Exhibit 10.27

 

BEFORE THE COLORADO LIMITED GAMING CONTROL COMMISSION

 

CASE NO. SA 04-03

 

STIPULATION AND AGREEMENT

 

IN THE MATTER OF:

 

Southwest Casino and Hotel Corp.
DBA Uncle Sam’s Casino

 

Retail Licensee No. L14-35871-0001

 

Respondent.

 

The Colorado Division of Gaming (hereafter, the Division) and the Respondent
Southwest Casino and Hotel Corp., DBA Uncle Sam’s Casino, Licensee No.
LI4-35871-0001 (hereafter, Respondent) hereby stipulate and agree as follows:

 

1.                                       Respondent has been the subject of a
Division investigation, which investigation resulted in the issuance by the
Division of an Assurance of Voluntary Compliance on or about November 14, 2003
(hereafter, AVC). The AVC alleged violations of Section 12-47.1-529, C.R.S.,
violations of Colorado Limited Gaming Regulation 47.1-1610(1)(13), and
violations of Internal Control Minimum Procedures (ICMP), Section 11 -
Accounting. The Respondent failed to comply with certain requirements in the Ave
which are incorporated by this reference, as though set forth fully herein.

 

2.                                       The Respondent has been the subject of
an investigation conducted by the Division Agents of the Division alleged
violations of Regulation 47.1-401, Regulation 47.1-402, Regulation
47.1-1602(2)(c)(d),(3), 47.1-1610(2),(3), Regulation 47.1-1704 and ICMP
Section 11-Accounting.

 

IT IS ALLEGED THAT

 

A.                                   The AVC required the Respondent to have
procedures to ensure an required drop-to-drop (DTD) month-to-date (MTD), and
year-to-date (YTD) statistical reports are given a timely and adequate secondary
level review. During the Division’s follow-up to the AVC, the Division noted the
following:

 

I.                                         During the Division’s follow-up to
the AVC on March 2 through March 4, 2004, the Division noted the Respondent
failed to perform a timely secondary level review of statistical reports in
accordance with the timeframe outlined in the AVC.

 

a.                                       The MTD and YTD Drop Comparison
reports, MTD and YTD Jackpot Comparison reports, MTD and YTD Theoretical Hold
reports and the Monthly

 

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Slot Revenue Summary for December 2003 received a secondary level review on
January 12, 2004, two days after the time specified in the AVC.

 

b.                                      The MTD and YTD Drop Comparison reports,
MTD and YTD Jackpot Comparison reports, and MTD and YTD Theoretical Hold reports
for January 2004 received a secondary level review on February 19, 2004, nine
days after the time Specified in the AVC.

 

II.                                     During the Division’s follow-up to the
AVC on March 2 through March 4, 2004, the Division noted the Respondent failed
to perform an adequate secondary level review of statistical reports.

 

a.                                       The drop for four machines was not
reported on the January 9, 2004 DTD Drop Comparison report. A supplementary Drop
Comparison report was prepared for these machines, however, there was no
evidence of a secondary level review for this report.

 

b.                                      Variances on the MTD and YTD Theoretical
Hold reports for January 2004 were not identified or explained. The Respondent’s
Controller stated he was unaware of the casino’s established threshold and that
he only traced coin-in from the Theoretical Hold report to the Monthly Slot
Revenue Summary, which is not an adequate review.

 

c.                                       Variances for twelve machines on the
Jackpot Comparison report for January 2004 were not properly investigated.

 

d.                                      Variances for three machines on the Drop
Comparison report for January 2004 were not properly investigated.

 

III.                                 The Division met with the Respondent’s
accounting staff and General Manager on March 4, 2004 to discuss the issues of
noncompliance identified.

 

IV.                                 During the Division’s follow-up to the AVC
on March 11 through March 15, 2004, the Division noted the Respondent fiu1ed to
perform a timely secondary level review of statistical reports in accordance
with the timeframe outlined in the AVC.

 

a.                                       The final run of the MTD and YTD Drop
Comparison reports and the MTD. Jackpot Comparison reports for February 2004
were prepared on March 11, 2004, and the YTD Jackpot Comparison report was
prepared on March 12, 2004. At the time of the Division’s review, these reports
bad not received a secondary level review in violation of the AVC.

 

b.                                      The final run of the MTD Theoretical
Hold report for February 2004 was prepared on March 11, 2004, and the Y1D
Theoretical Hold report for February 2004 was prepared on March 12, 2004. At the
time of the Division’s review, these reports had not received a secondary level
review in violation of the AVC.

 

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V.                                     During the Division’s follow-up to the
AVC on March 11 through March 15, 2004, the Division noted the Respondent failed
to perform an adequate secondary level review of statistical reports.

 

a.                                       The YTD Drop Comparison report for
February 2004 had six variances that were not investigated or explained. An
adequate secondary level review of this report would have identified these
issues.

 

b.                                      The YTD Jackpot Comparison report for
February 2004 had fifteen variances that were not investigated or explained. An
adequate secondary level review would have identified these issues.

 

c.                                       For seven out of the eight drop periods
in February 2004, jackpot meters were incorrectly captured for the Penny Train
machines. The Respondent’s accounting staff noted that the incorrect meters were
taken, however, no effort was made to obtain the correct meters.

 

d.                                      The variance explanations on the MTD
Theoretical Hold report for February, 2004 were inadequate. There was no
evidence of a secondary level review of this report.

 

e.                                       The YTD Theoretical Hold report for
February 2004 had seven variances identified, however) there was no
investigation or explanation provided. A note at the top of the report said “no
investigations done yet due to changes in January reports will change the
differences.”

 

f.                                         The January and February 2004 MTD
Drop and Jackpot Comparison reports did not mathematically tie to the
February 2004 YTD Drop and Jackpot Comparison reports. An adequate secondary
level review would have identified these errors.

 

g.                                      The secondary level review of the MTD
and YTD Theoretical Hold reports for February 2004 did not identify that the
reports were undated (i.e. Feb 2004).

 

VI.                                 During the Division’s follow-up to the AVC
on March 2 through March 4, 2004, the Division noted the Respondent failed to
ensure adjustments made to the January 2004 DTD Drop Comparison reports were
adequately supported and documented.  Additionally, the Respondent failed to
ensure that these adjustments received a timely secondary level review and that
the adjustments were reviewed for adequacy.

 

VII.                             During the Division’s follow-up to the AVC on
March 11 through March 15, 2004, the Division noted the Respondent failed to
ensure adjustments made to statistical reports were adequately supported and
documented. Additionally, the Respondent filed to ensure that these adjustments
received a timely secondary level review and that the adjustments were reviewed
for adequacy.

 

a.                                       The DTD Drop Comparison reports for
February 2004 contained several adjustments to the meter values. A final run of
the reports was not consistently prepared after the adjustments were made, nor
did support exist for these changes.

 

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b.                                      The DTD Drop Comparison and Jackpot
Comparison reports for February 2004 were updated on March 7, 2004 following the
meeting with the Division on March 4) 2004. These reports received a secondary
level review on March 9, 2004. The Division noted that there were numerous
unsupported changes between the first and updated Jackpot Comparison reports and
created numerous variances.

 

VIII.                         The AVC required the Respondent ensure that all
accounting gaming personnel received adequate training on a continual basis to
ensure the accounting staff understands the gaming requirements and to ensure
continued compliance with gaming requirements.

 

a.                                       Variances on the MTD and YTD
Theoretical Hold reports for January 2004 were not identified or explained. An
interview with the Respondent’s Controller revealed he was unaware of the
casino’s established threshold and he was unaware of what constitutes a
secondary level review of the Theoretical Hold report.

 

b.                                      The Respondent did not provide adequate
on-going training to accounting staff as staff changes occurred to ensure the
staff was a~ of requirements and understood how to perform their duties.

 

c.                                       From discussions with the Respondent’s
Controller, he did not have an understanding of what a secondary level review
entails.

 

IX.                                The AVC required the Respondent’s Internal
Compliance Officer (ICO) complete the accounting ICO checklist on a monthly
basis, prepare a monthly report detailing the noncompliance items noted for that
month, and report immediately to the, Division in writing all noncompliance
issues regarding the items noted in the AVC or other significant noncompliance
issues.

 

a.                                       The ICO did not complete the accounting
ICO checklist for January and February 2004.

 

b.                                      The January and February 2004 reports
prepared by the ICO did not include any of the noncompliance issues identified
by the Division and noted herein.

 

c.                                       The ICO did not immediately notify the
Division upon discovering the accounting staff filed to timely perform the
secondary level review of January 2004 statistical reports.

 

B.                                     Respondent’s engaging in the
aforementioned acts is in derogation of the provisions of Colorado Revised
Statutes §12-47.1-529, Colorado Limited Gaming Regulations 47.1-401, 47.1-402,
47.1-1602(2)(c)(d),(3), 47.1-1610(1),(2),(3),(13), and 47.1-1704, and violation
of Internal Control Minimum Procedures (ICMP), Section 11 - Accounting.

 

3.                                       Respondent acknowledges receipt of
sufficient notice, advisement of lights, and process of the proceedings and
wishes to resolve all issues which were the subject of the investigation by
entering into this Stipulation and Agreement.

 

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4.                                       The Division and Respondent have
discussed the merits of the investigation and allegations, and they have come to
a mutual agreement and understanding to jointly propose to the Commission a
resolution of the allegations in lieu of proceeding to the issuance by the
Commission of an Order to Show Cause and conducting a hearing to determine the
merits of such allegations.

 

5.                                       Respondent admits the violation of the
AVC and as otherwise alleged above. Respondent understands the requirements of
the statutes, the rules, and the Internal Control Minimum Procedures of the
Colorado Limited Gaming Control Commission, and further assures the Division and
the Commission that Respondent will comply with both the letter and the spirit
of the law in this regard.

 

6.                                       Respondent agrees, in lieu of the
issuance of an Order to Show Cause, and subsequent proceedings, to submit to the
following sanctions:

 

A.                                   Respondent agrees to pay a fine of $50,000.
Respondent shall ensure that the Division receives the payment within ten days
of the mailing of the Commission’s Order accepting this Stipulation Payment
should be delivered to the Division of Gaming, 1881 Pierce Street #112,
Lakewood, Colorado, 80214-1496, Attention: Marilyn Davis.

 

B.                                     Respondent assures the Division it will
affirmatively and actively, at an times hereafter, exercise best efforts to
comply with the Internal Control Minimum Procedures, Colorado Limited Gaming
Regulations, and the Colorado Limited Gaming Act.

 

I.                                         Respondent agrees to develop and
implement procedures to ensure all required statistical reports are accurately
prepared and receive a timely and adequate secondary level review. The
Respondent agrees to develop and implement procedures to ensure all variances
exceeding the allowable thresholds as defined by the ICMP on all required
statistical reports are adequately investigated in a timely manner. The
Respondent agrees to develop and implement procedures to ensure that all
statistical report variance explanations and adjustments to statistical reports
receive a timely and adequate secondary level review.

 

The following standards are to be used to ensure timeliness:

 

a)                                      An DTD statistical reports must be
prepared and variances identified within 2 days of the drop date.

 

b)                                     Variance investigation results win be
returned to the accounting department within 4 days of the drop date.

 

c)                                      The review of the variance
investigations and any resulting adjustments made to the statistical reports
will be completed within 6 days of the drop date.

 

d)                                     The secondary level review of the DTD
reports and any adjustments made to the statistica1 reports will be completed
within 7 days of the drop date.

 

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e)                                      MTD and Y1D statistical reports will be
prepared, reviewed, investigations performed, adjustments made, and secondary
level review of the statistical reports and an related documents will be
performed by the 11th of the following month.

 

II.                                     Respondent agrees to develop and
implement procedures to ensure all accounting gaming personnel receive adequate
training on a continual basis to ensure compliance with gaming requirements.

 

III.                                 Respondent will not begin Phase n testing
of an automated slot monitoring system until it has proved to the Division it is
able to accurately prepare manual statistical information.

 

IV.                                 Respondent’s ICO will complete the
accounting ICO checklist on a monthly basis. A monthly report of the ICO
findings, detailing each noncompliance item noted for that month will be
reported to Mr. Druck by the 15th of the following month. Any noncompliance
issues regarding the items noted within this document or other significant
noncompliance issues will be reported to the Division immediately (within 24
hours) by the ICO m writing. An ICO report, detailing all of the results of the
monthly accounting ICO checklists, will be prepared quarterly. The quarterly
reports, along with management’s response to each item, will be submitted to the
Division by the 30th of the month following the end of the quarter. These
additional ICO reports win continue until the Division determines they are no
longer warranted. The quarterly reports will be prepared on the following
schedule:

 

a)                                      January through March report due
April 30.

 

b)                                     April through June report due July 30.

 

c)                                      July through September report due
October 30.

 

d)                                     October through December report due
January 30.

 

7.                                       The Respondent agrees to strictly
adhere to and meet all requirements established in this Stipulation and
Agreement.

 

8.                                       Proof of failure to comply with the
terms of this Stipulation and Agreement shall be considered prima facie evidence
of a violation of the Limited Gamh1g Act of 1991 and the rules promulgated
pursuant thereto. If Respondent fails to comply with one or more of the
conditions of this Stipulation and Agreement, Respondent will be ordered to
appear before the Commission to show cause why any suspended portions of this
Stipulation, and further judgment and discipline should not be imposed against
Respondent.

 

9.                                       This Stipulation and Agreement shall
not be effective unless and until approved by the Commission. The Commission
ultimately has the right to accept or reject this Stipulation and Agreement.
Should the Commission reject the terms hereof: Respondent’s admissions herein
shall be withdrawn and the matter rescheduled for a hearing after issuance of an
Order to Show Cause. Should the Commission modify any term hereof, Respondent
may accept or reject the change. If Respondent rejects the modified terms, the
Commission must receive a written objection at its Lakewood office within seven
days of the Commission’s determination, at which

 

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time Respondent’s Admissions herein will be withdrawn and the matter rescheduled
for a hearing after issuance of an Order to Show Cause. Otherwise, Respondent
shall be deemed to have accepted the modified terms imposed by the Commission.

 

10.                                 By the signatures below, Respondent also
indicates:

 

A.                                   Respondent understands the possible
charges, which could be alleged in an Order to Show Cause, and has been advised
of the maximum penalty (revocation of licensing privileges, and $25,000 for each
count charged);

 

B.                                     Respondent waives the right to the
issuance of an Order to Show Cause, a hearing thereon, the right to compel the
attendance of witnesses to testify in its behalf the right to testify or not
testify at the hearing in its behalf: and any rights to further due process not
herein referenced, including the right to appeal;

 

C.                                     Respondent voluntarily admits the
violations noted ‘above, and further agrees that this Stipulation and Agreement
incorporates all agreements between the parties, and that no other
representation by agents of the Division or of the Office of the Attorney
General induced participation in this Stipulation and Agreement.

 

AGREED TO BY:

 

/s/

 

June 17, 2004

Mark L. Wilson

 

Director

 

Colorado Division of Gaming

 

 

Respondent

 

Southwest Casino and Hotel Corp.

DBA Uncle Sam’s Casino

P.O. Box 279

Cripple Creek, CO  80813

 

Licensee No. L14-35871-0001

 

 

By:

/s/

 

June 9, 2004

Thomas E. Fox

 

Chief Financial Officer

 

Southwest Casino and Hotel Corp.

 

 

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APPROVED AS TO FORM:

 

 

 

 

June 17, 2004

Ceri Williams

Assistant Attorney General

Counsel for the Division of Gaming

 

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BEFORE THE COLORADO LIMITED GAMING CONTROL COMMISSION

 

CASE NO. SA 04-03

 

ORDER APPROVING STIPULATION AND AGREEMENT

 

IN THE MATTER OF:

 

Southwest Casino and Hotel Corp.
DBA Uncle Sam’s Casino

P.O. Box 279

Cripple Creek, CO 80813

 

Licensee No. L14-35871-0001

 

Respondent.

 

The Commission having reviewed the Stipulation and Agreement in this matter
entered between the Division and the Respondent to resolve the allegations
contained therein, finds the terms of the Stipulation and Agreement are
reasonable and just.

 

THEREFORE, the Stipulation and Agreement is approved and its terms are hereby
adopted as an Order of this Commission.

 

ORDERED AND ENTERED this 17th day of June, 2004.

 

 

COLORADO LIMITED GAMING

 

 

CONTROL COMMISSION

 

 

 

 

 

By:

/s/

 

 

 

Natalie Meyer, Chairman

 

 

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