay-In-Kind Notes due 2009.
4.6* Form of 16.75% Senior Subordinated Pay-In-Kind Note due 2009
(included in Exhibit 4.5).
<page>
4.7* Indenture dated October 8, 2002, among the Chukchansi
Economic Development Authority, the Picayune Rancheria of
Chukchansi Indians and U.S. Bank, N.A., as trustee, relating
to the 17.0% Subordinated Pay-In-Kind Notes due 2009.
4.8* Form of 16.75% Senior Subordinated Pay-In-Kind Note due 2009
(included in Exhibit 4.7).
5.1 Opinion of Monteau & Peebles, L.L.P. with respect to the new
notes.
5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with
respect to the new notes.
10.1* The Tribal-State Compact between the Picayune Rancheria of
Chukchansi Indians and the State of California.
10.2* Second Amended and Restated Management Agreement dated as of
July 16, 2002.
10.3* First Amended and Restated Chukchansi Development Agreement
dated as of June 15, 2001, as amended.
10.4* Cash Accumulation Account Contribution Agreement, dated as of
October 8, 2002, among the Chukchansi Economic Development
Authority, the Picayune Rancheria of Chukchansi Indians,
Cascade Entertainment Group, LLC and U.S. Bank, N.A.
10.5* Cash Collateral and Disbursement Agreement, dated as of
October 8, 2002, among the Chukchansi Economic Development
Authority, the Picayune Rancheria of Chukchansi Indians,
Professional Associates Construction Services, Inc. and U.S.
Bank, N.A.
10.6* Pledge and Security Agreement, dated as of October 8, 2002,
among the Chukchansi Economic Development Authority, the
Picayune Rancheria of Chukchansi Indians and U.S. Bank, N.A.
10.7* Pledge and Security Agreement (Tribal UCC), dated as of
October 8, 2002, among the Chukchansi Economic Development
Authority, the Picayune Rancheria of Chukchansi Indians and
U.S. Bank, N.A.
10.8* Letter of Credit Drawdown Agreement, dated as of October 8,
2002, among Credit Provider Group, LLC, the Chukchansi
Economic Development Authority, the Picayune Rancheria of
Chukchansi Indians and U.S. Bank, N.A.
10.9* Agreement Between the Owner and Construction Manager Where
the Construction Manager is also the Constructor, dated as of
July 26, 2002, between the Chukchansi Economic Development
Authority and Walton Construction Company, Inc.
10.10* Amendment No. 1 to Agreement Between Owner and Construction
Manager, dated as of July 26, 2002
10.11* Letter Agreement with Walton Construction Company, Inc.,
dated as of September 23, 2002.
10.12* Indemnification Agreement, dated as of October 8, 2002, among
the Chukchansi Economic Development Authority, the Picayune
Rancheria of Chukchansi Indians and Cascade Entertainment
Group, LLC.
12.1* Computation of Ratio of Earnings to Fixed Charges for the
Chukchansi Economic Development Authority.
12.2* Computation of Ratio of Earnings to Fixed Charges for Cascade
Entertainment Group, LLC.
II-2
<page>
23.1 Consent of Monteau & Peebles, L.L.P (included in Exhibit 5.1).
23.2 Consent of KMPG LLP.
23.3 Consent of Burnett + Company.
23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included
in Exhibit 5.2).
24.1* Power of Attorney.
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* Form of Letter to Clients.
99.4* Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and other Nominees.
* Previously filed.
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information in the
registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of a prospectus filed with
the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price
represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed
in the registration statement or any material
change to such information in the registration
statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by these
paragraphs is contained in periodic reports filed by the registrant pursuant
to Section 13 or Section 15(d) of the Securities and Exchange Act of 1934 that
are incorporated by reference in the registration statement.
II-3
<page>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Item 8.A. of Form 20-F at the start of any
delayed offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided that the registrant includes in the prospectus, by means
of a post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 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 to 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 of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant 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, the 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 Act
and will be governed by the final adjudication of such issue.
The undersigned registrants hereby undertake (i) to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 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; and (ii) to arrange or provide for a
facility in the U.S. for the purpose of responding to such requests. The
undertaking in subparagraph (i) above 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 to supply by means of a
post-effective amendment all information concerning a transaction and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<page>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Coarsegold, State of
California, on February 14, 2003.
CHUKCHANSI ECONOMIC DEVELOPMENT AUTHORITY
By: /s/ Dixie Jackson
-------------------------------------
Name: Dixie Jackson
Title: Chairperson
<page>
Exhibit Index
Exhibit No. Exhibit
1.1* Purchase Agreement, dated as of September 24, 2002, among the
Chukchansi Economic Development Authority, the Picayune
Rancheria of Chukchansi Indians, Dresdner Kleinwort
Wasserstein -- Grantchester, Inc. and Banc of America
Securities LLC, as the Initial Purchasers.
3.1* Constitution of the Picayune Rancheria of Chukchansi Indians.
3.2* Ordinance of the Picayune Rancheria Establishing and
Governing the Chukchansi Economic Development Authority,
enacted June 15, 2001, as amended on July 13, 2002 and July
30, 2002.
3.3* Tribal Gaming Ordinance of the Picayune Rancheria of
Chukchansi Indians.
4.1* Indenture dated October 8, 2002, among the Chukchansi
Economic Development Authority, the Picayune Rancheria of
Chukchansi Indians and U.S. Bank, N.A., as trustee, relating
to the 14 1/2% Senior Notes due 2009.
4.2* Form of Global 141/2% Senior Note due 2009 (included in
Exhibit 4.1)
4.3* Registration Rights Agreement, dated October 8, 2002, among
the Chukchansi Economic Development Authority, the Picayune
Rancheria of Chukchansi Indians, Dresdner Kleinwort
Wasserstein-- Grantchester, Inc. and Banc of America
Securities LLC.
4.4* Intercreditor Agreement, dated October 8, 2002, among U.S.
Bank, N.A., as senior notes trustee, U.S. Bank, N.A., as
senior subordinated notes trustee, U.S. Bank, N.A., as
subordinated notes trustee, Credit Provider Group, LLC,
Cascade Entertainment Group, LLC, the Chukchansi Economic
Development Authority and the Picayune Rancheria of
Chukchansi Indians.
4.5* Indenture dated October 8, 2002, among the Chukchansi
Economic Development Authority, the Picayune Rancheria of
Chukchansi Indians and U.S. Bank, N.A., as trustee, relating
to the 16.75% Senior Subordinated Pay-In-Kind Notes due 2009.
4.6* Form of 16.75% Senior Subordinated Pay-In-Kind Note due 2009
(included in Exhibit 4.5).
4.7* Indenture dated October 8, 2002, among the Chukchansi
Economic Development Authority, the Picayune Rancheria of
Chukchansi Indians and U.S. Bank, N.A., as trustee, relating
to the 17.0% Subordinated Pay-In-Kind Notes due 2009.
4.8* Form of 16.75% Senior Subordinated Pay-In-Kind Note due 2009
(included in Exhibit 4.7).
5.1 Opinion of Monteau & Peebles, L.L.P. with respect to the new
notes.
5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with
respect to the new notes.
10.1* The Tribal-State Compact between the Picayune Rancheria of
Chukchansi Indians and the State of California.
10.2* Second Amended and Restated Management Agreement dated as of
July 16, 2002.
10.3* First Amended and Restated Chukchansi Development Agreement
dated as of June 15, 2001, as amended.
10.4* Cash Accumulation Account Contribution Agreement, dated as of
October 8, 2002, among the
<page>
Chukchansi Economic Development Authority, the Picayune
Rancheria of Chukchansi Indians, Cascade Entertainment Group,
LLC and U.S. Bank, N.A.
10.5* Cash Collateral and Disbursement Agreement, dated as of
October 8, 2002, among the Chukchansi Economic Development
Authority, the Picayune Rancheria of Chukchansi Indians,
Professional Associates Construction Services, Inc. and U.S.
Bank, N.A.
10.6* Pledge and Security Agreement, dated as of October 8, 2002,
among the Chukchansi Economic Development Authority, the
Picayune Rancheria of Chukchansi Indians and U.S. Bank, N.A.
10.7* Pledge and Security Agreement (Tribal UCC), dated as of
October 8, 2002, among the Chukchansi Economic Development
Authority, the Picayune Rancheria of Chukchansi Indians and
U.S. Bank, N.A.
10.8* Letter of Credit Drawdown Agreement, dated as of October 8,
2002, among Credit Provider Group, LLC, the Chukchansi
Economic Development Authority, the Picayune Rancheria of
Chukchansi Indians and U.S. Bank, N.A.
10.9* Agreement Between the Owner and Construction Manager Where
the Construction Manager is also the Constructor, dated as of
July 26, 2002, between the Chukchansi Economic Development
Authority and Walton Construction Company, Inc.
10.10* Amendment No. 1 to Agreement Between Owner and Construction
Manager, dated as of July 26, 2002
10.11* Letter Agreement with Walton Construction Company, Inc.,
dated as of September 23, 2002.
10.12* Indemnification Agreement, dated as of October 8, 2002, among
the Chukchansi Economic Development Authority, the Picayune
Rancheria of Chukchansi Indians and Cascade Entertainment
Group, LLC.
12.1* Computation of Ratio of Earnings to Fixed Charges for the
Chukchansi Economic Development Authority.
12.2* Computation of Ratio of Earnings to Fixed Charges for Cascade
Entertainment Group, LLC.
23.1 Consent of Monteau & Peebles, L.L.P. (Included in Exhibit 5.1)
23.2 Consent of KMPG LLP.
23.3 Consent of Burnett + Company.
23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included
in Exhibit 5.2)
24.1* Power of Attorney.
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* Form of Letter to Clients.
99.4* Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and other
<page>
Nominees.
* Previously filed.