Document:

Exhibit
10.26

 

MANAGEMENT
AGREEMENT

 

THIS
MANAGEMENT AGREEMENT (“Agreement”), made and entered into
this 16th day of June, 2004, by and among SOUTHWEST MISSOURI GAMING,
LLC, a Missouri limited liability company (the “Company”), ROBERT E. LOW, an individual (“Low”), and SW MISSOURI, LLC, a Minnesota limited liability company
(“Southwest”).

 

RECITALS

 

WHEREAS,
the Company is in the business of developing and operating a riverboat gaming
facility and associated retail development located in the city of Rockaway
Beach, Missouri (the “Facility”);

 

WHEREAS,
pursuant to the terms of the Company’s Operating Agreement dated of even date
herewith (the “Operating Agreement”), Low and Southwest own all of the
outstanding membership interests of the Company and, except as otherwise
provided in the Operating Agreement, are responsible for the management of the
Company and its business and associated operating matters;

 

WHEREAS,
the Company and Low wish to enter into an agreement whereby Low will provide
management services to the Company in connection with the Facility;

 

WHEREAS,
Southwest wishes to have the right to assume such management service
obligations from Low if the Management Agreement Criteria (as defined herein)
are not met and Low, in turn, wishes to have the right to re-assume such
management service obligations from Southwest if the Management Agreement
Criteria are subsequently not met; and

 

NOW,
THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements as set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
acknowledged, the parties, intending to be legally bound, hereby agree as
follows.

 

ARTICLE 1.

DEFINITIONS

 

As used in this
Agreement, the following terms shall have the respective meanings given to them
below (whether in singular or plural form):

 

1.1                               “Applicable
Law” means all federal, state and local law having authority over the
Facility and the Gaming Operation, including, without limitation, the Gaming Commission.

 

1.2                               “Affiliate”
means, with regard to any specified person or organization, any other person or
organization (and all natural persons related by blood, adoption or marriage to
such other person) directly or indirectly controlling, controlled by, or under
direct or indirect common control with, such specified person.  The term “control” (including, with
correlative meanings, the terms “controlling,” “controlled by” and “under
common control with”), as applied to any person, means the possession, directly
or indirectly, of 20% or more of the voting power (or in the case of a person
which is not a corporation, 20% or more of the ownership interests,

 

 

beneficial or
otherwise) of such person or organization or the power otherwise to direct or
cause the direction of the management and policies of that person or
organization, whether through voting, by contract or otherwise.  For the purposes of this definition, “voting
power” of any person or organization means the total number of votes which may
be cast by the holders of the total number of outstanding equity interests of
any class or classes of such person or organization in any election of
directors or managers of such person or organization or individuals serving on
a committee or board serving a function comparable to that served by a board of
directors of a corporation.  All
directors and executive officers of a corporation and all directors and members
of a board or board of directors or similar committee of a person or
organization organized as a limited liability company shall be deemed to be
Affiliates of such person or organization.

 

1.3                               “Board”
means the Board of Managers of the Company.

 

1.4                               “Calculation
Date” has the meaning given in Section 2.6 of this Agreement.

 

1.5                               “Code”
has the meaning given in Section 4.4 of this Agreement.

 

1.6                               “Company”
has the meaning given in the Recitals to this Agreement.

 

1.7                               “Competitive
Casinos” means Ameristar Kansas City, Ameristar St. Charles, Isle of
Capri Kansas City, Isle of Capri Boonville, Argosy and their respective
successors and assigns.

 

1.8                               “Cost
of Funds Rate” means the rate of interest equal to Southwest’s average
cost of funds for a given period.

 

1.9                               “CPA”
shall mean an accounting firm of regional or national recognition selected by
the Board and reasonably acceptable to the Members.

 

1.10                        “EBITDA
Margin” means for the designated period, (1) the sum of an
organization’s (i) pretax earnings from continuing operations,
(ii) interest expense and (iii) depreciation, depletion, and
amortization of tangible and intangible assets (including real property leases
and all contractual obligations to the city of Rockaway Beach, Missouri as they
relate to the Company, and all Management Fees, if applicable), before
(a) special extraordinary gains, (b) minority interests, and
(c) miscellaneous gains and losses, (2) divided by such organization’s
Gross Profits from casino operations, in each case computed and calculated in
accordance with GAAP.

 

1.11                        “Effective
Date” means the date that the Company receives initial licensing
approval from the Gaming Commission.

 

1.12                        “Facility”
has the meaning given to such term in the Recitals to this Agreement.

 

1.13                        “GAAP”
means generally accepted accounting principals, consistently applied.

 

1.14                        “Gaming
Authority” means any governmental gaming authority having jurisdiction
over the Company, the Manager, a Member or any of their Affiliates, including,
but

 

2

 

not limited to,
the state gaming authorities for Missouri, Mississippi, Colorado, West
Virginia, Pennsylvania, Ohio, Nevada and Minnesota and the National Indian
Gaming Commission.

 

1.15                        “Gaming
Commission” means the Missouri
Gaming Commission and any other gaming governing body that has authority
over the Gaming Operations.

 

1.16                        “Gaming
Operations” means (i) the Company’s gaming and wagering activities and
(ii) all commercial activities conducted at the Facility by the Company,
including, without limitation, concession, restaurant, bar, hotel, night club
and retail activities.

 

1.17                        “Gross
Profits” means the total revenue earned by a casino operation
(including from non-gaming activities) less any amounts paid out for player
winnings or used to pay for prizes by such casino operation and the costs of
goods sold with respect to non-gaming activities, all as determined in
accordance with GAAP.

 

1.18                        “Low”
has the meaning given in the Recitals to this Agreement.

 

1.19                        “Management
Agreement Criteria” means the occurrence of either of the following
events: (i) the failure of the Company to maintain an EBITDA Margin during the
previous calendar year equal to at least 90% of the average EBITDA Margin of
all of the Competitor Casinos during the same period, determined commencing as
of the fourth January 1 following the Operation Date (after three (3) full
calendar years) and tested each January 1 thereafter, or (ii) the
failure of the Company to achieve Net Income (excluding actual and mock
interest on the Company’s acquisition debt) during the previous calendar year totaling
more than the Company’s debt services costs (or mock debt service costs) for
70% of the Company’s Gaming Operation start-up costs (based on a twenty (20)
year amortization period at the Cost of Funds Rate), determined as of the
second January 1 following the Operation Date (after one (1) full calendar
year) and tested each January 1 thereafter; provided, however, that in the
case where either Southwest or Low exercises its option to assume all rights,
duties and responsibilities under this Agreement, the Management Agreement
Criteria shall be determined with respect to the EBITDA Margin calculation
commencing as of the fourth January 1 following the date when Southwest or
Low, as the case may be, officially commences its management duties under this
Agreement pursuant to such assumption (after three (3) full calendar years),
and with respect to the Net Income calculation commencing as of the second
January 1 following the date when Southwest or Low, as the case may be,
officially commences its management duties under this Agreement pursuant to
such assumption (after one (1) full calendar year).

 

1.20                        “Management
Fee” means the amount equal to (i) 5% of the Company’s annual Net
Income up to $20,000,000, (ii) 10% of the Company’s annual Net Income in excess
of $20,000,000 but less than $35,000,000, (iii) 15% of the Company’s annual Net
Income in excess of $35,000,000 but less than $50,000,000 and (iv) 17.5% of the
Company’s annual Net Income in excess of $50,000,000.

 

1.21                        “Manager”
means the person responsible for, and empowered with the necessary authority
for, carrying out the duties and responsibilities of Manager as set forth
herein in connection with the Gaming Operations at the Facility.  The Manager shall initially be Low,

 

3

 

subject to
assumption rights granted to Southwest, and thereafter to Low, pursuant to
Section 6.2 of this Agreement.

 

1.22                        “Member
Representative” shall mean the representative designated by any Member
who is not the acting Manager under this Agreement.

 

1.23                        “Members”
mean, collectively, Low and Southwest.

 

1.24                        “Net
Income” means the Company’s net income from the Gaming Operations at
the Facility prior to the payment of any Management Fee but after taking into
account deductions for depreciation, interest, expenses (including amounts paid
out as, or paid for, prizes, but not including start-up expenses incurred by
the Company prior to the Operation Date) and salaries, all as determined in
accordance with GAAP.

 

1.25                        “Operating
Agreement” has the meaning given in the Recitals to this Agreement.

 

1.26                        “Operating
Expense” has the meaning given in Section 2.3 of this Agreement.

 

1.27                        “Operation
Date” means the first date that the Facility is open for operation to
the general public.

 

1.28                        “Southwest”
has the meaning given in the Recitals to this Agreement.

 

1.29                        “Unsuitable
Person” means any person or organization who is not licensable by any
Gaming Authority having jurisdiction over the Company, the Gaming Operation,
the Facility, the Manager or the business operations of such person or
organization (or its Affiliate) at the time of any such determination.

 

ARTICLE 2.

THE MANAGER

 

2.1                               General
Responsibilities of the Manager. 
The Company hereby retains and engages the Manager commencing as of the
Effective Date.  The Manager’s
responsibilities shall include, but are not limited to, the following:

 

(a)                                  supervising
and managing all activities necessary for the conduct of the Gaming Operations
at the Facility;

 

(b)                                 planning,
constructing, equipping, maintaining and improving the Facility;

 

(c)                                  establishing
the operating days and hours at the Facility;

 

(d)                                 hiring,
firing, training and promoting employees at the Facility, including overseeing
the hiring process for the initial employees of the facility and the training
and qualifying of such initial employees;

 

4

 

(e)                                  managing
all marketing and promotion activities in connection with the Facility,
including start-up promotions;

 

(f)                                    organizing
the funding of an initial house bank sufficient to begin operation and safely
cover all initial wagers and payouts in connection with the Gaming Operations;

 

(g)                                 establishing
and managing food, beverage and retail services in connection with the
Facility, including procuring liquor licenses and maintaining such liquor
licenses;

 

(h)                                 establishing,
maintaining and managing appropriate security personnel, systems and protocols
with respect to the Gaming Operations at the Facility, its customers and
employees and the handling of monies related thereto;

 

(i)                                     establishing
and administering employment practices at the Facility, including, the
development and enforcement of personnel policies and procedures, which shall
conform to generally accepted personnel policies and procedures of the gaming
industry;

 

(j)                                     developing
and administering a loan/grant program that will encourage the refurbishment of
hotels located in the vicinity of Rockaway Beach, Missouri and managing and
operating any hotels that are acquired or operated by the Company;

 

(k)                                  obtaining
and maintaining insurance coverage at the Facility, including liability and
property damage coverage;

 

(l)                                     maintaining
all books and records necessary for the Gaming Operations at the Facility;

 

(m)                               providing
the Company with all information necessary for the Company to comply with all
Applicable Law governing the Gaming Operations at the Facility;

 

(n)                                 developing
and leasing to third party tenants retail space in connection with the Facility
in such quantities as agreed to by the Company and the city of Rockaway Beach,
Missouri;

 

(o)                                 maintaining
working relationships with the city of Rockaway Beach, Missouri and the other
communities surrounding the Facility, including complying with the development
agreement and corresponding ground lease associated with the Facility and the
Gaming Operations;

 

(p)                                 implementing
and administering the White Rive Communities Association on behalf of the
Company, the Facility and the Gaming Operations and in concert with the city of
Rockaway Beach, Missouri;

 

5

 

(q)                                 establishing
and maintaining parking areas required for the employees of the Gaming
Operations and the Facility, and, to the extent necessary, establishing and
maintaining adequate transportation to such parking;

 

(r)                                    developing
and maintaining customer and guest transportation services, including
interfacing with tour bus operators serving the Branson, Missouri area and
developing and maintaining water and land shuttle services between the Facility
and the city of Branson, Missouri; and

 

(s)                                  those
duties specified by the Company from time to time.

 

2.2                               Constructing
and Equipping the Facility. 
Following the Effective Date, the Company, through the Board and with
the direction and assistance of the Members, shall undertake all steps
necessary to design, construct and equip the Facility.  The Manager shall submit all construction and
equipment plans to the Board and the Gaming Commission for final approval
before implementation.  Any contracts pertaining
to the design, construction or equipment of the Facility shall also require the
final approval of the Board.

 

2.3                               Reimbursement
of Costs.  Any and all reasonable
costs incurred by the Manager in fulfilling its responsibilities pursuant to
this Agreement shall be reimbursed by the Company to the Manager (the
“Operating Expenses”).  The Manager shall
submit its Operating Expenses to the Company for reimbursement in accordance
with the procedures communicated to the Manager by the Company from time to
time.

 

2.4                               Compliance
with Applicable Law.  The Manager
shall perform all of its responsibilities pursuant to this Agreement in
accordance with Applicable Law.

 

2.5                               Quarterly
Meeting.  The Manager shall be
available for a meeting at the Facility with the Company and the Member
Representative at least every three (3) months during the term hereof to
discuss all matters relevant to the Gaming Operation.

 

2.6                               Management
Fee.  In consideration of the
performance of the duties and obligations assumed by the Manager hereunder, the
Company agrees that the Manager shall receive compensation equal to the
Management Fee, which shall be paid to the Manager on a monthly basis
commencing after the Operation Date.  The
Management Fee shall be calculated monthly beginning as of the last day of the
first complete calendar month that occurs after the Operation Date
(“Calculation Date”) and shall be reconciled annually.  Such annual reconciliation shall be reviewed
and confirmed by the CPA.  All payments
to the Manager of the Management Fee shall be deposited as instructed in
writing to the Company by the Manager from time to time within thirty (30) days following each
Calculation Date.

 

2.7                               Term
of the Agreement.  The term of
this Agreement shall commence on the Effective Date and shall continue until
terminated pursuant to Section 6.1 of this Agreement.

 

6

 

ARTICLE 3.

EMPLOYEES AND OPERATIONS

 

3.1                               Personnel.  All employees of the Facility shall be
Company employees assigned to the Facility under the authority and supervision
of the Manager, and shall not be employees of the Manager.  All responsibility for employment decisions,
including, but not limited to, the hiring, firing, promotion, transfer,
compensation and discipline of said employees shall, however, be the sole
responsibility of the Manager, who shall make such decisions in accordance with
the rules, regulations, policies and procedures and prudent employment
practices established by the Manager and reasonably approved by the Company for
use in the operation of the Facility.

 

3.2                               Security
Clearance and Background Reviews. 
The Manager shall conduct such adequate background review as is
necessary and appropriate to the position to be filled and the responsibilities
of such position within the Facility. 
Any such review shall be sufficient to meet the requirements of
Applicable Law.

 

3.3                               Limited
Appointment of the Manager as Agent of the Company.  The Manager is hereby appointed, delegated,
employed and authorized to act on behalf of the Company as the Company’s agent
in carrying out a variety of duties necessary to the proper and efficient
management and operation of the Gaming Operations on behalf of the Company as
follows:

 

(a)                                  Operation of General Business and Business Affairs.  The Manager shall manage the day-to-day
operation of the Facility, including, but not limited to, the general business
and business affairs in connection with the operation, equipping, management
and maintenance of the Facility.  In
carrying out these duties and responsibilities, the Manager promises and agrees
to comply with the letter and spirit of this Agreement, its  terms and conditions.

 

(b)                                 Management and Control.  The Manager shall have the exclusive
authority over, and right to control of, the day-to-day management and control
of the Gaming Operation, its employees, customers, revenues and any and all
property and assets assigned, located or otherwise used at or for the
Facility.  Such authority shall include
all decisions regarding games played and the rules of play for such games, the
odds or payouts of such games, and the profit margins to be used in the sale of
any goods or services to be sold on the premises, all in compliance with
Applicable Law and industry standards. 
The control exercised by the Company over the Facility and the Gaming
Operation shall be exercised through the terms of this Agreement.

 

(c)                                  Collection, Deposit and Disbursement of Revenues.  As Company’s agent, the Manager shall
collect, receive and account for, on behalf of the Company, all revenues
generated and resulting from the operation of the Facility.  Such revenues shall be deposited into an
account or accounts of the Gaming Operations with such bank or banks as the
Manager may choose, with the approval of the Board, with the sole signatories
to be the Manager or the Manager’s duly authorized representatives designated
for those purposes and the Member Representative.  The Manager is hereby

 

7

 

authorized to make
all such disbursements and expenditures as are necessary from said account in
order to fund all Gaming Operations.

 

ARTICLE 4.

ACCOUNTING AND FINANCIAL REPORTING

 

4.1                               Accounting.  The Manager shall provide for the
establishment and maintenance of satisfactory accounting systems and procedures
that shall, at a minimum:  (a) include an
adequate system of internal accounting controls; (b) permit the preparation of
financial statements in accordance with GAAP; (c) be susceptible to audit; and
(d) permit the Company and the Manager to accurately calculate the Management
Fee.

 

4.2                               Financial
Records and Statements.  The
Manager shall maintain at the Facility full and accurate books and records
pertaining to the Gaming Operations and the Facility and shall provide full and
immediate access of such books and records to the Company and the Member
Representative.  Such books shall be kept
in compliance with GAAP and pursuant to the requirements of Applicable Law.  The Manager shall prepare and provide to the
Company with a daily revenue flash report and comparative monthly, quarterly
and annual financial statements showing all sales, revenues and all other
amounts collected and received, and all deductions and disbursements made
therefrom in connection with the Gaming Operation and in conformance with the
budget approved by the Board.  The CPA
shall perform an annual audit of the Gaming Operation and of all major
contracts for supplies, services or concessions reflected in the Operating
Expenses and such annual audited financing statements shall be delivered to the
Company as soon as available, but in no event more than ninety (90) days after
the end of each calendar year of the Company.

 

4.3                               Financial
Reporting.  The Manager shall
provide separate accountability and financial reporting for all non-gaming
profit centers existing within the Facility or as may be otherwise related to
the Facility, such as restaurants, hotels or otherwise.

 

4.4                               Tax
Withholdings on Winnings.  The
Manager shall be responsible for reporting and withholding taxes with respect
to the winnings from gaming or wagering operations as may be  required by the Internal Revenue Code of
1986, as amended (the “Code”) and for compliance with all other lawful
requirements imposed by the Code.

 

ARTICLE 5.

DUTY TO DEFEND, NOTICE OF CLAIMS, INDEMNIFICATION

 

5.1                               Defense
of Claims.  It shall be the duty
of the Manager to defend any and all claims and actions brought against the
Company, the Manager and the Facility, with all costs of defense, including but
not limited to, attorneys’ fees, necessary and reasonable expenses of the
litigation, and expert witness fees to be considered Operating Expenses.  Such claims and actions shall not be limited
by the nature or the amount of such claims unless otherwise specifically stated
herein, but shall include only such claims and actions as are brought relative
to the duties and obligations of the Manager under this Agreement and any and
all activities of the Manager in the performance of its obligations hereunder.

 

8

 

5.2                               Notice.  The Manager shall be responsible for giving
prompt notice to the Company of any and all claims or actions brought against
the Manager, the Facility or any persons acting on behalf of any of the above,
where such claim or action is related to the Company, the Gaming Operations or
the Facility.  Claims and actions, for
the purposes of this Agreement, shall include administrative, civil or criminal
actions brought in any forum or jurisdiction.

 

5.3                               Legal
Fees.  The Manager shall be
responsible for any and all costs of legal representation obtained by the
Manager for purposes other than carrying out its duties and responsibilities
under this Agreement, and no such other expenses or costs shall be paid as an Operating
Expense.

 

5.4                               Indemnification.  The Manager shall be entitled to
indemnification from the Company for all liabilities incurred and claims made
as a result of the Manager’s good faith performance of duties under this
Agreement.  The Manager shall allow the
Company to assume full control of the defense of any matter for which the
Company may be responsible and shall cooperate with the Company in the defense
of such claim; provided, however, that the Company shall not admit fault on the
part of the Manager or enter into a settlement having an adverse financial
impact on the Manager without the Manager’s prior written consent.  The Company shall have no obligation to
indemnify unless these conditions are met, and specifically shall not be
required to indemnify for any claim or suit which is settled without the
Company’s prior written approval.

 

ARTICLE 6.

TERMINATION AND MEMBER ASSUMPTION RIGHTS

 

6.1                               Termination.  This Agreement may be terminated in
accordance with the following provisions:

 

(a)                                  Upon
the written consent of both the Company and the Manager;

 

(b)                                 If
either party defaults in the observance or performance of any material term or
provision of this Agreement, and fails to remedy such default or nonperformance
within sixty (60) days of receiving written notice of same, the other party has
the right to terminate this Agreement for cause immediately thereafter;

 

(c)                                  The
Company may terminate this Agreement immediately if the Manager is determined
to be an Unsuitable Person; or

 

(d)                                 Either
party, at its election, may declare the other party to be in default under this
Agreement and, without prejudice to any of its rights hereunder, may forthwith
terminate this Agreement effective upon written notice to the other party in
the event the other party: (i) makes a general assignment for the benefit of
creditors; (ii) has a receiver of all or substantially all of its assets
appointed; (iii) files a petition for reorganization or other arrangement or in
bankruptcy under the U.S. bankruptcy laws; or (iv) becomes or is declared
insolvent.

 

9

 

6.2                               Rights
of Members to Assume Duties of the Manager.  During the period when Low is the Manager
hereunder, Southwest shall have the option to assume Low’s rights, duties and
responsibilities as the Manager under this Agreement if the Management
Agreement Criteria are not met.  During
any period when Southwest is the Manager hereunder, Low shall have the option
to assume Southwest’s rights, duties and responsibilities as the Manager under
this Agreement if the Management Agreement Criteria are not met.

 

6.3                               Resignation
Rights of the Manager.  The
Manager may, at its election, resign from its duties and responsibilities as
Manager under this Agreement upon at least one hundred eighty (180) days prior
written notice to the Company and the Members. 
The Member who is not the acting Manager under this Agreement shall have
the right, but not the obligation, to assume the rights, duties and responsibilities
of the Manager under this Agreement, which right shall be exercisable within
thirty (30) days following such Member’s receipt of notice of the Manager’s
resignation pursuant to this Section.

 

6.4                               Procedures
upon an Assumption.  Upon the
assumption of the rights, duties and obligations of the Manager by the
non-Manager Member, the acting Manager shall cooperate with the assuming
Manager to insure a smooth transition of the Manager position in accordance
with the terms of this Agreement.  Such cooperation
shall include, but not be limited to, the acting Manager (i) making itself
available for meetings at the Facility with the assuming Manager, (ii)
apprising the assuming Manager of all matters relevant to the Gaming Operation
and (iii) providing such additional information and performing all other
actions reasonably requested by the assuming Manager.

 

ARTICLE 7.

MISCELLANEOUS

 

7.1                               Binding
Effect.  The benefits and
obligations of this Agreement shall inure to and be binding upon the parties
hereto, their respective successors and assigns, provided that neither party
may assign or sublease their interest in this Agreement without prior written
approval of the other party.  Any
assignment or sublease under this Agreement shall be subject to approval by the
Gaming Commission.

 

7.2                               Entire
Agreement.  This Agreement and
the Operating Agreement represent the entire agreement between the Company and
Manager with respect to the management of the Facility and the Gaming
Operations, and supersede all other previous agreements, whether written or oral.

 

7.3                               Notices.  Any notice required to be given pursuant to
this Agreement shall be delivered by certified mail addressed:

 

to Company at:

 

Southwest Missouri
Gaming, LLC

2740 N. Mayfair

Springfield,
Missouri 65803

 

10

 

to Low at:

 

Robert E. Low

2740 N. Mayfair

Springfield, MO
65803

 

to Southwest at:

 

SW Missouri, LLC

c/o Southwest
Casino & Hotel Corp.

2001 Killebrew
Drive, Suite 306

Minneapolis,
Minnesota 55425

 

7.4                               No
Partnership.  Nothing in this
Agreement is intended to create or constitute the parties as partners together,
or one to the other, and it is expressly agreed that this business relationship
shall not be a partnership.

 

7.5                               Governing
Law.  This Agreement shall be
construed and enforced in accordance with the laws of the State of
Missouri.  Venue for any disputes shall
be in Greene County, Missouri.

 

7.6                               Amendments.  This Agreement may not be amended, modified,
altered or supplemented without the prior written consent of the parties
hereto.

 

7.7                               Severability.  If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.

 

7.8                               Counterparts.  This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.

 

 

[signature
page follows]

 

11

 

IN
WITNESS WHEREOF, the parties have executed this Agreement
effective on the date first set forth above.

 

 

	
   

  	
  SOUTHWEST MISSOURI GAMING, LLC,

  
	
   

  	
  a Missouri limited
  liability company

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Thomas E. Fox

  
	
   

  	
  Name:

  	
  /s/Thomas E. Fox

  
	
   

  	
  Its:

  	
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Robert E. Low

  
	
   

  	
   

  	
  Robert
  E. Low

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SW MISSOURI, LLC,

  
	
   

  	
  a Minnesota limited
  liability company

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James B.
  Druck

  
	
   

  	
  Name:

  	
  /s/ James B. Druck

  
	
   

  	
  Its:

  	
  Manager

  
					

 

12Exhibit
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

 

 

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.

 

2

 

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.

 

3

 

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.

 

4

 

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.

 

5

 

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

 

6

 

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.

  	
   

  

 

7

 

APPROVED AS TO
FORM:

 

 

	
   

  	
   

  	
  June 17,
  2004

  
	
  Ceri Williams

  
	
  Assistant
  Attorney General

  
	
  Counsel for the
  Division of Gaming

  

 

8

 

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

  	
   

  

 

9

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00069-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00069-of-00352.parquet"}]]