IMPORTANT NOTICE: You must read the following before

Transcription

IMPORTANT NOTICE: You must read the following before continuing. The following applies to
the offering memorandum dated June 16, 2005 attached to this e-mail, and you are therefore advised
to read this carefully before reading, accessing or making any other use of the offering memorandum.
In accessing the offering memorandum, you agree to be bound by the following terms and conditions,
including any modifications to them, any time you receive any information from us as a result of such
access.
This offering memorandum has been prepared in connection with the offer and sale of the Notes
described therein. The offering memorandum and its contents are confidential and should not be
distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other
person.
THE ATTACHED OFFERING MEMORANDUM MAY NOT BE FORWARDED OR
DISTRIBUTED OTHER THAN AS PROVIDED BELOW AND MAY NOT BE REPRODUCED IN ANY
MANNER WHATSOEVER. THE OFFERING MEMORANDUM MAY ONLY BE DISTRIBUTED IN
CONNECTION WITH AN ‘‘OFFSHORE TRANSACTION’’ AS DEFINED IN, AND AS PERMITTED
BY, REGULATION S UNDER THE US SECURITIES ACT OF 1933 (THE ‘‘SECURITIES ACT’’) OR
WITHIN THE UNITED STATES TO QUALIFIED INSTITUTIONAL BUYERS (‘‘QIBs’’) IN
ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT (‘‘RULE 144A’’). ANY
FORWARDING, DISTRIBUTION OR REPRODUCTION OF THE OFFERING MEMORANDUM IN
WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY
RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER
JURISDICTIONS.
NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF NOTES
FOR SALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE NOTES HAVE
NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR WITH ANY
OTHER SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION
OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A TO A PERSON THAT THE
HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVES IS A QIB
WITHIN THE MEANING OF RULE 144A IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES THAT (A) WAS NOT FORMED
FOR THE PURPOSE OF INVESTING IN THE NOTES AND (B) IS ACQUIRING THE NOTES FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB, OR (2) IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER
THE SECURITIES ACT.
Confirmation of your Representation: In order to be eligible to view the attached offering
memorandum or make an investment decision with respect to the Notes, investors must be (i) a person
that is outside the United States (within the meaning of Regulation S under the Securities Act) or (ii) a
QIB. By accepting this e-mail and accessing the offering memorandum, you shall be deemed to have
represented to us that you are a person that is outside the United States or that you are a QIB; and
that you consent to the delivery of such offering memorandum by electronic transmission. You are
reminded that the offering memorandum has been delivered to you on the basis that you are a person
into whose possession the offering memorandum may be lawfully delivered in accordance with the laws
of the jurisdiction in which you are located and you may not, nor are you authorized to, deliver the
offering memorandum to any other person or make copies of the offering memorandum.
Under no circumstances shall the offering memorandum constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of Notes, in any jurisdiction in which such
offer, solicitation or sale would be unlawful. If a jurisdiction requires that the offering and sale of the
Notes be made by a licensed broker or dealer and Credit Suisse First Boston (Europe) Limited or
Morgan Stanley & Co. International Limited or any affiliate of Credit Suisse First Boston (Europe)
Limited or Morgan Stanley & Co. International Limited is a licensed broker or dealer in that
jurisdiction, the offering and sale of the Notes shall be deemed to be made by Credit Suisse First
Boston (Europe) Limited or Morgan Stanley & Co. International Limited or such affiliate on behalf of
the issuer in such jurisdiction.
The offering memorandum is being directed solely at and may only be communicated to persons:
(i) who have professional experience in matters relating to investments being defined in Article 19(5) of
the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended) (the
‘‘FPO’’), (ii) who fall within Article 49(2)(a)-(d) of the FPO, (iii) are outside the United Kingdom, or
(iv) are persons to whom an invitation or inducement to engage in an investment activity (within the
meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or
sale of any notes may otherwise be lawfully communicated or caused to be communicated (all such
persons together being referred to as ‘‘Relevant Persons’’). The offering memorandum is directed only
at Relevant Persons and must not be acted on or relied on by persons who are not Relevant Persons.
Any investment or investment activity to which this document relates is available only to Relevant
Persons and will be engaged in only with Relevant Persons. The offering memorandum and its contents
are confidential and should not be distributed, published or reproduced (in whole or in part) or
disclosed by recipients to any other person. Any person who is not a Relevant Person should not act or
rely on the offering memorandum or any of its contents.
The offering memorandum has been sent to you in an electronic form. You are reminded that
documents transmitted via this medium may be altered or changed during the process of electronic
transmission and consequently neither Credit Suisse First Boston (Europe) Limited or Morgan Stanley
& Co. International Limited nor any person who controls them nor any director, officer, employee nor
agent of them or affiliate of any such person accepts any liability or responsibility whatsoever in respect
of any difference between the offering memorandum distributed to you in electronic format and the
hard copy version available to you on request from Credit Suisse First Boston (Europe) Limited or
Morgan Stanley & Co. International Limited.
OFFERING MEMORANDUM
CONFIDENTIAL
7JUN200513083909
CODERE FINANCE (LUXEMBOURG) S.A.
E335,000,000 81⁄4% Senior Notes due 2015
guaranteed on a senior basis by Codere, S.A. and on a senior subordinated basis
by certain subsidiaries of Codere, S.A.
Codere Finance (Luxembourg) S.A. (the ‘‘Issuer’’) is offering A335,000,000 aggregate principal amount
of its 81⁄4% senior notes due 2015 (the ‘‘Notes’’). It will pay interest on the Notes semi-annually on June 15
and December 15 of each year, commencing on December 15, 2005. The Notes will mature on June 15,
2015.
Prior to June 15, 2010, the Issuer may redeem all or part of the Notes by paying a ‘‘make-whole’’
premium. The Issuer may also redeem all or part of the Notes on or after June 15, 2010 at the redemption
prices set forth in this offering memorandum. In addition, prior to June 15, 2008, the Issuer may redeem up
to 35% of the Notes with the net proceeds from certain public equity offerings.
The Notes will be general obligations of the Issuer. The Notes will be guaranteed on a senior basis by
Codere, S.A. (the ‘‘Parent Guarantee’’) and on a senior subordinated basis by certain subsidiaries of
Codere, S.A. (the ‘‘Subsidiary Guarantees’’ and, together with the Parent Guarantee, the ‘‘Guarantees’’). The
Notes will be secured by a first priority lien over the funding loan described below and by second priority
liens over the shares of Codere España, S.L.U. and Codere Internacional, S.L.U., and the Parent Guarantee
will be secured by second priority liens over the shares of Codere España, S.L.U. and Codere
Internacional, S.L.U.
The Issuer is a Luxembourg société anonyme and was incorporated as a special purpose entity to
facilitate the raising of funds for Codere, S.A. and its subsidiaries. Codere, S.A. owns, directly or indirectly,
100% of the shares of the Issuer. The Issuer will lend the proceeds of this offering to Codere, S.A. pursuant
to the funding loan.
We have applied to list the Notes on the Irish Stock Exchange.
Investing in the Notes involves a high degree of risk. See ‘‘Risk Factors’’ beginning on page 26.
The Notes and the Guarantees have not been and will not be registered under the U.S. Securities Act
of 1933, as amended (the ‘‘Securities Act’’), or the securities laws of any state of the United States and may
not be offered or sold in the United States unless registered under the Securities Act or an exemption from
the registration requirements of the Securities Act is available. In the United States, the offering is being
made only to ‘‘qualified institutional buyers’’ in reliance on Rule 144A under the Securities Act. Prospective
purchasers that are qualified institutional buyers are hereby notified that the initial purchasers of the Notes
may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by
Rule 144A. Outside the United States, the offering is being made in reliance on Regulation S under the
Securities Act. See ‘‘Transfer Restrictions’’ for additional information about eligible offerees and transfer
restrictions.
Price: 100%
plus accrued interest, if any, from June 24, 2005
The initial purchasers expect to deliver the Notes to investors in book-entry form through Euroclear and
Clearstream on or about June 24, 2005.
Credit Suisse First Boston
Morgan Stanley
Joint Book-Running Lead Managers
The date of this offering memorandum is June 16, 2005
TABLE OF CONTENTS
Page
Information about the Enforceability of Judgments and the Effect of Foreign Law . . . . . . . . . . .
Industry Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Certain Definitions and Presentation of Financial and Other Data . . . . . . . . . . . . . . . . .
Presentation of Financial and Other Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Information and Other Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Unaudited Pro Forma Combined Financial Information . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . .
Industry and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Other Indebtedness and Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book Entry; Delivery and Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Where You Can Find More Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Listing and General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annex A—Summary of Certain Significant Differences Between Spanish GAAP, U.S. GAAP and
IFRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annex B—Form of Certificate for Own Account Investments . . . . . . . . . . . . . . . . . . . . . . . . . .
Annex C—Form of Certificate for Third Party Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annex D—Certificate for Application of the Exemption on Withholding to Spanish Corporate
Income Taxpayers and to Permanent Establishments of Non-resident Income Taxpayers . . . . . .
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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120
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272
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F-1
NOTICE TO INVESTORS
This offering memorandum is confidential. We have prepared this offering memorandum solely for
use in connection with the proposed offering of the Notes. This offering memorandum is personal to
each offeree and does not constitute an offer to any other person or to the public generally to
subscribe for or otherwise acquire securities. Distribution of this offering memorandum to any person
other than the offeree and any person retained to advise such offeree with respect to its purchase is
unauthorized, and any disclosure of any of its contents, without our prior written consent, is prohibited.
By accepting delivery of this offering memorandum, you agree to the foregoing restrictions and to
make no photocopies of this offering memorandum or any documents referred to herein.
i
The initial purchasers, Trustee, Registrar and Principal Paying Agent, Irish Paying Agent and Irish
Listing Agent (such agents collectively, the ‘‘Agents’’) make no representation or warranty, express or
implied, as to the accuracy or completeness of the information set forth in this offering memorandum.
The initial purchasers, the Trustee and the Agents assume no responsibility for its accuracy or
completeness. Nothing contained in this offering memorandum is or should be relied upon as a
promise or representation by the initial purchasers, the Trustee and the Agents as to the past or the
future.
Except as provided below, we accept responsibility for the information contained in this offering
memorandum. To the best of our knowledge and belief, the information contained in this offering
memorandum is in accordance with the facts and does not omit anything likely to affect the import of
such information. We additionally confirm, except as provided below, that the opinions and intentions
expressed herein are honestly held and that there are no other facts, the omission of which would make
this offering memorandum as a whole or any of such information or the expression of any such
opinions or intentions misleading in any material respect. However, the information contained under
the headings ‘‘Summary’’, ‘‘Exchange Rate Information’’, ‘‘Industry and Regulation’’ and ‘‘Business’’
includes extracts from information and data publicly released by official and other sources in Spain,
Mexico, Argentina and elsewhere. Although we accept responsibility for the accurate extraction and
summarization of such information and data, we accept no further responsibility in respect of such
information. In addition, the information set out in relation to sections of this offering memorandum
describing clearing arrangements, including the section entitled ‘‘Book-Entry; Delivery and Form’’, is
subject to any change in or reinterpretation of the rules, regulations and procedures of Euroclear
Bank S.A./N.V., as operator of the Euroclear System (‘‘Euroclear’’), or Clearstream Banking Société
Anonyme (‘‘Clearstream’’) currently in effect. While we accept responsibility for accurately summarizing
the information concerning Euroclear and Clearstream, we accept no further responsibility in respect of
such information. In addition, this offering memorandum contains summaries believed to be accurate
with respect to certain documents, but reference is made to the actual documents for complete
information. All such summaries are qualified in their entirety by such reference. Copies of these
documents will be made available to prospective investors upon request to us or the initial purchasers.
The initial purchasers will provide you with a copy of this offering memorandum and any related
amendments or supplements. By purchasing the Notes, you will be deemed to have acknowledged that
you have reviewed this offering memorandum and have had an opportunity to request, and have
received, all additional information that you need from us. You further acknowledge that the initial
purchasers are not responsible for, and are not making any representation to you concerning, our
future performance or the accuracy or completeness of this offering memorandum.
Neither we nor the initial purchasers nor any of our or their respective representatives are making
any representation to you regarding the legality of an investment in the Notes, and you should not
construe anything in this offering memorandum as legal, business, tax or other advice. You should
consult your own advisors as to the legal, tax, business, financial and related aspects of an investment in
the Notes. Laws in certain jurisdictions may restrict the distribution of this offering memorandum and
the offer and sale of the Notes. You must comply with all laws applicable in any jurisdiction in which
you buy, offer or sell the Notes or possess or distribute this offering memorandum, and you must
obtain all applicable consents and approvals; neither we nor the initial purchasers shall have any
responsibility for any of the foregoing legal requirements. See ‘‘Notice to Certain Other European
Residents’’ and ‘‘Transfer Restrictions’’.
Interests in the Notes will be available initially in book-entry form. We expect the Notes sold will
be issued in the form of one or more global notes. The global notes will be deposited and registered in
the name of a common depository for Euroclear and Clearstream. Transfers of interests in the global
notes will be effected through records maintained by Euroclear, Clearstream and their respective
participants. After the initial issue of the global notes, the Notes will not be issued in definitive
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registered form except under the circumstances described in the section ‘‘Book-Entry; Delivery and
Form’’.
This offering memorandum sets out the procedures of Euroclear and Clearstream in order to
facilitate the original issue and subsequent transfers of interest in the Notes among participants of
Euroclear and Clearstream. However, neither Euroclear nor Clearstream is under any obligation to
perform or continue to perform such procedures and such procedures may be discontinued by any of
them at any time. We will not, nor will any of our agents, have responsibility for the performance of
the respective obligations of Euroclear and Clearstream or their respective participants under the rules
and procedures governing their operations.
Neither the Notes nor the Guarantees have been registered under the Securities Act or the
securities laws of any state of the United States, and may not be offered or sold within the United
States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the
Securities Act (‘‘Regulation S’’)) except pursuant to an exemption from, or in a transaction not subject
to, the registration requirements of the Securities Act. We have not registered, and do not intend to
register, the Notes or the Guarantees under the Securities Act.
The Notes are being offered and sold outside the United States in reliance on Regulation S and
within the United States to ‘‘qualified institutional buyers’’ in reliance on Rule 144A under the
Securities Act (‘‘Rule 144A’’). Prospective purchasers are hereby notified that the sellers of the Notes
may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by
Rule 144A. For a description of these and certain other restrictions on offers, sales and transfers of the
Notes and the distribution of this offering memorandum, see ‘‘Notice to New Hampshire Residents’’,
‘‘Notice to U.K. Investors’’, ‘‘Notice to Certain Other European Residents’’ and ‘‘Transfer Restrictions’’.
By purchasing any Notes, you will be deemed to have represented and agreed to all of the provisions
contained in those sections of this offering memorandum. You may be required to bear the financial
risks of this investment for an indefinite period of time.
Neither the SEC, any state securities commission nor any non-U.S. securities authority has
approved or disapproved of these securities or determined that this offering memorandum is accurate
or complete. Any representation to the contrary is a criminal offence.
You may not use any information herein for any purpose other than considering an investment in
the Notes.
We reserve the right to withdraw this offering of the Notes at any time. We and the initial
purchasers also reserve the right to reject any offer to purchase the Notes in whole or in part for any
reason or no reason and to allot to any prospective purchaser less than the full amount of the Notes
sought by it.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE UNIFORM
SECURITIES ACT (‘‘RSA 421-B’’), WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT
THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE
STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF
THE STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE,
COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN
EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS
THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR
QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT
WITH THE PROVISIONS OF THIS PARAGRAPH.
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NOTICE TO U.K. INVESTORS
This offering memorandum is only being distributed to and is only directed at (i) persons who are
outside the United Kingdom or (ii) persons that have professional experience in matters relating to
investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2001 (as amended, the ‘‘Order’’), (iii) high net worth entities, and other persons to
whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order, or
(iv) persons to whom an invitation or inducement to engage in investment activity (within the meaning
of Section 21 of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’)) in connection with the
issue or sale of any Notes which may otherwise lawfully be communicated or caused to be
communicated (all such persons together being referred to as ‘‘relevant persons’’). The Notes are only
available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such
Notes will be engaged in only with, relevant persons. Any person who is not a relevant person should
not act or rely on this document or any of its contents. Recipients of this offering memorandum are
not permitted to transmit it to any other person.
In the United Kingdom, the Notes will only be available for purchase pursuant to the offering to a
person who represents and agrees that:
(i) it is a person whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purpose of their business or otherwise
in circumstances which have not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 or
the FMSA;
(ii) it has only communicated or caused to be communicated and will only communicate or cause
to be communicated any invitation or inducement to engage in investment activity (within the
meaning of Section 21 of the FSMA received by it in connection with the issue or sale of any
Notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and
(iii) it has complied and will comply with all applicable provisions of the FSMA with respect to
anything done by it in relation to the Notes in, from or otherwise involving the United
Kingdom.
NOTICE TO CERTAIN OTHER EUROPEAN INVESTORS
This offering memorandum does not constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful
to make such offer or solicitation.
Austria
The Notes will be offered in Austria by way of a non-public offering to a limited number of
institutional investors within the meaning of Section 3/1/11 of the Austrian Capital Markets Act
(Kapitalmarktgesetz) as amended. This offering memorandum may not be construed to contain a public
offer for the Notes or a public solicitation to subscribe for or purchase the Notes or an invitation to
make and offer for the Notes or any advertisement or marketing which may be considered equivalent
to a public offer or solicitation in Austria pursuant to the Capital Markets Act as amended. In Austria,
the Notes must not be sold or resold other than in compliance with the Capital Markets Act.
The Netherlands
The Notes may not be offered, sold, transferred or delivered in or from the Netherlands, directly
or indirectly, as part of their initial distribution or at any time thereafter, and neither this offering
circular nor any other documents in respect of the Notes may be distributed or circulated, directly or
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indirectly, in or from the Netherlands, other than to individuals or legal entities which include, but are
not limited to, banks, brokers, dealers, institutional investors and undertakings with a treasuring
department who or which trade or invest in securities in the conduct of a business or profession.
Ireland
The Notes may be offered and sold in Ireland only in accordance with the European Communities
(Transferable Securities and Stock Exchange) Regulations 1992, if applicable, the Investment
Intermediaries Act 1995, as amended, the Companies Act 1963 to 2003 and any other applicable Irish
laws and regulations.
Switzerland
The Notes may be offered in Switzerland on the basis of a private placement, not as a public
offering. The Notes will neither be listed on the SWX Swiss Exchange nor are they subject to Swiss
law. This offering circular therefore neither constitutes a prospectus within the meaning of Art. 1156 of
the Swiss Federal Code of Obligations or Arts. 32 et seq. of the Listing Rules of the SWX Swiss
Exchange, nor does it comply with the Directive for Notes of Foreign Borrowers of the Swiss Bankers
Association.
Belgium
The Notes may not be offered or sold directly or indirectly by way of a public offering in Belgium.
Consequently, in Belgium, the Notes will only be available for subscription pursuant to the offering to
registered Belgian credit institutions, European Economic Area banks having an outlet in Belgium,
registered Belgian stockbroking companies, investment funds registered with the Belgian Banking and
Finance Commission or insurance companies and pension funds registered with the Belgian Insurance
Control Authority, provided in each case that these institutions are investing for their own account.
France
The Notes may not be offered or sold directly or indirectly to the public in France and neither this
offering memorandum, which has not been submitted to the clearance procedures of the French
authorities, including the Autorité des marchés financiers, nor any offering material or information
contained in this offering memorandum relating to the Notes, may be released, issued or distributed or
caused to be released, issued or distributed to the public in France, or used in connection with any
offer for subscription or sale of the Notes to the public in France. Such offers, sales and distributions
may be made in France only to (i) qualified investors (investisseurs qualifiés) and/or (ii) a restricted
number of investors (cercle restreint d’investisseurs), in each case investing for their own account, all as
defined in Article L. 411-2 of the French Code Monétaire et Financier and Décret no. 98-880, dated
October 1, 1998, as amended. The direct or indirect resale to the public in France of any Notes
acquired by such investors may be made only as provided by Articles L. 412-1 and L. 621-8 of the
French Code Monétaire et Financier and applicable regulations thereunder.
Germany
The offering of the Notes is not a public offering in the Federal Republic of Germany. The Notes
may be offered and sold in the Federal Republic of Germany only in accordance with the provisions of
the Securities Sales Prospectus Act of the Federal Republic of Germany (WertpapierVerkaufsprospektgesetz) and any other applicable German law. Consequently, in Germany, the Notes
will only be available to persons who, by profession, trade or business, buy or sell the Notes for their
own or a third party’s account within the meaning of Section 2 No. 1 of the Securities Sales Prospectus
Act.
v
Republic of Italy
The offering of the Notes has not been cleared by CONSOB (the Italian Securities Exchange
Commission) pursuant to Italian securities legislation, and, accordingly, no Notes may be offered, sold
or delivered, nor may copies of this offering memorandum or of any other document relating to the
Notes be distributed in the Republic of Italy, except (i) to qualified investors (‘‘operatori qualificati’’),
as defined in Article 31, second paragraph, of CONSOB Regulation No. 11522 of July 1, 1998, as
amended, or (ii) in circumstances which are exempted from the rules on solicitation of investments
pursuant to Article 100 of Legislative Decree No. 58 of February 24, 1998, as amended (the ‘‘Italian
Financial Services Act’’), its implementing CONSOB Regulations including Article 33, first paragraph,
of CONSOB Regulation No. 11971 of May 14, 1999, as amended. In any event the Notes cannot be
offered or sold to any individual investors in Italy, either in the primary or in the secondary market.
Any offer, sale or delivery of the Notes or distribution of copies of this offering memorandum or any
other document relating to the Notes in the Republic of Italy under (i) or (ii) above must be (a) made
by an investment firm, bank or financial intermediary permitted to conduct such activities in the
Republic of Italy in accordance with the Italian Financial Services Act and Legislative Decree No. 385
of September 1, 1993, (the ‘‘Italian Banking Act’’), as amended and the implementing guidelines of the
Bank of Italy, (b) in compliance with Article 129 of the Italian Banking Act and the implementing
guidelines of the Bank of Italy pursuant to which the issue or the offer of securities in the Republic of
Italy may need to be preceded and followed by notification to the Bank of Italy, and (c) in compliance
with any other notification requirement which may be imposed by CONSOB or the Bank of Italy.
Sweden
This offering memorandum has not been and will not be registered with the Swedish Financial
Supervisory Authority. Accordingly, this offering memorandum may not be available, nor may the Notes
otherwise be marketed and offered for sale, in Sweden other than in circumstances that are deemed
not to be an offer to the public under the Financial Instruments Trading Act (1991:980).
Luxembourg
The Notes will not be subject to a public offering in Luxembourg, unless the relevant requirements
of Luxembourg law concerning public offerings of securities have been fulfilled.
Spain
The Notes may not be offered or sold in Spain except in accordance with the requirements of the
Spanish Securities Market Law (Ley 24/1988 de 28 de julio, del Mercado de Valores), as amended and
supplemented (among others, by Royal Decree-Law 5/2005, on Urgent Reforms on the Drive Towards
Productivity and the Improvement of Administrative Contracting (Real Decreto-Ley 5/2005, de 11
de Marzo, de reformas urgentes para el impulso a la productividad y para la mejora de la contratación
pública), and supplemented by Royal Decree 291/1992, on Issues and Public Offerings of Securities
(Real Decreto 291/1992, de 27 de marzo, sobre Emisiones y Ofertas Públicas de Venta de Valores), as
amended, and any other decrees and regulations related thereto. This offering memorandum has not
been verified nor registered in the administrative registries of the Spanish Securities and Exchange
Commission (Comisión Nacional del Mercado de Valores), and therefore a public offer for subscription
of the Notes shall not be promoted in Spain.
vi
STABILIZATION
In connection with the offering, Credit Suisse First Boston (Europe) Limited (the ‘‘Stabilization
Manager’’), or any person acting for the Stabilization Manager, may over-allot or effect transactions
with a view to supporting the market price of the Notes at a level higher than that which might
otherwise prevail for a limited period after the issue date.
However, there is no obligation on the Stabilization Manager or its agent to do this. Such
stabilizing, if commenced, may be discontinued at any time, and must be brought to an end after a
limited period.
INFORMATION ABOUT THE ENFORCEABILITY OF JUDGMENTS AND
THE EFFECT OF FOREIGN LAW
The Issuer is a société anonyme incorporated under the laws of Luxembourg. All of the Issuer’s
directors and executive officers are non-residents of the United States. In addition, all of the assets of
the Issuer and substantially all of the assets of its directors and executive officers are located outside
the United States. As a result, it may not be possible for you to serve process on these persons or the
Issuer in the United States or to enforce judgments obtained in U.S. courts against them or the Issuer
based on civil liability provisions of the securities laws of the United States.
We have been advised by our Luxembourg counsel that the United States and Luxembourg are not
currently bound by a treaty providing for reciprocal recognition and enforcement of judgments, other
than arbitral awards rendered in civil and commercial matters. According to our Luxembourg counsel,
an enforceable judgment for the payment of monies rendered by any U.S. federal or state court based
on civil liability, whether or not predicated solely upon the U.S. securities laws, would not directly be
enforceable in Luxembourg. However, a party who received such favorable judgment in a U.S. court
may initiate enforcement proceedings in Luxembourg (exequatur) by requesting enforcement of the U.S.
judgment by the District Court (Tribunal d’Arrondissement) pursuant to Section 678 of the New
Luxembourg Code of Civil Procedure. The District Court will authorize the enforcement in
Luxembourg of the U.S. judgment, if it is satisfied that all of the following conditions are met:
• the U.S. judgment is enforceable (exécutoire) in the United States;
• the U.S. court awarding the judgment has jurisdiction to adjudicate the respective matter under
applicable U.S. federal or state jurisdictions rules, and that jurisdiction is recognized by
Luxembourg private international and local law;
• the U.S. court has applied to the dispute the substantive law, which would have been applied by
Luxembourg courts;
• the principles of natural justice have been complied with;
• the U.S. judgment does not contravene international public policy or order as understood under
the laws of Luxembourg or has been given in proceedings of a criminal nature;
• the U.S. court has acted in accordance with its own procedural laws; and
• the judgment was granted following proceedings where the counterparty had the opportunity to
appear, and if it appeared, to present a defense.
In practice, Luxembourg courts now tend not to review the merits of a foreign judgment, although
there is no clear statutory prohibition of such review.
Codere, S.A. is a company organized under Spanish law with limited liability. Most of our directors
and executive officers are non-residents of the United States. In addition, all of our assets and
substantially all of the assets of our directors and executive officers are located outside the United
vii
States. As a result, you may not be able to effect service of process within the United States upon us or
our directors and executive officers or to enforce a judgment obtained against us or our directors and
executive officers in foreign courts predicated solely upon the civil liability provisions of U.S. securities
laws.
We have been advised by Garrigues Abogados, our Spanish counsel, that there is also doubt
whether a lawsuit based upon U.S. federal or state securities laws could be brought in an original
action in Spain and whether a judgment obtained in a U.S. court based upon U.S. securities laws would
be enforced in Spain. There are similar doubts in several of the other jurisdictions in which we operate
and where our assets are located.
INDUSTRY INFORMATION
Economic and industry data used throughout this offering memorandum are derived from
European Union, Spanish, Mexican and Argentine government sources and various other industry data
sources, which we believe to be reliable. Although we believe that this information is reliable, neither
we nor any initial purchaser can guarantee the accuracy and completeness of the information and
neither we nor any of them have independently verified it.
USE OF CERTAIN DEFINITIONS AND PRESENTATION OF FINANCIAL AND OTHER DATA
As used in this offering memorandum, unless otherwise indicated, all references to:
• ‘‘Argentine peso’’ or ‘‘AR$’’ are to the lawful currency of the Republic of Argentina;
• ‘‘AWP machines’’ are to amusement with prize machines, which pay out cash prizes as a
percentage of total wagers over a pre-determined cycle of games, and are permitted in Spain (as
‘‘Type-B machines’’) and in Italy (as ‘‘Comma 6 machines’’) to be placed in bars, cafes, arcades
and bingo halls;
• ‘‘Chilean peso’’ are to the lawful currency of Chile;
• the ‘‘Issuer’’ are to Codere Finance (Luxembourg) S.A.;
• the ‘‘Codere Group’’, ‘‘Group’’, ‘‘Codere’’, ‘‘we’’, ‘‘us’’ or ‘‘our’’ are to Codere, S.A. and its
subsidiaries, which shall include the Issuer in respect of any such references that speak as of a
date on or after June 1, 2005, which was the date of incorporation of the Issuer;
• ‘‘Colombian peso’’ or ‘‘COP$’’ are to the lawful currency of Colombia;
• ‘‘Consolidated Financial Statements’’ means the audited consolidated financial statements of
Codere, S.A. as of and for the years ended December 31, 2002, 2003 and 2004 and the
unaudited interim consolidated financial statements of Codere, S.A. as of and for the three
months ended March 31, 2005, included in this offering memorandum;
• ‘‘dollars’’, ‘‘U.S. dollars’’, ‘‘U.S.$’’ or ‘‘$’’ are to the lawful currency of the United States of
America;
• ‘‘EBITDA’’ (earnings before interest, tax, depreciation and amortization) are to operating profit
plus period depreciation and amortization plus variation in provisions for trade transactions;
• ‘‘EU’’ are to the European Union;
• ‘‘euro’’ or ‘‘A’’ are to the lawful currency of the member states of the European Monetary
Union;
• ‘‘Guarantors’’ are to the Parent Guarantor and the Subsidiary Guarantors, collectively;
viii
• ‘‘Grupo Royal’’ are to Karmele, S.A., Gallaecia, S.A., Itapoan, S.A., Cuatro Caminos, S.A.,
Parques Inmobilarios, S.A., Spanish Eyes, S.A., C&K Internacional, S.A., La Base, S.A.,
Iberargen, S.A., Loarsa, S.A., Punto 3, S.A., Interbas, S.A., Pacı́fico, S.A., Rajoy Palace, S.A.,
Mexico City, S.A., Franfe, S.A., Samaná, S.A. and Nanos, S.A.;
• ‘‘IFRS’’ are to International Financial Reporting Standards (formerly known as ‘‘International
Accounting Standards’’ or ‘‘IAS’’) of the International Accounting Standards Board;
• ‘‘Indenture’’ are to the indenture to be entered into on or about June 24, 2005 among the
Issuer, the Guarantors and Deutsche Trustee Company Limited, as trustee governing the Notes;
• ‘‘Mexican peso’’ or ‘‘Mex. Ps.’’ are to the lawful currency of Mexico;
• ‘‘Parent Guarantor’’ or ‘‘Codere, S.A.’’ are to Codere, S.A., the parent company of the Codere
Group;
• ‘‘Slot machines’’ are to gaming devices into which a player inserts a form of currency and, based
on a set of probability variables, the player either loses the wager or is awarded a prize. In this
offering memorandum, we use the term ‘‘slot machines’’ broadly to include traditional reel
spinning slots, machines with video screens, progressive jackpot machines and video lottery
terminals (VLTs), which would include the AWP machines operated in Spain, the Comma 6
machines operated in Italy and the slot machines operated in Mexico, Argentina, Chile,
Colombia, Peru and Uruguay, which are similar to U.S. Class III machines;
• ‘‘Subsidiary Guarantors’’ are to Operibérica, S.A.U., Codere Madrid, S.A.U., Codere
Barcelona, S.A.U., Misuri, S.A.U., Codere Valencia, S.A., Codere Lleida, S.A.U., Complejo
Turı́stico Huatulco, S.A. de C.V., Compañı́a de Inversiones Mexicanas, S.A. de C.V., Codere
Mexico, S.A. de C.V., Promociones Recreativas Mexicanas, S.A. de C.V., Bingos Platenses, S.A.,
Intermar Bingos, S.A., Bingos del Oeste, S.A., Interjuegos, S.A., Codere Argentina, S.A.,
Franfe, S.A., Mexico City, S.A., Nanos, S.A., Iberargen, S.A., Loarsa, S.A., Punto 3, S.A., Rajoy
Palace, S.A., Pacı́fico, S.A., Codere Colombia, S.A., Turismo y Recreación, S.A., Intersare, S.A.,
Colonder, S.A.U., and Codere Uruguay, S.A.; and
• ‘‘U.S. Class III Machines’’ are to electronic gaming machines that are specifically defined under
U.S. federal law as a Class III gambling device, as typically permitted in U.S. casinos.
PRESENTATION OF FINANCIAL AND OTHER DATA
Unless otherwise indicated, financial information in this offering memorandum has been prepared
in accordance with accounting principles generally accepted in Spain, or Spanish GAAP. As a result of
listing the Notes on the Irish Stock Exchange, we may be required to prepare financial statements in
accordance with IFRS beginning January 1, 2005. Spanish GAAP differs in certain significant respects
from U.S. GAAP and IFRS. For a discussion of certain significant differences between Spanish GAAP,
U.S. GAAP and IFRS as they apply to us, see ‘‘Summary of Certain Significant Differences Between
Spanish GAAP, U.S. GAAP and IFRS’’. Although we may be required to publicly report in IFRS, the
terms of the Notes will permit us to continue to base the covenants included in this offering
memorandum on Spanish GAAP or, at our option, to adopt IFRS. For as long as we opt to maintain
Spanish GAAP for our covenants, we will provide Spanish GAAP financial statements to the trustee
appointed pursuant to the Indenture.
Any discrepancies in any table between totals and the sums of the amounts listed are due to
rounding.
The financial information included in this offering memorandum is not intended to comply with
SEC reporting requirements. Compliance with such requirements would require the presentation of
U.S. GAAP financial information, the modification or exclusion of certain information presented in this
ix
offering memorandum and the presentation of certain other information not included in this offering
memorandum. For example, we have not presented in this offering memorandum separate financial
information of the Subsidiary Guarantors.
We define ‘‘EBITDA’’ as operating profit plus period depreciation and amortization plus variation
in provisions for trade transactions. EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted
EBITDA Margin and the related ratios presented in this offering memorandum are supplemental
measures of our performance and liquidity that are not required by, or presented in accordance with,
Spanish GAAP, U.S. GAAP or IFRS. Furthermore, EBITDA, EBITDA Margin, Adjusted EBITDA and
Adjusted EBITDA Margin are not measurements of our financial performance or liquidity under
Spanish GAAP, U.S. GAAP or IFRS and should not be considered as an alternative to profit or loss
for the period or any other performance measures derived in accordance with Spanish GAAP, U.S.
GAAP or IFRS or as an alternative to cash flow from operating, investing or financing activities as a
measure of our liquidity as derived in accordance with Spanish GAAP, U.S. GAAP or IFRS. These
non-GAAP financial measures do not necessarily indicate whether cash flow will be sufficient or
available for cash requirements and may not be indicative of our results of operations. In addition, such
measures as we define them may not be comparable to other similarly titled measures used by other
companies. For a definition and a reconciliation of these non-GAAP financial measures to their most
directly comparable Spanish GAAP measure, see ‘‘Summary—Summary Financial Information and
Other Data’’.
This offering memorandum includes unaudited pro forma combined financial information for the
year ended December 31, 2004 and as of and for the three months ended March 31, 2005.
The unaudited pro forma combined financial information has been prepared for illustrative
purposes to give effect to our proposed exercise immediately following the offering of an option to
acquire Recreativos Franco’s interests in Grupo Royal, which is described in further detail under
‘‘Summary—Recent Developments’’. The unaudited pro forma combined income statements and cash
flow statements illustrate the effect of the Grupo Royal acquisition as if it had occurred on January 1,
2004. The unaudited pro forma combined balance sheet illustrates the effect of the Grupo Royal
acquisition as if it had occurred on March 31, 2005. The historical financial information used to
prepare the unaudited pro forma combined financial information is derived from:
• the audited consolidated financial statements of Codere as of and for the year ended
December 31, 2004;
• the unaudited interim consolidated financial statements of Codere as of and for the three
months ended March 31, 2005;
• the audited combined financial statements of Grupo Royal for the year ended December 31,
2004; and
• the unaudited interim combined financial statements of Grupo Royal as of and for the three
months ended March 31, 2005.
The pro forma adjustments are described in the notes to the unaudited pro forma combined
financial information. Other than the Grupo Royal acquisition, no pro forma effect is given to any
other acquisitions because the necessary adjustments would be immaterial. The unaudited pro forma
combined financial information may not give a true picture of the financial position or results of
operations of the enlarged group that would have been achieved had the Grupo Royal acquisition
occurred on the dates indicated. Furthermore, the unaudited pro forma combined financial information
is not indicative of the financial position or results of operations of the enlarged group for any future
date or period.
x
Certain terms mentioned in this offering memorandum are registered in certain jurisdictions as our
trademarks. This offering memorandum also refers to the trademarks of other companies.
FORWARD-LOOKING STATEMENTS
This offering memorandum includes forward-looking statements that reflect our intentions, beliefs
or current expectations and projections about our future results of operations, financial condition,
liquidity, performance, prospects, anticipated growth, strategies, opportunities and the industry in which
we operate. Forward-looking statements involve all matters that are not historical fact. We have tried to
identify those forward-looking statements by using the words ‘‘may,’’ ‘‘will,’’ ‘‘would,’’ ‘‘should,’’
‘‘expect,’’ ‘‘intend,’’ ‘‘estimate,’’ ‘‘anticipate,’’ ‘‘project,’’ ‘‘believe,’’ ‘‘seek,’’ ‘‘plan,’’ ‘‘continue’’ and
similar expressions or their negatives. Forward-looking statements may be found in sections of this
offering memorandum entitled ‘‘Risk Factors’’, ‘‘Management’s Discussion and Analysis of Financial
Condition and Results of Operations’’, ‘‘Industry and Regulation’’, ‘‘Business’’ and elsewhere.
These forward-looking statements are subject to risks, uncertainties and assumptions and other
factors that could cause our actual results of operations, financial condition, liquidity, performance,
prospects or opportunities, as well as those of the markets we serve or intend to serve, to differ
materially from those expressed in, or suggested by, these forward-looking statements. Important
factors that could cause those differences include, but are not limited to:
• changes in general economic, business, or political conditions in Spain, Italy and the Latin
American countries in which we operate or have material investments;
• volatility in the exchange rates between the local currencies of the countries in which we operate
in Latin America and the euro;
• our ability to comply with the current gaming and other regulatory frameworks in countries
where we operate or have material investments and to adapt to any regulatory changes and
increases in the taxation of gaming;
• contingent liabilities within the businesses we have recently acquired or which we propose to
acquire of which we are not aware;
• our ability to manage growth in our business;
• our ability to generate sufficient cash to satisfy certain commitments and fund our capital
expenditures;
• our ability to obtain financing;
• our ability to provide secure gaming products and services and to maintain the integrity of our
employees and our reputation and that of our joint venture business partners in order to attract
customers;
• our relationships with our joint venture partners, our shareholders, our clients and other third
parties;
• our dependence on a single supplier, Recreativos Franco, for substantially all our AWP
machines;
• the outcome of our pending legal proceedings and the impact of any new legal proceedings that
we may become party to; and
• competition from other companies in our industry and our ability to maintain market share.
The foregoing factors should not be construed as exhaustive. Due to such uncertainties and risks,
you should not place undue reliance on such forward-looking statements, which speak only as of the
xi
date of this offering memorandum. We expressly disclaim any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statement contained in this offering
memorandum which may be made to reflect events or circumstances after the date of this offering
memorandum including, without limitation, changes in our business or acquisition strategy or planned
capital expenditures, or to reflect the occurrence of unanticipated events except as required by law or
by the Irish Stock Exchange. We urge you to read the sections of this offering memorandum entitled
‘‘Risk Factors’’, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’, ‘‘Industry and Regulation’’ and ‘‘Business’’ for a more complete discussion of the factors
that could affect our future performance.
EXCHANGE RATES
The following table sets forth, for the periods indicated, information concerning the noon buying
rate in U.S. dollars for euro. The rates set forth below are provided solely for your convenience and
are not used by us in the preparation of our Consolidated Financial Statements included elsewhere in
this offering memorandum. The ‘‘noon buying rate’’ is the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New
York. No representation is made that euro could have been, or could be, converted into U.S. dollars at
that rate or at any other rate.
Year:
2000
2001
2002
2003
2004
2005
Period End
..............
..............
..............
..............
..............
(through June 16)
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U.S. dollars per E1.00
Average(1)
High
Low
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.
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.
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.
0.9388
0.8901
1.0485
1.2597
1.3538
1.2089
0.9207
0.8909
0.9495
1.1411
1.2478
1.2910
1.0335
0.9535
1.0485
1.2597
1.3625
1.3476
0.8270
0.8370
0.8594
1.0361
1.1801
1.2035
December 2004 . . . . . . . . . .
January 2005 . . . . . . . . . . . .
February 2005 . . . . . . . . . . .
March 2005 . . . . . . . . . . . . .
April 2005 . . . . . . . . . . . . . .
May 2005 . . . . . . . . . . . . . .
June 2005 (through June 16) .
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.
.
.
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.
.
1.3538
1.3049
1.3274
1.2969
1.2919
1.2349
1.2089
1.3406
1.3123
1.3013
1.3185
1.2943
1.2697
1.2183
1.3625
1.3476
1.3274
1.3465
1.3093
1.2936
1.2320
1.3224
1.2954
1.2773
1.2877
1.2819
1.2349
1.2035
Month:
(1) The average of the noon buying rate for the euro on the last day of each full month during the
relevant year or each business day during the relevant month.
On June 16, 2005, the noon buying rate was U.S.$1.2089 per A1.00.
xii
SUMMARY
The following summary supplements, and should be read in conjunction with, the more detailed
information contained elsewhere in this offering memorandum. You should read the entire offering
memorandum carefully to understand our business, the nature of the Notes offered hereby, and the tax and
other considerations that are important to your decision to invest in the Notes. You should pay special
attention to the ‘‘Risk Factors’’ section.
Our Company
We are a leading gaming company engaged in the management of slot machines, bingo halls,
casinos and off-track betting facilities in Spain, Latin America and Italy. As of December 31, 2004, we
managed approximately 32,000 slot machines, 54 bingo halls with an aggregate of approximately 30,600
seats, 35 off-track betting facilities, a horse racing track and two casinos (and had financial interests in
four others). In the year ended December 31, 2004 and in the three months ended March 31, 2005, we
generated revenues of A395.2 million and A108.9 million and EBITDA of A82.3 million and
A20.4 million, respectively.
We are the second largest operator of AWP machines in Spain with approximately 12,800 AWP
machines installed in over 8,600 bars, restaurants and nightclubs as of December 31, 2004. We have
over 20 years of experience in operating AWP machines in Spain, and have established a large portfolio
of exclusive gaming sites for our AWP machines. In addition to our Spain AWP business, we also
operate the Canoe bingo hall in Madrid, which we believe is the largest bingo hall in continental
Europe with 1,140 seats. In the year ended December 31, 2004 and in the three months ended
March 31, 2005, our Spain AWP business generated revenues of A148.7 million and A39.3 million and
EBITDA (before corporate headquarters expenses) of A41.5 million and A11.5 million, respectively, and
our Spain bingo business generated revenues of A88.5 million and A22.8 million and EBITDA (before
corporate headquarters expenses) of A3.7 million and A1.1 million, respectively.
Other than Spain, Mexico and Argentina are our most important markets. In Mexico, through our
joint venture with Corporación Interamericana de Entretenimiento, S.A. de C.V. (‘‘CIE’’) and our
management services agreement with Grupo Caliente, S.A. de C.V. (‘‘Caliente’’), we are the largest
operator of gaming sites, with 48 off-track betting sites, 43 of which include bingo halls, as of
December 31, 2004. As of March 31, 2005, CIE holds licenses to build and operate an additional
14 halls and Caliente holds licenses to build and operate an additional 69 halls. Pursuant to our
joint-venture agreement with CIE and our management services agreement with Caliente, we expect to
open 13 new bingo halls in 2005. In the year ended December 31, 2004 and in the three months ended
March 31, 2005, our Mexico business generated revenues of A34.5 million and A9.8 million and
EBITDA (before corporate headquarters expenses) of A18.7 million and A4.2 million, respectively.
In Buenos Aires province, we are the second largest operator of bingo halls with eight bingo
venues in operation as of December 31, 2004. We also operate approximately 1,100 slot machines
installed in our bingo halls as of December 31, 2004. In the year ended December 31, 2004 and in the
three months ended March 31, 2005, our Argentina business generated revenues of A59.1 million and
A18.9 million and EBITDA (before corporate headquarters expenses) of A14.6 million and A5.2 million,
respectively.
Our Competitive Strengths
We believe that the following factors contribute to our strong competitive position:
• Proven and Attractive AWP Business Model. Our Spanish AWP machines produce average daily
net box revenues that are substantially higher than the industry average according to the Spanish
National Gaming Commission. Our strong net box performance is principally attributable to our
1
business model, which is focused on obtaining the most attractive points of sale and the highest
producing AWP machines, which increases the likelihood site owners will renew their contracts
with us. We are able to obtain the highest producing AWP machines by leveraging our position
as a leader in the Spanish AWP machine market, which permits us to test a significant
percentage of new AWP machine models produced each year. We also optimize the performance
of our AWP machine portfolio by rotating AWP machines among numerous locations and by
replacing poorly performing AWP machines with new models. This is facilitated by our
framework rental agreement with Recreativos Franco, pursuant to which we may exchange
rented AWP machines more quickly than would be economically feasible with purchased AWP
machines. In addition, we maintain a low average age of our AWP machines. As of
December 31, 2004, the average age of our AWP machine portfolio was 23.3 months, compared
to our estimate of the market average of 30 months. We believe that we will be able to apply
our Spain AWP business model successfully to other markets in which we have operations, such
as Colombia and Italy, and thereby strengthen our competitive position in such markets.
• Sophisticated Information Systems and Cash Collection Controls. We believe that our proprietary
information systems and cash collection controls, particularly in respect of our Spain AWP
business, help us maximize revenues and minimize losses due to fraud or theft. Our information
systems assist us in making operating decisions, such as when to rotate an AWP or slot machine
to a different location or to retire it. Such data also provides information on player tendencies,
which assists us in selecting new AWP or slot machines. We believe that our information systems
generate better operating information, such as identifying poorly performing AWP machines,
than is available to many of our smaller competitors and have thereby significantly contributed
to our achieving average daily net box per AWP machine that substantially exceeds that of the
industry average in Spain over the last eight years. Our cash collection controls track the cash
we receive from AWP or slot machines at our points of sale to the counting and matching of
amounts at our regional offices and finally to the delivery of cash to our bank accounts. These
controls have been effective at providing us with accurate and timely operating information while
minimizing both fraud and theft. We intend to apply our experience in information systems and
cash collection controls in our Spain AWP business to our other businesses which have, or will
have, highly dispersed operations, such as our Mexico Caliente, Mexico CIE and Colombia
businesses.
• Leadership Positions in Major Markets with Significant Barriers to Entry. We were one of the first
companies to operate AWP machines when the Spanish market was opened to licensed
operators in the early 1980s. We have grown rapidly and have become a market leader in several
of the most populous and affluent regions of Spain, including Madrid, Catalonia and Valencia, in
terms of the number of AWP machines as of December 31, 2004. We are now the second-largest
operator of AWP machines in Spain with approximately 12,800 AWP machines installed in over
8,600 points of sale as of December 31, 2004. Through our joint venture with CIE and
management services agreement with Caliente, we are the largest operator of gaming sites in
Mexico. In Argentina, we are the second largest operator of bingo halls in Buenos Aires
province with eight bingo venues in operation as of December 31, 2004, and have recently
acquired an option to acquire Recreativos Franco’s interests in Grupo Royal, which would add
six additional bingo halls to our Argentine operations. As a market leader, we are often given
the opportunity to test the most attractive AWP machines produced each year, which permits us
to select the highest producing AWP machines for our portfolio. Our access to high producing
AWP machines enhances our ability to obtain the most attractive points of sale. In addition, our
size allows us to spread many of our required costs and investments, such as those relating to
designing and building information systems and cash collection controls and hiring and training
personnel, across our operations, which results in lower costs for each of our businesses. Our
presence in the markets in which we operate creates a barrier to entry for other operators that
2
lack the resources or know-how to compete. For this reason most of the markets in which we
operate are characterized by a small number of large operators and a large number of small
operators with limited numbers of new entrants.
• Significant Experience Interacting With Gaming Regulators. We are a diversified international
gaming company with established operations in eight countries throughout the world and a
gaming portfolio that includes AWP machines, bingo halls, off-track betting, a horse racetrack
and casinos. The breadth and longevity of our operations has enabled us to acquire valuable
experience in working with gaming regulators in a diverse range of countries and regional
jurisdictions. In several cases, we have collaborated with gaming regulators in the development
of new gaming regulations or markets. We believe that our strong market positions and close
and cooperative relationships with gaming regulators provide us with a competitive advantage
over most of our competitors and makes us an attractive partner with whom to develop new
gaming businesses.
• Experienced Management Team. Our senior management team has an average of eight years of
industry experience. Our chief executive officer, José Antonio Martı́nez Sampedro, was a
co-founder of the company and has overseen the growth of our company from several dozen
AWP machines in Spain to a geographically diversified operator with a broad gaming product
offering. Javier Martı́nez Sampedro, the brother of José Antonio Martı́nez Sampedro and a
member of our Board of Directors, is head of our Latin American operations and has been with
us for over 17 years. In addition, our key operations in Spain, Mexico and Argentina are
managed by executives with extensive gaming industry experience. We have further strengthened
our senior management team in the past several years by bringing in talented executives with
proven track records of success in related or complementary industries.
• Strong and Active Board of Directors With Extensive Gaming and Related Experience. Our Board of
Directors includes prominent individuals with extensive government and gaming expertise,
including Jesús Franco and Joaquı́n Franco, pioneers of the Spanish gaming industry and also
our co-founders, José Ignacio Cases Méndez, who served as the head of the Spanish National
Gaming Commission from 1994 to 1998, Joseph Zappala, who served as U.S. Ambassador to
Spain from 1989 to 1992 and José Ramón Romero Rodrı́guez, who has been our outside legal
counsel since July 2002 and has specialized in gaming legislation since 1981. Their government
and gaming experience is important to our ability to establish and maintain good relationships
with regulators in the markets in which we operate, which we believe serves to distinguish us
from our smaller competitors.
Our Strategy
Our goal is to continue to maximize the cash flow generation of our businesses by growing our
existing business and selectively participating in low capital intensive acquisitions, entering into new
markets where there are opportunities to achieve a leading market position and pursuing regulatory
improvements in all of the markets in which we operate. The key elements of this strategy are:
• Leverage Strong Positions in the Spain AWP Machine and Madrid Bingo Markets. Our Spain AWP
machine strategy is focused on maximizing EBITDA and cashflows with the minimum required
investment and selecting the highest possible number of high performing AWP machines for our
installed portfolio. We pursue this strategy by leveraging our strong position in the Spain AWP
machine market to obtain the most attractive points of sale and highest producing AWP
machines. We intend to continue actively evaluating new AWP machines that we are given an
opportunity to test by manufacturers or pursuant to our right under our framework rental
agreement to test AWP machines and return those that perform poorly. In addition, we intend
to continue optimizing the performance of our AWP machines by rotating them among points of
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sale, when player interest for a given model in a specific location begins to decline, and by
replacing AWP machines promptly when their performance deteriorates, which is facilitated by
our framework rental agreement with Recreativos Franco. In our Spanish bingo hall business, we
are focused on continuing to achieve average play per visitor at our Canoe bingo hall that we
believe is higher than that achieved at our competitors’ bingo halls. We are also focused on
increasing the number of visitors to Canoe by offering new products, such as computer-based
multi-card bingo terminals, and developing targeted public relations events and a customer
retention campaign to stimulate repeat visits by our most profitable customers. In both the AWP
machine and bingo businesses, we actively pursue regulatory improvements, including the
possibility of higher maximum wagers and prizes, video formats and lower prize payouts.
• Focus on Well-Regulated Local Gaming Markets. We will continue to focus on offering gaming
activities oriented toward the local resident population rather than the tourist-oriented gaming
market, which requires investment in capital intensive Las Vegas-style casinos and gaming
facilities. We believe that this focus limits required capital investment, and that these local
market-oriented gaming activities generate significant tax revenue for the jurisdictions in which
we operate, ensuring transparent regulation and political support for these gaming activities.
• Pursue Selected Growth Opportunities. We believe that we are in a strong position to capitalize on
selected growth opportunities available in our existing markets and in new markets we have yet
to enter. In Spain, we are focused on acquisitions of smaller AWP machine operators that
require low investment and present limited execution risk. These acquisitions are attractive
because we believe we can increase the average daily net box of the AWP machines that we
acquire through AWP machine rotation and replacing poorly performing AWP machines with
higher producing AWP machines. In Argentina, we have acquired an option to purchase
Recreativos Franco’s interests in Grupo Royal, a transaction which would add six bingo halls to
our strong position in the Buenos Aires province’s bingo market. In Italy, we have entered into a
memorandum of understanding in which we indicated an interest in purchasing Operbingo, the
owner and operator of 11 bingo halls throughout Italy. Through our joint venture with CIE and
management services agreement with Caliente, we had as of March 31, 2005, 88 licenses to
operate bingo halls in Mexico yet to exploit and, in light of recent regulatory developments, we
expect to exploit those licenses in the next few years. In addition, we have had success with the
‘‘racino’’ business model, which combines horse racing and slots machines, in Uruguay and are
considering opportunities to develop similar operations in other Latin American markets,
including Panama, Brazil and Puerto Rico. We believe that acquisitions in the regions, where we
currently enjoy significant local market share are particularly attractive, since we can leverage
our existing cost structure and relationships with local regulators.
• Achieve and maintain an optimal capital structure and preserve our business model. Our goal is to
achieve and maintain a stable and low-cost capital structure and a cash-generative business
model in the rapidly consolidating industry in which we operate. Through this offering of the
Notes, we are seeking to improve our capital structure, lower our cost of capital and ensure we
have sufficient funds to execute our business plan. Our Spanish business for many years has
been characterized by strong and stable cash-flows, underpinned by the relatively low levels of
capital expenditure required to maintain the existing business. Our existing international
operations, particularly those in Mexico and Argentina, have completed the initial phase of
developments where the cash-flow generated was largely reinvested. We believe these businesses
will similarly be characterized by strong cash flows and a relatively low level of regular capital
expenditure. We intend to maintain this capital structure and business model as we continue to
participate selectively in both consolidation and expansion opportunities in Spain and
international markets.
4
• Continue to strengthen management and improve internal controls. We believe that strengthening
our corporate governance policies and procedures, management capabilities, and effective
internal controls has been and will continue be critical to our growth and success and to the
enhancement of our reputation in the gaming industry. We will continue to pursue a program to
strengthen our management team by attracting experienced executives to complement the skills
of our founding families, as demonstrated by the hiring of Robert A. Gray, as Chief Financial
Officer, who has over 23 years of investment banking experience, and Rafael Catalá, as Chief
Legal Officer, who has over 18 years of legal experience in various Spanish regulatory positions
and the appointment of Javier Encinar, as Internal Audit and Compliance Officer, who has over
10 years of internal audit and compliance experience with us. We continually review and
strengthen our internal controls and procedures, particularly those relating to compliance, money
laundering, the handling of cash, large prize payouts and transaction authorization, and intend to
continue to build on our strong management by adopting industry best practices.
Our Principal Shareholders
As of the date of this offering memorandum, José Antonio Martı́nez Sampedro, who is Chairman
of our Board of Directors and Chief Executive Officer, holds, directly and indirectly, an aggregate of
19.07% of Codere, S.A.’s shares, Jesús Franco and Joaquı́n Franco, who are brothers and members of
our Board of Directors, hold, directly and indirectly, an aggregate of 23.41% and 18.17%, respectively,
of Codere, S.A.’s shares and other members of the Martı́nez Sampedro family hold, directly and
indirectly, an aggregate of 18.18% of Codere, S.A.’s shares. See ‘‘Principal Shareholders’’.
Jesús Franco and Joaquı́n Franco also own Recreativos Franco, S.A. (‘‘Recreativos Franco’’), our
main supplier of rental AWP machines in Spain and a supplier of AWP machines in other jurisdictions.
We have entered into various contractual arrangements with Recreativos Franco, including, among
others, on May 24, 2005, an option agreement to acquire the interests in an Argentine bingo hall
operator, Grupo Royal, that Recreativos Franco recently acquired on our behalf. In addition, on
May 18, 2005, we entered into a memorandum of understanding relating to our possible purchase of
Operbingo Italia S.p.A. (‘‘Operbingo’’), an Italian bingo company owned in part by Francomar
Investments, S.A. (‘‘Francomar’’), a company owned by Jesús Franco, Joaquı́n Franco and the Martı́nez
Sampedro family. Jesús Franco and Joaquı́n Franco also own several AWP machine businesses that
compete with us. See ‘‘Related Party Transactions’’.
The Refinancing
We are party to a senior credit facilities agreement, a mezzanine loan facility agreement, a senior
guarantee facility agreement, a performance bond facilities agreement and an intercreditor agreement.
As described below, certain of these facilities will be repaid in full with the net proceeds from this
offering, and in connection with this offering, we expect to enter into the following agreements:
• a senior credit facilities agreement consisting of:
• a A45 million senior credit facility; and
• a A30 million senior performance bond facility;
• an intercreditor agreement; and
• a subordination agreement.
5
Recent Developments
Grupo Royal
On April 1, 2005, Recreativos Franco, acting on our behalf, acquired controlling interests in a
group of companies we refer to as ‘‘Grupo Royal’’ from Mr. Carlos Manuel Vazquez Loureda, Grupo
Royal’s founder and president, and his wife. Grupo Royal owns six bingo halls, in which we held a 25%
interest as of such date, located in Buenos Aires province in Argentina. As previously arranged with
Recreativos Franco, on May 24, 2005, we acquired from Recreativos Franco an option to purchase its
interest in Grupo Royal. We intend to exercise this option and use approximately A69.0 million of the
net proceeds from this offering to pay the option price, transaction costs and expenses, restructuring
costs and costs related to buying out certain remaining minority shareholders of several of the Grupo
Royal companies. If we acquire Recreativos Franco’s interest in Grupo Royal, we will also assume
Grupo Royal’s pending tax contingencies for which Grupo Royal had provisioned A10.6 million as of
March 31, 2005. Following our exercise of the purchase option, we will own over 90% of Grupo Royal,
which we expect to increase over time by buying out certain remaining minority shareholders of several
of the Grupo Royal companies. As part of the Recreativos Franco acquisition, we and Mr. Carlos
Manuel Vazquez Loureda and his wife agreed to terminate a series of pending litigation proceedings
between us.
In the year ended December 31, 2004 and in the three months ended March 31, 2005, Grupo
Royal generated revenues of A110.7 million and A27.7 million and EBITDA of A29.5 million and
A6.7 million, respectively. On a pro forma basis to reflect the proposed acquisition of Recreativos
Franco’s interests in Grupo Royal, as if it had occurred as of January 1, 2004, our Argentine business
would have generated revenues of A169.8 million and A46.6 million, representing 33.6% and 34.1% of
our total consolidated revenues, and EBITDA (before corporate headquarters expenses) of
A44.1 million and A11.9 million, representing 39.4% and 44.1% of our consolidated EBITDA (before
corporate headquarters expenses) for the year ended December 31, 2004 and the three months ended
March 31, 2005, respectively.
Following the proposed acquisition of Recreativos Franco’s interests in Grupo Royal, we believe
we will be the industry leader in the bingo and the slot machine markets in Buenos Aires province,
each in terms of revenues in the year ended December 31, 2004. We also believe our proposed
acquisition of the Grupo Royal bingo halls will provide savings in central and administrative expenses
and economies of scale in purchasing. See ‘‘Business—Argentina’’ for a more detailed description of
the transactions described above and additional information regarding Grupo Royal.
Italy
On May 18, 2005, we entered into a memorandum of understanding with the shareholders of
Operbingo in which we indicated an interest in purchasing 100% of Operbingo, the owner and operator
of 11 bingo halls throughout Italy, to which Codere Italia, S.p.A. (‘‘Codere Italia’’) currently provides
management services. Such purchase is subject to certain conditions, including the completion of a due
diligence review and an audit of Operbingo’s financial statements and the entry into definitive
documentation. The memorandum of understanding provides that if the Operbingo transaction is
consummated the purchase price would consist of a nominal cash payment and the assumption of debt,
which we estimate will be A43.9 million upon closing of the acquisition, and a deferred payment based
on a multiple of Operbingo’s 2006 EBITDA. The term of the memorandum of understanding expires
on September 30, 2005. See ‘‘Related Party Transactions—Agreements with Francomar—Memorandum
of Understanding—Operbingo Purchase’’. In the year ended December 31, 2004, Operbingo generated
revenues of A167.5 million and EBITDA of A1.7 million, in each case according to the unaudited Italian
GAAP statutory accounts it has deposited with the Camera di Comercio.
6
Operbingo’s shareholders are (i) Francomar, which is owned by Jesús Franco and Joaquı́n Franco,
two of our significant shareholders and members of our Board of Directors, and José Antonio Martı́nez
Sampedro, our Chief Executive Officer and also one of our significant shareholders and a member of
our Board of Directors, and certain Martinez Sampedro family members and (ii) our local Italian
partners, Mr. Leonardo Ceoldo and Mr. Vittorio Casale. Our Italian partners also own 43.5% of
Codere Italia. See ‘‘Related Party Transactions—Agreements with Francomar’’.
We believe that acquiring Operbingo would enable us to strengthen our position in the Italian
bingo market at an attractive cost and that such acquisition would lead to cost synergies by allowing us
to share certain headquarters expenses with our Italian AWP operations. We also believe that favorable
regulatory changes may provide us with additional opportunities for revenue growth, such as by
permitting us to interlink our bingo halls.
See ‘‘Business—Italy’’ for a more detailed description of the possible Operbingo transaction and
additional information regarding our Italian operations.
The Issuer
The Issuer was incorporated on June 1, 2005 as a société anonyme under the laws of Luxembourg.
The Issuer has its registered office at 1, rue des Glacis, L-1628 Luxembourg, and is registered with the
Luxembourg Register of Trade and Companies under the number B108371. Codere, S.A. owns, directly
or indirectly, 100% of the shares of the Issuer and the Issuer’s only significant asset following the
offering will be a funding loan to Codere, S.A. equal to the proceeds of this offering. The Issuer has
conducted no business operations since it was formed and will have no subsidiaries or significant
business other than the issuance of the Notes and has no source of income except payments received
from Codere, S.A. under the funding loan.
The Guarantors
The Notes will be guaranteed by Codere, S.A. and certain of its subsidiaries. The Subsidiary
Guarantors are Operibérica, S.A.U., Codere Madrid, S.A.U., Codere Barcelona, S.A.U., Misuri, S.A.U.,
Codere Valencia, S.A., Codere Lleida, S.A.U., Complejo Turı́stico Huatulco, S.A. de C.V., Compañı́a
de Inversiones Mexicanas, S.A. de C.V., Codere Mexico, S.A. de C.V., Promociones Recreativas
Mexicanas S.A. de C.V., Bingos Platenses, S.A., Intermar Bingos, S.A., Bingos del Oeste, S.A.,
Interjuegos, S.A., Codere Argentina, S.A., Franfe, S.A., Mexico City, S.A., Nanos, S.A., Iberargen, S.A.,
Loarsa, S.A., Punto 3, S.A., Rajoy Palace, S.A., Pacı́fico, S.A., Codere Colombia, S.A., Turismo y
Recreación, S.A., Intersare, S.A., Colonder, S.A.U., and Codere Uruguay, S.A.
7
Summary Financing Structure
The following diagram summarizes our financing structure for this offering. Please refer to the
sections entitled ‘‘Use of Proceeds’’, ‘‘Capitalization’’, ‘‘Description of Other Indebtedness and
Instruments’’ and ‘‘Description of the Notes’’ for more detailed descriptions of our financing structure
and this offering.
Senior
Guarantee
€75 million
Senior
Credit Facilities (2)
Codere, S.A. (1)
Funding
Loan (3)
€335 million
Senior Notes
Codere Finance
(Luxembourg) S.A.
Codere España,
S.L.U. (4)
Spanish NonGuarantor
Subsidiaries
Codere Internacional,
S.L.U. (5)
Spanish Subsidiary
Guarantors (6)
Latin American
Non-Guarantor
Subsidiaries
Senior Subordinated Guarantees
Latin American
Subsidiary
Guarantors (7)
9JUN200508571454
(1) Codere, S.A. will provide a senior guarantee of the Notes and will be the borrower under the senior credit facilities.
(2) The senior credit facilities will include a A45 million senior credit facility and a A30 million senior performance bond facility.
(3) The Issuer will lend the proceeds of the offering of the Notes to Codere, S.A. pursuant to the funding loan, which will be
assigned by way of security to secure the obligations of the Issuer under the Notes on a first-ranking basis.
(4) Codere España, S.L.U. will provide a senior guarantee of the senior credit facilities. The shares of Codere España, S.L.U.
will be pledged to secure the obligations of (i) Codere, S.A. under the senior credit facilities on a first-ranking basis and
(ii) the Issuer under the Notes and Codere, S.A. under its Parent Guarantee of the Notes on a second-ranking basis.
(5) Codere Internacional, S.L.U. will provide a senior guarantee of the senior credit facilities. The shares of Codere
Internacional, S.L.U. will be pledged to secure the obligations of (i) Codere, S.A. under the senior credit facilities on a firstranking basis and (ii) the Issuer under the Notes and Codere, S.A. under its Parent Guarantee of the Notes on a secondranking basis.
8
(6) The Spanish Subsidiary Guarantors will provide senior guarantees of the senior credit facilities and guarantees of the Notes
that will rank behind and be subordinated (on a senior subordinated basis) pursuant to the Intercreditor Agreement to all
obligations of such Subsidiary Guarantor under Credit Facilities, including the senior credit facilities, and certain hedging
obligations of such Subsidiary Guarantor.
(7) The Latin American Subsidiary Guarantors will provide senior guarantees of the senior credit facilities and guarantees of the
Notes that will rank behind and be subordinated (on a senior subordinated basis) pursuant to the Intercreditor Agreement
to all obligations of such Subsidiary Guarantor under Credit Facilities, including the senior credit facilities, and certain
hedging obligations of such Subsidiary Guarantor.
9
The Offering
The summary below describes the principal terms of the Notes. Certain of the terms and conditions
described below are subject to important limitations and exceptions. The ‘‘Description of the Notes’’ section
of this offering memorandum contains a more detailed description of the terms and conditions of the Notes,
including the definitions of certain terms used in this summary.
Issuer . . . . . . . . . . . . . . . . . . . . . . .
Codere Finance (Luxembourg) S.A.
Guarantors . . . . . . . . . . . . . . . . . . .
Codere, S.A., as Parent Guarantor, and Operibérica, S.A.U.,
Codere Madrid, S.A.U., Codere Barcelona, S.A.U.,
Misuri, S.A.U., Codere Valencia, S.A., Codere Lleida, S.A.U.,
Complejo Turı́stico Huatulco, S.A. de C.V., Compañı́a
de Inversiones Mexicanas, S.A. de C.V., Codere
Mexico, S.A. de C.V., Promociones Recreativas Mexicanas,
S.A. de C.V., Bingos Platenses, S.A., Intermar Bingos, S.A.,
Bingos del Oeste, S.A., Interjuegos, S.A., Codere
Argentina, S.A., Franfe, S.A., Mexico City, S.A., Nanos, S.A.,
Iberargen, S.A., Loarsa, S.A., Punto 3, S.A., Rajoy Palace,
S.A., Pacı́fico, S.A., Codere Colombia, S.A., Turismo y
Recreación, S.A., Intersare, S.A., Colonder, S.A.U., and
Codere Uruguay, S.A., as Subsidiary Guarantors.
Notes Offered . . . . . . . . . . . . . . . . . .
A335,000,000 aggregate principal amount of 81⁄4% senior notes
due 2015.
The Issuer may issue additional Notes in the future, subject to
compliance with the covenants in the Indenture.
Maturity Date . . . . . . . . . . . . . . . . .
June 15, 2015.
Interest Payment Dates . . . . . . . . . . .
Semi-annually on June 15 and December 15 of each year,
commencing on December 15, 2005. Interest will accrue from
the issue date of the Notes.
Denomination . . . . . . . . . . . . . . . . . .
The Notes will be issued in denominations of A50,000 and any
integral multiple of A1,000 above A50,000.
Ranking of the Notes . . . . . . . . . . . .
The Notes will be general obligations of the Issuer and will
• rank equally in right of payment with any existing and
future Debt of the Issuer that is not subordinated in right
of payment to the Notes;
• rank senior in right of payment to any existing and future
Debt of the Issuer that is subordinated in right of payment
to the Notes; and
• be effectively subordinated in right of payment to any
existing and future Debt of the Issuer that is secured by
liens senior to the liens securing the Notes or secured by
liens on assets not securing the Notes, to the extent of the
value of the assets securing such Debt.
10
Immediately following the Offering, the Issuer will have no
outstanding indebtedness other than the Notes. The Issuer is a
finance subsidiary with no revenue-generating operations of its
own. In order to make payments on the Notes or meet its
other obligations, it will be dependent on receiving payments
from the Parent Guarantor under the funding loan.
Ranking of the Guarantees . . . . . . . .
The Notes will be guaranteed on a senior basis by the Parent
Guarantor. The Parent Guarantee of the Notes will be a
general obligation of the Parent Guarantor and will:
future Debt of the Parent Guarantor that is not
subordinated in right of payment to the Parent Guarantee,
including the Parent Guarantor’s guarantee of the senior
credit facilities;
Debt of the Parent Guarantor that is subordinated in right
of payment to the Parent Guarantee; and
existing and future Debt of the Parent Guarantor that is
secured by liens senior to the liens securing the Parent
Guarantee (including Debt incurred under the senior credit
facilities) or secured by liens on assets not securing the
Parent Guarantee, to the extent of the value of the assets
securing such Debt.
The Notes will be guaranteed on a senior subordinated basis
by the Subsidiary Guarantors. Each Subsidiary Guarantee of
the Notes will be a general obligation of the relevant
Subsidiary Guarantor and will, pursuant to the terms of the
Intercreditor Agreement:
• rank behind and be subordinated (on a senior subordinated
basis) to all obligations of such Subsidiary Guarantor under
Credit Facilities, including the senior credit facilities and
certain hedging obligations of the relevant Subsidiary
Guarantor;
future Debt of the relevant Subsidiary Guarantor that is not
subordinated in right of payment to such Subsidiary
Guarantee;
Debt of the relevant Subsidiary Guarantor that is
subordinated in right of payment to such Subsidiary
Guarantee;
existing and future Debt of the relevant Subsidiary
Guarantor that is secured by liens, to the extent of the
value of the assets securing such Debt; and
11
• be subject to certain restrictions on enforcement, including
a standstill period of not less than 90 days (in the case of a
payment default) or 179 days (in the case of a default other
than a payment default) under the Notes. See ‘‘Description
of the Notes—Subordination of the Subsidiary Guarantees’’.
Not all of our subsidiaries will guarantee the Notes. In the
event of a bankruptcy, liquidation or reorganization of any of
our non-guarantor subsidiaries, the non-guarantor subsidiaries
will pay the holders of their debt and their trade creditors
before they will be able to distribute any of their assets to us.
As of March 31, 2005, on an unaudited basis giving pro forma
effect to the offering and the use of the net proceeds
therefrom:
• we would have had total debt of A356.3 million (excluding
the MCP Instrument), of which A335.0 million would have
been represented by the Notes;
• the Issuer would have had no outstanding debt other than
the Notes;
• the Guarantors would have had A2.4 million of debt secured
by liens on assets that do not secure the Guarantees; and
• non-guarantor subsidiaries of the Guarantors would have
had outstanding A11.1 million of total debt.
Use of Proceeds . . . . . . . . . . . . . . . .
The proceeds of this offering of Notes will be lent by the
Issuer to Codere, S.A. pursuant to a funding loan. We expect
to use the proceeds of this offering to repay our mezzanine
loan facility, acquire Grupo Royal and pay for related
acquisition costs, repay debt of Operbingo or invest in
permitted businesses and repay existing debt and for general
corporate purposes. See ‘‘Use of Proceeds’’.
Security . . . . . . . . . . . . . . . . . . . . . .
The Notes will be secured by a first priority lien over the
funding loan and by second priority liens over the shares of
Codere España, S.L.U. and Codere Internacional, S.L.U., and
the Parent Guarantee will be secured by second priority liens
over the shares of Codere España, S.L.U. and Codere
Internacional, S.L.U. Codere España, S.L.U. and Codere
Internacional, S.L.U. are intermediate holding companies
which hold, directly or indirectly, all of the interests in our
current operating subsidiaries. (If we acquire Grupo Royal, as
we expect to do, it will be held directly by Codere, S.A.)
12
Optional Redemption . . . . . . . . . . . .
Prior to June 15, 2008, up to 35% of the aggregate principal
amount of the Notes may be redeemed with the net proceeds
of certain public equity offerings at a redemption price equal
to 108.25% of the principal amount thereof, plus the accrued
and unpaid interest and Additional Amounts, if any, to the
redemption date, provided that at least 65% of the aggregate
principal amount of the Notes remains outstanding following
such redemption and the redemption occurs within 45 days of
the date of the closing of such public equity offering.
The Notes may be redeemed in whole or in part, at any time
prior to June 15, 2010, at a redemption price equal to 100%
of the principal amount thereof, plus the premium as
described below in ‘‘Description of the Notes—Optional
Redemption’’ as of, and accrued and unpaid interest to, the
date of redemption.
On or after June 15, 2010, the Notes may be redeemed, in
whole or in part, at the option of the Issuer at the redemption
prices listed in ‘‘Description of the Notes—Optional
Redemption’’.
Tax Redemption . . . . . . . . . . . . . . . .
If certain changes in the law of any relevant taxing jurisdiction
became effective that would impose withholding taxes on
payments on the Notes, we may redeem all of the Notes at a
price equal to their principal amount plus accrued and unpaid
interest, if any.
See ‘‘Description of the Notes—Optional Redemption—
Redemption Upon Changes in Withholding Tax’’.
Mandatory Repurchases of Notes . . .
Upon a Change of Control, each holder of the Notes may
require the Issuer or the Parent Guarantor to repurchase all
or any part (equal to A50,000 or any integral multiple of
A1,000 in excess thereof) of that holder’s Notes at a purchase
price equal to 101% of the principal amount of Notes
repurchased, plus accrued and unpaid interest and Additional
Amounts, if any, of the Notes repurchased, to the date of
repurchase. The Issuer or the Parent Guarantor is also
required to offer to purchase the Notes with the excess
proceeds, if any, following certain asset sales. See ‘‘Description
of the Notes—Repurchase at the Option of Holders—Change
of Control’’.
Covenants . . . . . . . . . . . . . . . . . . . .
The Issuer and the Guarantors will be parties to the Indenture
together with Deutsche Trustee Company Limited as trustee
(the ‘‘Trustee’’) and security trustee (the ‘‘Security Trustee’’).
The Indenture will limit, among other things, the ability of the
Issuer, the Parent Guarantor and the Restricted Group
Members to:
• make certain restricted payments and investments;
• incur additional debt and issue preferred shares;
13
• guarantee indebtedness;
• create liens;
• create restrictions on the ability of the Restricted Group
Members to pay dividends or make other payments to the
Parent Guarantor or any Restricted Group Member;
• transfer or sell assets;
• merge, consolidate, amalgamate or combine with other
entities;
• enter into transactions with affiliates;
• enter into sale and leaseback transactions;
• issue or sell shares of the Restricted Group Members; or
• amend, transfer or make any change to the funding loan
between the Issuer and the Parent Guarantor.
Each of the covenants is subject to a number of important
exceptions and qualifications. See ‘‘Description of the Notes—
Certain Covenants’’.
Restricted Group Members means, collectively, each
Restricted Subsidiary and each Restricted Affiliate.
Intercreditor Agreement . . . . . . . . . .
The Trustee will enter into an Intercreditor Agreement
together with the lenders under the new senior credit facilities.
Pursuant to the Intercreditor Agreement, the Trustee will
agree to certain provisions that, among other things, give
effect to the relative priority of the liens securing the Notes
and the Parent Guarantee and the subordination of the
Subsidiary Guarantees of the Notes. See ‘‘Description of
Other Indebtedness and Instruments’’.
Transfer Restrictions . . . . . . . . . . . .
The Notes and the Guarantees have not been registered under
the Securities Act or the securities laws of any other
jurisdiction and will not be so registered. The Notes are
subject to restrictions on transferability and resale. See
‘‘Transfer Restrictions’’.
Absence of a public market for the
Notes . . . . . . . . . . . . . . . . . . . . . .
The Notes will be new securities for which there is currently
no established trading market. Although the initial purchasers
have informed us that they intend to make a market in the
Notes, they are not obligated to do so and they may
discontinue market-making at any time at their sole discretion
and without notice. Accordingly, we cannot assure you that a
liquid market for the Notes will develop or be maintained.
Listing . . . . . . . . . . . . . . . . . . . . . . .
Application has been made to list the Notes on the Irish Stock
Exchange.
Trustee . . . . . . . . . . . . . . . . . . . . . .
Deutsche Trustee Company Limited.
Principal Paying Agent . . . . . . . . . . .
Deutsche Bank AG acting through its London branch.
14
Irish Paying Agent . . . . . . . . . . . . . .
Deutsche International Corporate Services (Ireland) Limited.
Irish Listing Agent . . . . . . . . . . . . . .
Arthur Cox Listing Services Limited.
Governing Law . . . . . . . . . . . . . . . . .
The Indenture is governed by the laws of the State of New
York. The Intercreditor Agreement is governed by English
law.
Risk Factors
You should refer to ‘‘Risk Factors’’ beginning on page 26 for an explanation of certain risks
involved in investing in the Notes. You should carefully consider the information under ‘‘Risk Factors’’
and all other information in this offering memorandum before investing in the Notes.
15
Summary Financial Information and Other Data
Our Summary Consolidated Financial Information and Other Data
The summary audited consolidated financial information as of and for the years ended
December 31, 2002, 2003 and 2004 and the summary unaudited interim consolidated financial
information as of March 31, 2005 and for the three months ended March 31, 2004 and 2005 presented
below have been derived from our Consolidated Financial Statements included elsewhere in this
offering memorandum. The summary audited consolidated financial information as of and for the years
ended December 31, 2000 and 2001 has been derived from the consolidated financial statements for
Codere, which are not included in this offering memorandum.
Our consolidated financial statements as of and for the years ended December 31, 2000, 2001,
2002, 2003 and 2004 have been prepared in accordance with Spanish GAAP and audited by Ernst &
Young, S.L., our independent auditors. The unaudited interim consolidated financial statements as of
March 31, 2005 and for the three months ended March 31, 2004 and 2005 have been prepared in
accordance with Spanish GAAP and reviewed by Ernst & Young, S.L. In the opinion of management,
the unaudited interim consolidated financial statements have been prepared on a basis consistent with
the audited consolidated financial statements included elsewhere in this offering memorandum and
include all adjustments, consisting of only normal recurring adjustments, which management considers
necessary for a fair statement of the results for the unaudited interim periods.
We are not required to present a cash flow statement in our Consolidated Financial Statements
prepared in accordance with Spanish GAAP and Spanish GAAP does not provide any standards for the
preparation of a cash flow statement. However, in order to provide investors with information
regarding our cash flows, we have included cash flow statements prepared in accordance with IAS 7 for
the years ended December 31, 2002, 2003 and 2004 and for the three month periods ended March 31,
2004 and 2005 elsewhere in this offering memorandum and present below selected cash flow
information derived from such cash flow statements.
Spanish GAAP differs in certain significant respects from U.S. GAAP and IFRS. We have included
a description of the principal differences between Spanish GAAP, U.S. GAAP and IFRS as applied to
us in Annex A. We have also included certain consolidated financial information prepared in
accordance with IFRS under ‘‘—Our Summary Consolidated Financial Information Prepared In
Accordance with IFRS’’ and a reconciliation of certain items from our consolidated balance sheet and
income statement prepared in accordance with Spanish GAAP to our consolidated balance sheet and
income statement prepared in accordance with IFRS under ‘‘Selected Financial Information and Other
Data—Reconciliation Between Spanish GAAP and IFRS’’ below.
16
2000
Year ended December 31,
2001(1) 2002(2)
2003
2004
Three months
ended
March 31,
2004
2005
(unaudited)
(E in millions)
Income statement data:
Operating revenue . . . . . . . . . . . . . . . . . .
Operating expenses:
Consumption and other external expenses . .
Personnel expenses . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . .
Variation in provisions for trade transactions
Other operating expenses:
Gaming and other taxes . . . . . . . . . . . .
Other(3) . . . . . . . . . . . . . . . . . . . . . .
272.3
428.4
353.8
352.0
395.2
98.2
108.9
.
.
.
.
.
21.6
47.6
9.9
8.3
0.7
135.4*
59.4
13.5
10.7
1.5
88.6
51.3
12.0
12.3
0.8
95.0
49.9
11.2
10.5
—
103.6
55.8
13.8
12.5
2.0
28.1
13.1
3.3
2.7
—
28.3
16.1
3.9
3.6
0.2
. . . . . . . . .
. . . . . . . . .
94.3
48.6
100.8
61.7
81.8
55.9
88.7
48.3
97.1
56.4
23.4
12.9
25.2
18.9
Total operating expenses . . . . . . . . . . . . . . . . . . .
231.0
383.0
302.7
303.6
341.2
83.5
96.2
41.3
45.4
51.1
48.4
54.0
14.7
12.7
7.1
2.3
0.6
12.8
3.8
(6.8)
13.1
2.6
(3.1)
26.0
2.5
0.5
38.7
3.1
1.2
9.0
0.7
0.2
9.9
0.8
0.5
.
.
.
.
.
3.0
8.2
2.2
13.0
6.1
4.5
9.8
(1.4)
9.0
2.5
1.9
11.2
(53.1)
4.0
(0.4)
0.8
10.5
(21.8)
10.9
3.8
1.1
10.9
(18.3)
10.8
4.2
—
2.7
(2.7)
2.4
1.5
0.5
3.0
4.7
3.4
0.5
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.0
11.4
(28.5)
(20.8)
(23.5)
(2.7)
2.4
24.0
37.6
8.2
368.6
142.4
133.9
17.2
48.3
15.9
403.6
144.6
147.4
14.9
23.9
12.8
372.8
116.2
100.2
17.5
43.2
10.2
375.6
170.2
50.7
26.5
20.4
23.0
422.9
195.7
28.7
16.4
27.3
13.0
396.0
172.7
52.7
26.8
14.4
19.5
453.4
203.3
36.9
62.6
(52.4)
(12.6)
(2.3)
57.2
(56.6)
2.0
2.6
58.0
(66.2)
17.2
9.0
13.6
(15.2)
0.5
(1.1)
18.7
(23.8)
5.4
0.3
76.2
82.7
70.1
76.1
82.3
88.4
20.7
22.1
20.4
21.1
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term loans and receivables . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36.9
3.4
0.4
42.0
6.1
—
43.7
7.9
10.8
8.4
3.9
1.1
13.5
4.2
2.9
Total cash invested excluding capitalized expenses . . . . . . . .
40.7
48.1
62.5
13.5
20.6
Operating profit . . . . . . . . . . . . . . . . . . . .
Financial items:
Financial expenses(4) . . . . . . . . . . . . . . .
Financial revenues(5) . . . . . . . . . . . . . . .
Exchange gains (losses), net . . . . . . . . . . .
Share in the profits of companies carried by the
method . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of goodwill in consolidation . . . .
Extraordinary profits (loss) . . . . . . . . . . . . .
Corporate income tax . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
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equity
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Balance sheet data:
Cash(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital(7) . . . . . . . . . . . . . . . . . . . . .
Other long-term payables and other adjustments(8) .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt(9) . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . .
Cash flow data:
Net cash flow provided by
Net increase (decrease) in
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operating activities . . . . . .
(used in) investing activities
(used in) financing activities
cash and cash equivalents . .
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Other financial data:
EBITDA(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA(11) . . . . . . . . . . . . . . . . . . . . . . . . .
60.2
60.7
17
71.1
76.2
2000
Operating data:
Total AWP/slot machines . . . . . .
Spanish AWP machines . . . . . .
Average daily net box per Spanish
(in euro)(12) . . . . . . . . . . . .
Number of bingo halls . . . . . . .
Number of bingo seats . . . . . . .
. . . .
. . . .
AWP
. . . .
. . . .
. . . .
. . . . . .
. . . . . .
machine
. . . . . .
. . . . . .
. . . . . .
At December 31,
2001
2002
2003
At March 31,
2004
2005
2004
. . . . . . . .
. . . . . . . .
28,024
13,647
27,780
13,148
27,291
12,677
29,053
12,314
32,007
12,847
28,824
12,135
31,981
12,839
. . . . . . . .
. . . . . . . .
. . . . . . . .
42.8
21
12,137
45.6
27
15,729
51.6
34
20,181
53.0
43
26,243
54.4
54
30,676
56.9
42
25,798
56.2
56
31,122
*
Gaming taxes included within consumption and other external expenses in 2001 have been reclassified to ‘‘Other operating
expenses-Gaming and other taxes’’ to make 2001 comparable to following years.
(1)
In its audit report on our consolidated financial statements as of and for the year ended December 31, 2001, Ernst &
Young, S.L. our independent auditors, qualified such report with respect to three items: (i) if we had used the Argentine
peso—U.S. dollar exchange rate in effect on the date on which the consolidated financial statements were approved
(March 20, 2002) by our Board of Directors and our shareholders to value our assets and liabilities related to our
operations in Argentina, we would have recognized an additional decrease in shareholders’ equity of approximately
A6 million; (ii) we recorded a receivable in the amount of A15.7 million on our consolidated balance sheet as of
December 31, 2001 as a result of acquiring interests in certain subsidiaries and as of the date of its report, Ernst &
Young, S.L. had not confirmed the identity of the counterparties and the terms under which such receivable would be paid
and (iii) we recorded A2.6 million in intangible assets corresponding to a project to develop a network gaming system, in
respect of which Ernst & Young, S.L. noted there was uncertainty as of the date of its report regarding the viability of such
project.
(2)
In light of the qualifications in Ernst & Young, S.L.’s report on our consolidated financial statements as of and for the year
ended December 31, 2001 described in note 1 above, our consolidated financial statements as of and for the year ended
December 31, 2002 may not be directly comparable to our consolidated financial statements as of and for the year ended
December 31, 2001.
(3)
Includes other services such as AWP machine rental expense, other rental expense and professional services.
(4)
Includes principally financial expenses from payables to third parties and similar expenses.
(5)
Includes revenues from marketable securities and receivables from fixed assets, other interest and similar revenue and
losses on short-term financial investments and profit from short-term financial investments.
(6)
Cash is comprised of cash at banks and cash on hand.
(7)
We define working capital as current assets (excluding cash) less current liabilities (excluding payables to credit entities).
(8)
Other long-term payables and other adjustments include amounts owed to site owners and adjustments relating to accrued
revenues and provisions relating to short-term investments.
(9)
We define total debt as long-term debt, plus current portion of payables to credit entities, minus other payables and minus
the MCP Instrument.
(10) We define EBITDA as operating profit plus period depreciation and amortization plus variation in provisions for trade
transactions. We believe that EBITDA is commonly used by the financial community as an indicator of funds available to
service debt, although it is not a measurement required by, or presented in accordance with, Spanish GAAP, U.S. GAAP or
IFRS. EBITDA should not be considered in isolation and is not a measurement of our financial performance or liquidity
under Spanish GAAP, U.S. GAAP or IFRS and should not be considered as an alternative to operating profit or loss for
the period or any other performance measures derived in accordance with Spanish GAAP, U.S. GAAP or IFRS or as an
alternative to cash flow from operating, investing or financing activities as a measure of our liquidity as derived in
accordance with Spanish GAAP, U.S. GAAP or IFRS. EBITDA does not necessarily indicate whether cash flow will be
sufficient or available for cash requirements and may not be indicative of our results of operations. In addition, EBITDA as
we define it may not be comparable to other similarly titled measures used by other companies.
18
The reconciliation of EBITDA to operating profit is as follows:
2000
EBITDA . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . .
Amortization . . . . . . . . . . .
Change in operating provisions
Operating profit . . . . . . . . .
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60.2
9.9
8.3
0.7
41.3
2001
2002
2003
2004
71.1
13.5
10.7
1.5
45.4
76.2
12.0
12.3
0.8
51.1
(E in millions)
70.1
82.3
11.2
13.8
10.5
12.5
—
2.0
48.4
54.0
Three months
ended
March 31,
2004
2005
(unaudited)
20.7
3.3
2.7
—
14.7
20.4
3.9
3.6
0.2
12.7
(11) Our EBITDA does not fully reflect the EBITDA of our Mexico CIE business, as the revenues we record relating to this
business are equal to 1% of the net income of the bingo hall operations of the entity (the A en P) that holds the bingo
licenses and sports books licenses for this business, plus approximately 50% of the net income of ERSA (together
‘‘Revenues from A en P’’), the joint venture company through which we conduct our Mexico CIE business. See ‘‘Business—
Mexico—Mexico CIE—Background and Operations’’. Our EBITDA therefore does not include all of our share of EBITDA
of the A en P. To reflect this, we calculate an Adjusted EBITDA, which is EBITDA minus Revenues from A en P plus
approximately 50% of the EBITDA of the A en P. The reconciliation of EBITDA to Adjusted EBITDA is as follows:
2000
EBITDA . . . . . . . . .
Revenues from A en P
EBITDA of the A en P
Adjusted EBITDA . . .
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60.2
(0.5)
1.0
60.7
2001
2002
2003
2004
71.1
(7.3)
12.4
76.2
(E
76.2
(12.3)
18.8
82.7
in millions)
70.1
82.3
(8.0) (11.8)
14.0
17.9
76.1
88.4
Three months
ended
March 31,
2004
2005
(unaudited)
20.7
(2.0)
3.4
22.1
20.4
(2.6)
3.3
21.1
(12) Average daily net box per AWP machine is calculated as average daily amounts wagered per installed AWP machine for the
period less prize payout amounts.
19
Our Summary Consolidated Financial Information Prepared in Accordance with IFRS
The summary audited IFRS consolidated financial information as of and for the year ended
December 31, 2004 and the summary unaudited interim IFRS consolidated financial information as of
March 31, 2005 and for the three months ended March 31, 2004 and 2005 presented below have been
derived from our audited preliminary 2004 IFRS consolidated financial statements as of and for the
year ended December 31, 2004 and the unaudited preliminary IFRS consolidated financial statements
as of March 31, 2005 and for the three months ended March 31, 2004 and 2005 included elsewhere in
this offering memorandum.
The audited preliminary 2004 IFRS consolidated financial statements as of and for the year ended
December 31, 2004 have been prepared in accordance with IFRS and audited by Ernst & Young, S.L.,
our independent auditors. The unaudited preliminary IFRS consolidated financial statements as of
accordance with IFRS and reviewed by Ernst & Young, S.L. In the opinion of management the
unaudited preliminary IFRS consolidated financial statements have been prepared on a basis consistent
with the audited preliminary 2004 IFRS consolidated financial statements included elsewhere in this
offering memorandum and include all adjustments, consisting of only normal recurring adjustments,
which management considers necessary for a fair statement of the results for the unaudited interim
periods.
The IFRS financial information provided herein is preliminary and is based on the assumptions
our management has made regarding the IFRS and related interpretations and policies expected to be
in effect, when management prepares its first complete set of IFRS financial statements as of
December 31, 2005 and for the year then ended, and comparable information in respect of the year
ended December 31, 2004. This preliminary IFRS financial information may require adjustment if
management’s assumptions are different from the IFRS and related interpretations and policies that
are in effect when it is required to prepare its first complete set of IFRS financial statements at
year-end 2005, and comparable information in respect of the year ended December 31, 2004. These
adjustments may be material and may result in significant changes to the IFRS financial information
provided below. We cannot assure you that when the first complete set of IFRS financial statements at
year-end 2005, and comparable information in respect of the year ended December 31, 2004, is
prepared, that such information will be comparable to the IFRS financial information provided herein
or that material adjustments will not be required to be made to such IFRS financial information.
In addition, our reported financial results under IFRS are different from our reported financial
results under Spanish GAAP. For example, our EBITDA under IFRS for 2004 and the three months
ended March 31, 2004 and 2005 as shown on our audited preliminary 2004 IFRS consolidated financial
statements and our unaudited preliminary IFRS consolidated financial statements for the three months
ended March 31, 2004 and 2005 was A68.3 million, A16.2 million and A16.1 million, respectively, as
compared to A82.3 million, A20.7 million and A20.4 million, respectively, for such periods under Spanish
GAAP. Other measures of our operating results, as well as measures of our financial position, are also
different under IFRS from these measures under Spanish GAAP.
In general, the most significant IFRS adjustments made to our IFRS income statement arise due
to the non-recognition of extraordinary items under IFRS which results in the reclassification of these
items to the income statement line items where it would be most appropriate for them to be recorded,
the reversal of the amortization of goodwill, which is tested annually, rather than amortized, under
IFRS, the reduction in retained earnings due to the difference in valuation methods of the put options
on own shares, for which provisions were taken under Spanish GAAP, the recognition of start-up costs
as an expense as they are incurred under IFRS rather than capitalizing such expenses and the
difference in valuation of capitalized borrowing costs.
20
Our EBITDA for the year ended December 31, 2004 calculated under IFRS was in general
affected by the same types of adjustment as those described above in respect of our IFRS income
statement. In particular our EBITDA for the year ended December 31, 2004 calculated under IFRS
was affected by the recognition of A6.8 million in start-up costs capitalized under Spanish GAAP as
expenses and the non-recognition of A5.1 million in extraordinary expenses under IFRS. See ‘‘Selected
Financial Information and Other Data—Reconciliation Between Spanish GAAP and IFRS’’ for
additional information.
Three months
ended
March 31,
2004
2005
(unaudited)
(E in millions)
Year ended
December 31,
2004
Operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Consumption and other external expenses . . . . . . . . . . . . . .
Personnel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .
Variation in provisions for trade transactions . . . . . . . . . . . .
Other operating expenses: . . . . . . . . . . . . . . . . . . . . . . . . . .
Gaming and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial items:
Financial expenses(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial revenues(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . .
Share in the profits of companies carried by the equity method
Amortization of goodwill in consolidation(4) . . . . . . . . . . . . . .
Extraordinary profits(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extraordinary losses(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance sheet data:
Cash and cash equivalents(6) . . . . . . . . . . . . . . . .
Working capital(7) . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term payables and other adjustments(8)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . .
Cash flow data:
Net increase (decrease) in
.
.
.
.
.
.
.
.
.
.
.
.
........
395.0
98.0
108.9
.
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.
103.6
55.9
23.7
2.6
167.2
97.3
69.9
353.0
42.0
28.1
13.2
5.4
—
40.5
23.0
17.5
87.2
10.8
28.3
16.0
7.0
0.2
48.5
25.3
23.2
100.0
8.9
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.
38.5
3.5
1.8
1.1
—
—
—
10.9
3.5
(4.5)
8.0
0.7
0.3
—
—
—
—
2.8
1.5
(1.2)
8.7
1.0
1.3
0.5
—
—
—
3.7
0.4
(1.1)
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26.5
19.9
22.1
419.5
185.6
13.4
16.4
26.4
16.0
382.0
162.6
23.1
operating activities . . . . . . .
(used in) investing activities .
(used in) financing activities
cash . . . . . . . . . . . . . . . . . .
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54.2
(62.4)
17.3
9.0
11.9
15.5
(13.4) (20.6)
0.5
5.4
(1.1)
0.2
EBITDA(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68.3
74.4
(1) Includes other services, such as AWP machine rental expense and professional services.
21
16.2
17.6
26.8
12.5
15.7
449.8
194.2
37.6
16.1
16.8
(2) Includes principally financial expenses from payables to third parties and similar expenses.
(3) Includes revenues from marketable securities and receivables from fixed assets, other interest and
similar revenue and losses on short-term financial investments and profit from short-term financial
investments.
(4) Goodwill in consolidation is not amortized under IFRS.
(5) The classification of certain income and expenses as extraordinary is not permitted under IFRS.
(6) Cash is comprised of cash at banks and cash on hand.
(7) We define working capital as current assets (excluding cash and cash equivalents) less current
liabilities (excluding payables to credit entities).
(8) Other long-term payables and other adjustments include amounts owed to site owners and
adjustments relating to accrued revenues and provisions relating to short-term investments.
(9) We define total debt as long-term debt, plus current portion of payables to credit entities, minus
other payables and minus the MCP Instrument.
(10) We define EBITDA as operating profit plus period depreciation and amortization plus variation in
provisions for trade transactions. We believe that EBITDA is commonly used by the financial
community as an indicator of funds available to service debt, although it is not a measurement
required by, or presented in accordance with, Spanish GAAP, U.S. GAAP or IFRS. EBITDA
should not be considered in isolation and is not a measurement of our financial performance or
liquidity under Spanish GAAP, U.S. GAAP or IFRS and should not be considered as an
alternative to operating profit or loss for the period or any other performance measures derived in
accordance with Spanish GAAP, U.S. GAAP or IFRS or as an alternative to cash flow from
operating, investing or financing activities as a measure of our liquidity as derived in accordance
with Spanish GAAP, U.S. GAAP or IFRS. EBITDA does not necessarily indicate whether cash
flow will be sufficient or available for cash requirements and may not be indicative of our results
of operations. In addition, EBITDA as we define it may not be comparable to other similarly titled
measures used by other companies.
Three
months
ended
Year ended
March 31,
December 31,
2004
2004
2005
(unaudited)
(E in millions)
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . .
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68.3
23.7
2.6
42.0
16.2
5.4
—
10.8
16.1
7.0
0.2
8.9
(11) Our EBITDA does not fully reflect the EBITDA of our Mexico CIE business, as the revenues we
record relating to this business are equal to 1% of the net income of the bingo hall operations of
the entity (the A en P) that holds the bingo licenses and sports books licenses for this business,
plus approximately 50% of the net income of ERSA (together ‘‘Revenues from A en P’’), the joint
venture company through which we conduct our Mexico CIE business. See ‘‘Business—Mexico—
Mexico CIE—Background and Operations’’. Our EBITDA therefore does not include all of our
share of EBITDA of the A en P. To reflect this, we calculate an Adjusted EBITDA, which is
EBITDA minus Revenues from A en P plus approximately 50% of the EBITDA of the A en P.
22
The reconciliation of EBITDA to Adjusted EBITDA is as follows:
Three
months
ended
Year ended
March 31,
December 31,
2004
2004
2005
(unaudited)
(E in millions)
EBITDA . . . . . . . . . . .
Revenues from A en P .
Adjusted EBITDA . . . .
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68.3
(11.8)
17.9
74.4
16.2 16.1
(2.0) (2.6)
3.4
3.3
17.6 16.8
Summary Unaudited Pro Forma Combined Financial Information
The following summary unaudited pro forma combined financial information has been derived
from the unaudited pro forma combined financial information for the year ended December 31, 2004
and as of and for the three months ended March 31, 2005 included elsewhere in this offering
memorandum. The unaudited pro forma combined financial information was prepared to illustrate the
estimated effects of the proposed combination of Codere with Grupo Royal, as if the Grupo Royal
acquisition had occurred for balance sheet purposes as of March 31, 2005 and for income statement
and cash flow statement purposes as of January 1, 2004. The unaudited pro forma combined financial
statements have been prepared from the historical consolidated financial statements of the Codere
Group which have been prepared in accordance with Spanish GAAP and the combined financial
statements of Grupo Royal which have been prepared in accordance with Spanish GAAP. The basis of
presentation and method of consolidation is described in note 2 of the unaudited pro forma combined
financial statements.
The adjustments in the unaudited pro forma combined financial information have been made on
the basis of available information and certain assumptions and estimates that management believes are
reasonable. The pro forma adjustments are described in the notes to the unaudited pro forma
combined financial information. No pro forma effect was given to any acquisitions completed in the
year ended December 31, 2004 or in the three months ended March 31, 2005 because the necessary
adjustments would have been immaterial.
purposes only and, because of its nature, may not give a true picture of the financial position or results
of operations of the enlarged group that would have been achieved had the Grupo Royal acquisition
occurred on the dates indicated. Furthermore, the unaudited pro forma combined financial information
is not indicative of the financial position or results of operations of the enlarged group for any future
date or period. In particular, our pro forma income statements do not give effect to the full
A335.0 million in principal amount of Notes being issued pursuant to this offering and reflect a debt
service obligation as if only A69.0 million in principal amount of Notes had been offered to finance the
Grupo Royal acquisition. In addition, the pro forma combined cash flow information has been
prepared by adding the respective cash flow statements of the Codere Group and Grupo Royal for the
periods shown, without making any adjustments thereto.
The unaudited pro forma combined financial information should be read in conjunction with the
notes thereto, our Consolidated Financial Statements and notes thereto, the audited combined financial
statements of Grupo Royal and notes thereto and the unaudited interim combined financial statements
of Grupo Royal, all included elsewhere in this offering memorandum, and the information set forth
23
under ‘‘Use of Proceeds’’ and ‘‘Management’s Discussion and Analysis of Operating Results and
Financial Condition’’.
Year ended
December 31, 2004
Consolidated
Codere, S.A.
Three months ended
March 31, 2005
Combined
Pro Forma
Combined
Pro Forma
Royal
Pro Forma
Combined Consolidated
Royal
Pro Forma
Combined
Group Adjustments(1) Codere, S.A. Codere, S.A.
Group Adjustments(1) Codere, S.A.
(E in millions)
(Unaudited)
Operating revenue . . . . . . . . . .
Operating expenses:
Consumption and other external
expenses . . . . . . . . . . . . .
Personnel expenses . . . . . . . .
Depreciation and amortization .
Variation in provisions for trade
transactions . . . . . . . . . . .
Other operating expenses: . . . .
Total operating expenses . . . .
Operating profit . . . . . . . . . . .
Financial items:
Financial expenses . . . . . . . .
Financial revenues . . . . . . . .
Exchange gains (losses), net . . .
Share in the profits of companies
carried by the equity method . .
Amortization of goodwill in
consolidation . . . . . . . . . . . .
Extraordinary profits . . . . . . . .
Extraordinary losses . . . . . . . . .
Corporate income tax . . . . . . . .
Minority interests . . . . . . . . . .
Net income (loss) . . . . . . . . . .
Balance sheet data:
Cash . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . .
Other long-term payables and
other adjustments . . . . . . . . .
Total assets . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . .
Cash flow data
operating activities . . . . . . . .
Net cash flow provided by (used
in) investing activities . . . . . . .
in) financing activities . . . . . .
Net increase (decrease) in cash . .
EBITDA . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . .
(Unaudited)
395.2
110.6
—
505.8
108.9
27.7
—
136.6
103.6
55.8
26.3
27.0
9.0
2.8
—
—
—
130.6
64.8
29.1
28.3
16.1
7.5
6.6
2.4
0.7
—
—
—
34.9
18.5
8.2
2.0
153.5
341.2
54.0
—
45.1
83.9
26.7
—
—
—
—
2.0
198.6
425.1
80.7
0.2
44.1
96.2
12.7
—
12.0
21.7
6.0
—
—
—
—
0.2
56.1
117.9
18.7
38.7
3.1
1.2
0.8
0.1
(0.1)
5.7
—
—
45.2
3.2
1.1
9.9
0.8
0.5
0.1
0.1
—
1.4
—
—
11.4
0.9
0.5
1.1
—
(1.1)
—
0.5
—
(0.5)
—
10.9
10.3
28.6
10.8
4.2
(23.5)
1.1
—
3.5
7.9
4.9
8.5
5.6
—
—
(2.0)
(4.1)
(6.3)
17.6
10.3
32.1
16.7
5.0
(21.3)
3.0
7.7
3.0
3.4
0.5
2.4
0.3
0.2
0.5
2.0
1.2
2.2
1.4
—
—
(0.5)
(1.0)
(1.8)
4.7
7.9
3.5
4.9
0.7
2.8
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
26.8
14.4
10.5
(9.9)
—
—
37.3
4.5
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
19.5
453.4
203.3
36.9
0.1
50.8
0.8
13.1
58.0
22.3
—
80.3
18.7
4.5
—
23.2
(66.2)
(3.7)
—
(69.9)
(23.8)
(1.6)
—
(25.4)
17.2
9.0
(7.8)
10.8
—
—
9.4
19.8
5.4
0.3
(8.2)
(5.3)
—
—
(2.8)
(5.0)
82.3
88.4
29.5
29.5
—
—
111.8
118.0
20.4
21.1
6.7
6.7
—
—
27.1
27.8
—
48.7
63.9
(13.1)
19.6
552.9
(268.0)
36.9
(1) Notes describing the pro forma adjustments are included in the unaudited pro forma combined financial information for the year ended
December 31, 2004 and as of and for the three months ended March 31, 2005 included elsewhere in this offering memorandum.
24
Adjusted Unaudited Pro Forma Combined Financial Data
The following adjusted unaudited pro forma combined financial data has been prepared for
illustrative purposes only to reflect our adjusted total net debt at March 31, 2005 as if the full
A335.0 million in principal amount of the Notes had been issued on March 31, 2005 and the proceeds
applied to finance the Grupo Royal acquisition and repay debt as described under ‘‘Use of Proceeds’’.
(E million)
Total debt as adjusted at March 31, 2005(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash as adjusted at March 31, 2005(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
356.3
45.7
Total net debt as adjusted(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
310.6
Estimated pro forma Adjusted EBITDA(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net debt as adjusted/estimated pro forma Adjusted EBITDA . . . . . . . . . . . . . . . . . . .
117.2
2.7x
(1) Total debt (excluding the MCP Instrument) as of March 31, 2005 as adjusted to give effect to the
offering of the Notes and the application of the estimated net proceeds therefrom as described
under ‘‘Use of Proceeds’’. The actual amounts to be repaid with the estimated net proceeds of the
offering of the Notes will include additional accrued and capitalized interest and draw-downs on
our senior credit facilities from March 31, 2005 through the date of payment. As of June 30, 2005,
this additional amount is estimated to be A14.1 million. See also ‘‘Capitalization’’.
(2) Cash on the balance sheet as of March 31, 2005 as adjusted to give effect to the offering of the
Notes and the application of the net estimated proceeds therefrom as described under ‘‘Use of
Proceeds’’. Includes an estimated A14.1 million as of June 30, 2005 to repay additional accrued and
capitalized interest and draw-downs on our senior credit facilities from March 31, 2005 through the
date of payment. Excludes cash on the Grupo Royal combined balance sheets as of March 31,
2005.
(3) Total net debt as adjusted reflects total debt as adjusted at March 31, 2005, net of cash as adjusted
at that date.
(4) Estimated pro forma Adjusted EBITDA is derived from ‘‘Summary Unaudited Pro Forma
Combined Financial Information’’, our unaudited interim consolidated financial statements as of
and for the three months ended March 31, 2004 and 2005 and the unaudited combined interim
financial statements for Grupo Royal as of and for the three months ended March 31, 2004 and
2005 and is calculated for the twelve month period from April 1, 2004 to March 31, 2005 by
deducting pro forma Adjusted EBITDA for the three months to March 31, 2004 from pro forma
Adjusted EBITDA for the year to December 31, 2004 and adding pro forma Adjusted EBITDA
for the three months to March 31, 2005.
25
RISK FACTORS
Risks Related to Our Business
We are exposed to regulatory, political, economic and currency risks associated with our international
operations
In the year ended December 31, 2004 and in the three months ended March 31, 2005, revenues
and EBITDA from our operations outside of Spain accounted for 39.7% and 42.8% of our
consolidated revenues and 54.5% and 47.3% of our consolidated EBITDA, respectively, before
corporate headquarters expenses. Over the past 20 years, we have established operations in seven
countries outside of Spain, almost exclusively in Latin America, and we intend to continue to develop
our existing international operations and selectively expand into new geographic markets. Pursuing our
strategy of expansion of our operations outside of Spain has placed and may continue to place us in
new markets and businesses in which the gaming industry and taxation and related regulatory
environment are, in many cases, less developed than in Spain. See ‘‘Industry and Regulation’’. In
addition, in many international markets in which we operate, we enter into contractual arrangements
with third parties, as in many cases we are unable to obtain the necessary licenses directly. These
arrangements are subject to a number of risks, including those described under ‘‘—Our joint venture,
shareholder and operator agreements limit our influence over, and the cash flow that can be derived
from certain of our businesses, and we are subject to certain agreements that limit our ability to pursue
new gaming opportunities’’. Our Latin American operations expose us to substantial political, economic
and currency risks because many Latin American countries have experienced significant recessions,
inflation, unemployment and social unrest and their economies and currencies are more volatile than
those of the countries of the European Union or the United States. Government measures in these
countries concerning these issues, including currency controls, have had and may continue to have a
material adverse affect on private sector entities. Our failure to manage such risks and volatility could
have a material adverse affect on our business, results of operations and financial condition.
In addition, the costs and revenues of our operations in Latin America are denominated in
currencies other than the euro. As our financial statements are denominated in euro, the appreciation
of the euro in recent years relative to such other currencies has adversely impacted, and may continue
to adversely impact, our results of operations. Moreover, currency fluctuations may make
period-to-period comparisons of our results of operations difficult to evaluate. The depreciation of
Latin American currencies relative to the euro may also adversely affect the amount of cash flows
available from our companies in such jurisdictions to pay off our outstanding indebtedness, including
the Notes. We do not enter into hedging arrangements to manage currency fluctuations.
There may be contingent liabilities within the businesses we have recently acquired or which we propose
to acquire of which we are not aware
We have recently acquired or have entered into agreements in which we have the right to acquire
a number of companies and assets, including an option agreement to acquire the interests in Grupo
Royal that Recreativos Franco recently acquired on our behalf and a memorandum of understanding
relating to our possible purchase of Operbingo for which our due diligence investigation is ongoing. See
‘‘Business—Recent Developments’’. We intend to exercise the option to acquire Recreativos Franco’s
interests in Grupo Royal and use approximately A69.0 million of the net proceeds of this offering to
acquire Recreativos Franco’s interests in Grupo Royal. Grupo Royal is involved in a number of tax
proceedings and as of March 31, 2005 had provisioned A10.6 million relating to such contingencies,
which, if we exercise the option to acquire Grupo Royal, we would assume. In addition, we continue to
look for opportunities to expand our operations, particularly in Latin America and in Italy. The
companies we have acquired, propose to acquire or may acquire, and their assets, could have liabilities
or be subject to risks of which we did not or do not become aware through our due diligence
26
investigations and that could materially adversely affect our business, financial condition and results of
operations. In addition, though we do not believe it is probable, we may be required to divest part of
the Grupo Royal business and/or part of our existing business in Argentina in connection with the
review by the Argentine competition authorities of Recreativos Franco’s acquisition of Grupo Royal
which, as of the date of this offering memorandum, is ongoing.
Argentina has been subject to significant political, social and economic instability in the past several
years and if such instability continues or worsens, our Argentine operations could be materially adversely
affected
In the year ended December 31, 2004 and in the three months ended March 31, 2005, revenues
and EBITDA from our operations in Argentina accounted for 15.0% and 17.4% of our consolidated
revenues and 17.7% and 25.5% of our consolidated EBITDA, respectively, before corporate
headquarters expenses. We intend to expand our Argentine operations by acquiring Recreativos
Franco’s interests in Grupo Royal, increasing the number of bingo halls we operate and the number of
slot machines in those bingo halls and refurbishing and expanding such halls. Our expansion plans in
Argentina are a significant component of our Latin American growth strategy.
Political and Currency Risk. In the past several years, the Argentine economy has experienced a
severe recession, as well as a political and social crisis, and the abandonment of U.S. dollar-Argentine
peso parity has led to significant depreciation of the Argentine peso against major international
currencies.
Although general economic conditions have shown improvement and political protests and social
disturbances have diminished considerably since 2003, the rapid and radical nature of the changes in
the Argentine social, political, economic and legal environment over the past five years and the absence
of a clear political consensus in favor of any particular set of economic policies have given rise to
significant uncertainties about the country’s economic and political future. It is currently unclear
whether the economic and political instability experienced over the past five years will continue and it
is possible that, despite recent economic growth, Argentina may return to a deeper recession, higher
inflation and unemployment and greater social unrest. If this instability continues, there could be a
material adverse effect on our business, financial condition and results of operations.
Restrictions on transfer of funds. The Argentine authorities, including the Argentine Central Bank,
have, in the past, imposed restrictions on the transfer of funds outside of Argentina and may do so
again in the future. In addition, in 2001 and 2002, the Argentine Central Bank imposed a number of
monetary and currency exchange control measures that included restrictions on the free disposition of
funds deposited with banks and restrictions on transferring funds abroad. Although most of these
restrictions in connection with the transfer of funds abroad have been lifted, there can be no assurance
that the Argentine Central Bank will not again restrict the transfer of funds abroad. If we were unable
to repatriate profits from Argentina, we would not be able to use the cash flow from our operations in
Argentina to finance our operating requirements and satisfy our debt obligations, including the Notes.
Our growth strategy may place significant strain on our management resources and financial and
accounting control systems
A component of our strategy is to grow through targeted acquisitions in Spain and in the
international markets in which we operate, such as Argentina with our proposed acquisition of
Recreativos Franco’s interests in Grupo Royal, and Italy with our possible acquisition of Operbingo. We
may also expand our existing businesses on a selective basis by offering new gaming products and
entering new geographic markets. Our growth strategy may place significant strain on our management
resources and financial and accounting control systems. For example, though properly approved by its
board of directors, one of our subsidiaries in Italy, Codere Italia, did not include in the management
27
reports submitted to us that it had issued guarantees of obligations of Operbingo and certain other
companies, which are affiliates of our principal shareholders and Italian partners, and such guarantees
were therefore not reflected in the notes to our consolidated financial statements for the years ended
December 31, 2002 and 2003. The guarantees are properly reflected in the notes to the Consolidated
Financial Statements included elsewhere in this offering memorandum. See ‘‘Related Party
Transactions—Agreements with Francomar’’.
In addition, we have grown from being a small, family-run Spanish business into a multi-national
gaming company. As we have grown, our management has been required to identify appropriate
investments and subsequently integrate, train and manage increasing numbers of employees.
Unprofitable investments or an inability to integrate, manage or control new investments could
adversely affect our business, financial condition and results of operations. Our potential inability to
raise the required capital, difficulties in obtaining regulatory approvals (including from competition
authorities) and the lack of the necessary experience to enter new markets may also frustrate our
ability to make future acquisitions at all or on terms satisfactory to us. We may not successfully
overcome problems encountered in connection with potential acquisitions, completed acquisitions or
other expansion efforts, and such problems could have a material adverse effect on our business,
financial condition and results of operations.
We may require a significant amount of cash to satisfy certain commitments
We have granted rights to certain parties, which may require us to make significant payments in
the future. In particular, as more fully described under ‘‘Principal Shareholders’’:
• we have granted Intermediate Capital Investment, Ltd. (‘‘ICIL’’) a put option over all, but not
part, of 1,104,362 Codere, S.A. shares pursuant to which ICIL may require Codere, S.A. to
purchase such shares at a purchase price such that ICIL obtains at least an annual return of
15% on its initial investment of A10.0 million (i) at any time between June 30, 2008 and June 30,
2009, (ii) upon the redemption by Monitor Clipper Equity Partners L.P. (‘‘MCP’’) of the MCP
Instrument or (iii) upon the occurrence of certain other events, including (A) in the event that
the combined interest of Jesús Franco, Joaquı́n Franco and the Martı́nez Sampedro family and
their affiliates equals or falls below 50% of the outstanding share capital of Codere, S.A. or
(B) the liquidation of Codere, S.A. The option expires upon the earlier of June 30, 2009 and the
listing of Codere, S.A. shares on any authorized secondary trading market in the United States
or a member state of the European Union. As of March 31, 2005, the cost of such purchase by
us would have been A12.8 million;
• MCP may, subject to certain conditions, request that we redeem a A40 million convertible
investment instrument, which accrues and capitalizes interest from September 20, 2002 at 15.0%
per annum, upon the occurrence of certain events such as a change of control, liquidation or
bankruptcy of Codere, S.A., or at any time between January 1, 2007 and up to but excluding
December 31, 2007, payable in cash or, in the case of a redemption during 2007, in cash, in
Codere, S.A. shares or in a combination of cash and Codere, S.A. shares, in each case, at our
option. If we are requested to redeem the MCP Instrument and any part or all of the principal
and accrued interest remains unpaid when due, then the interest rate applicable to such unpaid
amounts increases over time up to 30% if any amounts remain unpaid after one year. As of
March 31, 2005, the cost of such redemption by us would have been A57.0 million. After any
failure by us to pay amounts owing upon redemption of the MCP Instrument, MCP may compel
us to apply any available cash (other than that required for certain capital expenditures) to
unpaid amounts due under the MCP Instrument, provided that MCP may not otherwise seek
enforcement, specifically or otherwise, of payment due under the MCP Instrument or seek
damages unless Codere, S.A. is in liquidation or bankruptcy. See ‘‘Description of Other
Indebtedness and Instruments—MCP Instrument’’. In addition, if MCP requests that we redeem
28
the MCP Instrument, Monitor Company Group L.P. (‘‘Monitor’’) may exercise a put option over
161,584 shares of Codere, S.A. and require us to purchase such shares at the higher of (i) A7.88
per share for 121,827 shares and A9.055 per share for 39,757 shares, increased by 15% per
annum from January 1, 2004 for 121,827 shares and from July 1, 2004 for 39,757 shares, which
as of December 31, 2004 would have represented a payment of A1.4 million by us and (ii) (only
in the event that MCP requests that we redeem its investment on any date between January 1,
2007 and up to but excluding December 31, 2007 or as a result of the voluntary or compulsory
winding up and liquidation of Codere, S.A.) the fair market value of such shares (calculated by
dividing the equity value of Codere, S.A. at the date of exercise of the put option by the total
number of shares of Codere, S.A. then outstanding). The 79,514 shares we expect to transfer to
Monitor Group during 2005 in exchange for consulting services provided or to be provided to us
from July 2004 to June 2005, will be granted similar put option rights.
As we have a substantial amount of debt and debt service obligations, we cannot assure you that
we would have sufficient funds on hand or would be able to raise sufficient funds on terms satisfactory
to us or at all to enable us to satisfy these payment and redemption obligations, to the extent we are
required to satisfy them in cash. We also cannot assure you that following the satisfaction of any or all
of such obligations we would have sufficient funds to carry out our business plan. In the event that
MCP requests that we redeem the MCP Instrument between January 1, 2007 and up to but excluding
December 31, 2007, such payment would not be restricted under any of the covenants contained in the
Indenture.
Our planned expansion of our business will require capital expenditures that will consume cash from our
operations and borrowings
Our ability to expand our operations largely depends on our cash flow from our operations and
access to low cost capital. We intend to pursue a growth strategy that is based on both organic growth
and growth through acquisitions. To grow our business organically, we will be required to make capital
expenditures on items such as new slot machines, upgrading and expanding our gaming sites and
technological infrastructure. We also intend to pursue targeted acquisitions in order to grow our
businesses and expand our product offerings in Spain and the international markets in which we
operate. We may also expand our existing business on a selective basis by offering new gaming products
and entering new geographic markets. Such acquisitions will increase our discretionary capital
expenditures significantly.
We intend to fund our cash needs through cash flow from operations, the net proceeds from the
offering of the Notes and, if necessary, bank credit facilities. However, we may not have access to the
amount of capital that we require to grow our business on favorable terms, or at all, and we may not
achieve the returns that we anticipate on any capital expenditures that we make.
We are dependent upon our ability to provide secure gaming products and to maintain the integrity of
our employees and our reputation and that of our joint venture and business partners in order to attract
customers
The integrity and security of gaming operations are critical factors to attracting gaming customers.
We strive to set exacting standards of personal integrity for our employees and security for the gaming
systems and devices that we provide to our customers. Our reputation and that of our joint venture and
business partners in this regard are important factors in our business dealings with governmental
authorities. For this reason, an allegation or a finding of illegal or improper conduct on our part, or on
the part of one or more of our employees, or our joint venture partners or business partners, or an
actual or alleged system security defect or failure, could materially adversely affect our business,
financial condition and results of operations. We have continued to strengthen the integrity and security
of our gaming operations by improving our compliance functions and anti-money laundering
29
procedures, including by appointing an Internal Audit and Compliance officer, Javier Encinar, and
hiring Rafael Catalá, who has extensive government and regulatory experience, including with the
Spanish tax ministry, as our Chief Legal Officer. In addition, we intend to strengthen our corporate
governance policies and procedures, including our audit committee function.
Our joint venture, shareholder and operator agreements limit our influence over, and, in certain cases,
the cash flow that can be derived from certain of our businesses, and we are subject to certain
agreements that limit our ability to pursue new gaming opportunities
Our less than majority interests in our joint venture with CIE, as well as in our Chile and Uruguay
businesses, materially limit our control of such businesses. Although we have entered into agreements
regarding the operation and management of such businesses, and we exercise significant influence with
respect to certain of the affairs of these businesses, our lack of a majority interest has had and will
likely continue to have several important consequences for us and for investors in the Notes. These
include (i) precluding us from controlling such businesses, (ii) limiting our ability to implement
strategies we favor and (iii) allowing such businesses to adopt strategies and take actions which may, in
some cases, be contrary to our preferred strategies and actions. Differences in views with partners or
other shareholders may result in delayed decisions or in failures to agree on major matters, potentially
adversely affecting the business, financial condition and results of operations of these businesses and, in
turn, our business, financial condition and results of operations. Under our joint venture, shareholder
and operator agreements, if we and our partners, fellow shareholders and clients are not able to agree
on important matters, there may not be dispute resolution procedures or the procedures may not
resolve our disputes which may result in the voluntary or involuntary sale of one partner or
shareholder’s interest to the other partner or shareholders. The failure to continue certain of our joint
ventures or to resolve disagreements with our partners could have a material adverse effect on our
business, financial condition and results of operation.
In our Mexico business, we have been in discussions regarding, but have yet to agree to, a defined
dividend policy for our joint venture with CIE. Since the inception of the joint venture, the free cash
flows have been reinvested in new bingo hall development and no specific dividend policy for the
distribution of excess cash to the joint venture partners has been established. Beginning in 2004, the
joint venture has begun to generate cash flows in excess of amounts invested in new bingo halls, and as
of March 31, 2005, the joint venture’s bingo operations held A25.3 million of cash. We and CIE have
engaged in discussions from time to time, including over the past several months, regarding potential
modifications to our joint venture agreement, including the establishment of certain corporate
governance provisions and a specific dividend policy, but we have not reached an agreement on such
matters to date. We cannot provide any assurances that we will reach an agreement in the near-term,
or at all, or that our CIE joint venture will pay out any dividends to its shareholders in the near-term.
In addition, in Mexico, we are subject to restrictions on our ability to pursue new gaming
opportunities with third parties other than pursuant to our existing arrangements with CIE and with
Caliente. Under our agreements with CIE, we are required to provide CIE with a right of first refusal
to participate with us in any new gaming opportunities (other than opportunities we have the right to
pursue with Caliente). Under our agreements with Caliente, we are subject to limitations on operating
sports books, horse racing tracks and dog racing tracks in Mexico and on operating in Baja California
without its participation.
Certain of our subsidiaries do not own the licenses required to conduct gaming operations and are
dependent on third parties in order to conduct such operations
In the year ended December 31, 2004 and in the three months ended March 31, 2005, we
generated 23.7% and 26.4% of our consolidated revenues, respectively, and 40.5% and 46.1% of our
consolidated EBITDA, respectively, before corporate headquarters expenses, through our operations in
30
Mexico and Argentina. We do not own any license, permit or government authorization to operate
gaming activities in these countries. In Mexico, our activities are conducted through a joint venture
agreement with CIE and a management services agreement with Caliente, each of which hold the
necessary licenses required to conduct gaming operations. Argentine law requires that gaming licenses
be awarded to Argentine non-profit organizations which, in turn, enter into agreements with gaming
operators, such as ourselves. Accordingly, in Argentina, we have entered into operator agreements with
various local non-profit organizations. Four of the eight gaming licenses granted to such Argentine
non-profit organizations are due to expire in 2006 and an additional license expires in 2007. In
addition, one of the six gaming licenses granted to Argentine non-profit organizations and used in
connection with Grupo Royal’s bingo operations, which we intend to exercise an option to acquire
following this offering, expires in 2007. We, in conjunction with the non-profit organizations, are
negotiating for the renewal of the bingo hall licenses, and intend to negotiate for renewal of Grupo
Royal’s licenses, but are dependent on the cooperation and good standing of the non-profit
organizations to be successful in obtaining such renewals.
Since we do not directly hold gaming licenses in Mexico and Argentina, we are highly dependent
on our relationships with the holders of the gaming licenses. The failure of any of these local
companies or non-profit organizations to perform the duties and obligations imposed on them under
Mexican or Argentine law for the ongoing operation of our Mexican and Argentine gaming activities
may result in the revocation of such licenses and the subsequent termination of the operator
agreements, which would have a materially adverse effect on our business, financial condition and
results of operations.
In particular, our Mexico CIE business is dependent upon the permits CIE obtained in connection
with the licence it was awarded to operate a horse racing racetrack in Mexico City. In August 2004,
CIE received a notification from the Mexican Institute of Management and Appraisal of National
Assets (Instituto de Administración y Avalúos de Bienes Nacionales) informing CIE that it had
commenced concession revocation proceedings relating to the concessions of such racetrack. The basis
for the proceedings were alleged failures to (i) pay certain taxes assessed for the use of the racetrack,
(ii) provide certain surety bonds related to the property, and (iii) comply with certain terms of the
concessions that prohibit the sub-leasing of any part of the property to third parties, particularly as it
relates to the establishment of a restaurant and a bank branch in the complex.
CIE has challenged these claims as incorrect either in fact or in law, and is engaged in a
settlement proceeding with the Mexican authorities. The permits CIE holds which are used in our
Mexico CIE business could be revoked if such concession revocation proceedings relating to the
racetrack are not resolved favorably, which could have a material adverse effect on our business,
financial condition and results of operations.
In addition, the operator agreements impose several obligations on us and if we do not comply
with such obligations, the agreements may be terminated. If any of the local companies or non-profit
organizations that hold gaming licenses were to experience financial or operational difficulties, or our
relationships with them otherwise ended, our ability to continue to conduct gaming operations in
Mexico or Argentina could be limited or terminated, which could have a materially adverse effect on
our business, financial condition and results of operations.
The licenses may be revoked by the relevant regulatory authority, even if we, or the non-profit
organizations or local companies that hold the licenses, as the case may be, are in compliance with the
duties thereunder. For example, a gaming license in Argentina may be revoked by the competent
authority, if such authority were to determine that the operation of a certain bingo hall is unprofitable,
or upon the occurrence of, among other things, a force majeure event. In the event of termination of
one of our Argentine licenses as specified above, we would have no right to claim for any type of
compensation. The implementation of more onerous laws and regulations could further limit our scope
31
of operations in Mexico and Argentina and have a material adverse effect on our business, financial
condition and results of operations.
We currently source substantially all of our AWP machines from a single supplier
We currently source approximately 90% of our AWP machines in Spain from a single supplier,
Recreativos Franco, who also supplies machines to us for certain other jurisdictions. Recreativos Franco
is owned by two of our significant shareholders and members of our Board of Directors, Jesús Franco
and Joaquı́n Franco. Our framework rental agreement with Recreativos Franco for the provision of our
machines in Spain will expire in June 2006 (other than in respect of the Valencia region, which expires
in 2009). This agreement does not commit Recreativos Franco to provide us with a minimum supply of
AWP machines. See ‘‘Related Party Transactions—Framework Rental Agreement With Recreativos
Franco’’. We believe that the quality of the machines produced by Recreativos Franco is superior to
those of other machine suppliers in Spain and that the terms of the framework rental agreement with
Recreativos Franco are more competitive than those that would otherwise be available to us. Unlike
many of our competitors in Spain, we rent rather than purchase our AWP machines in Spain, which
allows us to respond to changing consumer preferences more quickly. Though we test AWP machine
models produced by six to eight different manufacturers each year, it is likely that we will continue to
depend on Recreativos Franco for a high proportion of our supply of AWP machines until an
alternative source of comparable quality AWP machines on similarly competitive terms is available to
us. In the event that the framework rental agreement with Recreativos Franco is not renewed, we
cannot assure you that we will be able to obtain AWP machines (i) of similar quality and in a sufficient
quantity necessary to satisfy our demands for AWP machines, or (ii) at similar terms as provided by
Recreativos Franco. The manufacturing market of AWP machines in Spain is highly concentrated and
other major manufacturers in Spain are vertically integrated and compete against us as operators of
AWP machines. Thus, any disruption in the manufacturing process or supply of AWP machines from
Recreativos Franco could have a material adverse effect on our business, financial condition and results
of operations.
Our principal shareholders, Jesús Franco, Joaquı́n Franco and the Martı́nez Sampedro family, control
our business and have controlling interests in competing businesses and their interests may compete with
your own
Jesús Franco, Joaquı́n Franco and members of the Martı́nez Sampedro family own, directly or
indirectly, 78.8% of our share capital. Jesús Franco, Joaquı́n Franco and three members of the
Martı́nez Sampedro family are members of our Board of Directors. Jesús Franco, Joaquı́n Franco and
the Martı́nez Sampedro family together have the power to elect the majority of our Board of Directors,
control changes in our management and determine the outcome of substantially all matters to be
decided by a vote of shareholders, including resolutions relating to corporate reorganizations, mergers,
certain amendments to our articles of association and by-laws, dividends, the remuneration of the
members of our board of directors and our executive officers, and day-to-day management. Jesús
Franco, Joaquı́n Franco and the Martı́nez Sampedro family have entered into a shareholders’
agreement, which includes a voting agreement regarding certain significant matters, including voting for
directors and approval of major transactions. The voting agreement provides that if 78% of the shares
held by Jesús Franco, Joaquı́n Franco and the Martı́nez Sampedro family agree to vote as a block on
such matters, all shares held by Jesús Franco, Joaquı́n Franco and the Martı́nez Sampedro family must
vote in favor of any shareholder proposal relating to any such matter. If the 78% majority of the shares
held by Jesús Franco, Joaquı́n Franco and the Martı́nez Sampedro family is not obtained, all shares
held by Jesús Franco, Joaquı́n Franco and the Martı́nez Sampedro family represented at such meeting
must vote against any such shareholder proposals at the shareholders’ meeting. Under the MCP
Instrument and related documentation, MCP has the ability to block certain corporate actions and has
the right to appoint two members of our Board of Directors. In addition, ICIL has the right to appoint
32
one member of our Board of Directors and, under certain circumstances, may have the ability to block
certain corporate actions. The interests of Jesús Franco, Joaquı́n Franco, the Martı́nez Sampedro
family, MCP and ICIL may differ from the interests of holders of the Notes.
In addition, Jesús Franco and Joaquı́n Franco, own interests in businesses that compete with us,
including a 50% interest in Companı́a Orenes de Recreativos, S.A., a large Spanish AWP operator. Our
businesses, financial condition and results of operations may be adversely affected as a result of
competing with businesses owned by Jesús Franco, Joaquı́n Franco and the Martı́nez Sampedro family
or by adverse developments affecting our shareholders or their other businesses.
We have entered into a significant number of other transactions with related parties, and expect to
continue to do so in the future, where there is a potential for conflicts of interests
In the past we have entered into, and expect in the future to enter into, contractual arrangements
with our principal shareholders or companies controlled by them. For example, we have entered into
our framework rental agreement for AWP machines and the option agreement to acquire Grupo Royal
with Recreativos Franco and have entered into a memorandum of understanding relating to the
possible acquisition of Operbingo with our Italian partners, who also own 43.5% of Codere Italia, and
Francomar. We have also entered into several transactions with our shareholders and related parties
involving the purchase and sale of our shares and the granting of certain options over our shares. See
‘‘Related Party Transactions’’. We believe that our prior and existing transactions and arrangements
have been negotiated on an arm’s-length basis and contain market terms. However, there is the
possibility that we could have obtained better terms from third parties and that our future transactions
with related parties will not be entered into on an arm’s-length basis. There is also potential for
conflicts of interests between these shareholders and their affiliates, on the one hand, and our
company, on the other hand, in circumstances where our interests and their interests are not aligned.
We are a party to litigation that may adversely affect us
We are subject to a number of legal proceedings regarding our business, including tax and other
disputes with regulatory authorities. We are involved in litigation regarding an agreement to acquire
twelve bingo halls in Spain, one in Venezuela as well as an additional license to operate bingo halls in
Venezuela, from the Ballesteros Group, a group of Spanish gaming companies. In connection with such
litigation, we have made claims totaling A21.0 million and the Ballesteros Group has made counterclaims totaling A27.4 million. Though we have made provisions of A15.5 million with respect to the
amounts we paid to the Ballesteros Group in connection with the transaction, we have not made any
additional provisions in connection with the Ballesteros litigation. See ‘‘Business—Litigation—
Ballesteros Transaction’’.
We are also subject to a number of tax-related claims in Spain and Latin America and may be
subject to additional claims in the future. In addition, we have recently acquired an option to purchase
Recreativos Franco’s interests in Grupo Royal, which is involved in a number of tax proceedings and as
of March 31, 2005 had provisioned A10.6 million relating to such contingencies. If we exercise the
option to acquire Recreativos Franco’s interests in Grupo Royal, we would assume these liabilities,
which may be larger than we anticipate. See ‘‘Business—Litigation’’. We cannot assure you that we will
prevail in these disputes or in any future disputes, and any adverse decision could have a material
adverse effect on our business, financial condition and results of operations.
33
Our audited preliminary 2004 IFRS consolidated financial statements as of and for the year ended
December 31, 2004 and the unaudited preliminary IFRS consolidated financial statements as of
March 31, 2005 and for the three months ended March 31, 2004 and 2005 are based on our
assumptions of the IFRS and related interpretations and policies that will be in effect when we prepare
our first complete set of IFRS financial statements for year-end 2005 and, if our assumptions are
incorrect, may require material adjustment and not be comparable to our 2005 IFRS financial
statements. In addition our financial results under IFRS are different from our financial results under
Spanish GAAP
Note 2 to our audited preliminary 2004 IFRS consolidated financial statements as of and for the
year ended December 31, 2004 and note 2 to the unaudited preliminary IFRS consolidated financial
statements as of March 31, 2005 and for the three months ended March 31, 2004 and 2005 describe the
assumptions our management has made regarding the IFRS and related interpretations and policies
expected to be in effect when management prepares its first complete set of IFRS financial statements
as of December 31, 2005 and for the year then ended. Our independent auditors have noted in their
audit opinion on our audited preliminary 2004 IFRS consolidated financial statements that such
financial statements may require adjustment before constituting our final 2004 IFRS consolidated
financial statements, if management’s assumptions are different from the IFRS and related
interpretations and policies that are in effect when we prepare our first complete set of IFRS financial
statements at year-end 2005. These adjustments may be material and may result in significant changes
to our financial condition, results of operations and cash flows prepared in accordance with IFRS. Our
independent auditors have also noted that our audited preliminary 2004 IFRS consolidated financial
statements do not comply with IFRS in that only a complete set of financial statements with
comparative financial information and explanatory notes can provide a fair presentation of our financial
position, results of operations and cash flows in accordance with IFRS. We cannot assure you that
when we prepare our first complete set of IFRS financial statements at year-end 2005 that such
financial statements will be comparable with our audited preliminary 2004 IFRS consolidated financial
statements or our unaudited preliminary IFRS consolidated financial statements or that we will not be
required to make material adjustments to our audited preliminary 2004 IFRS consolidated financial
statements.
different under IFRS from these measures under Spanish GAAP. See ‘‘Selected Financial Information
and Other Data—Our Selected Consolidated Financial Information Prepared in Accordance with
IFRS’’.
Risks Related to the Gaming Industry
The gaming industry is subject to extensive regulation, licensing requirements and taxation and our
business may be adversely affected by our inability to renew our licenses or comply with the extensive
regulation and licensing requirements or by changes to regulatory or taxation regimes
Regulation. Our operations are subject to significant regulation and oversight and require licenses
from gaming authorities. These regulations, among other things, govern payouts and wagers and other
slot machine characteristics for slot machines and permissible forms of bingo and other forms of
gaming and betting. In addition to limiting the scope of our permitted activities, these regulations may
limit the number of slot machines, bingo halls, casinos or other types of gaming and betting activities
34
we may operate. Changes in existing laws or regulations, or changes in their interpretation, including
laws or regulations specifically directed to the gaming industry, such as smoking, anti-money laundering
and labor laws, could impair our profitability and restrict our ability to expand our business. For
example, the regulator in Colombia has recently interpreted a law enacted in 2001 to require us to
obtain the prior authorization of the mayor of each city or town in which we have placed or seek to
place our slot machines. While we are in discussions with the regulator regarding this interpretation
and can appeal any final decision by such regulator, if this interpretation is found applicable, we may
be required to move certain of our slot machines and incur additional expenses in soliciting
authorizations prior to placing our machines in Colombian cities and towns. In addition, we are
working with external advisors to implement the Spanish Data Protection Act 15/1999 and related
supplemental legislation. While we are currently taking reasonable steps to abide by this legislation, as
of the date of this offering memorandum, we may be in breach of certain provisions of this regulation,
which could result in fines being imposed on us.
Licensing. Gaming authorities may deny, revoke, suspend or refuse to renew licenses we or our
partners or clients hold and impose fines or seize assets if we or our partners or clients were found to
be in violation of any of these regulations, any of which could have a material adverse effect on our
business, financial condition and results of operations. We may also have difficulty or face uncertainty
in renewing our gaming licenses, if regulation in this regard does not exist, is unclear or is recently
enacted. For example, four of the eight gaming licenses under which we operate our bingo halls in
Argentina are scheduled to expire in 2006 and an additional license expires in 2007. In addition, one of
the six gaming licenses of Grupo Royal, which we intend to exercise our option to acquire following
this offering, expires in 2007. Argentine gaming regulations, however, do not provide a procedure or
mechanism for the renewal of gaming licenses and such renewal depends, to a significant extent, on
negotiations with the relevant authorities and may also be dependent on the cooperation and
goodstanding of the non-profit organizations which hold the gaming licenses. Though we, in
conjunction with the non-profit organizations, have been in discussions with the Argentine authorities
regarding the license renewal process, no clear procedure for license renewal has been established. Any
license renewal procedure that is adopted by the Argentine authorities may contain burdensome
conditions, require additional investments by us in gaming infrastructures or be tied to a gaming tax
increase. We cannot assure you that the gaming licenses under which we operate in Argentina or in the
other countries where we have operations will be renewed or that they will be renewed on satisfactory
terms.
Taxation. In addition, the gaming industry is subject to significant gaming taxation in most of the
countries in which we operate. Taxes on slot machines or other gaming activities may be created or
increased or new and more detailed regulations may be enacted. These tax increases or regulatory
changes could increase our cost of regulatory or tax compliance and could have a material adverse
effect on our business, financial condition and results of operations. For example, the annual taxation
of AWP machines in Spain increased from A852 per machine in 1989 to A2,254 in 1990, leading to a
significant decline in the number of installed gaming machines. In Mexico, we are currently in
discussions with tax authorities over the application of state lottery taxes to our bingo halls, which could
lead to increased gaming taxation on our Mexican operations and lower profitability. In
December 2004, the government of the Buenos Aires province proposed legislation to increase the tax
rate on slot machine gaming from 34% to 45% and increase the number of slot machines permitted to
be installed in existing bingo halls, although as of the date of this offering memorandum such
legislation has not been approved. As gaming taxes imposed by regional or national authorities are a
significant percentage of our revenues, increases in gaming taxes may render our affected operations
unprofitable and have a material adverse affect on our business, financial condition and results of
operations.
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Increased competition could reduce our revenues and EBITDA and constrain our growth
Slot machines. Due to the fragmentation of the slot machine business in Spain and in many of
the markets in which we operate, we compete with a large number of regional and, generally, much
smaller slot machine operators and a small number of larger operators. Many of the markets in which
we compete are consolidating and we expect to compete with our competitors when seeking to acquire
new or existing slot machine sites or obtain the most attractive locations for our gaming halls. In a
competitive environment, success in acquiring new slot machine sites or obtaining the most attractive
locations for our gaming halls often depends on offering the best financial package to site owners,
including, in many cases, one or more up-front exclusivity payments, advances, loans and a larger share
in revenues generated, or paying a higher price for locations that are sought by multiple gaming
companies. Increased competition is likely to result in increases in the foregoing payments and
expenses and could adversely impact our growth strategy for slot machine operations and reduce our
future profit margins and cash flows.
Bingo. In many of the markets in which we operate bingo halls, we face competition by a small
number of large companies, as well as a significant number of smaller operators. Our principal
competitors are Cirsa, Rank and Grupo Ballesteros in Spain and Francis Raineau in Argentina. In
addition, it was recently reported that Grupo Televisa, a large Mexican media company, had obtained
licenses to operate off-track betting and bingo venues throughout Mexico, which may make it a
competitor of ours in Mexico in the future. The presence of competing bingo halls in close proximity to
our bingo halls can result in a significant decrease in attendance in our bingo halls, which could
materially adversely affect their revenues and profitability. In addition, the concentration of bingo halls
in urban locations may push expansion opportunities to less developed and affluent suburban areas.
The recent introduction of interconnected bingo games, which pool together prizes among a number of
different bingo halls, in Spain, Argentina and Mexico could favor operators with a larger number of
bingo halls. Operators with a large number of smaller bingo halls could become more competitive,
since they would be able to offer larger pooled jackpots, which we believe is one of the most important
factors that attracts visitors to specific bingo halls. In addition, in any of the slot machine or bingo halls
markets in which we operate, companies with whom we compete may be larger than us or may have
greater financial resources than we do.
Other. We also face competition from other forms of gaming. The development in any market in
which we operate of alternative forms of gaming, such as ‘‘Las Vegas style’’ gambling resorts, or the
launch of new variations of currently available games, also pose a significant competitive threat to our
business. We also compete with illegal gaming activities that, as a result of their disregard of applicable
regulation, may offer attractive gaming features. If such forms of gaming are successful in attracting our
customers, our business, financial condition and results of operations could be materially adversely
affected. In addition, existing technology (such as Internet gaming), as well as proposed or as yet
undeveloped technologies may become more popular in the future and render our products less
profitable or even obsolete.
We compete to a limited extent with lotteries, which comprise national, regional, and charitable
lotteries. In addition, we believe that gaming competes generally with other forms of entertainment and
leisure activities available to our customers.
Gaming companies face certain challenges relating to public perception and allegations of misconduct
and illegal activity
The conventional or popular perception of the gaming industry is that it is involved in political
corruption, organized crime, money laundering, tax evasion and other criminal activities. This
perception is generally reinforced by allegations against, and occasionally prosecutions of, persons
associated with the gaming industry for involvement in the foregoing criminal activities, as well as
36
through popular entertainment, such as movies, television and industry advertising that associates
gaming with risqué entertainment. We, like most other gaming companies, have faced allegations
relating to our, or our associates’, involvement in illegal activities. In certain countries, including
countries in which we operate, gaming has been the subject of numerous allegations of political
corruption and the general perception that gaming activities are associated with narcotics trafficking,
corruption, money laundering, bribery and violence. In many countries, gaming is overseen by more
than one government regulator and permits and licenses are authorized by local political officials, some
of whom have limited technical competence or experience in the gaming industry, which perpetuates
the popular impression of political corruption in the gaming industry. In the international context,
reputational concerns are exacerbated due to the absence of an international standard for regulating
the gaming industry with each country or region applying a unique set of laws and regulations to
gaming activities. In addition, though we are careful in selecting partners with whom to develop our
gaming businesses and we are strengthening our compliance functions and anti-money laundering
procedures, allegations of misconduct or illegal activity waged against, or legal disputes involving, such
partners may also serve to reinforce negative perceptions regarding our gaming activities. We cannot
assure you that negative public perception regarding gaming arising from any of the foregoing causes,
or otherwise, or future allegations of such nature made against us, will not give rise to increased
governmental scrutiny of our businesses or allegations of misconduct or illegal activity against us or our
partners, either of which could materially adversely affect our business, financial condition and results
of operations.
Risks Related to the Notes
Our substantial debt and debt service obligations could adversely affect our business, financial condition
and results of operations
We have substantial debt and debt service obligations. After giving effect to the issuance of the
Notes and the application of the proceeds of the offering, as of March 31, 2005, we would have had on
a pro forma basis approximately A356.3 million of total debt, which does not include principal and
accrued interest under the MCP Instrument of A57.0 million, which we could under certain
circumstances be required to pay while the Notes are expected to be outstanding. See ‘‘Description of
Other Indebtedness and Instruments—MCP Instrument’’. Our substantial debt could have important
consequences to you, including, but not limited to:
• making it more difficult for us to satisfy our obligations with respect to the Notes and our other
debt and liabilities, which could result in a greater risk of non-compliance with financial and
other restrictive covenants in our debt facilities;
• requiring us to dedicate a substantial portion of our cash flow from operations to payments on
our debt, reducing the availability of our cash flow to fund organic growth through working
capital and capital expenditures and for other general corporate purposes;
• increasing our vulnerability to economic downturns in our industry;
• exposing us to interest rate increases to the extent any of our variable rate debt is not hedged;
• limiting our flexibility in planning for or reacting to changes in our business and our industry;
• restricting us from pursuing strategic acquisitions or exploiting certain business opportunities;
and
• limiting, among other things, our and our subsidiaries’ ability to borrow additional funds or raise
equity capital in the future and increasing the costs of such additional financings.
The terms of the Notes restrict us from incurring additional debt, but do not prohibit us from
doing so. We may incur substantial additional debt in the future which could rank equally with the
37
Notes or the Parent Guarantee or rank senior to the Subsidiary Guarantees, could be secured or could
mature prior to the Notes. The incurrence of additional debt would increase the leverage-related risks
described in this offering memorandum.
We require a significant amount of cash to service our debt and for other general corporate purposes.
Our ability to generate sufficient cash depends on many factors beyond our control
Our ability to make payments on our debt, and to fund working capital, product development,
international expansion and capital expenditures, will depend on our future operating performance and
ability to generate sufficient cash. This depends, to some extent, on general economic, financial,
competitive, market, regulatory and other factors, many of which are beyond our control, as well as the
other factors discussed in these ‘‘Risk Factors’’ and elsewhere in this offering memorandum. In
addition, in 2004, 52% (before corporate headquarters expenses) of our EBITDA which could have
been used to service our debt was derived from our operations in the Latin America, which are
generally subject to additional political, economic and currency risks.
Our business may not generate sufficient cash flows from operations, and additional debt and
equity financing may not be available to us in an amount sufficient to enable us to pay our debts when
due, including the Notes, or to fund our other liquidity needs. For a discussion of our cash flows and
liquidity, see ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’.
If our future cash flows from operations and other capital resources are insufficient to pay our
obligations as they mature or to fund our liquidity needs, we may be forced to:
• reduce or delay our business activities and capital expenditures and decline attractive expansion
opportunities;
• sell assets;
• obtain additional debt or equity financing; or
• restructure or refinance all or a portion of our debt, including the Notes, on or before maturity.
We may not be able to accomplish any of these alternatives on a timely basis or on satisfactory
terms, if at all. In addition, the terms of our debt, including the Notes, limit, and any future debt that
we may incur may limit, our ability to pursue any of these alternatives.
We are subject to significantly restrictive debt covenants, which limit our operating flexibility
The Indenture contains covenants which impose significant restrictions on the way we, our
subsidiaries and certain other affiliates can operate, including restrictions on our, our subsidiaries’ and
these affiliates’ ability to:
• incur additional indebtedness;
• pay dividends or make other distributions;
• make certain other restricted payments and investments;
• create liens;
• enter into any agreement that would limit the ability of our subsidiaries and certain of our
affiliates to pay dividends or make other payments to us;
• transfer or sell assets;
• enter into transactions with affiliates;
38
• enter into sale-leaseback transactions; and
• merge or consolidate with other entities.
These covenants could limit our ability to finance our future operations and capital needs and our
ability to pursue acquisitions and other business activities that may be in our interest.
The Indenture will permit us to incur future debt that may have substantially the same or more
restrictive covenants. Our new senior credit facilities agreement requires, and future credit facilities
may require, us to maintain specified financial ratios and satisfy specified financial tests and to observe
covenants that are more restrictive than the covenants under the Indenture. Our ability to meet these
financial ratios and tests may be affected by events beyond our control and, as a result, we may not be
able to meet these ratios and tests. In the event of a default under such senior credit facility, the
lenders could terminate their commitments and declare all amounts owed to them to be due and
payable. Borrowings under other debt instruments that contain cross-acceleration or cross-default
provisions, including the Notes, may as a result also be accelerated and become due and payable. We
may be unable to pay these debts in such circumstances.
The Issuer is a finance subsidiary that has no revenue-generating operations of its own and depends on
cash received under the funding loan in order to be able to make payments on the Notes
The Issuer is a finance subsidiary that was formed by us in connection with the offering. The
Issuer conducts no business operations of its own and has not engaged in any activities other than the
issuance of the Notes, the lending of the proceeds from such issuance to us as borrower under the
funding loan and the servicing of its obligations under the Notes. The Issuer has no subsidiaries, and its
only material asset and only source of revenues is its right to receive payments from Codere, S.A.
under the funding loan. The Issuer’s ability to make payments on the Notes is therefore entirely
dependent on the cash flows received under the funding loan. In addition, under Spanish law
Codere, S.A.’s obligation to pay under the funding loan is a subordinated obligation because
Codere, S.A. and the Issuer are related parties. If the payments under the funding loan are not made
by Codere, S.A., for whatever reason, the Issuer does not expect to have any other sources of funds
available to it that would permit it to make payments on the Notes. In such circumstances, holders of
the Notes would have to rely upon claims for payment under the Guarantees, and payment under the
Guarantees is subject to the risks and limitations described in the ‘‘Risks Related to the Notes—
Fraudulent conveyance laws and other limitations on the enforceability and the amount of the
Guarantees may adversely affect the validity and enforceability of the Guarantees’’.
Codere, S.A. is a holding company and is dependent on payments from its subsidiaries in order to be
able to make payments under the funding loan
Codere, S.A. is the sole obligor under the funding loan from the Issuer. However, Codere, S.A. is
a holding company that conducts substantially all of its operations through first-tier holding companies
and their respective operating subsidiaries. Codere, S.A. will therefore be dependent upon the cash
flow from its subsidiaries and the receipt of funds from them in the form of dividends, intercompany
loans, management fees or otherwise to make payments on the funding loan. Codere, S.A.’s operating
subsidiaries may not generate or upstream cash flow sufficient to enable Codere, S.A. to meet its
payment obligations under the funding loan.
39
Our subsidiaries may be restricted from providing funds to us under some circumstances
Our subsidiaries may be restricted in their ability to provide funds to us in the form of dividends,
loans or otherwise, under certain circumstances, including due to:
• restrictions under Spanish corporate law which require, among other things, each of our Spanish
subsidiaries to retain at least 10% of annual net income in a legal reserve until the reserve
reaches at least 20% of such company’s share capital and that, after payment of any dividend,
shareholders’ equity (after subtracting goodwill and start-up expenses) must exceed the
company’s share capital;
• restrictions under Argentine corporate law which require a corporation to retain at least 5% of
its annual net income in a legal reserve until the reserve reaches at least 20% of the
corporation’s share capital and prohibit the payment of dividends unless, prior to any payment
thereof, net income is sufficient to cover any loss from prior fiscal years. In addition, under
Argentine corporate law, dividends may only be paid out of realized and liquid profits arising
from a corporation’s financial statements that have been duly approved at an ordinary
shareholders’ meeting;
• restrictions under Mexican corporate law which require a corporation to retain at least 5% of its
annual net income in a legal reserve until the reserve reaches at least 20% of the corporation’s
share capital and prohibit the payment of dividends unless, prior to any payment thereof, net
income is sufficient to cover any loss from prior fiscal years. In addition, under Mexican
corporate law, 10% of the corporation’s annual net income must be distributed among such
corporation’s employees;
• restrictions under Colombian law which require a corporation to transfer at least 10% of its
liquid profits to a legal reserve until such time as the legal reserve equals or exceeds 50% of
such corporation’s share capital;
• restrictions under foreign exchange laws and regulations that could limit or tax the remittance of
dividends or transfer payments abroad, such as laws that were in effect in Argentina until
January 2003;
• restrictions under Italian law that require an Italian company to retain at least 5% of its net
annual profits to establish a reserve fund until such reserve fund equals 20% of the company’s
share capital; and
• existing and future contractual restrictions, including restrictions in credit facilities and other
indebtedness, that affect the ability of our subsidiaries and certain of our affiliates to pay
dividends or make other payments to us or the Issuer in the future.
Moreover, a significant portion of our total assets represent interests in companies that are not
100% owned subsidiaries. Our ability to receive funds from these companies may be limited by, in
addition to the foregoing circumstances, joint venture and shareholders’ agreements with the other
investors and shareholders in those companies, borrowing arrangements at those companies and the
need of those companies to reinvest their cash flow in their operations.
Although the Indenture limits the ability of our restricted subsidiaries and certain of our affiliates
to enter into consensual restrictions on their ability to pay dividends and make payments, there are
significant qualifications and exceptions to these limitations.
40
Not all of our subsidiaries will guarantee the Notes, and any claim by us or any of our creditors,
including the holders of the Notes, against such non-guarantor subsidiaries will be structurally
subordinated to all of the claims of creditors of those non-guarantor subsidiaries
Not all of our existing and future subsidiaries will guarantee the Notes. On a pro forma
consolidated basis as of March 31, 2005, we had total assets of A552.9 million (including Grupo Royal)
and total liabilities of A516.0 million (including Grupo Royal). On a pro forma basis for the year ended
December 31, 2004 and in the three months ended March 31, 2005, Codere, S.A. and the other
Guarantors had aggregate EBITDA representing approximately 70.4% and 73.9% of our consolidated
EBITDA (including Grupo Royal Guarantors), respectively. The Indenture does not limit the transfer
of assets to, or the making of investments in, any of our restricted group members, including our
non-guarantor subsidiaries. See ‘‘Description of the Notes—Certain Covenants’’. Accordingly,
non-guarantor subsidiaries could account for a higher portion of our assets, liabilities, revenues and net
income in the future.
In the event that any of our non-guarantor subsidiaries becomes insolvent, liquidates, reorganizes,
dissolves or otherwise winds up, the assets of such non-guarantor subsidiary will not be subject to
claims from the holders of the Notes to satisfy their respective credits against ourselves and will be
used first to satisfy the claims of the non-guarantor subsidiary’s creditors, including trade creditors,
banks and other lenders. Consequently, any claim by us or our creditors, including holders of the
Notes, against a non-guarantor subsidiary will be structurally subordinated to all of the claims of the
creditors of such non-guarantor subsidiary.
Your right to receive payments under and take enforcement action with respect to the Subsidiary
Guarantees and the second-priority liens is limited, and may be released, in certain circumstances
The Intercreditor Agreement will contain provisions subordinating the Subsidiary Guarantees in
right of payment to debt under Credit Facilities, including the obligations of such Subsidiary
Guarantors under the Senior Credit Facility, and certain hedging obligations. The Intercreditor
Agreement will also contain provisions restricting the rights of holders of the Notes to take
enforcement action with respect to the Subsidiary Guarantees and the second-priority liens on the
collateral securing the Notes and the Parent Guarantee in certain circumstances. Such enforcement
action will only be permitted to be taken by the trustee (and not the holders of the Notes) in
accordance with the terms of the Intercreditor Agreement. Under certain circumstances, the lenders
under Credit Facilities, who hold first-priority liens over the share collateral securing the Notes and the
Parent Guarantee on a second-priority basis, may control an enforcement sale over such collateral. As
well, under certain circumstances, including upon a sale of the share collateral securing the Notes and
the Parent Guarantee, whether pursuant to an enforcement sale or otherwise, subject to certain
conditions, the Subsidiary Guarantees and the second-priority liens securing the Notes and the Parent
Guarantee will be released.
By accepting a Note, you will be deemed to have agreed to these restrictions. As a result of these
restrictions, holders of the Notes will have limited remedies and recourse against the Subsidiary
Guarantors and the share collateral in the event of a default. See ‘‘Description of the Notes—
Subordination of the Subsidiary Guarantees’’, ‘‘—Security’’ and ‘‘—Intercreditor Agreement’’.
The value of the collateral securing the Notes and the Parent Guarantee may not be sufficient to satisfy
our obligations under the Notes
The Issuer will secure its obligations with respect to the Notes, and the Parent Guarantor will
secure its obligations under its Parent Guarantee, with certain liens, some of which are second-priority
liens, as more fully described under ‘‘Description of the Notes—Security’’. The assets underlying these
second-priority liens are also pledged on a first-priority basis for the benefit of the lenders under the
41
Senior Credit Facility. The Indenture will allow us to incur additional debt in the future that is secured
by first-priority liens on our assets. In the event of a foreclosure on the liens securing the Notes and
the Parent Guarantee, the proceeds from the sale of the assets securing the Notes may not be sufficient
to satisfy the Issuer’s obligations under the Notes or the obligations of the Parent Guarantor under the
Parent Guarantee. The Intercreditor Agreement will provide that, in the event of any distribution to
the holders of first priority liens and the holders of second priority liens of the proceeds from the sale
of any shared collateral, the holders of the first priority liens will be entitled to receive from such
distribution payment in full in cash in respect of the obligations at the rate specified in the applicable
obligations before the holders of the second priority liens will be entitled to receive any payment from
such distribution with respect to the Notes or the Parent Guarantee.
Fraudulent conveyance laws and other limitations on the enforceability and the amount of the
Guarantees may adversely affect the validity and enforceability of the Guarantees
The Guarantors will guarantee the payment of the Notes. The Notes, the Guarantees and the
funding loan may be subject to claims that they should be limited, subordinated or voided in favor of
our existing and future creditors under Luxembourg, New York, Spanish, Argentine, Mexican,
Colombian or Uruguayan law.
Although laws differ among various jurisdictions, in general, under fraudulent conveyance laws, a
court could subordinate or void a Guarantee if it found that:
• the Guarantee was incurred with actual intent to hinder, delay or defraud creditors or
shareholders of the Guarantor;
• the Guarantor did not receive fair consideration or reasonably equivalent value for the
Guarantee and the Guarantor:
• was insolvent or was rendered insolvent because of the Guarantee;
• was undercapitalized or became undercapitalized because of the Guarantee; or
• intended to incur, or believed that it would incur, debts beyond its ability to pay at maturity.
For example, the laws of Argentina in which certain of the Subsidiary Guarantors are organized,
limit the ability of these subsidiaries to issue guarantees. These limitations arise under various
provisions of corporate law which include rules governing corporate benefit and fraudulent transfer
principles. Pursuant to the Argentine insolvency law, the Guarantee of an Argentine Subsidiary
Guarantor remains subject to challenge and avoidance for a period of up to two years from the
issuance of the Notes if such Subsidiary Guarantor is declared bankrupt within such period. Therefore,
in the event that an Argentine Subsidiary Guarantor is unable to meet its financial obligations and on
or prior to the second anniversary of the issuance of the Notes seeks judicial protection from its
creditors or is declared bankrupt at the request of a third-party creditor, the Guarantee granted by
such Subsidiary Guarantor may be declared void and unenforceable by an Argentine bankruptcy court
if such Subsidiary Guarantor did not receive adequate consideration for the issuance of its Guarantee.
Although we believe that the Guarantees of the Notes by the Argentine Subsidiary Guarantors are
enforceable (subject to such local law restrictions), there can be no assurance that a third-party creditor
would not challenge any of these Guarantees and prevail in court.
In addition, the measure of insolvency for purposes of fraudulent conveyance laws varies
depending on the law applied. Generally, however, a Guarantor would be considered insolvent if it
could not pay its debts as they become due. If a court decided that any Guarantee was a fraudulent
conveyance and voided such Guarantee, or held it unenforceable for any other reason, you would cease
to have any claim in respect of the Guarantor of such Guarantee and would be a creditor solely of the
Issuer and the remaining Guarantors.
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Spanish and other local insolvency laws may not be as favorable to you as U.S. bankruptcy laws
We and certain of the Subsidiary Guarantors are organized under the laws of Spain, the Issuer is
incorporated in Luxembourg and our other Subsidiary Guarantors are organized under the laws of
Argentina, Mexico, Colombia and Uruguay. All of our other subsidiaries are incorporated in
jurisdictions other than the United States. The insolvency laws of Spain and some or all of these other
jurisdictions may not be as favorable to holders of the Notes as the laws of the United States or some
other jurisdictions.
The following is a brief description of certain aspects of insolvency law in Spain, Luxembourg,
Mexico and Argentina. In the event that any one or more of the Issuer, us, the other Guarantors or
any other of our subsidiaries experience financial difficulty, it is not possible to know with certainty in
which jurisdiction or jurisdictions insolvency or similar proceedings would be commenced, or the
outcome of such proceedings.
Spanish Insolvency Law. Under the new Spanish insolvency law, a debtor is considered insolvent
when it cannot possibly comply with its due obligations on a regular basis. To be considered as
insolvent, the debtor, any creditor thereof or any other interested third party must file a petition for
insolvency within two months of the date when such petitioner becomes aware, or should have become
aware, of the debtor’s insolvency. If filed by the debtor, the insolvency is deemed ‘‘voluntary’’ (concurso
voluntario) and, if filed by a third party, the insolvency is deemed ‘‘mandatory’’(concurso necesario). In
the case of voluntary insolvency, as a general rule, the debtor retains the management and full powers
of disposal over its assets, although it is subject to the intervention (intervención) of the insolvency
administrators. In the case of mandatory insolvency, as a general rule, the debtor’s management powers
are suspended, and management’s former power, including the power to dispose of assets, is conferred
solely upon the insolvency administrators.
Under the new Spanish insolvency law, upon declaration of insolvency, acts detrimental
(perjudiciales) to the debtor’s estate carried out during the two years prior to the date the insolvency is
declared may be rescinded, regardless of fraudulent intention. Article 71 contains an irrefutable
presumption that those acts where no consideration is received for a disposed asset and acts which
result in the early repayment of obligations which would have become due after the declaration of
insolvency are detrimental. In addition, unless the debtor or another affected party (such as a creditor)
can prove otherwise to the court’s satisfaction, a disposal made in favor of a related person or entity as
well as the creation of a security interest securing a pre-existing obligation or a new obligation that
replaces an existing one, are presumed to be detrimental. In the case of actions, which are not included
in the presumptions above, the burden of proof is on the person bringing the action of rescission. Acts
deriving from the debtor’s ordinary course of business may not be rescinded. According to the above,
Guarantors acts of disposal with a ‘‘related person or entity’’ (like the Issuer) are presumed to be
detrimental unless proved otherwise. Also, the general principle of ‘‘No termination effect’’ is
established such that all agreements remain effective at the time of the insolvency.
Creditors may join more than one set of insolvency proceedings together, or apply for a joint
insolvency order for various entities if the debtor belongs to a group of companies with joint decisionmaking powers and joint assets. In any event, and in particular in joint insolvency proceedings, set-off is
prohibited unless the requirements for the set-off were satisfied prior to the declaration of insolvency
or the set-off provisions are pursuant to an agreement subject to a law that permits set-off.
The new Spanish insolvency law also makes a distinction between general debts under insolvency
proceedings and debts against the insolvency estate. Debts against the insolvency estate, such as certain
amounts of the employee payroll and costs and expenses of the insolvency proceedings, are not
considered part of the debtor’s general debt and are paid before other debts under insolvency
43
proceedings and at their respective maturities. The following is the order in which creditor’s claims are
ranked:
• claims against the insolvency estate, including, amongst others, claims for salaries relating to the
30 days prior to the declaration of insolvency in an amount that does not exceed twice the
Spanish minimum statutory salary (salario mı́nimo interprofesional), as well as claims for salaries
and credits that result from obligations validly incurred during the insolvency proceeding by the
insolvent party;
• credits with a special privilege, including, amongst others, those holding claims secured by a legal
or voluntary mortgage, moveable mortgage or pledge without displacement of possession over
the mortgaged or pledged assets; claims secured by securities; and claims secured by a
possessory pledge executed in a public document over the goods or rights in possession of the
creditor or a third party. In these cases, the privilege extends only to the secured asset;
• credits with a general privilege, including claims for salaries that do not have a special privilege,
severance payments and indemnities for the termination of employment agreements, indemnities
owed for labor accidents or sickness and surcharges on dues owed for unpaid labor health duties
accrued prior to the declaration of insolvency; amounts relating to unpaid withholding taxes and
social security contributions up to 50% of the aggregate amount; claims for non-contractual
liabilities; and up to 25% of the aggregate amount of the unsubordinated claims of the creditor
that has requested the insolvency declaration;
• credits (other than subordinated credits) which are not classified in any or the above categories,
will rank pari passu and be paid pro rata; and
• subordinated credits, including, amongst others, (i) late or incorrect claims; (ii) contractually
subordinated claims; (iii) interest (such as accrued and unpaid interest due on the Notes at the
commencement of the insolvency proceeding (concurso); (iv) fines; (v) claims of creditors which
are related to the Issuer; and (v) detrimental claims against the Issuer where a Spanish court has
determined that a relevant creditor has acted in bad faith (rescisión concursal). Subordinated
credits shall be paid in the above-mentioned order and pro rata within each class.
A ‘‘related person or entity’’ includes shareholders with more than 10% of the insolvent party’s
capital (5% if it is a listed company), the administrators or directors of the insolvent party (including
the insolvent company’s directors and administrators in the two years preceding the insolvency),
members of the same group of companies and any assignee or acquirer of credits held by the
aforementioned persons and entities transferred in the two years preceding the insolvency.
Applicable jurisdiction
The applicable jurisdiction to conduct the Issuer’s insolvency proceeding will be the one in which
the Issuer has its ‘‘center of principal interests’’. This center is deemed to be where the Issuer conducts
the administration of its interests on a regular basis and which is recognized as such by third parties.
Insolvency proceedings conducted by the court with jurisdiction over the center of principal interests
are considered ‘‘the principal insolvency proceedings’’ and have universal reach affecting all the assets
of the debtor worldwide. If the center of principal interests is not in Spain but the insolvent party has a
permanent establishment in Spain, Spanish courts will only have jurisdiction over the assets located in
Spain (‘‘the territorial insolvency proceedings’’).
There are several arguments that Luxembourg law will govern the insolvency of Issuer, including
that the Issuer’s corporate management and corporate decisions will be performed in Luxembourg and
the economic activity, assets and human and material resources (the ‘‘substance’’) of the Issuer are
located in Luxembourg. In addition, the Issuer has no establishment within Spain and it is therefore
unlikely that a Spanish court could open a territorial insolvency proceeding.
44
In the event Spanish courts have jurisdiction (upon a judicial consideration that the Issuer’s center
of main interest is in Spain), article 87.6 of the Insolvency Law would apply to the Issuer. Article 87.6
provides that credits holding a third party guarantee will be recognized in the insolvency proceeding in
their full amount without any limitation and without prejudice to the subrogation of the guarantor in
the creditor’s place, if the guarantee is enforced. This article also provides that both bondholders’ and
guarantor’s credits will be classified according to what it is more beneficial for the insolvent debtor.
The Guarantors’ credits against the Issuer are subordinated because they are related entities as
discussed above. Under Article 87.6 a bondholder’s credits could also be subordinated, notwithstanding
their original qualification as ordinary credits, because the classification as subordinated (instead of
ordinary credits) is more beneficial to the Issuer. However, the possibility that article 87.6 will be
applied is remote, since the Issuer’s center of main interest is located in Luxembourg and neither the
Insolvency Law nor Spanish jurisdiction should apply.
In the event that any of the Guarantors becomes insolvent and is subject to the new Spanish
insolvency law, its Guarantee will be treated as ordinary debt. Under the new Spanish insolvency law,
the funding loan between us, as the Spanish parent company, and the Issuer will be treated as
subordinated debt. In addition, creditors may seek repayment directly from the insolvent entity’s
directors or attorneys-in-fact if a court determines that the bankruptcy resulted from their negligence
(concurso culpable).
Moratorium
The new Spanish Insolvency Law imposes a moratorium on the enforcement of secured creditor’s
rights in the event of an insolvency. The moratorium would take effect following the declaration of
insolvency until the earlier of one year from (i) the declaration of the insolvency if the insolvent
company has not been placed in liquidation or (ii) the date the creditors reach an agreement that does
not affect the exercise of the rights granted by the security interest.
The new Spanish insolvency law only recently came into effect, and as such, there is only a limited
history of application by Spanish courts.
Luxembourg Insolvency Law. Under Luxembourg insolvency laws, your ability to receive payment
on the Notes may be more limited than would be the case under U.S. bankruptcy laws. Under
Luxembourg law, the following types of proceedings (altogether referred to as insolvency proceedings)
may be opened against an entity having its registered office or center of main interest in Luxembourg:
• bankruptcy proceedings (faillite), the opening of which may be requested by the company or by
any of its creditors. Following such a request, the courts having jurisdiction may open bankruptcy
proceedings if the company (i) is in a state of cessation of payments (cessation des paiements)
and (ii) has lost its commercial creditworthiness. If a court finds that these conditions are
satisfied, it may also open bankruptcy proceedings ex officio (absent a request made by the
company or a creditor). The main effect of such proceedings is the suspension of all measures of
enforcement against the company, except, subject to certain limited exceptions, only for secured
creditors and the payment of the creditors in accordance with their rank upon realization of the
assets;
• controlled management proceedings (gestion contrôlée), the opening of which may only be
requested by the company and not by its creditors; and
• composition proceedings (concordat préventif de faillite), which may be requested only by the
company and not by its creditors. The court’s decision to admit a company to the composition
proceedings triggers a provisional stay on enforcement of claims by creditors.
In addition to these proceedings, your ability to receive payment on the Notes may be affected by
a decision of a court to grant a stay on payments (sursis de paiements) or to put the Issuer into judicial
45
liquidation (liquidation judiciaire). Judicial liquidation proceedings may be opened at the request of the
public prosecutor against companies pursuing an activity violating criminal laws or that are in violation
of the commercial code or of the laws governing commercial companies. The management of such
liquidation proceedings will generally follow the rules of bankruptcy proceedings.
The Issuer’s liabilities in respect of the Notes will, in the event of a liquidation of the Issuer
following, in particular, bankruptcy or judicial liquidation proceedings, only rank after the cost of
liquidation (including any debt incurred for the purpose of such liquidation) and those of the issuers’
debts that are entitled to priority under Luxembourg law. Preferential debts under Luxembourg law
include:
• money owed to Luxembourg tax authorities in respect of, for example, income tax deducted at
source or value-added tax and other taxes and duties;
• social security contributions; and
• remuneration owed to employees.
Assets over which a security interest has been granted will in principle not be available for
distribution to unsecured creditors (except after enforcement and, to the extent a surplus is realized).
During such insolvency proceedings, all enforcement measures by unsecured creditors are
suspended. The ability of secured creditors to enforce their security interest may also be limited, in
particular in the event of controlled management proceedings providing expressly that the rights of
secured creditors are frozen until a final decision has been taken by the court as to the petition for
controlled management and may be affected thereafter by any reorganization order given by the court.
Furthermore, you should note that declarations of default and subsequent acceleration (such as
acceleration upon the occurrence of an event of default) will not be enforceable during controlled
management proceedings.
Luxembourg insolvency law may affect transactions entered into or payments made by the Issuer
during the period before liquidation or administration. If the liquidator or administrator can show the
issuer has given ‘‘preference’’ to any person by defrauding the rights of creditors generally, regardless
of when this fraud occurred, a Luxembourg court has the power, among other things, to void the
preferential transaction. If the liquidator or administrator can show that a payment was made during
the so-called suspect period (which is a maximum of six months and ten days preceding the judgment
declaring bankruptcy) that is disadvantageous to the general body of creditors and the party receiving
such payment is shown to have known that the bankrupt party had generally stopped making payments
when such payment occurred, a Luxembourg court has the power, among other things, to void the
preferential transaction.
Finally, any international aspects of Luxembourg bankruptcy, controlled management and
composition proceedings may be subject to the Council Regulation (EC) no1346/2000 of 29 May 2000
on insolvency proceedings.
Mexican Insolvency Law. Under Mexico’s Ley de Concursos Mercantiles (Law on Mercantile
Reorganization), your ability to receive payment under the Guarantees of our Mexican Guarantors may
be limited. This is because the liabilities of the Subsidiary Guarantors incorporated in Mexico in
respect of the Guarantees will be paid in the event of a winding-up of such Subsidiary Guarantors after
payment of all of their secured and privileged obligations (if any). Ordinarily, costs related to the
maintenance, administration and liquidation of the debtor’s assets receive preference to any other
payment. After such obligations have been paid, the special privileged creditors will be paid and
46
thereafter, the preferred creditors will be paid. The following list sets forth the relative seniority of
certain credits and claims in the event of a bankruptcy:
• past due payroll obligations, severance payments, employee compensation and benefits related to
the two-year period immediately prior to the reorganization or bankruptcy date;
• costs related to the improvement or maintenance of an asset and costs incurred as a result of
any litigation, trial or procedure to recover any asset, as well as management fees and expenses
incurred in connection with a bankruptcy or insolvency;
• credits secured by a pledge or mortgage over assets;
• other credits related to employee payroll obligations, as well as taxes and duties owed, but not
secured by a pledge or mortgage over assets, severance payments, workers compensation and
employee benefits;
• credits in favor of special privileged creditors; and
• all other credits in favor of all other creditors (including the Guarantees granted by the
Subsidiary Guarantors incorporated in Mexico in favor of the holders of the Notes). All
unsecured creditors shall be paid on a pari passu basis.
If any Subsidiary Guarantor incorporated in Mexico files a petition for a bankruptcy (or is forced
into bankruptcy by any of its creditors), the accrual of interest on all unsecured debt of such Subsidiary
Guarantor (including its guarantee of the Notes) would be suspended on the date the bankruptcy is
declared by the competent court. Foreign currency-denominated liabilities, including the liabilities
under the Notes, would be converted into Mexican pesos at the rate of exchange applicable on the date
on which the declaration of bankruptcy or judicial reorganization is effective, and the resulting amount,
in turn, will be converted to UDIs, or inflation-indexed units. Foreign currency-denominated liabilities,
including liabilities under the Notes, will not be adjusted to take into account any depreciation of the
Mexican peso as compared to the euro occurring after the declaration of bankruptcy or judicial
reorganization. In addition, all obligations under the Notes will cease to accrue interest from the date
of the bankruptcy or judicial reorganization declaration, will be satisfied only at the time the obligations
of the creditors of the Subsidiary Guarantors incorporated in Mexico are satisfied and will be subject to
the outcome of, and amounts recognized as due in respect of, the relevant bankruptcy or judicial
reorganization proceeding. Likewise, pursuant to Mexican laws regulating bankruptcy and similar
procedures, certain liabilities, such as employee payroll obligations, taxes and duties and credits secured
by a pledge or mortgage over assets, shall have priority over other creditors and we cannot guarantee
that the Subsidiary Guarantors will have sufficient resources to satisfy all of their creditors.
In addition, the Guarantees granted by the Subsidiary Guarantors incorporated in Mexico may not
be enforceable in the event of a bankruptcy of any such Subsidiary Guarantor. While Mexican law does
not prevent the Guarantees granted by the Subsidiary Guarantors incorporated in Mexico from being
valid, binding and enforceable against them, in the event a Subsidiary Guarantor incorporated in
Mexico is declared bankrupt or becomes subject to a bankruptcy reorganization (concurso mercantil),
the Guarantee granted by such Subsidiary Guarantor may be deemed to have been a fraudulent
conveyance and declared void, if it is determined that such Subsidiary Guarantor granted such
Guarantee within the 270-day period prior to the declaration of bankruptcy or reorganization unless
such Subsidiary Guarantor proves that it acted in good faith and did not receive adequate consideration
in exchange for such Guarantee. If the Guarantee granted by any Subsidiary Guarantor incorporated in
Mexico become unenforceable, the Notes would effectively be subordinated to all liabilities, including
trade payables, of such Subsidiary Guarantor.
Argentine Insolvency Law. Under Argentine Law, your ability to receive payment on a guarantee
by an Argentine Guarantor may be limited. This is because the liabilities of the Subsidiary Guarantors
47
incorporated in Argentina in respect of the Guarantees will be paid in the event of a liquidation
proceeding after payment of all of their secured and privileged obligations (if any). Ordinarily, creditors
with a special privilege have a preference in payment in the event of a company’s winding-up and costs
related to the maintenance, administration and liquidation of the debtor’s assets receive preference in
payment after such special privileged obligations have been paid. Preferred payments to creditors with
special privileges include payments with respect to:
• costs related to the improvement or maintenance of an asset;
• credits related to employee payroll obligations for the six-month period prior to the
reorganization or bankruptcy date, severance payments, workers compensation and employee
benefits;
• taxes and duties imposed on certain assets; and
• credits secured by a pledge or mortgage over assets.
Creditors with a general privilege have a preference in payment of up to 50% of the liquidation
value of the debtor’s assets once creditors with a special privilege and the costs described above have
been paid. General privileges include, among others:
• credits related to employee payroll obligations for the six-month period prior to the
reorganization or bankruptcy date, severance payments, workers compensation and employee
benefits and interest for the two-year period when the payments were not disbursed, including
litigation costs;
• social security claims; and
• principal on taxes and duties owed to national, provincial and municipal taxing authorities.
For the balance of unpaid debts, privileged creditors receive payment on a pari passu basis with all
other unsecured creditors. Unsecured creditors receive payment after privileged creditors have been
paid and are paid from the balance of the debtor’s assets remaining after such creditors have been
paid. Under Argentine law, holders of Notes will be considered unsecured creditors and will therefore
be paid only after special and general privileges have been paid.
If the Subsidiary Guarantors incorporated in Argentina file a petition for a bankruptcy (or are
forced into bankruptcy by any of their creditors), the accrual of interest on all unsecured debt
(including the Notes) would be suspended on the date the bankruptcy is declared by the competent
court. Creditors’ claims in the bankruptcy proceedings will be converted to Argentine pesos in order to
calculate outstanding debt and determine the relative position of each creditor. The exchange rate used
is the rate on the date that the bankruptcy is declared. If the Subsidiary Guarantors incorporated in
Argentina file for a voluntary reorganization proceeding (concurso preventivo), for purposes of
calculating the requisite majorities under the Argentine bankruptcy law, creditors’ claims denominated
in a foreign currency in the reorganization proceedings will be mandatorily converted into Argentine
pesos at the exchange rate applicable on the date the reorganization proceeding was filed with the
competent court to determine such creditors’ participation in certain aspects of the proceeding (but
without prejudice to such creditors’ right to repayment in the applicable foreign currency), and as of
such date, all interest on unsecured debt would stop accruing.
Enforcing your rights as a noteholder or under the Guarantees across multiple jurisdictions may prove
difficult
The notes will be issued by Codere Finance (Luxembourg), S.A., which is organized under the laws
of Luxembourg, and guaranteed by the Parent Guarantor and the Subsidiary Guarantors, each of which
is organized under the laws of one of Argentina, Colombia, Mexico, Spain or Uruguay. In the event of
48
a bankruptcy, insolvency or similar event, proceedings could be initiated in any of these jurisdictions.
Such multi-jurisdictional proceedings are likely to be complex and costly for creditors and otherwise
may result in greater uncertainty and delay regarding the enforcement of your rights. Your rights under
the Notes and the Guarantees will be subject to the insolvency and administrative laws of several
jurisdictions and there can be no assurance that you will be able to effectively enforce your rights in
such complex, multiple bankruptcy, insolvency or similar proceedings.
In addition, the bankruptcy, insolvency, administrative and other laws of the Parent Guarantor’s
and the Subsidiary Guarantors’ jurisdictions of organization may be materially different from, or in
conflict with, each other, including in the areas of rights of creditors, priority of government and other
creditors, ability to obtain post-petition interest and duration of the proceedings. The application of
these laws, or any conflict among them, could call into question whether any particular jurisdiction’s
law should apply, adversely affect your ability to enforce your rights under the Notes and the
Guarantees in these jurisdictions, or limit any amounts that you may receive.
You may be unable to enforce judgments obtained in U.S. courts against the Issuer, us or the other
Guarantors
Nearly all of our directors and executive officers and those of the Issuer and the other Guarantors
are non-residents of the United States, and the assets of these companies and their directors and
executive officers are located outside of the United States. As a consequence, you may not be able to
effect service of process on these non-U.S. resident directors and executive officers in the United States
or to enforce judgments against them outside of the United States.
We have been advised by our Luxembourg and Spanish counsel that it is questionable whether a
Luxembourg or Spanish court would enforce a judgment obtained in the United States against the
Issuer, us or any of the other Guarantors. See ‘‘Information About the Enforceability of Judgments and
the Effect of Foreign Law’’.
We may not be able to finance a change of control offer
The Indenture requires us to make an offer to repurchase the Notes at 101% of their principal
amount if we experience a change of control, and Codere, S.A. must make a payment to the Issuer
under the funding loan in such amount under such circumstances. As described above, Codere, S.A.
depends on the cash flow of operating subsidiaries to make payments on the funding loan and the
Issuer relies on payments by Codere, S.A. under the funding loan to make payments on the Notes,
including offers to repurchase the Notes. Our failure to effect a change of control offer when required
would constitute an event of default under the Indenture. For a complete description of the events that
would constitute a ‘‘change of control,’’ you should read the section entitled ‘‘Description of the
Notes—Repurchase at the Option of Holders—Change of Control’’.
You may not be able to resell the Notes easily
There is no established trading market for the Notes and we cannot assure you that an active or
liquid trading market will develop for the Notes. The initial purchasers have advised us that they intend
to make a market in the Notes. However, the initial purchasers have no obligation to do so and may
discontinue market-making activities at any time. We have made an application to list the Notes on the
Irish Stock Exchange. Future liquidity will depend, among other things, on the number of holders of
the Notes, our financial performance, the market for similar securities and the interest of securities
dealers in making a market in the Notes.
In addition, because the offering of the Notes has not been, and will not be, registered under the
Securities Act or the securities laws of any other jurisdiction, the Notes may not be offered or sold
except to qualified institutional buyers in accordance with Rule 144A or pursuant to another exemption
49
from, or in a transaction not subject to, the registration requirements of the Securities Act and all
other applicable laws. These restrictions may limit your ability to resell the Notes. Please refer to the
section entitled ‘‘Transfer Restrictions’’ for further information on these restrictions.
You may face foreign exchange risks by investing in the Notes
The Notes will be denominated and payable in euro. If you measure your investment returns by
reference to a currency other than euro, an investment in the Notes will entail foreign exchange-related
risks due to, among other factors, possible significant changes in the value of the euro relative to the
currency by reference to which you measure the return on your investments because of economic,
political and other factors over which we have no control. Depreciation of the euro against the
currency by reference to which you measure the return on your investments could cause a decrease in
the effective yield of the Notes below their stated coupon rates and could result in a loss to you when
the return on the Notes is translated into the currency by reference to which you measure the return
on your investments. In addition, there may be tax consequences for you as a result of any foreign
exchange gains resulting from an investment in the Notes.
The ability of the Colombian Guarantors to make payments on the guarantees may be adversely affected
by intervention of the Colombian Central Bank and the Colombian Guarantors may be unable to convert
Colombian pesos to foreign currency
Although the Colombian government has not imposed foreign exchange restrictions since 1990,
Colombia’s foreign currency markets have historically been heavily regulated. Colombian law permits
the Colombian Central Bank to impose foreign exchange controls over foreign investments and the
proceeds thereof if the foreign currency reserves of the Colombian Central Bank fall below a level
equal to the value of three months of imports of goods and services in Colombia. In this event, the
Colombian Central Bank may intervene by imposing exchange controls that may limit the ability of the
Colombian Guarantors to transfer foreign currency abroad.
Pursuant to applicable foreign exchange regulations, Colombian residents are entitled to grant
guarantees in foreign currency to secure obligations arising from foreign exchange transactions.
Pursuant to Decree 1735 of 1993, foreign exchange transactions include, all transactions that may result
in the transfer of foreign currency from a Colombian resident to a non-Colombian resident.
Notwithstanding the above, there have been certain interpretations of foreign exchange regulations that
would restrict guarantees by Colombian residents in foreign currency to those securing foreign
exchange transactions that are required to be channeled through the Colombian foreign exchange
market, namely foreign loans, imports and exports, derivative transactions entered by Colombian
residents, financial investments and foreign investments.
We have been orally informed by the Colombian Central Bank that its current position is that
Colombian residents are entitled to grant guarantees in foreign currency, even if any such guarantees
do not secure foreign transactions that are required to be channeled through the Colombian foreign
exchange market, as would be the case of the guarantees granted by the Colombian Guarantors. In the
event of enforcement of a Colombian guarantee, foreign currency could be transferred out of Colombia
either through the filing of Form No. 5 before a local bank or another authorized intermediary or
through the so-called free market.
In light of the foregoing, we cannot assure you that the current level of foreign currency reserves
will continue to exist or that the Colombian Central Bank will continue to interpret applicable foreign
exchange regulations to permit the Colombian Guarantors to make any required payments on the
Colombian Guarantees.
50
If Spanish tax authorities determine that interest payments that any Spanish Guarantor makes should be
treated as Spanish source income, withholding rules could apply and we could be required to gross up
any such payments for the amount of any required withholding
Under applicable Spanish tax rules, all payments of principal and interest made under the
Guarantees should be made free and clear of any withholding or deduction of any taxes, duties,
assessments or governmental charges of any nature whatsoever which may be imposed, levied, collected,
withheld or assessed by the Kingdom of Spain or any political subdivision or authority thereof or
therein. Though there is no clear precedent, statement of law or regulation to support the position,
however, the Spanish tax authorities may determine that, under certain circumstances, payments by a
Spanish Guarantor to Noteholders should be treated as Spanish source income subject to a 15%
withholding tax on such payments. See ‘‘Taxation—Spanish Taxation’’.
If such withholding tax were imposed on any payments by any Spanish Guarantor, we would be
required under the Indenture to gross-up any such payments to cover the full amount of the taxes
required to be withheld. The amounts we would be required to gross-up could be substantial and could
materially adversely affect our financial condition.
If we become a publicly listed company, we will be required to provide certain information relating to the
holders of the Notes to the Spanish tax authorities. Our failure to provide such information could result
in fines and administrative penalties
Under Spanish Law 19/2003, if we become a publicly listed company, we will be required to
provide certain information relating to the holders of the Notes to the Spanish tax authorities. This
information includes the identity and country of residence of Noteholders and the amount of interest
received by such Noteholders and must be obtained at each interest payment date and filed with the
Spanish government on a yearly basis.
If we breach applicable information reporting obligations, we could be subject to fines of up to
4.0% of the interest payments in respect of which the required information was not obtained, be
prohibited from obtaining public aid or subsidies and become subject to a one year prohibition on
entering into contracts with the public authority that imposed the foregoing fines and penalties.
Under the terms of the Notes, if we become publicly listed and subject to the fines and penalties
described above, we would not have the option of redeeming the Notes to eliminate our obligation to
provide the required Noteholder information to the Spanish tax authorities. Accordingly, under such
circumstances, we could be required to pay any applicable fines and penalties and be subject to the
other administrative sanctions described above. The payments and consequences of such sanctions
could be material and adversely affect our business, financial condition and results of operations.
51
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the Notes will be approximately
A320.5 million after deducting the initial purchasers’ discount and offering transaction fees payable by
us.
The following table sets out the sources and uses of funds in connection with the offering of the
Notes:
Sources
New senior revolving credit
facility(1) . . . . . . . . . . . . . . . . .
Notes offered hereby . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . .
(E in millions)
Uses
Repayment of mezzanine loan
facility(2) . . . . . . . . . . . . . . . .
Acquisition of Grupo Royal and
related acquisition costs . . . . .
Repayment of Operbingo debt or
investment in permitted
businesses(3) . . . . . . . . . . . . .
Repayment of existing debt(4) . .
Cash(5) . . . . . . . . . . . . . . . . . . .
—
320.5
320.5
(E in millions)
.
151.4
.
69.0
.
.
.
43.9
37.3
18.9
Total . . . . . . . . . . . . . . . . . . . . . .
320.5
(1) A45 million new senior credit facility, none of which is expected to be drawn-down at closing.
(2) As of March 31, 2005. The amount to be repaid will include accrued interest from March 31, 2005
through the date of payment. As of June 30, 2005, the amount to be repaid (including accrued
interest from March 31, 2005) is expected to be A153.9 million.
(3) If we do not acquire Operbingo pursuant to the memorandum of understanding entered into on
May 18, 2005 with Francomar and our Italian partners, we intend to use the proceeds allocated for
such purpose for general corporate purposes, including expansion of our business through targeted
acquisitions in Spain and in the international markets in which we operate or by entering new
geographic markets.
(4) As of March 31, 2005. The amount to be repaid includes A18.1 million of indebtedness under our
senior credit facilities and A6.7 million in other payables and will include accrued and capitalized
interest and draw-downs on our senior credit facilities from March 31, 2005 through the date of
payment. As of June 30, 2005, the amount to be repaid (including accrued interest from March 31,
2005) is expected to be A48.9 million.
(5) As of March 31, 2005. As of June 30, 2005, after payment of accrued and capitalized interest and
draw-downs on our senior credit facilities as described above, this amount is expected to be
A4.8 million.
52
CAPITALIZATION
The following table sets forth our cash and consolidated capitalization as of March 31, 2005 (i) on
an actual basis and (ii) as adjusted to give effect to the offering of the Notes and the application of the
estimated net proceeds therefrom as described under ‘‘Use of Proceeds’’. This table should be read in
conjunction with ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’, ‘‘Description of Other Indebtedness and Instruments’’ and our Consolidated Financial
Statements and the related notes included elsewhere in this offering memorandum.
Actual
As of March 31, 2005(1)
Adjustments As Adjusted
(unaudited)
(E in millions)
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26.8
18.9
45.7
Short-term debt . . . . . . .
Long-term debt(2):
Mezzanine loan facility
Notes offered hereby . .
Other long-term debt .
.................................
24.6
(12.1)
12.5
.................................
.................................
.................................
151.4
—
27.3
(151.4)
335.0
(18.5)
—
335.0
8.8
Total long-term debt(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
178.7
165.1
343.8
Total(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
203.3
153.0
356.3
MCP Instrument(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57.0
36.9
—
—
57.0
36.9
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93.9
—
93.9
(1) As of March 31, 2005 and the date of this offering memorandum, the authorized share capital of
Codere, S.A. was A8,648,211, consisting of 43,241,055 fully paid up ordinary shares, forming part of
the same series, each with a par value of A0.20.
(2) Excluding the MCP Instrument.
(3) Investment instrument that is convertible into Codere, S.A. shares or may be requested to be
redeemed in certain circumstances. See ‘‘Description of Other Indebtedness and Instruments’’.
53
SELECTED FINANCIAL INFORMATION AND OTHER DATA
Our Selected Consolidated Financial Information and Other Data
The selected audited consolidated financial information as of and for the years ended
December 31, 2002, 2003 and 2004 and the selected unaudited interim consolidated financial
information as of March 31, 2005 and for the three months ended March 31, 2004 and 2005 presented
below have been derived from our Consolidated Financial Statements included elsewhere in this
offering memorandum. The selected audited consolidated financial information as of and for the years
ended December 31, 2000 and 2001 has been derived from the consolidated financial statements for
Codere, which are not included in this offering memorandum.
Our consolidated financial statements as of and for the years ended December 31, 2000, 2001,
2002, 2003 and 2004 have been prepared in accordance with Spanish GAAP and audited by Ernst &
Young, S.L., our independent auditors. The unaudited interim consolidated financial statements as of
accordance with Spanish GAAP and reviewed by Ernst & Young, S.L. In the opinion of management,
the unaudited interim consolidated financial statements have been prepared on a basis consistent with
the audited consolidated financial statements included elsewhere in this offering memorandum and
include all adjustments, consisting of only normal recurring adjustments, which management considers
necessary for a fair statement of the results for the unaudited interim periods.
We are not required to present a cash flow statement in our Consolidated Financial Statements
prepared in accordance with Spanish GAAP and Spanish GAAP does not provide any standards for the
preparation of a cash flow statement. However, in order to provide investors with information
regarding our cash flows, we have included cash flow statements prepared in accordance with IAS 7 for
the years ended December 31, 2002, 2003 and 2004 and for the three month periods ended March 31,
2004 and 2005 elsewhere in this offering memorandum and present below selected cash flow
information derived from such cash flow statements.
Spanish GAAP differs in certain significant respects from U.S. GAAP and IFRS. We have included
a description of the principal differences between Spanish GAAP, U.S. GAAP and IFRS as applied to
us in Annex A. We have also included certain consolidated financial information prepared in
accordance with IFRS under ‘‘—Our Selected Consolidated Financial Information Prepared In
Accordance with IFRS’’ and a reconciliation of certain items from our consolidated balance sheet and
income statement prepared in accordance with Spanish GAAP to our consolidated balance sheet and
income statement prepared in accordance with IFRS under ‘‘Reconciliation Between Spanish GAAP
and IFRS’’ below.
54
2000
2001(1) 2002(2)
2003
2004
Three months
ended
March 31,
2004
2005
(unaudited)
(E in millions)
Operating revenue . . . . . . . . . . . . . . . . . .
Operating expenses:
Depreciation . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . .
Other(3) . . . . . . . . . . . . . . . . . . . . . .
272.3
428.4
353.8
352.0
395.2
98.2
108.9
.
.
.
.
.
21.6
47.6
9.9
8.3
0.7
135.4*
59.4
13.5
10.7
1.5
88.6
51.3
12.0
12.3
0.8
95.0
49.9
11.2
10.5
—
103.6
55.8
13.8
12.5
2.0
28.1
13.1
3.3
2.7
—
28.3
16.1
3.9
3.6
0.2
. . . . . . . . .
. . . . . . . . .
94.3
48.6
100.8
61.7
81.8
55.9
88.7
48.3
97.1
56.4
23.4
12.9
25.2
18.9
Total operating expenses . . . . . . . . . . . . . . . . . . .
231.0
383.0
302.7
303.6
341.2
83.5
96.2
41.3
45.4
51.1
48.4
54.0
14.7
12.7
7.1
2.3
0.6
12.8
3.8
(6.8)
13.1
2.6
(3.1)
26.0
2.5
0.5
38.7
3.1
1.2
9.0
0.7
0.2
9.9
0.8
0.5
.
.
.
.
.
3.0
8.2
2.2
13.0
6.1
4.5
9.8
(1.4)
9.0
2.5
1.9
11.2
(53.1)
4.0
(0.4)
0.8
10.5
(21.8)
10.9
3.8
1.1
10.9
(18.3)
10.8
4.2
—
2.7
(2.7)
2.4
1.5
0.5
3.0
4.7
3.4
0.5
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.0
11.4
(28.5)
(20.8)
(23.5)
(2.7)
2.4
24.0
37.6
8.2
368.6
142.4
133.9
17.2
48.3
15.9
403.6
144.6
147.4
14.9
23.9
12.8
372.8
116.2
100.2
17.5
43.2
10.2
375.6
170.2
50.7
26.5
20.4
23.0
422.9
195.7
28.7
16.4
27.3
13.0
396.0
172.7
52.7
26.8
14.4
19.5
453.4
203.3
36.9
62.6
(52.4)
(12.6)
(2.3)
57.2
(56.6)
2.0
2.6
58.0
(66.2)
17.2
9.0
13.6
(15.2)
0.5
(1.1)
18.7
(23.8)
5.4
0.3
76.2
82.7
70.1
76.1
82.3
88.4
20.7
22.1
20.4
21.1
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term loans and receivables . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36.9
3.4
0.4
42.0
6.1
—
43.7
7.9
10.8
8.4
3.9
1.1
13.5
4.2
2.9
Total cash invested excluding capitalized expenses . . . . . . . .
40.7
48.1
62.5
13.5
20.6
Operating profit . . . . . . . . . . . . . . . . . . . .
Financial items:
Financial expenses(4) . . . . . . . . . . . . . . .
Financial revenues(5) . . . . . . . . . . . . . . .
Exchange gains (losses), net . . . . . . . . . . .
method . . . . . . . . . . . . . . . . . . . . . . . .
Extraordinary profits (loss) . . . . . . . . . . . . .
Corporate income tax . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . .
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equity
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. . . . .
. . . . .
. . . . .
Balance sheet data:
Cash(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital(7) . . . . . . . . . . . . . . . . . . . . . . .
Other long-term payables and other adjustments(8) . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt(9) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . .
Cash flow data:
Net cash flow provided by operating activities . . . . . .
Net cash flow provided by (used in) investing activities
Net cash flow provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents . .
EBITDA(10) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA(11) . . . . . . . . . . . . . . . . . . . . .
. . . .
. . . .
. . . .
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. . . .
. . . .
60.2
60.7
55
71.1
76.2
2000
Operating data:
Total AWP/slot machines . . . . . .
Spanish AWP machines . . . . . .
Average daily net box per Spanish
(in euro)(12) . . . . . . . . . . . .
Number of bingo halls . . . . . . .
Number of bingo seats . . . . . . .
. . . .
. . . .
AWP
. . . .
. . . .
. . . .
. . . . . .
. . . . . .
machine
. . . . . .
. . . . . .
. . . . . .
At December 31,
2001
2002
2003
2004
At March 31,
2004
2005
. . . . . . . .
. . . . . . . .
28,024
13,647
27,780
13,148
27,291
12,677
29,053
12,314
32,007
12,847
28,824
12,135
31,981
12,839
. . . . . . . .
. . . . . . . .
. . . . . . . .
42.8
21
12,137
45.6
27
15,729
51.6
34
20,181
53.0
43
26,243
54.4
54
30,676
56.9
42
25,798
56.2
56
31,122
* Gaming taxes included within consumption and other external expenses in 2001 have been reclassified to ‘‘Other operating
expenses-Gaming and other taxes’’ to make 2001 comparable to following years.
(1) In its audit report on our consolidated financial statements as of and for the year ended December 31, 2001, Ernst &
Young, S.L. our independent auditors, qualified such report with respect to three items: (i) if we had used the Argentine
peso—U.S. dollar exchange rate in effect on the date on which the consolidated financial statements were approved
(March 20, 2002) by our Board of Directors and our shareholders to value our assets and liabilities related to our
operations in Argentina, we would have recognized an additional decrease in shareholders’ equity of approximately
A6 million; (ii) we recorded a receivable in the amount of A15.7 million on our consolidated balance sheet as of
December 31, 2001 as a result of acquiring interests in certain subsidiaries and as of the date of its report, Ernst &
Young, S.L. had not confirmed the identity of the counterparties and the terms under which such receivable would be paid
and (iii) we recorded A2.6 million in intangible assets corresponding to a project to develop a network gaming system, in
respect of which Ernst & Young, S.L. noted there was uncertainty as of the date of its report regarding the viability of such
project.
(2) In light of the qualifications in Ernst & Young, S.L.’s report on our consolidated financial statements as of and for the year
ended December 31, 2001 described in note 1 above, our consolidated financial statements as of and for the year ended
December 31, 2002 may not be directly comparable to our consolidated financial statements as of and for the year ended
December 31, 2001.
(3) Includes other services such as AWP machine rental expense, other rental expense and professional services.
(5) Includes revenues from marketable securities and receivables from fixed assets, other interest and similar revenue and losses
on short-term financial investments and profit from short-term financial investments.
(7) We define working capital as current assets (excluding cash) less current liabilities (excluding payables to credit entities).
(8) Other long-term payables and other adjustments include amounts owed to site owners and adjustments relating to accrued
revenues and provisions relating to short-term investments.
(9) We define total debt as long-term debt, plus current portion of payables to credit entities, minus other payables and minus
the MCP Instrument.
(10) We define EBITDA as operating profit plus period depreciation and amortization plus variation in provisions for trade
transactions. We believe that EBITDA is commonly used by the financial community as an indicator of funds available to
service debt, although it is not a measurement required by, or presented in accordance with, Spanish GAAP, U.S. GAAP or
IFRS. EBITDA should not be considered in isolation and is not a measurement of our financial performance or liquidity
under Spanish GAAP, U.S. GAAP or IFRS and should not be considered as an alternative to operating profit or loss for the
period or any other performance measures derived in accordance with Spanish GAAP, U.S. GAAP or IFRS or as an
alternative to cash flow from operating, investing or financing activities as a measure of our liquidity as derived in
accordance with Spanish GAAP, U.S. GAAP or IFRS. EBITDA does not necessarily indicate whether cash flow will be
sufficient or available for cash requirements and may not be indicative of our results of operations. In addition, EBITDA as
we define it may not be comparable to other similarly titled measures used by other companies.
56
2000
EBITDA . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . .
Amortization . . . . . . . . . . . .
Change in operating provisions
Operating profit . . . . . . . . . .
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.
60.2
9.9
8.3
0.7
41.3
2001
2002
2003
2004
71.1
13.5
10.7
1.5
45.4
76.2
12.0
12.3
0.8
51.1
(E in millions)
70.1
82.3
11.2
13.8
10.5
12.5
—
2.0
48.4
54.0
Three months
ended
March 31,
2004
2005
(unaudited)
20.7
3.3
2.7
—
14.7
20.4
3.9
3.6
0.2
12.7
(11) Our EBITDA does not fully reflect the EBITDA of our Mexico CIE business, as the revenues we record relating to this
business are equal to 1% of the net income of the bingo hall operations of the entity (the A en P) that holds the bingo
licenses and sports books licenses for this business, plus approximately 50% of the net income of ERSA (together
‘‘Revenues from A en P’’), the joint venture company through which we conduct our Mexico CIE business. See ‘‘Business—
Mexico—Mexico CIE—Background and Operations’’. Our EBITDA therefore does not include all of our share of EBITDA
of the A en P. To reflect this, we calculate an Adjusted EBITDA, which is EBITDA minus Revenues from A en P plus
approximately 50% of the EBITDA of the A en P. The reconciliation of EBITDA to Adjusted EBITDA is as follows:
2000
EBITDA . . . . . . . . .
Revenues from A en P
Adjusted EBITDA . . .
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60.2
(0.5)
1.0
60.7
2001
2002
2003
2004
71.1
(7.3)
12.4
76.2
(E
76.2
(12.3)
18.8
82.7
in millions)
70.1
82.3
(8.0) (11.8)
14.0
17.9
76.1
88.4
Three months
ended
March 31,
2004
2005
(unaudited)
20.7
(2.0)
3.4
22.1
20.4
(2.6)
3.3
21.1
(12) Average daily net box per AWP machine is calculated as average daily amounts wagered per installed AWP machine for the
period less prize payout amounts.
57
Our Selected Consolidated Financial Information Prepared in Accordance with IFRS
The selected audited IFRS consolidated financial information as of and for the year ended
December 31, 2004 and the selected unaudited interim IFRS consolidated financial information as of
March 31, 2005 and for the three months ended March 31, 2004 and 2005 presented below have been
derived from our audited preliminary 2004 IFRS consolidated financial statements as of and for the
year ended December 31, 2004 and the unaudited preliminary IFRS consolidated financial statements
as of March 31, 2005 and for the three months ended March 31, 2004 and 2005 included elsewhere in
this offering memorandum.
The audited preliminary 2004 IFRS consolidated financial statements as of and for the year ended
December 31, 2004 have been prepared in accordance with IFRS and audited by Ernst & Young, S.L.,
our independent auditors. The unaudited preliminary IFRS consolidated financial statements as of
accordance with IFRS and reviewed by Ernst & Young, S.L. In the opinion of management the
unaudited preliminary IFRS consolidated financial statements have been prepared on a basis consistent
with the audited preliminary 2004 IFRS consolidated financial statements included elsewhere in this
offering memorandum and include all adjustments, consisting of only normal recurring adjustments,
which management considers necessary for a fair statement of the results for the unaudited interim
periods.
The IFRS financial information provided herein is preliminary and is based on the assumptions
our management has made regarding the IFRS and related interpretations and policies expected to be
in effect, when management prepares its first complete set of IFRS financial statements as of
December 31, 2005 and for the year then ended, and comparable information in respect of the year
ended December 31, 2004. This preliminary IFRS financial information may require adjustment if
management’s assumptions are different from the IFRS and related interpretations and policies that
are in effect when it is required to prepare its first complete set of IFRS financial statements at
year-end 2005, and comparable information in respect of the year ended December 31, 2004. These
adjustments may be material and may result in significant changes to the IFRS financial information
provided below. We cannot assure you that when the first complete set of IFRS financial statements at
year-end 2005, and comparable information in respect of the year ended December 31, 2004, is
prepared, that such information will be comparable to the IFRS financial information provided herein
or that material adjustments will not be required to be made to such IFRS financial information.
different under IFRS from these measures under Spanish GAAP.
58
Three months
ended
March 31,
2004
2005
(unaudited)
(E in millions)
Year ended
December 31,
2004
Operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Consumption and other external expenses . . . . . . . . . . . . . .
Personnel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .
Variation in provisions for trade transactions . . . . . . . . . . . .
Other operating expenses: . . . . . . . . . . . . . . . . . . . . . . . . . .
Gaming and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial items:
Financial expenses(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial revenues(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . .
Share in the profits of companies carried by the equity method
Amortization of goodwill in consolidation(4) . . . . . . . . . . . . . .
Extraordinary profits(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extraordinary losses(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance sheet data:
Cash and cash equivalents(6) . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term payables and other adjustments(8) . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow data:
Net cash flow provided by operating activities . . . . . . . . . . . . .
Net cash flow provided by (used in) investing activities . . . . . . .
Net cash flow provided by (used in) financing activities . . . . . .
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
........
395.0
98.0
108.9
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103.6
55.9
23.7
2.6
167.2
97.3
69.9
353.0
42.0
28.1
13.2
5.4
—
40.5
23.0
17.5
87.2
10.8
28.3
16.0
7.0
0.2
48.5
25.3
23.2
100.0
8.9
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26.5
19.9
22.1
419.5
185.6
13.4
16.4
26.4
16.0
382.0
162.6
23.1
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54.2
(62.4)
17.3
9.0
11.9
15.5
(13.4) (20.6)
0.5
5.4
(1.1)
0.2
........
........
38.5
3.5
1.8
1.1
—
—
—
10.9
3.5
(4.5)
8.0
0.7
0.3
—
—
—
—
2.8
1.5
(1.2)
68.3
74.4
16.2
17.6
8.7
1.0
1.3
0.5
—
—
—
3.7
0.4
(1.1)
26.8
12.5
15.7
449.8
194.2
37.6
16.1
16.8
(1) Includes other services, such as AWP machine rental expense and professional services.
(3) Includes revenues from marketable securities and receivables from fixed assets, other interest and
similar revenue and losses on short-term financial investments and profit from short-term financial
investments.
(4) Goodwill in consolidation is not amortized under IFRS.
(5) The classification of certain income and expenses as extraordinary is not permitted under IFRS.
59
(7) We define working capital as current assets (excluding cash and cash equivalents) less current
liabilities (excluding payables to credit entities).
(8) Other long-term payables and other adjustments include amounts owed to site owners and
adjustments relating to accrued revenues and provisions relating to short-term investments.
(9) We define total debt as long-term debt, plus current portion of payables to credit entities, minus
other payables and minus the MCP Instrument.
(10) We define EBITDA as operating profit plus period depreciation and amortization plus variation in
provisions for trade transactions. We believe that EBITDA is commonly used by the financial
community as an indicator of funds available to service debt, although it is not a measurement
required by, or presented in accordance with, Spanish GAAP, U.S. GAAP or IFRS. EBITDA
should not be considered in isolation and is not a measurement of our financial performance or
liquidity under Spanish GAAP, U.S. GAAP or IFRS and should not be considered as an
alternative to operating profit or loss for the period or any other performance measures derived in
accordance with Spanish GAAP, U.S. GAAP or IFRS or as an alternative to cash flow from
operating, investing or financing activities as a measure of our liquidity as derived in accordance
with Spanish GAAP, U.S. GAAP or IFRS. EBITDA does not necessarily indicate whether cash
flow will be sufficient or available for cash requirements and may not be indicative of our results
of operations. In addition, EBITDA as we define it may not be comparable to other similarly titled
measures used by other companies.
Three
months
ended
Year ended
March 31,
December 31,
2004
2004
2005
(unaudited)
(E in millions)
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
68.3
23.7
2.6
42.0
16.2
5.4
—
10.8
16.1
7.0
0.2
8.9
(11) Our EBITDA does not fully reflect the EBITDA of our Mexico CIE business, as the revenues we
record relating to this business are equal to 1% of the net profit of the bingo hall operations of
the entity (the A en P) that holds the bingo licenses and sports books licenses for this business,
plus approximately 50% of the net income of ERSA (together ‘‘Revenues from A en P’’), the joint
venture company through which we conduct our Mexico CIE business. See ‘‘Business—Mexico—
Mexico CIE—Background and Operations’’. Our EBITDA therefore does not include all of our
share of EBITDA of the A en P. To reflect this, we calculate an Adjusted EBITDA, which is
EBITDA minus Revenues from A en P plus approximately 50% of the EBITDA of the A en P.
60
The reconciliation of EBITDA to Adjusted EBITDA is as follows:
Three
months
ended
Year ended
March 31,
December 31,
2004
2004
2005
(unaudited)
(E in millions)
EBITDA . . . . . . . . . . .
Revenues from A en P .
Adjusted EBITDA . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
68.3
(11.8)
17.9
74.4
16.2 16.1
(2.0) (2.6)
3.4
3.3
17.6 16.8
Reconciliation Between Spanish GAAP and IFRS
The table below provides a reconciliation of our selected audited consolidated financial
information as of and for the year ended December 31, 2004 and the selected unaudited interim
consolidated financial information as of March 31, 2005 and for the three months ended March 31,
2004 and 2005, in each case prepared under Spanish GAAP, to our selected audited IFRS consolidated
financial information as of and for the year ended December 31, 2004 and the selected unaudited
preliminary IFRS consolidated financial information as of March 31, 2005 and for the three months
ended March 31, 2004 and 2005, in each case prepared under IFRS. The reconciliation below should
be read together with the audited preliminary 2004 IFRS consolidated financial statements and the
unaudited preliminary IFRS consolidated financial statements as of March 31, 2005 and for the three
months ended March 31, 2004 and 2005 included elsewhere in this offering memorandum.
The reconciliation between Spanish GAAP and IFRS provides quantitative information regarding
the adjustments required to convert our Spanish GAAP selected financial information and other data
to IFRS. A detailed description of the qualitative and quantitative nature of these adjustments is
included in notes 2.d.1, 2.d.2 and 2.d.3 to our audited preliminary 2004 IFRS consolidated financial
statements included elsewhere in this offering memorandum, which provide complete reconciliations
from Spanish GAAP to IFRS of our consolidated balance sheet as of January 1, 2004 (the ‘‘IFRS
opening balance sheet’’), our consolidated balance sheet as of December 31, 2004 (the ‘‘IFRS closing
balance sheet’’) and our consolidated income statement for the year ended December 31, 2004 (the
‘‘IFRS income statement’’).
In general, the most significant IFRS adjustments made to prepare our IFRS opening balance
sheet and IFRS closing balance sheet relate to the write-off of start-up expenses, the accounting for the
cost of treasury shares, the recognition of a liability for the full amount of the cost of future conditional
obligations to purchase own shares, the elimination of translation differences against retained earnings,
the valuation of land and other fixed assets at fair value rather than cost, the non-amortization of
goodwill and the non-recognition of certain inflation adjustments.
In general, the most significant IFRS adjustments made to our IFRS income statement arise due
to the non-recognition of extraordinary items under IFRS which results in the reclassification of these
items to the income statement line items where it would be most appropriate for them to be recorded,
the reversal of the amortization of goodwill, which is tested annually, rather than amortized, under
IFRS, the reduction in retained earnings due to the difference in valuation methods of the put options
on our shares, the recognition of start-up costs as an expense as they are incurred under IFRS rather
than capitalizing such expenses and the difference in valuation of capitalized borrowing costs.
Our EBITDA for the year ended December 31, 2004 calculated under IFRS was in general
affected by the same types of adjustment as those described above in respect of our IFRS income
statement. In particular, our EBITDA for the year ended December 31, 2004 calculated under IFRS
was affected by the recognition of A6.8 million in start-up costs capitalized under Spanish GAAP as
expenses and the non-recognition of A5.1 million in extraordinary expenses under IFRS.
61
Year ended
December 31, 2004
Three months ended
March 31,
2004
2005
Amount
Amount
Amount
per
per
per
Spanish
IFRS
Amount Spanish
IFRS
Amount Spanish
IFRS
Amount
GAAP Adjustments(1) per IFRS GAAP Adjustments(1) per IFRS GAAP Adjustments(1) per IFRS
(E in millions)
Operating revenue . . . . . . . .
Operating expenses:
Consumption and other
external expenses . . . . . . .
Personnel expenses . . . . . . .
Variation in provisions for
trade transactions . . . . . .
Other operating expenses: . . .
Total operating expenses . .
Operating profit . . . . . . . . . .
Financial items:
Financial expenses . . . . . . .
Financial revenues . . . . . . .
Exchange gains (losses), net . .
carried by the equity method .
consolidation . . . . . . . . . .
Extraordinary profits . . . . . . .
Extraordinary losses . . . . . . . .
Corporate income tax . . . . . . .
Minority interests . . . . . . . . .
Net income (loss) . . . . . . . . .
Balance sheet data:
Cash . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . .
other adjustments
Total assets . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . .
Cash flow data:
operating activities . . . . . . .
in) investing activities . . . . .
in) financing activities . . . . .
Net increase (decrease) in cash .
EBITDA . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . .
395.2
(0.2)
395.0
98.2
(0.2)
98.0
108.9
—
108.9
103.6
55.8
26.3
—
0.1
(2.6)
103.6
55.9
23.7
28.1
13.1
6.0
—
0.1
(0.6)
28.1
13.2
5.4
28.3
16.1
7.5
—
(0.1)
(0.5)
28.3
16.0
7.0
2.0
153.5
341.2
54.0
0.6
13.7
11.8
(12.0)
2.6
167.2
353.0
42.0
—
36.3
83.5
14.7
—
4.2
3.7
(3.9)
—
40.5
87.2
10.8
0.2
44.1
96.2
12.7
—
4.4
3.8
(3.8)
0.2
48.5
100.0
8.9
38.7
3.1
1.2
(0.2)
0.4
0.6
38.5
3.5
1.8
9.0
0.7
0.2
(1.0)
—
0.1
8.0
0.7
0.3
9.9
0.8
0.5
(1.2)
0.2
0.8
8.7
1.0
1.3
1.1
—
1.1
—
—
—
0.5
—
0.5
10.9
10.3
28.6
10.8
4.2
(23.5)
(10.9)
(10.3)
(28.6)
0.1
(0.6)
19.0
—
—
—
10.9
3.5
(4.5)
2.7
1.4
4.1
2.4
1.5
(2.7)
(2.7)
(1.4)
(4.1)
0.4
—
1.5
—
—
—
2.8
1.5
(1.2)
3.0
7.7
3.0
3.4
0.5
2.4
(3.0)
(7.7)
(3.0)
0.3
(0.1)
(3.5)
—
—
—
3.7
0.4
(1.1)
26.5
20.4
—
(0.5)
26.5
19.9
16.4
27.3
—
(0.9)
16.4
26.4
26.8
14.4
—
(1.9)
26.8
12.5
23.0
422.9
195.7
28.7
(0.9)
(3.4)
(10.1)
(15.3)
22.1
419.5
185.6
13.4
13.0
396.0
172.7
52.7
3.0
(14.0)
(10.1)
(29.6)
16.0
382.0
162.6
23.1
19.5
453.4
203.3
36.9
(3.8)
(3.6)
(9.1)
0.7
15.7
449.8
194.2
37.6
58.0
(3.8)
54.2
13.6
(1.7)
11.9
18.7
(3.2)
15.5
(66.2)
3.8
(62.4)
(15.2)
(1.8)
(13.4)
(23.8)
3.2
(20.6)
17.2
9.0
0.1
0.1
17.3
9.1
0.5
(1.1)
(0.1)
—
0.4
(1.1)
5.4
0.3
—
—
5.4
0.3
82.3
88.4
(14.0)
(14.0)
68.3
74.4
20.7
22.1
(4.5)
(4.5)
16.2
17.6
20.4
21.1
(4.3)
(4.3)
16.1
16.8
(1) Notes describing the IFRS adjustments are included in the audited preliminary 2004 IFRS consolidated financial statements and the unaudited
preliminary IFRS consolidated financial statements as of March 31, 2005 and for the three months ended March 31, 2004 and 2005 of Codere,
S.A. included elsewhere in this offering memorandum.
62
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma combined financial information has been derived from
the unaudited pro forma combined financial information for the year ended December 31, 2004 and as
of and for the three months ended March 31, 2005 included elsewhere in this offering memorandum.
The unaudited pro forma combined financial information was prepared to illustrate the estimated
effects of the proposed combination of Codere with Grupo Royal, as if the Grupo Royal acquisition
had occurred for balance sheet purposes as of March 31, 2005 and for income statement and cash flow
statement purposes as of January 1, 2004. The unaudited pro forma combined financial statements have
been derived from our historical consolidated financial statements, which have been prepared in
accordance with Spanish GAAP, and the combined financial statements of Grupo Royal, which have
been prepared in accordance with Spanish GAAP. The basis of presentation and method of
consolidation is described in note 2 of the unaudited pro forma combined financial statements.
The adjustments in the unaudited pro forma combined financial information have been made on
the basis of available information and certain assumptions and estimates that management believes are
reasonable. The pro forma adjustments are described in the notes to the unaudited pro forma
combined financial information. No pro forma effect was given to any acquisitions completed in the
year ended December 31, 2004 or in the three months ended March 31, 2005 because the necessary
adjustments would have been immaterial.
purposes only and, because of their nature, may not give a true picture of the financial position or
results of operations of the enlarged group that would have been achieved had the Grupo Royal
acquisition occurred on the dates indicated. Furthermore, the unaudited pro forma combined financial
information is not indicative of the financial position or results of operations of the enlarged group for
any future date or period. In particular, our pro forma income statements do not give effect to the full
A335.0 million in principal amount of Notes being issued pursuant to this offering and reflect a debt
service obligation as if only A69.0 million in principal amount of Notes had been offered to finance the
Grupo Royal acquisition. In addition, the pro forma combined cash flow information has been
prepared by adding our cash flow statement with that of Grupo Royal for the periods shown, without
making any adjustments thereto.
The unaudited pro forma combined financial information should be read in conjunction with the
notes thereto, our Consolidated Financial Statements and notes thereto, the audited combined financial
statements of Grupo Royal and notes thereto and the unaudited interim combined financial statements
of Grupo Royal, all included elsewhere in this offering memorandum, and the information set forth
63
under ‘‘Use of Proceeds’’ and ‘‘Management’s Discussion and Analysis of Operating Results and
Financial Condition’’.
Year ended
December 31, 2004
Consolidated
Codere, S.A.
Three months ended
March 31, 2005
Combined
Pro Forma
Combined
Pro Forma
Royal
Pro Forma
Combined Consolidated
Royal
Pro Forma
Combined
Group Adjustments(1) Codere, S.A. Codere, S.A.
Group Adjustments(1) Codere, S.A.
(E in millions)
(Unaudited)
Operating revenue . . . . . . . . . .
Operating expenses:
Consumption and other external
expenses . . . . . . . . . . . . .
Personnel expenses . . . . . . . .
Variation in provisions for trade
transactions . . . . . . . . . . .
Other operating expenses: . . . .
Total operating expenses . . . .
Operating profit . . . . . . . . . . .
Financial items:
Financial expenses . . . . . . . .
Financial revenues . . . . . . . .
Exchange gains (losses), net . . .
carried by the equity method . .
consolidation . . . . . . . . . . . .
Extraordinary profits . . . . . . . .
Extraordinary losses . . . . . . . . .
Corporate income tax . . . . . . . .
Minority interests . . . . . . . . . .
Net income (loss) . . . . . . . . . .
Balance sheet data:
Cash . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . .
other adjustments . . . . . . . . .
Total assets . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . .
Cash flow data
operating activities . . . . . . . .
in) investing activities . . . . . . .
in) financing activities . . . . . .
Net increase (decrease) in cash . .
EBITDA . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . .
(Unaudited)
395.2
110.6
—
505.8
108.9
27.7
—
136.6
103.6
55.8
26.3
27.0
9.0
2.8
—
—
—
130.6
64.8
29.1
28.3
16.1
7.5
6.6
2.4
0.7
—
—
—
34.9
18.5
8.2
2.0
153.5
341.2
54.0
—
45.1
83.9
26.7
—
—
—
—
2.0
198.6
425.1
80.7
0.2
44.1
96.2
12.7
—
12.0
21.7
6.0
—
—
—
—
0.2
56.1
117.9
18.7
38.7
3.1
1.2
0.8
0.1
(0.1)
5.7
—
—
45.2
3.2
1.1
9.9
0.8
0.5
0.1
0.1
—
1.4
—
—
11.4
0.9
0.5
1.1
—
(1.1)
—
0.5
—
(0.5)
—
10.9
10.3
28.6
10.8
4.2
(23.5)
1.1
—
3.5
7.9
4.9
8.5
5.6
—
—
(2.0)
(4.1)
(6.3)
17.6
10.3
32.1
16.7
5.0
(21.3)
3.0
7.7
3.0
3.4
0.5
2.4
0.3
0.2
0.5
2.0
1.2
2.2
1.4
—
—
(0.5)
(1.0)
(1.8)
4.7
7.9
3.5
4.9
0.7
2.8
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
26.8
14.4
10.5
(9.9)
—
—
37.3
4.5
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
19.5
453.4
203.3
36.9
0.1
50.8
0.8
13.1
58.0
22.3
—
80.3
18.7
4.5
—
23.2
(66.2)
(3.7)
—
(69.9)
(23.8)
(1.6)
—
(25.4)
17.2
9.0
(7.8)
10.8
—
—
9.4
19.8
5.4
0.3
(8.2)
(5.3)
—
—
(2.8)
(5.0)
82.3
88.4
29.5
29.5
—
—
111.8
118.0
20.4
21.1
6.7
6.7
—
—
27.1
27.8
—
48.7
63.9
(13.1)
19.6
552.9
(268.0)
36.9
(1) Notes describing the pro forma adjustments are included in the unaudited pro forma combined financial information for the year ended
December 31, 2004 and as of and for the three months ended March 31, 2005 included elsewhere in this offering memorandum.
64
Adjusted Unaudited Pro Forma Combined Financial Data
The following adjusted unaudited pro forma combined financial data has been prepared for
illustrative purposes only to reflect our adjusted total net debt at March 31, 2005 as if the full
A335.0 million in principal amount of the Notes had been issued on March 31, 2005 and the proceeds
applied to finance the Grupo Royal acquisition and repay debt as described under ‘‘Use of Proceeds’’.
(E million)
Total debt as adjusted at March 31, 2005(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash as adjusted at March 31, 2005(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
356.3
45.7
Total net debt as adjusted(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
310.6
Estimated pro forma Adjusted EBITDA(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net debt as adjusted/estimated pro forma Adjusted EBITDA . . . . . . . . . . . . . . . . . . .
117.2
2.7x
(1) Total debt (excluding the MCP Instrument) as of March 31, 2005 as adjusted to give effect to the
offering of the Notes and the application of the estimated net proceeds therefrom as described
under ‘‘Use of Proceeds’’. The actual amounts to be repaid with the estimated net proceeds of the
offering of the Notes will include additional accrued and capitalized interest and draw-downs on
our senior credit facilities from March 31, 2005 through the date of payment. As of June 30, 2005,
this additional amount is estimated to be A14.1 million. See also ‘‘Capitalization’’.
(2) Cash on the balance sheet as of March 31, 2005 as adjusted to give effect to the offering of the
Notes and the application of the net estimated proceeds therefrom as described under ‘‘Use of
Proceeds’’. Includes an estimated A14.1 million as of June 30, 2005 to repay additional accrued and
capitalized interest and draw-downs on our senior credit facilities from March 31, 2005 through the
date of payment. Excludes cash on the Grupo Royal combined balance sheets as of March 31,
2005.
(3) Total net debt as adjusted reflects total debt as adjusted at March 31, 2005, net of cash as adjusted
at that date.
(4) Estimated pro forma Adjusted EBITDA is derived from ‘‘Summary Unaudited Pro Forma
Combined Financial Information’’, our unaudited interim consolidated financial statements as of
and for the three months ended March 31, 2004 and 2005 and the unaudited combined interim
financial statements for Grupo Royal as of and for the three months ended March 31, 2004 and
2005 and is calculated for the twelve month period from April 1, 2004 to March 31, 2005 by
deducting pro forma Adjusted EBITDA for the three months to March 31, 2004 from pro forma
Adjusted EBITDA for the year to December 31, 2004 and adding pro forma Adjusted EBITDA
for the three months to March 31, 2005.
65
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information set forth in ‘‘Selected
Financial Information and Other Data’’ and our Consolidated Financial Statements and accompanying
notes included elsewhere in this offering memorandum. The Consolidated Financial Statements on which
the following discussion is based have been prepared in accordance with Spanish GAAP, which differs in
certain significant respects from U.S. GAAP and IFRS. Certain differences between Spanish GAAP, U.S.
GAAP and IFRS are summarized in Annex A. We are not required to present a cash flow statement in our
Consolidated Financial Statements prepared in accordance with Spanish GAAP and Spanish GAAP does
not provide any standards for the preparation of a cash flow statement. However, in order to provide
investors with information regarding our cash flows, we have included cash flow statements prepared in
accordance with IAS 7 for the three years ended December 31, 2004 and for the three month periods ended
March 31, 2004 and 2005 elsewhere in this offering memorandum. The following discussion does not
include information from our audited preliminary IFRS consolidated financial statements and unaudited
preliminary IFRS consolidated financial statements prepared in accordance with IFRS and presented under
‘‘Selected Consolidated Financial Information And Other Data’’.
The following discussion contains certain forward-looking statements that involve risks and
uncertainties. Our future results could differ materially from those discussed below. Factors that could cause
or contribute to such differences include, without limitation, those discussed in the sections entitled ‘‘Risk
Factors’’ and ‘‘Business’’ and elsewhere in this offering memorandum.
Overview
of exclusive gaming sites for our AWP machines. In addition to our Spain AWP business, we also
operate the Canoe bingo hall in Madrid, which we believe is the largest bingo hall in continental
Europe with 1,140 seats. In the year ended December 31, 2004 and in the three months ended
March 31, 2005, our Spain AWP business generated revenues of A148.7 million and A39.3 million and
EBITDA (before corporate headquarters expenses) of A41.5 million and A11.5 million, respectively, and
our Spain bingo business generated revenues of A88.5 million and A22.8 million and EBITDA (before
corporate headquarters expenses) of A3.7 million and A1.1 million, respectively.
joint venture with Corporación Interamericana de Entretenimiento (‘‘CIE’’) and our management
services agreement with Grupo Caliente, S.A. de C.V. (‘‘Caliente’’), we are the largest operator of
gaming sites, with 48 off-track betting sites, 43 of which include bingo halls, as of December 31, 2004.
As of March 31, 2005, CIE holds licenses to build and operate an additional 14 halls and Caliente
holds licenses to build and operate an additional 69 halls. Pursuant to our joint-venture agreement with
CIE and our management services agreement with Caliente, we expect to open 13 new bingo halls in
2005. In the year ended December 31, 2004 and in the three months ended March 31, 2005, our
66
Mexico business generated revenues of A34.5 million and A9.8 million and EBITDA (before corporate
headquarters expenses) of A18.7 million and A4.2 million, respectively.
respectively.
Presentation of Financial Information
The financial statements contained in this offering memorandum include:
(i) our audited consolidated financial statements as of and for the three years ended
December 31, 2002, 2003 and 2004, prepared in accordance with Spanish GAAP;
(ii) our unaudited interim consolidated financial statements as of and for the three months
ended March 31, 2005 and as of and for the three months ended March 31, 2004, prepared in
accordance with Spanish GAAP;
(iii) our audited preliminary 2004 IFRS consolidated financial statements as of and for the
year ended December 31, 2004, and our unaudited preliminary IFRS consolidated financial
statements as of and for the three months ended March 31, 2005 and 2004, prepared in
accordance with IFRS;
(iv) audited combined financial statements for Grupo Royal as of and for the year ended
December 31, 2004, and unaudited combined interim financial statements for Grupo Royal as of
and for the three months ended March 31, 2005 and 2004, prepared in accordance with Spanish
GAAP; and
(v) unaudited pro forma combined financial information for the proposed Grupo Royal
acquisition for the year ended December 31, 2004 and as of and for the three months ended
March 31, 2005, prepared in accordance with Spanish GAAP.
The financial statements described in (i) and (ii) are referred to herein as our ‘‘Consolidated
Financial Statements’’. ‘‘Consolidated Balance Sheet’’ and ‘‘Consolidated Income Statement’’ refer to
one and/or all of our consolidated balance sheets and consolidated income statements included within
‘‘Consolidated Financial Statements’’.
Segment Reporting
In the discussion below we review our results of operations on a consolidated basis and on the
basis of our four principal business units, Spain AWP, Spain Bingo, Mexico and Argentina. We also
have operations in Colombia, Chile, Uruguay, Peru and Italy that are of a smaller scale or in initial
stages of development. A limited discussion of these operations has been included below under the
heading ‘‘Other Operations’’. In 2004, our four business units comprised 38%, 23%, 9% and 14% of
our consolidated operating revenue and 45%, 4%, 20%, and 16% of our consolidated EBITDA,
excluding in each case headquarters revenues and expenses, respectively. Our operations discussed
under Other Operations comprised 16% and 15% of our consolidated operating revenue and EBITDA,
excluding in each case their share of headquarters revenues and costs and expenses, respectively, in
2004. The organization of our operations into our four business units reflects the manner in which our
management evaluates the performance of our various businesses and, on the basis of such information,
makes financial and strategic decisions regarding our operations. We believe that the organization of
our operations into the foregoing business units also enhances our ability to adapt to the different
67
market and regulatory environments of the countries in which we conduct our operations. We have
divided our Spanish operations into two business units in order to facilitate separate management of
our core Spanish AWP machine and bingo businesses. Our Mexico business unit is comprised of a joint
venture with CIE and a management services agreement with Caliente.
Our Group headquarters in Spain provides central corporate services including information
technology, accounting, finance, tax, legal and strategic support to our four principal business units and
all of our Other Operations. We do not allocate any of the expenses associated with such services to
the business units or Other Operations receiving such services and therefore the operating profit and
EBITDA for our four business units and Other Operations described below is overstated to the extent
of the headquarters expenses corresponding to the business units and Other Operations.
Factors Affecting the Comparability of our Results of Operations
As a result of the factors discussed below, our operating results for certain of the financial periods
discussed in this offering memorandum are not directly comparable with the operating results for other
financial periods discussed herein and may not be directly comparable with our operating results for
future financial periods.
Latin American Currency Depreciation
We are exposed to foreign exchange rate risk in that our reporting currency is the euro, whereas
certain of our subsidiaries keep their accounts in other currencies, principally Mexican pesos, Argentine
pesos and Chilean pesos and also Colombian pesos, Uruguayan pesos and Peruvian nuevos soles. If we
continue to expand our operations in Latin America, we will increase the proportion of our operating
revenue that we generate in currencies other than the euro. For the year ended December 31, 2004,
9%, 14% and 5% of our operating revenue was denominated in Mexican pesos, Argentine pesos and
Chilean pesos, respectively and a total of 38.4% of our operating revenue was in non-euro currencies.
During the periods under review, Latin American currencies have generally depreciated against the
euro and this has had a significant impact on our financial condition and results of operations when
expressed in euro. As Latin American currencies and the U.S. dollar depreciate against the euro, when
the results of operations of our Latin American subsidiaries are included in our Consolidated Financial
Statements, the euro value of their results declines, even if, in local currency terms, their results of
operations and financial condition have remained the same relative to the prior year. Accordingly,
declining exchange rates may limit the ability of our results of operations, stated in euro, to fully
describe the performance in local currency terms of our Latin American subsidiaries. Our Latin
American subsidiaries generally generate revenues and incur expenses and liabilities in their local
currency, which provides them with a natural hedge against foreign currency fluctuations.
The assets and liabilities of our subsidiaries which keep their accounts in currencies other than the
euro have been translated to euro at the period-end exchange rates for inclusion in our Consolidated
Financial Statements. Income statement items have been translated at the average exchange rates for
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the period. The table below sets forth the exchange rates of the euro relative to the Mexican peso and
the Argentine peso during the periods under review:
2002
2003/2002
2003
% change
2004
2004/2003
% change
Mexican peso/Euro (E1.00 = Mex. Ps.)
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Period end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.12
10.99
12.31
14.14
34.9%
28.7%
14.1
15.26
14.5%
7.9%
Argentine peso/Euro (E1.00 = Arg. Ps)
Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Period end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.93
3.55
3.36
3.70
14.6%
3.9%
3.66
4.05
8.9%
9.5%
Source: Mexican Central Bank and Argentine Central Bank.
At March 31, 2005 the exchange rate of the euro to the Mexican peso was A1.00 = Mex. Ps. 14.6
and the exchange rate of the euro to the Argentine peso was A1.00 = AR$ 3.8.
Significant Transactions in the Periods Under Review
Transactions in Codere, S.A. Shares and Put/Call Options
In 2002 and 2003, we entered into several transactions involving the purchase and sale of our
shares and the granting of certain options over our shares. The transactions included the following:
• In connection with the investment in us by MCP in 2002, we purchased 3,225,805 of our shares
from Joaquı́n Franco and certain minority shareholders for A25.0 million. In addition, in
connection with such purchases, we also agreed to purchase from Jesús Franco up to 2,253,758
additional Codere, S.A. shares at a price of A9.055 per share (which price increased 5.0% per
annum from July 18, 2003). On March 21, 2005, Jesús Franco agreed to waive his right to
require us to purchase such shares. Though we are no longer required to record provisions
relating to this former share purchase obligation, during the periods under review such
provisions were required and resulted in extraordinary losses as described below.
• In March 2003, we sold an aggregate of 473,983 of our shares to Masampe, S.L. (a company
controlled by Jose Antonio Martı́nez Sampedro), Arturo Alemany and Joseph Zappala for
A3.7 million and granted them a call option on 1,421,949 additional shares at a price of A7.88
per share over a period of 30 months.
• In connection with the entry into the mezzanine loan facility in 2003, ICIL purchased 1,104,362
of our shares from Jesús Franco for A10.0 million. In connection with this transaction, we
granted ICIL a put option on the 1,104,362 shares, which it acquired from Jesús Franco.
• In consideration for consulting and other services they have provided to us since June 2002, in
2004 we transferred 161,584 shares to Monitor and agreed to grant Monitor a put option on
such shares.
Following these transactions, and including the treasury shares held by Codere, S.A. prior to 2002,
Codere, S.A. owned 3,694,598 of its own shares at March 31, 2005. We spent an aggregate amount, net
of disposals, of A30.1 million. Spanish GAAP requires that we provision for the excess between the cost
of our treasury stock and its underlying book value. We have provisioned A27.2 million against our
treasury stock at March 31, 2005. The net carrying value of our treasury stock as at March 31, 2005 was
A2.9 million.
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The above described transactions have resulted in significant charges to our income statements for
the years ended December 31, 2002, 2003 and 2004 and the three months ended March 31, 2005 that
included not only allowances against the value of our treasury stock (A16.3 million, A10.9 million and
A1.7 million in 2002, 2003 and 2004, respectively) but also provisions for the obligations incurred in
connection with the commitment to purchase shares from Jesús Franco and the put option granted to
ICIL. The pre-tax losses incurred in connection with such transactions were A16.3 million, A14.3 million
and A8.1 million in the years ended December 31, 2002, 2003 and 2004, respectively. In the three
months ended March 31, 2005 as a result of Jesus Franco’s waiver of his right to require us to purchase
2,253,758 Codere, S.A. shares from him, we reversed the provision that had been recorded in respect of
such obligation, which resulted in an extraordinary profit of A6.5 million.
We expect that during 2005 we will transfer 79,514 of our shares to Monitor, together with
A720 thousand, in exchange for consulting services it has provided to us from July 2004 to
December 2004 and will provide to us from January 2005 to June 2005.
Acquisition of Grupo Royal
Grupo Royal’s pending tax contingencies, which, if resolved adversely to us, we estimate would require
us to pay an additional approximately A10.6 million. Following our exercise of the purchase option, we
will own over 90% of Grupo Royal, which we expect to increase over time by buying out certain
remaining minority shareholders of several of the Grupo Royal companies. As part of the Recreativos
Franco acquisition, we and Mr. Carlos Manuel Vazquez Loureda and his wife agreed to terminate a
series of pending litigation proceedings between us. See ‘‘Related Party Transactions—Acquisition of
Grupo Royal’’.
March 31, 2005, respectively. See ‘‘Selected Unaudited Pro Forma Combined Financial Information’’.
Grupo Royal’s audited combined financial statement as of and for the year ended December 31, 2004
and unaudited combined financial statements for the three months ended March 31, 2004 and 2005 and
as of March 31, 2005, in each case prepared under Spanish GAAP, have been included elsewhere in
this offering memorandum. In addition, unaudited pro forma financial statements to reflect the
proposed acquisition of Recreativos Franco’s interests in Grupo Royal, as if it had occurred for balance
sheet purposes as of March 31, 2005 and for income statement and cash flow statement purposes as of
January 1, 2004, have been included elsewhere in this offering memorandum.
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Venezuela Plaza Suite Transaction
In 2000, we agreed with the owners of the Venezuela Plaza Suite hotel on Isla Margarita,
Venezuela to build a casino on the hotel premises. Pursuant to our agreement, we committed to a total
investment of U.S.$13.5 million, comprised of U.S.$6.0 million as our portion of the construction
expenses, a loan of U.S.$5.0 million to our partners to fund their portion of construction expenses and
an additional U.S.$2.5 million in other costs and expenses. The casino commenced operations in
December 2000, but we were required to shut it down as a result of a court order arising from
allegations that the hotel had not completed the improvements required under the casino license.
Though we were successful in challenging the court order and reopened the casino three months later,
the legal basis for our license continued to be challenged. In addition, the operating results of the
casino were significantly adversely affected by the opening of a competing casino close to the area of
the hotel and the adverse macroeconomic and political environment in Venezuela in 2002. As a result
of the foregoing, we wound down the casino’s operations in 2002, which resulted in extraordinary
charges of A11.3 million and A0.6 million in 2002 and 2003.
Ballesteros Transaction
We are involved in a litigation with José Ballesteros Requejo and his wife (‘‘Ballesteros’’) relating
to a failed transaction for the purchase of certain bingo halls in Spain and Venezuela from Ballesteros.
See ‘‘Business—Litigation’’. In connection with this transaction, we paid a total of A15.5 million to
Ballesteros and have been unsuccessful in obtaining a refund of such funds. In 2002 we took a charge
to our Consolidated Statement of Income of A15.5 million to write-off the value of our exposure to the
Ballesteros transaction.
Expiration of our Mexico CIE Business’s Management Contract
In the periods under review, the Mexico CIE business’s operating revenue included fees received
from a four-year management contract between our subsidiary, Compañia de Inversiones
Mexicanas S.A. (‘‘CIMSA’’) and Entretenimiento Recreativos S.A. (‘‘ERSA’’), the joint venture
company we formed with CIE. These fees amounted to U.S.$3.0 million in each of 2001, 2002 and 2003
and a final payment of U.S.$2.5 million in 2004. Since the management contract expired on
December 31, 2004, the Mexico CIE business’s operating revenue will not include such fees in future
periods.
Corporate Actions Affecting the Results of Operations of the Mexico Business Unit
In 2003, we sold a 10% interest in certain companies in our Mexico business unit to Fernando
Martı́n-Laborda, the head of Codere Mexico, in exchange for his services in prior years in assisting us
establish our Mexican operations. Also in 2003, we changed our consolidation methodology which
resulted in our consolidating 44.8% of ERSA, rather than the 50.0% that was consolidated in 2002. We
again revised our consolidation methodology in 2004, however, which resulted in our consolidating
50.0% of ERSA. Our changes in consolidation methodology resulted in a decrease in operating revenue
and EBITDA of A1.1 million and A0.9 million, or 0.3% and 1.3%, respectively, in 2003 compared to
2002 and an increase in operating revenue and EBITDA of A1.4 million and A1.3 million, or 0.3% and
1.6%, respectively, in 2004 compared to 2003. Accordingly, as a result of the effect of these corporate
actions and changes in consolidation policy, a part of the changes in our operating performance do not
reflect changes in the performance of our underlying business.
Closure of the Cartaya bingo hall in 2003
In May 2003, we closed our Cartaya bingo hall in Denia, Spain as a result of a significant decrease
in the number of visitors and the average wager per visitor during the preceding two years. We believe
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the decreased visitors and wagers at the Cartaya bingo hall were principally caused by the opening of a
competing bingo hall close to the area where the Cartaya hall was located, which is a region that was
not large enough to support two bingo halls. In 2002 and 2003, we reduced personnel at the Cartaya
bingo hall in order to adjust the workforce to the level of gaming demand. In addition, at
December 31, 2002, we took a write down of A1.5 million, reflecting the entire amount of goodwill
related to our acquisition of the Cartaya bingo hall in 1999, because we no longer considered that the
goodwill would be recovered through the Cartaya bingo hall’s operations. This write down was reflected
as an extraordinary expense in 2002.
Possible Acquisition of Operbingo Group
Operbingo in which we indicated an interest in purchasing 100% of Operbingo’s shares, subject to entry
into definitive documentation and certain other conditions, including the completion of a
recapitalization and refinancing at Operbingo and satisfactory completion of due diligence and audit
procedures. If we acquire Operbingo as contemplated in the memorandum of understanding, our
business and results of operations in future years may not be comparable to our results of operations
during the periods under review. See ‘‘Related Party Transactions—Agreements with Francomar—
Memorandum of Understanding—Operbingo Purchase’’.
Key Factors Affecting Our Results of Operations
General Factors
Regulation
Our operations are highly regulated and many of the factors that affect our results of operations
are prescribed by applicable regulation. These factors include the minimum payout ratio, such as in the
case of slot machines in Spain and Argentina, gaming taxes, maximum wager, minimum average gaming
time, and the number of slot machines that we may install in bars, restaurants and our bingo halls. The
minimum payout ratio and gaming taxes, in particular, can vary significantly across jurisdictions and
comprise, in most cases, the significant majority of the total amounts wagered on our slot machines and
in our bingo halls. These factors are generally fixed by regulation and may be favorably or unfavorably
modified only as a result of the legislative process in the applicable country or region. As a result of
the highly regulated nature of the gaming industry, we are required to focus on a limited number of
factors, which are within our control to improve our results of operations.
Macroeconomic Factors and Demographics
Gaming is a form of entertainment and, as such, competes with other forms of entertainment for
the discretionary spending of the local population. In general, countries and regions with higher GDP’s
will tend to have higher levels of discretionary spending that can be directed to gaming and other forms
of entertainment. Similarly, although we believe gaming tends to be more resilient than other forms of
entertainment, when a country or region experiences a decline in GDP, spending on gaming may also
decline. Demographic changes may also affect our results of operations. In addition, changing social
habits in the countries in which we operate, such as longer working hours that result in a decrease in
time spent on entertainment, may adversely affect our results of operations.
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Competition
Consolidation of smaller gaming companies or the appearance of a new competitor close to the
area of one of our key gaming sites could significantly affect our results of operations. In many of the
countries and regions in which our businesses are located, the number of gaming sites in a given area is
limited by regulation. If such regulations were to be modified to allow for an increased number of
gaming sites close to the location of our gaming sites, our clients could choose to visit our competitors’
sites rather than our own. A decrease in visitors to our gaming sites could result in lower operating
revenue and, in certain cases, our eventual closing or relocating of our gaming sites. For more
information on our competitors in the markets in which we operate, see ‘‘Business’’.
Spain AWP
The key factors that affect the results of operations of our Spain AWP business unit are the
number of our installed AWP machines and the average daily wager per AWP machine. The factors
that most significantly affect the number of our installed machines are our ability to enter into new
agreements, or renew existing agreements, with site owners and our ability to identify and undertake
strategic acquisitions. The average daily wager per AWP machine is most significantly affected by our
ability to select high producing AWP machines and efficiently rotate our AWP machine portfolio. In
many cases, our success in entering into agreements with site owners depends on our making exclusivity
payments or loans and advances to the site owners, which payments, loans and advances are customary
in the market. The likelihood of such payments being required, and the magnitude of such payments, is
generally a function of the competition for any given site, with centrally located, high traffic sites
attracting the most interest from our competitors. In cases where there are a number of gaming
operators bidding on a site, we will generally be required to make higher exclusivity payments or loans
or advances to the site owner, increasing our operating costs. We capitalize exclusivity payments and
amortize them over the length of the contract with the site owner, which is generally three to eight
years.
Spain Bingo
The majority of the operating revenue from our Spain Bingo business unit comes from bingo card
sales. Card sales tend to increase with the availability of larger prize pools which, in turn, depend on
the number of players in the halls and the number of cards played by them during each game.
Consequently, larger bingo halls generate more card sales. New legislation passed in July 2004 by the
Autonomous Region of Madrid lowers required bingo prize payouts by 1% and authorizes bingo
operators to decrease prize payouts by an additional 1% if they link their bingo halls to other
operators’ bingo halls to provide for simultaneous interconnected bingo games. One of the principal
advantages of linking our Canoe bingo hall to other operators’ bingo halls will be that the jackpot
prizes can be much larger, since they may be based on the number of players in all linked halls. See
‘‘Industry and Regulation—The Spanish Gaming Market—Bingo Market’’. Our Spain Bingo business
unit generates a small percentage of its revenues from AWP machines located in its Canoe bingo hall
and from ancillary services provided to bingo hall visitors, such as sales of food and drinks, lottery
tickets and tobacco.
The majority of the expenses of operating the Spain Bingo business unit relates to prize payouts,
employee expenses and gaming taxes. Increased profitability of our Spanish bingo hall operations
depends on increasing traffic so as to increase bingo card sales and realizing operating efficiencies,
principally through improved staffing practices.
73
Mexico
Each of our Mexico CIE and Mexico Caliente businesses operate bingo halls and our Mexico CIE
business also operates sports books. The bingo hall operations of our Mexico business unit are affected
by many of the same factors as our Spain Bingo business unit, and in particular by factors affecting
bingo card sales. Our Mexico business unit’s bingo hall operating revenues are also significantly
affected by the locations of the halls. In general, the most desirable locations for bingo halls are in city
shopping malls because of their accessibility by car or public transportation and their perception of
security. As the location of bingo halls significantly affects their operating performance, competition in
the last several years in the larger Mexican cities for new bingo sites has been intense and we believe
that there are limited remaining desirable sites in such cities. As a result of the limited number of
additional desirable sites in larger cities, we have begun to focus on smaller and mid-sized cities and
other locations outside of the areas that we have historically concentrated our operations.
ERSA, our joint venture subsidiary with CIE, does not assume any financial risk for the bets
placed at its off-track betting sites. The financial risk is assumed by Caliente; ERSA acts only as agent
for Caliente and receives a commission on all betting regardless of the outcome. Therefore the key
factor affecting our Mexico CIE business’s sports books operating revenue is the volume of betting by
visitors to its off-track betting sites. Betting volume is principally affected by traffic at the bingo halls
and the ability of the sports books operations to attract betting, which is most significantly affected by
the number and type of sporting events and races on which betting is made available and the
availability of televised simulcasts of such events displayed on televisions throughout the site.
Since we record operating revenue from our Mexico CIE and Mexico Caliente businesses as the
net income and profit before tax of such businesses, respectively, the operating expenses we record
relating to these businesses are principally comprised of personnel and professional services expenses
incurred at our Mexican holding companies. The principal operating expenses incurred by the
underlying Mexico CIE and Mexico Caliente businesses are comprised of costs related to the rental of
bingo halls, costs incurred in connection with the build out and construction of bingo halls (for the
Mexico Caliente business only) and personnel expenses. The gaming taxes applicable to the Mexico
CIE and Mexico Caliente businesses, which were set by the regulator under the terms of gaming
licenses requiring CIE and Caliente to operate capital intensive and unprofitable horse and dog race
tracks, are extremely low, at 0.25% and 2.0%, respectively. Increased profitability for our Mexico
business unit depends primarily on increasing traffic to the Mexico CIE and Mexico Caliente sports
books so as to increase bingo card sales and betting volume at sports books and realizing operating
efficiencies, principally through improved staffing practices and cost controls.
Argentina
Our Argentina business unit principally operates bingo halls with slot machines. Though the
operating results of the Argentina business unit’s bingo operations are subject to factors similar to
those described above under ‘‘Spain Bingo’’, certain features of the Argentine regulatory scheme give
rise to different economic considerations for the Argentina business unit’s bingo business. Argentine
law requires that gaming licenses be awarded to Argentine non-profit organizations which, in turn,
enter into agreements with gaming operators, such as us. We are required under law to pay a
percentage of amounts wagered to the non-profit license holders and have negotiated with such entities
a payment of 2.9% of amounts wagered. With respect to prize payouts, however, Argentine law
requires payment as prizes of at least 58% of amounts wagered, compared to 67% in Spain. Finally,
gaming taxes on bingo of 24% in Argentina are slightly higher than the 20% applicable in Spain. As a
result of the foregoing, our Argentine business unit records operating revenues in its bingo operations
of 18% of amounts wagered, compared to 13% for the Spain Bingo business unit.
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As in the case of the Spain AWP business unit, the key factors that affect the results of operations
of our Argentina business unit’s slot machine operations are the number of installed slot machines and
the average daily wager per slot machine. The factors that most significantly affect the number of our
installed slot machines are the number of bingo halls that we are able to open in Argentina and
Argentine regulation that limits the number of slot machines to one for every two bingo seats in any
given bingo hall. The average daily wager per slot machine is most significantly affected by our ability
to select high production slot machines and efficiently rotate our portfolio of slot machines. We believe
our ability to select attractive, high production slot machines results from our experience in the slot
machine business and our sufficient size that enables us to test numerous machines at one time. Unlike
our Spain AWP business unit, the Argentina business unit purchases, rather than rents, its slot
machines. The Argentina business unit’s slot machine operations are also modestly affected by the
payment of an average of approximately 0.2% of amounts wagered to the non-profit organization that
holds the gaming license on which each of the Argentina business unit’s bingo halls depends. In
addition, Argentine regulations require a higher minimum percentage of prize payouts of our slot
machines in our bingo halls—85% of amounts wagered, compared to 75% in Spain—which is somewhat
offset by lower gaming taxes on slot machines—2.7% of amounts wagered, compared to 4.9% in Spain.
Critical Accounting Policies
Our Consolidated Financial Statements and the accompanying notes contain information that is
pertinent to the discussion and analysis of our results of operations and financial condition set forth
below. The preparation of financial statements in conformity with Spanish GAAP requires our
management to make estimates and assumptions that affect the reported amount of assets, liabilities,
revenues and expenses, and the related disclosure of contingent assets and liabilities. Estimates are
evaluated based on available information and experience. Actual results could differ from these
estimates under different assumptions or conditions. We believe that, in particular, the critical
accounting policies and estimates discussed below involve significant management judgment due to the
sensitivity of the methods and assumptions necessary in determining the related asset, liability, revenue
and expense amounts. For a detailed description of our significant accounting policies, see notes 2 and
3 to our Consolidated Financial Statements.
Consolidation Principles
We consolidate by the global integration method (i) companies in which we hold, directly or
indirectly, over 50% of the voting rights and (ii) other companies in which we hold, directly or
indirectly, 50% or less of the voting rights, but where pursuant to shareholders agreements or otherwise
we are entitled to exercise control over the management of such companies. In the periods under
review, the companies we consolidated by global integration pursuant to (ii) above were Automáticos
Mendoza, S.L., Caneda, S.L., Codere Gandı́a, S.A., Codere Guadalajara, S.A., Codere Navarra, S.L.,
Codere Italia, S.p.A., Codestrada, S.R.L., Gaming New, S.R.L., Gaming Re, S.R.L., Gaming
Service, S.R.L., Opergiochi Italia, S.R.L., Gomcasti, S.L., Operoeste, S.A., Opealmar, S.L., Oper
2000, S.L., El Portalón, S.L., Recreativos Agut85, S.A., Resti Y Cı́a., S.L., Resur Cádiz, S.L.,
Rospay, S.L., Recreativos Ruan, S.A. and Vimatir, S.L. The companies where we hold, directly or
indirectly, 50% or less of the voting rights and do not exercise effective control over such companies’
management, but have a significant influence, are consolidated by the proportional consolidation
method. In the periods under review, the companies we consolidated by the proportional consolidation
method were: Hı́pica Rioplatense Uruguay, S.A., Campos del Norte, S.A., Inversiones del Norte, S.A.,
Kuden, S.A., Plaza Casino, S.A., Rı́o Manzanares, S.A., Slots, S.A., Entretenimiento Recreativo, S.A.
de C.V. and Hı́pica Rioplatense Argentina, S.A. Companies where we hold, directly or indirectly, 50%
or less of the voting rights and do not exercise any control over such companies’ management are
consolidated by the equity method. In the periods under review, the companies we consolidated by the
equity method were certain Grupo Royal Companies: C&K Internacional, S.A., Iberargen, S.A.,
75
Interbas, S.A., Loarsa, S.A., Pacı́fico, S.A., Punto, 3, S.A. and Rajoy Palace, S.A. These Grupo Royal
companies were consolidated by the equity method, despite our 25% interest in each of them, as a
result of a series of litigation proceedings with the controlling shareholders of Grupo Royal, Mr. Carlos
Manuel Vazquez Loureda and his wife, which prevented us from influencing their management.
Depreciation and Amortization
Tangible Assets
Our principal tangible assets are slot machines that we have purchased and other equipment or
fixtures related to certain of our bingo halls. We depreciate slot machines based on a five- to
seven-year useful life. When we determine that the commercial life of a slot machine has ended prior
to its expected useful life, we record under the caption ‘‘Provisions for Losses on Fixed Assets’’ of our
Consolidated Income Statement a write-off expense equal to the slot machine’s net book value at such
time. Other tangible fixed assets are depreciated on a straight-line basis over the estimated useful life
of the asset.
Intangible Assets
Our principal intangible assets are the exclusivity rights, which we obtain from site owners in
connection with entering into exclusivity contracts for placement of our slot machines and merger
goodwill arising in connection with acquisitions we make. Intangible assets also include capitalized
research and development costs, administrative concessions (licenses), software and other information
technology and capital lease agreements.
Exclusivity rights are amortized over the term of the related contract, which generally varies from
three to eight years. Merger goodwill, which arises due to the difference between the acquisition cost of
the merged investment and the net book value of the merged assets and liabilities, is amortized on a
straight-line basis over 10 years.
Rights on leasing agreements under which we lease slot machines, machinery used in our bingo
halls, vehicles and other machinery are recorded at the cost of the related assets. These assets are
amortized at rates similar to those used to depreciate similar tangible fixed assets. We record the total
debt for pending lease payments plus the amount of the purchase option as a liability. The financial
expenses not yet paid on these transactions are included under the ‘‘Deferred Charges’’ caption on our
Consolidated Balance Sheet, and are charged to our Consolidated Income Statement on an accrual
basis according to certain financial criteria.
Other intangible assets are amortized on a straight-line basis over a maximum of five years, based
on their useful lives, which we determine as the period of time that an asset is expected to contribute
directly or indirectly to our future cash flows. Our determination of an intangible asset’s future
contribution to our cash flows is based on certain factors, including legal, regulatory and contractual
provisions, as well as the effects of obsolescence, demand, competition and other economic factors. We
are required to use judgment and make estimates to determine the useful lives of intangible assets.
Start-up Expenses
Start-up expenses are an item on our Consolidated Balance Sheet that refers to incorporation,
start-up, capital increase and other amortizable expenditures, which are recorded at cost, net of the
corresponding amortization made, which is calculated on a straight-line basis over five years from the
end of the year when the related expenses are incurred.
76
Impairment
We evaluate the carrying value of our intangible assets and goodwill whenever events or
circumstances indicate that the carrying value of these assets may not be recoverable. While we believe
that our estimates of future operating revenue and cash flows are reasonable, different assumptions
could materially affect our assessment of useful lives and fair values. Changes in assumptions may cause
modifications to our estimates for amortization, thereby affecting our results of operations.
Provisions for Contingencies and Expenses
Provisions for contingencies and expenses include provisions, which, in accordance with the
accounting principle of prudence, we record in respect of contingencies and expenses arising from
probable or certain third-party liabilities. These provisions are recorded, when the liabilities become
known. In addition, we record provisions for put options we have granted to certain of our
shareholders in respect of our shares at the difference between the price at which the option would be
exercisable as of the balance sheet date and the underlying book value of the shares.
Treasury stock
We value our shares held as treasury stock at their underlying book value. When the underlying
book value is less than acquisition cost, we record a provision for the differences between acquisition
cost and book value through a charge to extraordinary expenses. A reserve in our shareholders’ equity
is created in an amount equal to the underlying book value of our treasury stock. In the periods under
review, we entered into several transactions relating to our shares, which resulted in significant charges
in our Consolidated Income Statement.
Non-trade loans
Non-trade loans are recorded at the loan amount, net of any related provisions. Expenses incurred
in connection with obtaining such loans are capitalized and amortized on a straight-line basis over a
period equal to the term of the loan.
Corporate Income Taxes
For financial reporting, we use estimates and judgments to determine our current tax liability, as
well as taxes deferred until future periods. Deferred taxes account for the timing differences between
taxable income and accounting income. Deferred tax assets and tax credits from tax loss carry-forwards
are recognized, when it is probable that sufficient taxable income exists to realize such tax assets and
tax credits. This process also involves estimating our current tax position in each jurisdiction in which
we operate, as well as making judgments as to whether our taxable income in future periods will be
sufficient to fully realize any deferred tax assets and tax credits.
Principal Consolidated Income Statement Line Items
The following is a brief description of certain line items included in our Consolidated Income
Statement.
Operating revenue
Operating revenue is principally comprised of revenue from our operations, and to a significantly
lesser extent, increases in finished and unfinished product inventory, capitalized expenses of work on
fixed assets (in the case of the bingo halls in our Mexico Caliente business) and other operating
revenue.
77
We employ a number of different revenue recognition methodologies across our different business
units. Our use of various revenue recognition methodologies is a result, in part, of historical adherence
to a specified methodology and, in some cases, of an effort to make the reporting of our operating
results more consistent with generally accepted accounting principles in the countries in which we
operate. The manner in which our principal business units record operating revenue is described below:
Spain AWP. The Spain AWP business unit’s operating revenue is principally derived from our
AWP machine operations in Spain. This operating revenue is recorded as the total amounts wagered,
net of prizes (the ‘‘net box’’) and net of the site owner’s share of the net box (usually 50% of the net
box after deducting gaming taxes). Spain AWP operating revenue also includes operating revenue from
sales of a small number of AWP machines to third parties and other ancillary services provided to site
owners, such as agency services to site owners.
Spain Bingo. The Spain Bingo business unit’s operating revenue is principally derived from the
sale of cards in our Canoe bingo hall in Spain. This operating revenue is recorded as the total amount
of bingo cards sold, according to their face value, as required under Spanish GAAP. Bingo prizes and
taxes are recorded as an operating expense. Spain Bingo operating revenue also includes operating
revenue from AWP machines located in our Canoe bingo hall and from sales of food, drinks and
tobacco at our Canoe bingo hall.
Mexico. The Mexico CIE business’s operating revenue is principally derived from our joint
venture agreement with CIE, under which the Mexico CIE business records operating revenue equal to
approximately 50% of the net income of the bingo halls that operates under CIE’s bingo hall licenses.
Since this operating revenue has been taxed at the bingo hall operator level, the Mexico CIE business
does not pay taxes on such operating revenue. In the periods under review, Mexico CIE operating
revenue also included fees received from a four-year management contract between our subsidiary,
CIMSA, and ERSA, the joint venture company we formed with CIE. These fees amounted to
U.S.$3.0 million in each of 2001, 2002 and 2003 and a final payment of U.S.$2.5 million in 2004.
The Mexico Caliente business’s operating revenue is principally derived from a bingo hall
management services contract entered into with Caliente. Under the terms of the contract, the Mexico
Caliente business records operating revenue equal to 50% (with approximately 1-2% variation from
year-to-year as a result of certain minor reserves) of the adjusted pre-tax profit of all of Caliente’s
bingo hall licensees to which our Mexico Caliente business provides management services. Our contract
with Caliente also provides that we will build out and equip bingo halls and sell them to Caliente at
cost. Caliente then pays this amount over five years. The costs we incur building out and equipping the
bingo halls are capitalized during the period incurred. As halls are sold to Caliente, we record the
value of these sales as revenue and reflect the cost under ‘‘Consumption and Other External
Expenses’’, with a corresponding reduction in fixed assets and increase in accounts receivables.
Argentina. The Argentina business unit’s operating revenue is principally derived from the sale of
bingo cards and from the amount wagered on slot machines located in the Argentina business unit’s
bingo halls. Operating revenue from bingo hall operations in Argentina is recorded as the total amount
of bingo cards sold, according to their face value. Bingo prizes are recorded as an operating expense.
Operating revenue from our slot machine operations in Argentina is recorded as the total amount
wagered, net of prizes paid.
78
The following table summarizes the manner in which revenue is recognized across our business
units and certain business lines within certain business units:
Main Gaming Income
Statement Items
Recognition of Gaming Revenue
Amounts Wagered
Less
Prizes Payout
Equals
Net Box (Net Win)
Less
Site Owner(1)
Equals
Operator Revenues
Less
Gaming Taxes
Equals
Operator Revenues After Gaming Taxes
Less
Operator Expenses
Less
Financial Expenses
Equals
Profit Before Tax
Less
Income Tax
Equals
Net Profit
Spain Bingo, Argentina bingo
Argentina slots, Chile
Spain AWP, Colombia
Italy, Uruguay slots, Peru
Mexico Caliente
Mexico CIE
(1) Share of net box to site owners.
Operating Expenses
Operating expenses are comprised of:
Consumption and Other External Expenses. Under Spanish GAAP, consumption and other external
expenses varies across our business units, but it is principally comprised of bingo prizes, the costs
incurred by our Mexico Caliente business to build out and equip bingo halls once these have been sold
to Caliente and the costs of food and beverages and other ancillary services we provide our bingo
clients and slot machine site owners. In addition, we record certain payments to certain AWP machine
operators with whom we enter into collaboration agreements under consumption and other external
expenses.
Personnel Expenses.
Our personnel costs include wages and salaries and employee benefit costs.
79
Depreciation and amortization. Fixed assets are depreciated by the straight-line method at annual
rates based on the years of estimated useful life of the assets. The depreciation rates applied are as
follows:
Annual
Depreciation
Rate
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technical installations and machinery . . . . . . . . . .
Other installations, tools and furniture . . . . . . . . .
Computer hardware . . . . . . . . . . . . . . . . . . . . . .
Transport equipment . . . . . . . . . . . . . . . . . . . . . .
Type-A amusement machines and sports machines
Type-B machines and slot machines . . . . . . . . . . .
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2%
7%
10%
25%
15%
10%
14%
–
–
–
–
–
–
–
3%
30%
30%
30%
20%
20%
20%
Amortization expense is principally comprised of amortization of merger goodwill and exclusivity
payments made to slot machine site owners. Depreciation and amortization are significant only for our
Spain AWP and Argentina business units.
Variation in Provisions for Trade Transactions. Variation in provisions for trade transactions
principally relates to movements in provisions we have taken in connection with doubtful account
receivables and loans that we have made to site owners. The amount of the variation in provisions is
principally affected by our assessment of the likelihood that the account receivables will be paid or the
loans will be repaid.
Other Operating Expenses. Other operating expenses are principally comprised of gaming taxes
(which account for approximately 60% of the total), slot machine rental costs, rental expenses relating
to the bingo hall premises, local taxes, repair and maintenance expenses, professional services, supplies
and employee travel expenses. Other operating expenses also includes non-deductible VAT, which,
unlike most businesses that charge VAT to their customers and remit such charges to the relevant tax
authorities, we record as an operating expense. In addition, we record payments to certain AWP
machine operators with whom we enter into collaboration agreements under other operating expenses.
Operating profit
Operating profit represents the excess of operating revenue over operating expenses.
Financial Items
Financial Revenues. Financial revenues are principally comprised of interest from cash on deposit,
interest from loans made to site owners and to Caliente and exchange gains.
Financial Expenses. Financial expenses are principally comprised of interest paid on our
outstanding indebtedness, costs incurred in connection with financing transactions and exchange losses.
Exchange gains arise due to the difference in exchange rates on the date a transaction is entered
into and the date the transaction settles. A positive movement in exchange rates will result in exchange
gains, which are recorded in our Consolidated Income Statement as they are realized. Unrealized
exchange gains are deferred through maturity and recorded as ‘‘Deferred Income’’ on our Consolidated
Balance Sheet. Exchange losses include realized and unrealized exchange losses.
Amortization of goodwill in consolidation.
basis over 10 years.
Goodwill in consolidation is amortized on a straight-line
80
Extraordinary Profit (Loss)
Under Spanish GAAP, extraordinary profit or loss can be of a recurring or nonrecurring nature. In
addition, under Spanish GAAP financial statements, once issued, cannot be restated for any reason.
Accordingly, adjustments made in a reported period for mistakes in a prior period’s financial
statements are recorded in the current year as extraordinary profit or loss.
Our principal extraordinary profit items during the periods under review have been amounts
recovered in connection with claims we have filed against public authorities in Spain for taxes and tax
indemnification claims, amounting to A2.0 million, A1.6 million and A1.1 million in 2002, 2003 and 2004,
respectively.
Our principal extraordinary loss items during the periods under review have been provisions made
in our treasury stock allowance and in connection with certain failed investments, such as with the
Ballesteros Group in Venezuela, as well as indemnity costs related to reductions in personnel.
Corporate Income Tax
As a result of our history of acquisitions and dispositions and internal corporate reorganizations
and our significant international operations, our tax position is complex. We are endeavoring to achieve
a more tax efficient structure for the Group by merging certain subsidiaries in Spain out of existence
and seeking to increase the number of subsidiaries that are more than 75%-owned and, therefore,
members of our consolidated tax group.
For Spanish tax purposes, 22 Spanish companies in our consolidated group file their tax returns as
a consolidated tax group. As of December 31, 2004, under Spanish tax legislation, we must have owned
more than 75% of the capital stock of a company at the start of the tax year in order to include the
company in our consolidated tax group. Spanish companies that are not part of our consolidated tax
group pay tax on an individual basis (unless such companies belong to another tax group). Our
non-Spanish subsidiaries are not included in our consolidated tax group and pay taxes in their local
jurisdiction.
The statutory corporate tax rate in Spain is 35%. We define our effective tax rate as our income
tax expense over our income (loss) before tax plus amortization of goodwill in consolidation.
VAT taxes are generally not deductible for gaming companies and, accordingly, are recorded as an
operating expense.
Minority Interest
Minority interest is comprised of the portion of the net income of companies we consolidate that is
attributable to such companies’ other shareholders. During the periods under review, minority interest
was principally attributable to our subsidiaries in Spain, Mexico and Argentina.
EBITDA
We calculate EBITDA as operating profit plus period depreciation and amortization plus variation
in provisions for trade transactions.
81
Results of Operations
The following table sets forth, by business unit and for our Other Operations and discontinued
operations in Venezuela and Santo Domingo, operating revenue, operating expenses, operating profit
and EBITDA for the three years ended December 31, 2004 and for the three months ended March 31,
2004 and 2005:
2002
Operating Revenue:
Spain AWP . . . . . . . . .
Spain Bingo . . . . . . . .
Mexico . . . . . . . . . . .
Argentina . . . . . . . . . .
Other Operations:
Colombia . . . . . . . .
Chile . . . . . . . . . . .
Peru . . . . . . . . . . . .
Uruguay . . . . . . . . .
Italy . . . . . . . . . . . .
Corporate Overhead . . .
Discontinued Operations
Three months ended
March 31,
% change
2004
2005
% change
(unaudited)
(E in millions, except percentages)
2003
% change
2004
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A 145.3
79.6
37.7
45.9
A 145.2
86.8
30.8
51.4
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21.8
10.8
—
—
4.3
0.8
7.6
17.5
10.5
3.9
1.6
4.3
—
—
Total . . . . . . . . . . . . . . . . . . . .
A 353.8
A 352.0
2002
Operating Expenses:
Spain AWP . . . . . . . .
Spain Bingo . . . . . . . .
Mexico . . . . . . . . . . .
Argentina . . . . . . . . .
Other Operations:
Colombia . . . . . . . .
Chile . . . . . . . . . . .
Peru . . . . . . . . . . .
Uruguay . . . . . . . . .
Italy . . . . . . . . . . .
(0.1)% A 148.7
9.0%
88.5
(18.3)%
34.5
12.0%
59.1
2.4%
2.0%
12.0%
15.0%
A 37.4
23.4
8.7
15.4
A 39.3
22.8
9.8
18.9
5.1%
(2.6)%
12.6%
22.7%
20.7
18.1
4.9
14.5
5.5
0.7
—
18.3%
72.4%
25.6%
n/a
27.9%
n/a
n/a
4.2
4.0
1.5
2.8
0.8
—
—
5.4
4.8
1.0
4.4
2.2
0.3
—
28.6%
20.0%
(33.3)%
57.1%
175.0%
n/a
(0.5)% A 395.2
12.3%
A 98.2
A 108.9
(19.7)%
(2.8)%
n/a
n/a
n/a
(100.0)%
(100.0)%
10.9%
Three months ended
March 31,
% change
2004
2005
% change
(unaudited)
2003
% change
2004
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A 117.8
80.6
14.9
36.5
A 114.2
85.9
16.4
43.7
(3.1)%
6.6%
10.1%
19.7%
A 118.1
86.8
17.5
46.8
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19.7
7.4
—
0.5
4.3
8.4
12.6
15.6
7.0
4.1
3.1
4.6
8.8
0.2
(20.8)%
(5.4)%
n/a
n/a
7.0%
4.8%
(98.4)%
19.5
13.6
5.1
14.3
9.0
10.5
—
Total . . . . . . . . . . . . . . . . . . . . .
A 302.7
A 303.6
0.3%
82
A 341.2
3.4%
1.0%
6.7%
7.1%
25.0%
94.3%
24.4%
n/a
95.7%
19.3%
(100.0)%
12.4%
A 29.2
22.8
5.2
12.3
A 30.7
22.2
6.2
14.4
5.1%
(2.6)%
19.2%
17.1%
4.0
2.2
1.4
2.9
0.8
2.7
—
5.6
2.8
1.1
4.4
4.8
4.0
—
40.0%
27.3%
(21.4)%
51.7%
n/a
48.2%
A 83.8
A 96.2
14.8%
Operating Profit (Loss):
Spain AWP . . . . . . . . .
Spain Bingo . . . . . . . .
Mexico . . . . . . . . . . .
Argentina . . . . . . . . . .
Other Operations:
Colombia . . . . . . . .
Chile . . . . . . . . . . .
Peru . . . . . . . . . . . .
Uruguay . . . . . . . . .
Italy . . . . . . . . . . . .
EBITDA:
Spain AWP . . . . . . . . .
Spain Bingo . . . . . . . .
Mexico . . . . . . . . . . . .
Argentina . . . . . . . . . .
Other Operations:
Colombia . . . . . . . . .
Chile . . . . . . . . . . .
Peru . . . . . . . . . . . .
Uruguay . . . . . . . . .
Italy . . . . . . . . . . . .
2002
A 31.0
0.9
14.4
7.7
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A 27.5
(1.0)
22.8
9.4
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2.1
3.4
—
(0.5)
—
(7.6)
(5.0)
Total . . . . . . . . . . . . . . . . . . . . . . .
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Total . . . . . . . . . . . . . . . . . . . . . . .
Three months ended
March 31,
% change
2004
2005
% change
(unaudited)
2003
% change
2004
1.9
3.5
(0.2)
(1.5)
(0.3)
(8.8)
(0.2)
12.7%
n/a
(36.8)%
(18.1)%
(9.5)%
2.9%
n/a
n/a
n/a
n/a
n/a
A 30.6
1.7
17.0
12.3
1.2
4.5
(0.2)
0.2
(3.5)
(9.8)
—
A 51.1
A 48.4
2002
2003
% change
2004
A 36.9
1.3
23.9
10.8
A 40.0
2.9
15.7
9.6
6.3
4.7
—
(0.5)
0.7
(6.5)
(1.4)
A 76.2
(5.3)%
A 54.0
(1.3)%
88.9%
18.1%
59.7%
(36.8)%
28.6%
n/a
n/a
n/a
n/a
n/a
11.6%
A 8.2
0.6
3.5
3.1
0.2
1.8
0.1
(0.1)
—
(2.7)
—
A 14.7
A 8.6
0.6
3.6
4.5
(0.2)
2.0
(0.1)
—
(2.6)
(3.7)
—
A 12.7
4.9%
—
2.9%
45.2%
n/a
11.1%
n/a
n/a
n/a
37.0%
(13.6)%
Three months ended
March 31,
% change
2004
2005
% change
(unaudited)
8.4%
123.1%
(34.3)%
(11.1)%
5.3
4.9
0.7
(1.2)
0.4
(8.2)
—
A 70.1
(15.9)%
4.3%
n/a
n/a
(42.9)%
n/a
n/a
(8.0)%
A 41.5
3.7
18.7
14.6
5.7
6.0
0.7
1.8
(1.5)
(8.9)
—
A 82.3
3.8%
27.6%
19.1%
52.1%
7.6%
22.5%
n/a
n/a
n/a
n/a
n/a
17.4%
A 10.6
1.0
3.9
3.7
1.2
2.2
0.3
0.2
0.1
(2.5)
—
A 20.7
A 11.5
1.1
4.2
5.2
1.1
2.4
0.1
0.6
(2.3)
(3.5)
—
A 20.4
8.5%
10.0%
7.7%
40.5%
(8.3)%
9.1%
(66.7)%
200.0%
n/a
n/a
(1.5)%
The following table sets forth, on a consolidated basis and for our principal geographic markets,
operating revenue, operating expenses, operating profit and EBITDA information, as reported and
restated using constant 2004 exchange rates for the euro against the currencies of the countries in
83
which we operate, for the five years ended December 31, 2004 and for the three months ended
March 31, 2004 and 2005:
2000
2001
2002
2003
(E in millions)
2004
Three months
ended March 31,
2004
2005
(unaudited)
Historical Operating Revenue . . . . .
Restated At Constant 2004 Euro/
Local Exchange Rates . . . . . . .
Spain . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . .
Argentina . . . . . . . . . . . . . . . .
Other Operations . . . . . . . . . .
Corporate Overhead . . . . . . . .
Discontinued Operations . . . . .
.
A 272.3
A 428.4
A 353.8
A 352.0
A 395.2
A 98.2
A 108.9
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.
.
.
.
A 206.4
168.2
7.5
16.8
12.9
—
1.0
A 305.5
231.8
17.8
29.6
23.2
—
3.1
A 320.2
224.9
24.4
36.8
30.0
0.8
3.3
A 343.8
232.0
26.9
47.1
37.8
—
—
A 395.2
237.3
34.5
59.1
63.7
0.6
—
A 97.8
60.8
8.5
15.1
13.3
—
—
A 109.5
62.0
10.2
19.7
17.3
0.3
—
Historical Operating Expenses . . . .
Spain . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . .
Argentina . . . . . . . . . . . . . . . .
.
A 231.0
A 383.0
A 302.7
A 303.6
A 341.2
A 83.5
A 96.2
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.
A 180.2
146.3
4.8
12.4
11.4
4.1
1.2
A 275.5
213.7
7.0
26.6
19.9
4.1
4.2
A 276.8
198.4
9.6
29.2
25.7
8.4
5.5
A 297.6
200.1
14.3
40.1
34.1
8.8
0.2
A 341.2
204.9
17.5
46.8
61.5
10.5
—
A 83.3
52.0
5.1
12.0
11.5
2.7
—
A 96.6
52.9
6.5
15.1
18.1
4.0
—
Historical Operating Profit . . . . . . .
Spain . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . .
Argentina . . . . . . . . . . . . . . . .
.
A 41.3
A 45.4
A 51.1
A 48.4
A 54.0
A 14.7
A 12.7
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.
A 26.2 A 30.0 A 43.2 A 46.3 A 54.0 A 14.4 A 13.0
22.0
18.0
26.5
31.9
32.3
8.8
9.2
2.7
10.8
14.8
12.6
17.0
3.4
3.7
4.4
3.0
7.5
7.1
12.3
3.1
4.6
1.4
3.4
4.2
3.7
2.3
1.8
(0.8)
(4.1)
(4.1)
(7.6)
(8.8)
(9.9)
(2.7)
(3.7)
(0.2)
(1.1)
(2.2)
(0.2)
—
—
—
Historical EBITDA . . . . . . . . . . . .
Spain . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . .
Argentina . . . . . . . . . . . . . . . .
.
A 60.2
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.
A 40.7 A 48.7 A 64.4 A 67.5 A 82.3 A 20.4 A 20.7
32.3
32.6
38.2
42.9
45.2
11.6
12.6
3.2
11.2
15.5
13.7
18.7
3.8
4.4
4.9
3.8
8.6
8.8
14.6
3.6
5.4
3.5
7.0
9.2
10.3
12.7
3.9
1.8
(3.4)
(5.6)
(6.5)
(8.2)
(8.9)
(2.5)
(3.5)
0.2
(0.3)
(0.6)
—
—
—
—
A 71.1
84
A 76.2
A 70.1
A 82.3
A 20.7
A 20.4
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
Group Results of Operations
The following table sets our unaudited interim consolidated results of operations for the three
months ended March 31, 2004 and 2005:
Three months ended March 31,
2004
2005
% change
(unaudited)
..................
98.2
108.9
10.9%
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.
.
.
.
.
.
.
.
28.1
13.1
3.3
2.7
—
28.3
16.1
3.9
3.6
0.2
0.7%
22.9%
18.2%
33.3%
n/a
..................
..................
23.4
12.9
25.2
18.9
7.7%
46.5%
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
83.5
96.2
15.2%
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.7
12.7
(13.6)%
Financial items:
Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . .
Share in the profits of companies carried by the equity method .
Amortization of goodwill in consolidation . . . . . . . . . . . . . . . .
Extraordinary profits (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
9.0
0.7
0.2
—
2.7
(2.7)
2.4
1.4
9.9
0.8
0.5
0.5
3.0
4.7
3.4
0.5
10.0%
14.3%
150.0%
n/a
11.1%
n/a
41.7%
(64.3)%
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2.7)
2.4
188.9%
Operating revenue . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Consumption and other external expenses . . .
Personnel expenses . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . .
Variation in provision for trade transactions
Gaming and other taxes . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Operating Revenue
Operating revenue increased by A10.7 million, or 10.9%, to A108.9 million in the three months
ended March 31, 2005 from A98.2 million in the three months ended March 31, 2004. The increase was
principally attributable to the increase in the number of slots and in the net win per slot seat per day in
Argentina (A3.5 million), the increase in the number of slots in Spain AWP (A1.9 million), the growth
of our operations in Uruguay (A1.6 million) and the growth of our start-up AWP operations in Italy
(A1.4 million).
Operating Expenses
Operating expenses increased by A12.7 million, or 15.2%, to A96.2 million in the three months
ended March 31, 2005 from A83.5 million in the three months ended March 31, 2004. The increase was
principally attributable to the growth of our start-up AWP operations in Italy (A4.0 million), the
increase in gaming taxes in Argentina due to higher revenues recorded in such country (A2.2 million),
an increase in expenses in Colombia due to the appreciation of the Colombian peso against the euro
and costs related to the start-up of new operations (A1.7 million), the growth of our operations in
Uruguay (A1.4) million and an increase in gaming taxes and personnel costs due to an increase in the
number of machines in Spain AWP (A1.5 million).
85
Operating Profit
Operating profit decreased by A2.0 million, or 13.6%, to A12.7 million in the three months ended
March 31, 2005 from A14.7 million in the three months ended March 31, 2004. Operating margin was
11.6% in the three months ended March 31, 2005 compared to 14.9% in the three months ended
March 31, 2004.
EBITDA
EBITDA decreased by A0.3 million, or 1.4%, to A20.4 million in the three months ended March 31,
2005 from A20.7 million in the three months ended March 31, 2004. EBITDA margin decreased to
18.7% in the three months ended March 31, 2005 from 21.1% in the three months ended March 31,
2004. The decrease in EBITDA was principally attributable to expenses related to our start-up AWP
machine operations in Italy, partially offset by revenues from an increase in the number of slot
machines and in the net win per slot seat per day in Argentina and an increase in the number of slot
machines in Spain AWP.
Financial Revenues
Financial revenues increased by A0.1 million, or 14.3%, to A0.8 million in the three months ended
March 31, 2005 from A0.7 million in the three months ended March 31, 2004.
Financial Expenses
Financial expenses increased by A0.9 million, or 10.0%, to A9.9 million in the three months ended
March 31, 2005 from A9.0 million in the three months ended March 31, 2004. The increase was
principally attributable to an increase in interest bearing debt.
Amortization of Goodwill in Consolidation
Amortization of goodwill in consolidation increased by A0.3 million, or 11.1%, to A3.0 million in
the three months ended March 31, 2005 from A2.7 million in the three months ended March 31, 2004.
The increase was principally attributable to acquisitions in 2004 of AWP operators in Spain and the
acquisition of Opergiochi at transaction prices that exceeded the book value of the acquired assets.
Extraordinary Profit (loss)
Net extraordinary profit (loss) in the three months ended March 31, 2005 was a profit of
A4.7 million, compared to a loss of A2.7 million in the three months ended March 31, 2004.
Extraordinary profit amounted to A7.7 million in the three months ended March 31, 2005, an
increase of 413.3% from the three months ended March 31, 2004, and included the following items:
A6.7 million in the reversal of provisions relating to an obligation to purchase our shares from Jesus
Franco, which he has subsequently waived, and A0.6 million from the positive effects of inflation.
Extraordinary loss amounted to A3.0 million in the three months ended March 31, 2005, a decrease
of 27.6% from the three months ended March 31, 2004, and principally included the following items:
(i) A1.5 million in extraordinary expenses, including A0.6 million related to the negative effects of
inflation and A0.9 million in other extraordinary expenses, and (ii) A0.7 million in prior period losses
and expenses.
Corporate income tax increased by A1.0 million, or 41.6%, to A3.4 million in the three months
ended March 31, 2005 from A2.4 million in the three months ended March 31, 2004. The increase in
86
corporate income tax was principally attributable to an increase in earnings before taxes in Argentina
(A0.5 million), and the loss of a tax loss carryforward in Mexico (A0.3 million) that was available in the
three months ended March 31, 2004.
Minority Interest
Minority interest decreased by A0.9 million, or 64.3%, to A0.5 million in the three months ended
March 31, 2005 from A1.4 million in the three months ended March 31, 2004. The decrease in minority
interest was principally attributable to losses arising in our Italian operations.
Net Income
As a result of the foregoing, net income was A2.4 million in the three months ended March 31,
2005, compared to a loss of A2.7 million in the three months ended March 31, 2004.
Results of Operations by Business Unit
Spain AWP
Three months ended
March 31,
2004
2005
% change
(E in millions, except
percentages)
37.4
39.3
5.1%
.
.
.
.
.
2.5
6.5
0.6
1.8
—
2.3
7.0
0.6
2.0
0.3
(8.0)%
7.7%
0.0%
11.1%
n/a
........................
........................
........................
12.4
2.7
2.7
12.7
2.2
3.6
2.4%
(18.5)%
33.3%
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.2
30.7
5.1%
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.2
8.6
4.9%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.6
11.5
8.5%
Operating revenue . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Personnel expenses . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . .
Gaming and other taxes . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . .
........................
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Operating Revenue. The Spain AWP business unit’s operating revenue increased by A1.9 million,
or 5.1%, to A39.3 million in the three months ended March 31, 2005 from A37.4 million in the three
months ended March 31, 2004, which was principally attributable to an increase in the number of AWP
machines installed.
We had 12,839 AWP machines in operation in Spain as of March 31, 2005, compared to 12,135 as
of March 31, 2004. In the three months ended March 31, 2005, the Spain AWP business unit entered
into 226 new contracts for the placement of 228 AWP machines in bars, restaurants and other
establishments, while 233 contracts relating to 293 AWP machines expired and were not renewed or
were otherwise terminated. In addition, in the three months ended March 31, 2005 the Spain AWP
business unit acquired AWP machine operators with a total of 187 AWP machines and reduced the
number of AWP machines in storage by 130 machines. The average daily net box per AWP machine
was A56.2 in the three months ended March 31, 2005, compared to A56.9 in the three months ended
87
March 31, 2004. We believe that this decrease resulted from the incorporation of acquired AWP
machines with a lower average daily net box and from a higher average age of our AWP machine
portfolio.
Operating Expenses. The Spain AWP business unit’s operating expenses principally include taxes
on gaming activities, personnel costs, AWP machine rental expenses and other operating costs.
The Spain AWP business unit’s operating expenses increased by A1.5 million, or 5.1%, to
A30.7 million in the three months ended March 31, 2005 from A29.2 million in the three months ended
March 31, 2004. The key changes in operating expenses were as follows:
• Consumption and Other External Expenses. Consumption and other external expenses include
payments to certain AWP machine operators with whom we enter into collaboration agreements
and costs related to ancillary services provided to site owners, such as agency services.
Consumption and other external expenses decreased by A0.2 million, or 8.0%, to A2.3 million in
the three months ended March 31, 2005 from A2.5 million in the three months ended March 31,
2004. As a percentage of the Spain AWP business unit’s operating revenue, these expenses
decreased to 5.9% in the three months ended March 31, 2005 from 6.7% in the three months
ended March 31, 2004. The main reason for the decrease in this line item was a decrease in
payments to certain AWP machine operators with whom we enter into collaboration agreements.
• Personnel Expenses. Personnel expenses include wages and salaries for sales, collection and
technical support employees. Personnel expenses increased by A0.5 million, or 7.7%, to
A7.0 million in the three months ended March 31, 2005 from A6.5 million in the three months
ended March 31, 2004. As a percentage of the Spain AWP business unit’s operating revenue,
personnel expenses increased to 17.8% in the three months ended March 31, 2005 from 17.4%
in the three months ended March 31, 2004. The main reason for the increase in personnel
expenses was an increase in sales personnel relating to the Spain AWP business and payroll
increases.
• Depreciation. Depreciation remained stable at A0.6 million in the three months ended March 31,
2005, unchanged from A0.6 million in the three months ended March 31, 2004.
• Amortization. Amortization increased by A0.2 million, or 11.1%, to A2.0 million in the three
months ended March 31, 2005 from A1.8 million in the three months ended March 31, 2004
principally due to an increase in agreements with site owners in the three months ended
March 31, 2005, which generated an increase in exclusivity rights payments to site owners and
the related amortization.
• Other Operating Expenses. Other operating expenses are principally comprised of gaming taxes,
AWP machine rental costs, VAT and other local taxes, repair and maintenance expenses,
professional services, supplies, payments to certain AWP machine operators with whom we enter
into collaboration agreements and employee travel expenses. The Spain AWP business unit’s
other operating expenses increased by A0.6 million, or 3.4% to A18.4 million in the three months
ended March 31, 2005 from A17.8 million in the three months ended March 31, 2004, principally
due to an increase in gaming taxes as a result of an increase in the number of AWP machines.
As a percentage of the Spain AWP business unit’s operating revenue, other operating expenses
were 46.8% in the three months ended March 31, 2005 and 47.6% in the three months ended
March 31, 2004.
Operating Profit. The Spain AWP business unit’s operating profit increased by A0.4 million, or
4.9%, to A8.6 million in the three months ended March 31, 2005 from A8.2 million in the three months
ended March 31, 2004. Operating margin decreased to 21.9% in the three months ended March 31,
2005 from 21.9% in the three months ended March 31, 2004.
88
EBITDA. The Spain AWP business unit’s EBITDA increased by A0.9 million, or 8.4%, to
March 31, 2004. The Spain AWP business unit’s EBITDA margin was 29.2% in the three months
ended March 31, 2005 and 28.3% in the three months ended March 31, 2004.
Spain Bingo
Three months ended
March 31,
2004
2005
% change
percentages)
........................
23.4
22.8
(2.6)%
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15.6
1.4
0.1
0.3
15.0
1.5
0.1
0.4
(3.8)%
7.1%
0.0%
33.3%
........................
........................
4.8
0.6
4.6
0.6
(4.2)%
0.0%
22.8
22.2
(2.6)%
0.6
0.6
0.0%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.0
1.1
10.0%
Operating expenses:
Depreciation . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . .
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Operating Revenue. The Spain bingo business unit’s operating revenue decreased by A0.6 million,
or 2.6%, to A22.8 million in the three months ended March 31, 2005 from A23.4 million in the three
months ended March 31, 2004, which was principally attributable to a fire which occurred in an office
tower located near the Canoe bingo hall and the resulting reduction in visitors to such hall.
Operating Expenses. The Spain bingo business unit’s operating expenses principally include prizes,
taxes on gaming, personnel expenditures, rental of premises, depreciation and amortization expenses
and other operating expenses.
The Spain bingo business unit’s operating expenses decreased by A0.6 million, or 2.6%, to
March 31, 2004. The key changes in operating expenses were as follows:
bingo prizes, which are fixed by regulation as a fixed percentage of bingo cards sold, and costs
related to providing bingo clients food and beverages. Consumption and other external expenses
decreased by A0.6 million, or 3.8%, to A15.0 million in the three months ended March 31, 2005
from A15.6 million in the three months ended March 31, 2004. As a percentage of the Spain
bingo business unit’s operating revenue, these expenses decreased to 65.8% in the three months
ended March 31, 2005 from 66.7% in the three months ended March 31, 2004, principally due to
the effect of a new regulation in the Madrid Region which reduced the required prize payouts
from 68% to 67% in the second half of 2004.
• Personnel Expenses. Personnel expenses include wages and salaries for gaming, hospitality and
back office employees at the bingo halls. Personnel expenses increased by A0.1 million, or 7.1%,
89
to A1.5 million in the three months ended March 31, 2005 from A1.4 million in the three months
ended March 31, 2004.
rental of premises, non-deductible VAT, repair and maintenance expenses and promotional
expenses. The Spain bingo business unit’s other operating expenses decreased by A0.2 million, or
3.7%, to A5.2 million in the three months ended March 31, 2005 from A5.4 million in the three
months ended March 31, 2004.
Operating Profit. The Spain bingo business unit’s operating profit remained stable at A0.6 million
in the three months ended March 31, 2005, unchanged from A0.6 million in the three months ended
March 31, 2004. Operating margin increased to 2.6% in the three months ended March 31, 2005 from
2.5% in the three months ended March 31, 2004.
EBITDA. The Spain bingo business unit’s EBITDA increased by 0.1 million, or 10.0%, to
March 31, 2004. The Spain bingo business unit’s EBITDA margin was 4.8% in the three months ended
March 31, 2005 and 4.3% in the three months ended March 31, 2004.
Mexico
Three months ended
March 31,
2004
2005
% change
percentages)
........................
8.7
9.8
12.6%
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.
3.8
—
0.2
0.2
4.2
—
0.4
0.2
10.5%
n/a
50.0%
0.0%
........................
........................
—
1.0
—
1.4
n/a
40.0%
5.2
6.2
19.2%
3.5
3.6
2.9%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.9
4.2
7.7%
Operating expenses:
Depreciation . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . .
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Operating Revenue. The Mexico business unit’s operating revenue is principally comprised of our
approximately 50% participation in the net profit of bingo halls under our joint venture with CIE and
revenue from a bingo hall management services agreement entered into with Caliente, under which we
record operating revenue equal to 50% of the profit before tax of the bingo halls it manages. The
Mexico business unit’s operating revenue also includes sales of bingo halls to Caliente that have been
built out and equipped. Operating revenue increased by A1.1 million, or 12.6%, to A9.8 million in the
three months ended March 31, 2005 from A8.7 million in the three months ended March 31, 2004. The
increase in operating revenue was principally attributable to an increase in the operating profit of the
bingo halls that we operate and an increase in the number of bingo halls we sold to Caliente. During
the three months ended March 31, 2005, we opened two new bingo halls and had a total of 45 as at
March 31, 2005. Operating Revenue increased by A0.3 million, or 2.7%, due to a change in our
consolidation methodology in March 2005, which resulted in our consolidating 50.0% of ERSA, rather
90
than the 44.8% that was consolidated in March 2004. At constant first quarter 2004 exchange rates,
operating revenue would have increased by A1.7 or 19.5% to A10.4 million.
Operating expenses. The Mexico business unit’s operating expenses principally include the costs of
building out and equipping bingo halls sold to Caliente, expenses related to professional services
including personnel costs, travel and other operating expenses.
The Mexico business unit’s operating expenses increased by A1.0 million, or 19.9%, to A6.2 million
in the three months ended March 31, 2005 from A5.2 million in the three months ended March 31,
2004. At constant first quarter 2004 exchange rates, operating expenses would have increased by
A1.5 million, or 28.8%, to A6.7 million. The key changes in operating expenses were as follows:
• Consumption and Other External Expenses. Consumption and other external expenses include the
cost of building out and equipping the bingo halls sold to Caliente and personnel costs related
to bingo hall managers that we provide for Caliente’s bingo halls. Consumption and other
external expenses increased by A0.4 million, or 10.5%, to A4.2 million in the three months ended
March 31, 2005, from A3.8 million in the three months ended March 31, 2004, principally due to
an increase in the number of bingo halls built out and equipped in three months ended
March 31, 2005 compared with the same period of 2004. As a percentage of the Mexico
business’s operating revenue, these expenses decreased to 42.9% in the three months ended
March 31, 2005 from 43.7% in the three months ended March 31, 2004.
• Personnel Expenses. As a result of provisions of Mexican labor law that require employees to
participate in the profits of their employer, most of the Mexico business unit’s employees are
provided by a non-Group company that bills the Mexican business unit’s companies for such
services. These outside personnel expenses are recorded under ‘‘other operating expenses’’
rather than ‘‘personnel expenses’’.
• Other Operating Expenses. Other operating expenses are principally comprised of professional
services and travel and other expenses. The Mexico business unit’s other operating expenses
increased by A0.4 million, or 40.0%, to A1.4 million in the three months ended March 31, 2005
from A1.0 million in the three months ended March 31, 2004. As a percentage of the Mexico
business units operating revenue, other operating expenses were 14.3% in the three months
ended March 31, 2005 and 11.5% in the three months ended March 31, 2004.
Operating Profit. The Mexico business unit’s operating profit increased by A0.1 million, or 2.9%,
to A3.6 million in the three months ended March 31, 2005 from A3.5 million in the three months ended
March 31, 2004. Operating margin decreased to 36.7% in the three months ended March 31, 2005 from
EBITDA. The Mexico business unit’s EBITDA increased by A0.3 million, or 7.7%, to A4.2 million
in the three months ended March 31, 2005 from A3.9 million in the three months ended March 31,
2004. The Mexico business unit’s EBITDA margin was 42.9% in the three months ended March 31,
2005 and 44.8% in the three months ended March 31, 2004. EBITDA increased by A0.3 million, or
7.7%, due to an increase in the operating profit of the bingo halls we operate. EBITDA increased by
A0.3 million, or 7.7%, due to a change in our consolidation methodology in March 2005, which resulted
in our consolidating 50.0% of ERSA, rather than the 44.8% that was consolidated in March 2004.
91
Argentina
Three months ended
March 31,
2004
2005
% change
percentages)
15.4
18.9
22.7%
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.
.
4.1
1.4
0.6
—
—
4.0
1.7
0.8
—
—
(2.4)%
21.4%
33.3%
n/a
n/a
........................
........................
4.8
1.4
6.0
1.9
25.0%
35.7%
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.3
14.4
17.1%
3.1
4.4
41.9%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.7
5.2
40.5%
Operating expenses:
Depreciation . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . .
........................
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Operating Revenue. The Argentina business unit’s operating revenue is principally comprised of
revenue from sales of bingo cards before prize payouts and revenue collected from slot machines
located in its bingo halls after prize payouts. Operating revenue increased by A3.5 million, or 22.7%, to
March 31, 2004, which was principally attributable to an increase in the number of slot machines and in
the net win per slot seat per day. We were able to increase the average gross revenue per slot machine
seat per day in our Argentine bingo halls principally as a result of management improvements, such as
altering the placement of the slot machines, changing the opening hours of the bingo halls or improving
the overall environment inside the bingo halls, the introduction of new slot machines models and the
refurbishment of our bingo halls. At constant first quarter 2004 exchange rates, operating revenue
would have increased by A4.7 million, or 30.5%, to A20.1 million.
Operating expenses. The Argentina business unit’s operating expenses principally include bingo
prizes, personnel expenditures, gaming taxes and other operating expenses.
The Argentina business unit’s operating expenses increased by A2.1 million, or 17.8%, to
March 31, 2004. At constant first quarter 2004 exchange rates, operating expenses would have increased
by A3.1 million, or 25.2%, to A15.4 million. The key changes in operating expenses were as follows:
• Consumption and Other External Expenses. Consumption and other external expenses principally
include bingo prizes. Consumption and other external expenses decreased by A0.1 million, or
months ended March 31, 2004, principally due to the depreciation of the Argentine peso against
the euro. As a percentage of the Argentina business unit’s operating revenue, these expenses
decreased to 21.2% in the three months ended March 31, 2005 from 26.7% in the three months
ended March 31, 2004.
to A1.7 million in the three months ended March 31, 2005 from A1.4 million in the three months
92
ended March 31, 2004. As a percentage of the Argentina business unit’s operating revenue,
personnel expenses decreased to 9.0% in the three months ended March 31, 2005 from 9.1% in
the three months ended March 31, 2004.
• Depreciation. Depreciation increased by A0.2 million, or 33.3%, to A0.8 million in the three
months ended March 31, 2005 from A0.6 million in the three months ended March 31, 2004,
principally due to purchase of new slot machines.
• Other Operating Expenses. Other operating expenses include gaming and other taxes, marketing
expenses and payments to the non-profit organizations that hold the licenses to operate the
bingo halls. The Argentina business unit’s other operating expenses increased by A1.8 million, or
months ended March 31, 2004. As a percentage of the Argentina business unit’s operating
revenue, other operating expenses were 41.8% in the three months ended March 31, 2005 and
Operating Profit. The Argentina business unit’s operating profit increase by A1.3 million, or 41.9%,
to A4.4 million in the three months ended March 31, 2005 from A3.1 million in the three months ended
March 31, 2004. Operating margin increased to 23.4% in the three months ended March 31, 2005 from
EBITDA. The Argentina business unit’s EBITDA increased by A1.5 million, or 42.5%, to
March 31, 2004. The Argentina business unit’s EBITDA margin was 27.5% in the three months ended
March 31, 2005 and 24.0% in the three months ended March 31, 2004.
Other Operations
Operating revenue from our Other Operations increased by A4.5 million, or 33.8%, to
March 31, 2004, which was principally attributable to the growth of our operations in Uruguay
(A1.6 million) and AWP operations in Italy (A1.4 million) and an increase in the net win per slot seat
per day in Colombia (A1.3 million). Our Other Operations’ operating expenses increased by
A7.4 million, or 65.5%, to A18.7 million in the three months ended March 31, 2005 from A11.3 million
in the three months ended March 31, 2004, which was principally attributable to the growth of our
start-up AWP machine operations in Italy (A4.0 million), an increase in expenses in our Colombian
operations (A1.7 million) and the growth of our operations in Uruguay (A1.4 million). Our Other
Operations’ operating profit decreased by A2.7 million to a loss of A0.9 million in the three months
ended March 31, 2005 from a profit of A1.8 million in the three months ended March 31, 2004.
Operating margin decreased to (5.1)% in the three months ended March 31, 2005 from 13.5% in the
three months ended March 31, 2004. The Other Operations’ EBITDA decreased by A2.1 million to
March 31, 2004 and EBITDA margin was 10.0% in the three months ended March 31, 2005 and 12.3%
in the three months ended March 31, 2004.
93
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
The following table sets our consolidated results of operations for the years ended December 31,
2003 and 2004:
2003
2004
% change
percentages)
352.0
395.2
12.3%
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.
95.0
49.9
11.2
10.5
103.6
55.8
13.8
12.5
9.1%
11.8%
23.2%
19.1%
........................
........................
88.7
48.3
97.1
56.4
9.5%
16.8%
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
303.6
341.2
12.4%
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48.4
54.0
11.6%
Operating revenue . . . . . . . . . . . . . . . . . . .
Operating expenses:
Consumption and other external expenses .
Depreciation . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
........................
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.
Financial items:
Financial expenses . . . . . . . . . . . . . . . . . . . .
Financial revenues . . . . . . . . . . . . . . . . . . . .
Exchange gains (losses), net . . . . . . . . . . . . .
Extraordinary profits (loss) . . . . . . . . . . . . . . .
Corporate income tax . . . . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . . . . .
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26.0
38.8
2.5
3.1
0.5
1.2
0.8
1.1
10.5
10.9
(21.8) (18.3)
10.9
10.8
3.8
4.2
49.2%
24.0%
140.0%
37.5%
3.8%
n/a
(0.9)%
10.5%
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(20.8) (23.5)
n/a
.....
.....
.....
equity
.....
.....
.....
.....
......
......
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method
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Operating Revenue
Operating revenue increased by A43.2 million, or 12.3%, to A395.2 million in 2004 from
A352.0 million in 2003. The increase was principally attributable to the growth of our operations in
Uruguay (A13.0 million), an increase in the number of slot machines in operation at our Argentine
bingo halls (A7.7 million) and Chilean casinos (A7.5 million) and an increase in the machine portfolio in
Spain AWP (A3.4 million).
Operating Expenses
Operating expenses increased by A37.6 million, or 12.4%, to A341.2 million in 2004 from
A303.6 million in 2003. The increase was principally attributable to the growth of our operations in
Uruguay (A11.2 million), increases in expenses derived from growth in number of machines in Chile
(A6.6 million) and Spain AWP (A3.9 million) and expenses of our start-up AWP machine operations in
Italy (A4.4 million).
Operating Profit
Operating profit increased by A5.6 million, or 11.6%, to A54.0 million in 2004 from A48.4 million in
2003. Operating margin was 13.7% in 2004 compared to 13.8% in 2003.
94
EBITDA
EBITDA increased by A12.2 million, or 17.4%, to A82.3 million in 2004 from A70.1 million in 2003.
EBITDA margin increased to 26.7% in 2004 from 19.9% in 2003. The increase in EBITDA was
principally attributable to the successful growth initiatives in Argentina (A5.0 million), Uruguay
(A3.0 million), Mexico (A3.0 million) and Spain (A1.5 million), partially offset by costs associated with
the start-up of our AWP machine operations in Italy (A(1.9) million) and, to a lesser extent, the
increase in corporate headquarters expenses relating to professional services (A(0.7) million). EBITDA
also increased by A1.3 million, or 1.6%, due to a change in our consolidation methodology in 2004
which resulted in our consolidating 50.0% of ERSA, rather than the 44.8% that was consolidated in
2003. At constant 2003 exchange rates, EBITDA would have increased by A16.3 million, or 23.2%, to
A86.4 million.
Financial Revenues
Financial revenues increased by A0.6 million, or 24.0%, to A3.1 million in 2004 from A2.5 million in
2003. The increase was principally attributable to a higher average cash position due to amounts
received under the mezzanine loan facility in September 2003, which was not invested in operator
acquisitions until 2004 and therefore, we earned interest on such amounts.
Financial Expenses
Financial expenses increased by A12.8 million, or 48.5%, to A38.6 million in 2004 from
A26.0 million in 2003. The increase was principally attributable to A12.8 million in financing expenses
relating to new financing facilities, including the mezzanine loan facility, we obtained in
September 2003.
Amortization of goodwill in consolidation increased by A0.4 million, or 3.8%, to A10.9 million in
2004 from A10.5 million in 2003. The increase was principally attributable to acquisitions during 2004 of
AWP operators in Spain at a transaction price higher than net book value.
Net extraordinary profit (loss) in 2004 was a loss of A18.3 million, compared to a loss of
A21.8 million in 2003.
Extraordinary profit amounted to A10.3 million in 2004, an increase of 12.8% from 2003, and
included the following principal items: (i) A5.2 million in extraordinary income, including A2.7 million in
positive effects of inflation and A1.4 million in the reversal of provisions and A0.6 million in tax refunds
from the Spanish tax authorities; (ii) A4.7 million in prior year adjustments and (iii) A0.5 million in
gains on asset disposals.
Extraordinary loss amounted to A28.7 million in 2004, a decrease of 7.3% from 2003, and
principally included the following items: (i) A15.3 million in extraordinary expenses, including
A5.1 million due to the charge-off of certain capitalized expenses, A4.0 million related to the negative
effects of inflation and A2.8 million in provisions for tax and labor contingencies, (ii) A8.6 million in
changes in provisions, which included an addition of A6.3 million to a reserve created in connection
with our obligation to repurchase 2,253,758 Codere, S.A. shares from Jesús Franco, one of our
directors and principal shareholders, and 1,104,362 Codere, S.A. shares ICIL and (iii) A2.9 million in
prior period losses and expenses.
Corporate income tax decreased by A0.1 million, or 0.9%, to A10.8 million in 2004 from
A10.9 million in 2003. The decrease in corporate income tax was principally attributable to the
95
depreciation of Latin American currencies against the euro which caused taxes paid by our Latin
American subsidiaries to decrease when converted to euro.
Minority Interest
Minority interest increased by A0.4 million, or 10.5%, to A4.2 million in 2004 from A3.8 million in
2003. The increase in minority interest was principally attributable to (i) the recognition in 2003 of the
sale of a 10% interest in certain companies in our Mexico business unit to Mr. Fernando MartinLaborda, the head of Codere Mexico, in exchange for his services in prior years assisting us in
establishing our Mexican operations and (ii) the improved operating results of several of the
subsidiaries in which we have minority shareholders.
Net Income
As a result of the foregoing, net loss was A23.5 million in 2004, compared to a loss of A20.8 million
in 2003.
Spain AWP
2003
2004
% change
percentages)
145.2
148.7
2.4%
.
.
.
.
.
10.4
25.2
2.9
6.1
—
8.9
26.2
2.4
7.8
0.7
(14.0)%
4.0%
(17.2)%
27.9%
n/a
......................
......................
......................
49.6
7.7
12.3
49.9
9.7
12.5
0.6%
26.4%
1.7%
114.2
118.1
3.5%
31.0
30.6
(1.3)%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40.0
41.5
3.8%
Operating expenses:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . .
Variation in provisions for trade transactions .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
......................
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Operating Revenue. The Spain AWP business unit’s operating revenue increased by A3.5 million,
or 2.4%, to A148.7 million in 2004 from A145.2 million in 2003, which was principally attributable to an
average of 110 more installed machines and a 2.7% higher average daily net box per machine.
We had 12,847 AWP machines in operation in Spain as of December 31, 2004, compared to 12,314
as of December 31, 2003. In 2004, the Spain AWP business unit entered into 884 new contracts for the
placement of 1,020 AWP machines in bars, restaurants and other establishments, while 475 contracts
relating to 543 AWP machines expired and were not renewed or were otherwise terminated. In
addition, in 2004 the Spain AWP business unit acquired AWP machine operators with a total of 439
AWP machines and reduced the number of AWP machines in storage by 383 machines. The average
daily net box per AWP machine was A54.40 in 2004, compared to A52.99 in 2003. We believe that this
increase resulted from our efforts to place machines in the most attractive establishments and our
rotation or retirement of underperforming machines.
96
on gaming activities, personnel costs, other operating expenses, AWP machine rental expenses and costs
of revenues.
The Spain AWP business unit’s operating expenses increased by A3.9 million, or 3.5%, to
A118.1 million in 2004 from A114.2 million in 2003. The key changes in operating expenses were as
follows:
and costs related to ancillary services provided to site owners, such as agency services.
2004 from A10.4 million in 2003. As a percentage of the Spain AWP business unit’s operating
revenue, these expenses decreased to 6.0% in 2004 from 7.2% in 2003. Consumption and other
external expenses decreased principally as a result of the rationalization of the provision of
ancillary services to site owners.
• Personnel Expenses. Personnel expenses include wages and salaries for sales, collection and
technical support employees. Personnel expenses increased by A1.0 million, or 4.0%, to
A26.2 million in 2004 from A25.2 million in 2003. As a percentage of the Spain AWP business
unit’s operating revenue, personnel expenses increased to 17.6% in 2004 from 17.4% in 2003.
The main reason for the increase in personnel expenses was the hiring of additional employees
in connection with our strategy of growing the Spain AWP business.
• Depreciation. Depreciation decreased by A0.5 million, or 17.2% to A2.4 million in 2004 from
A2.9 million in 2003 principally due to a lower percentage of purchased AWP machines in our
AWP machine portfolio.
• Amortization. Amortization increased by A1.7 million, or 27.9% to A7.8 million in 2004 from
A6.1 million in 2003 principally due to the increased commercial activity during 2004, which
generated an increase in exclusivity rights payments made to site owners and the related
amortization.
AWP machine rental costs, non-deductible VAT and other local taxes, repair and maintenance
expenses, professional services, supplies, payments to certain AWP machine operators with
whom we enter into collaboration agreements and employee travel expenses. The Spain AWP
business unit’s other operating expenses increased by A2.5 million, or 3.6% to A72.1 million in
2004 from A69.6 million in 2003, principally due to an increase in the number of AWP machines
and an increase in AWP machine rental costs as we continued to increase the percentage of
rented AWP machines. As a percentage of the Spain AWP business unit’s operating revenue,
other operating expenses were 48.5% in 2004 and 47.9% in 2003.
Operating Profit. The Spain AWP business unit’s operating profit decreased by A0.4 million, or
1.3%, to A30.6 million in 2004 from A31.0 million in 2003. Operating margin decreased to 20.6% in
2004 from 21.3% in 2003.
A41.5 million in 2004 from A40.0 million in 2003. The Spain AWP business unit’s EBITDA margin was
27.9% in 2004 and 27.5% in 2003.
97
Spain Bingo
2003
2004
% change
percentages)
..........................
86.8
88.5
2.0%
.
.
.
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.
.
58.1
5.7
0.5
1.5
58.8
5.6
0.5
1.5
1.2%
(1.8)%
0.0%
0.0%
..........................
..........................
17.4
2.7
17.8
2.6
2.3%
(3.7)%
85.9
86.8
1.0%
0.9
1.7
88.9%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.9
3.7
27.6%
Operating expenses:
Consumption and other external expenses
Depreciation . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
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Operating Revenue. The Spain bingo business unit’s operating revenue increased by A1.7 million,
or 2.0%, to A88.5 million in 2004 from A86.8 million in 2003, which was principally attributable to a
higher expenditure per visitor of our bingo halls that more than off-set the loss of revenue from the
closure of Cartaya bingo hall in 2003. In 2003, the Cartaya bingo hall had A1.0 million in operating
revenue.
Operating Expenses. The Spain bingo business unit’s operating expenses principally include prizes,
The Spain bingo business unit’s operating expenses increased by A0.9 million, or 1.0%, to
follows:
bingo prizes, which are fixed by regulation as a fixed percentage of bingo cards sold, and costs
related to providing bingo clients food and beverages. Consumption and other external expenses
increased by A0.7 million, or 1.2%, to A58.8 million in 2004 from A58.1 million in 2003. During
2004, these expenses increased less than operating revenue principally due to the effect of a new
regulation in the Madrid Region, which reduced the required prize payouts from 68% to 67% in
the second half of 2004.
back office employees at the bingo halls. Personnel expenses decreased by A0.1 million, or 1.8%,
to A5.6 million in 2004 from A5.7 million in 2003, principally due to personnel reductions at the
Star bingo hall and the closure of Cartaya bingo hall.
expenses. The Spain bingo business unit’s other operating expenses increased by A0.3 million, or
1.5%, to A20.4 million in 2004 from A20.1 million in 2003, principally due to improved cost
controls, which allowed these expenses to increase at a slower rate than operating revenue.
Operating Profit. The Spain bingo business unit’s operating profit increased by A0.8 million, or
88.9%, to A1.7 million in 2004 from A0.9 million in 2003. Operating margin increased to 1.9% in 2004
from 1.0% in 2003.
98
EBITDA. The Spain bingo business unit’s EBITDA increased by A0.8 million, or 27.6%, to
A3.7 million in 2004 from A2.9 million in 2003. The Spain Bingo business unit’s EBITDA margin was
4.2% in 2004 and 3.3% in 2003.
Mexico
2003
2004
% change
percentages)
..........................
30.8
34.5
12.0%
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10.9
0.7
0.5
0.8
12.0
—
1.0
0.7
10.1%
(100.0)%
100.0%
(12.5)%
..........................
..........................
—
3.5
—
3.8
n/a
8.6%
16.4
17.5
6.7%
14.4
17.0
18.1%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.7
18.7
19.1%
Operating expenses:
Depreciation . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
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Operating Revenue. The Mexico business unit’s operating revenue is principally comprised of our
approximately 50% participation in the net profit of bingo halls under our joint venture with CIE and
revenue from a bingo hall management services agreement entered into with Caliente, under which we
record operating revenue equal to 50% of the profit before tax of the bingo halls we manage. The
Mexico business unit’s operating revenue also includes sales of bingo halls to Caliente that we have
built out and equipped. Operating revenue increased by A3.7 million, or 12.0%, to A34.5 million in 2004
from A30.8 million in 2003. At constant 2003 exchange rates, operating revenue would have increased
by A8.7 million or 28.3% to A39.5 million. The increase in operating revenue was principally attributable
to an increase in the operating profit of the bingo halls we operate. During the year, we opened 13
new bingo halls and closed 3 unprofitable halls, resulting in a total of 43 bingo halls as at
December 31, 2004. In addition, operating revenue increased by A1.4 million, or 0.3%, due to the
change in consolidation methodology adopted in 2004, which resulted in our consolidating 50.0% of
ERSA, rather than the 44.8% that was consolidated in 2003.
Operating expenses. The Mexico business unit’s operating expenses principally include the costs of
building out and equipping bingo halls sold to Caliente, expenses related to professional services and
travel and other operating expenses.
The Mexico business unit’s operating expenses increased by A1.1 million, or 6.7%, to A17.5 million
in 2004 from A16.4 million in 2003. At constant 2003 exchange rates, operating expenses would have
increased by A3.7 million, or 22.3% to A20.1 million. The key changes in operating expenses were as
follows:
to bingo hall managers that we provide for such bingo halls. Consumption and other external
expenses increased by A1.1 million, or 10.1%, to A12.0 million in 2004 from A10.9 million in
2003, principally due to an increase in the number of bingo halls built out and equipped in 2004
compared to 2003. As a percentage of the Mexico business unit’s operating revenue, these
expenses decreased to 34.8% in 2004 from 35.4% in 2003.
99
• Personnel Expenses. As a result of provisions of Mexican labor law that require employees to
participate in the profits of their employer, most of the Mexico business unit’s employees are
provided by a non-Group company that bills the Mexican business unit’s companies for such
services. These outside personnel expenses are recorded under ‘‘other operating expenses’’
rather than ‘‘personnel expenses’’. In 2004 and 2003, all of the Mexican business unit’s personnel
were provided by the outside company. In 2003, A0.7 million of professional services expenses
were recorded as personnel expenses by one of the Mexico business unit’s companies.
• Other Operating Expenses. Other operating expenses are principally comprised of professional
services and travel and other expenses. The Mexico business unit’s other operating expenses
increased by A0.3 million, or 8.6%, to A3.8 million in 2004 from A3.5 million in 2003. As a
percentage of the Mexico business unit’s operating revenue, other operating expenses were
11.0% in 2004 and 11.4% in 2003.
Operating Profit. The Mexico business unit’s operating profit increased by A2.6 million, or 18.1%,
to A17.0 million in 2004 from A14.4 million in 2003. Operating margin increased to 49.3% in 2004 from
46.8% in 2003.
EBITDA. The Mexico business unit’s EBITDA increased by A3.0 million, or 19.1%, to
A18.7 million in 2004 from A15.7 million in 2003. The Mexico business unit’s EBITDA margin was
54.2% in 2004 and 51.0% in 2003. EBITDA increased by A1.3 million, or 1.6%, due to the change in
consolidation methodology adopted in 2004, which resulted in our consolidating 50.0% of ERSA, rather
than the 44.8% that was consolidated in 2003.
Argentina
2003
2004
% change
percentages)
..........................
51.4
59.1
15.0%
..........................
..........................
..........................
15.0
6.0
1.9
15.2
6.1
2.3
1.3%
1.7%
21.1%
..........................
..........................
15.8
5.0
17.0
6.2
7.6%
24.8%
43.7
46.8
7.1%
7.7
12.3
59.7%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.6
14.6
52.1%
Operating expenses:
Depreciation . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
located in our bingo halls after prize payouts. Operating revenue increased by A7.7 million, or 15.0%,
to A59.1 million in 2004 from A51.4 million in 2003, which was principally attributable to an increase of
the average number of slot machine seats located in our bingo halls (an average of 1,002 in 2004
compared to an average of 791 in 2003) together with an increase in average gross revenue per slot
machine seat per day to A97 in 2004 from A88 in 2003. We were able to increase the average gross
revenue per slot machine seat per day in our Argentine bingo halls, principally due to an improvement
in macroeconomic conditions in Argentina and management initiatives, such as longer opening hours
100
for our bingo halls and the expansion and remodeling of our Argentine bingo halls, the introduction of
new slot machines, the introduction of progressive prizes in the halls and an increase in the price
charged to play our slot machines. At constant 2003 exchange rates, operating revenue would have
increased by A12.9 million, or 25.1% to A64.3 million.
prizes, personnel expenditures, gaming taxes and other operating expenses.
A46.8 million in 2004 from A43.7 million in 2003. At constant 2003 exchange rates, operating expenses
would have increased by A7.3 million, or 16.7% to A51.0 million. The key changes in operating expenses
were as follows:
include bingo prizes. Consumption and other external expenses increased by A0.2 million, or
1.3%, to A15.2 million in 2004 from A15.0 million in 2003, principally due to a modest increase
in bingo card sales. As a percentage of the Argentina business unit’s operating revenue, these
expenses decreased to 25.7% in 2004 from 29.2% in 2003.
to A6.1 million in 2004 from A6.0 million in 2003. As a percentage of the Argentina business
unit’s operating revenue, personnel expenses decreased to 10.3% in 2004 from 11.7% in 2003.
• Depreciation. Depreciation increased by A0.4 million, or 21.1% to A2.3 million in 2004 from
A1.9 million in 2003, principally due to increased purchases of slot machines.
• Other Operating Expenses. Other operating expenses include gaming and other taxes, marketing
expenses and payments to the non-profit organizations that hold the licenses to operate the
bingo halls. The Argentina business unit’s other operating expenses increased by A2.4 million, or
11.5%, to A23.2 million in 2004 from A20.8 million in 2003, which was principally attributable to
the increase in gaming taxes due to the increase in bingo card sales and the increase in other
expenses due to the increased activity at our bingo halls. As a percentage of the Argentina
business unit’s operating revenue, other operating expenses were 39.1% in 2004 and 40.5% in
2003.
Operating Profit. The Argentina business unit’s operating profit increased by A4.6 million, or
59.7%, to A12.3 million in 2004 from A7.7 million in 2003. Operating margin increased to 20.8% in 2004
from 15.0% in 2003.
EBITDA. The Argentina business unit’s EBITDA increased by A5.0 million, or 52.4%, to
A14.6 million in 2004 from A9.6 million in 2003. The Argentina business unit’s EBITDA margin was
24.7% in 2004 and 18.7% in 2003.
Other Operations
Operating revenue from our Other Operations increased by A25.9 million, or 68.5%, to
A63.7 million in 2004 from A37.8 million in 2003, which was principally attributable to the
commencement of our operations in Uruguay, an increase in the number of slot machines in our
Chilean casinos and an increase in the performance of our slot machines in Colombia. Our Other
Operations’ operating expenses increased by A26.9 million, or 77.7%, to A61.5 million in 2004 from
A34.6 million in 2003, which was principally attributable to the commencement of our operations in
Uruguay and higher expenses from an increase in the number of slot machines in Chile and the
commencement of AWP operations in Italy. Our Other Operations’ operating profit decreased by
A1.0 million, or 31.3%, to A2.2 million in 2004 from A3.2 million in 2003. Operating margin decreased
101
to 3.7% in 2004 from 9.2% in 2003. The Other Operations’ EBITDA increased by A2.6 million, or
25.7%, to A12.7 million in 2004 from A10.1 million in 2003 and EBITDA margin was 19.9% in 2004 and
26.6% in 2003.
Year ended December 31, 2003 compared to year ended December 31, 2002
The following table sets our consolidated results of operations for the years ended December 31,
2002 and 2003:
2002
2003
% change
percentages)
353.8
352.0
(0.5)%
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.
.
.
88.6
51.3
12.0
12.3
0.8
95.0
49.9
11.2
10.5
—
7.2%
(2.7)%
(6.7)%
(14.6)%
n/a
......................
......................
81.8
55.9
88.7
48.3
8.4%
(13.6)%
302.7
303.6
0.3%
51.1
48.4
(5.3)%
Operating expenses:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial items:
Financial expenses . . . . . . . . . . . . . . . . . . . . .
Financial revenues . . . . . . . . . . . . . . . . . . . .
Exchange gains (losses), net . . . . . . . . . . . . . .
Extraordinary profits (loss) . . . . . . . . . . . . . . .
Corporate income tax . . . . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . . . . .
......................
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13.1
26.0
2.6
2.5
(3.1)
0.5
1.9
0.8
11.2
10.5
(53.1) (21.8)
4.0
10.9
(0.4)
3.8
98.5%
(3.8)%
n/a
(57.9)%
(6.3)%
n/a
172.5%
n/a
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(28.5) (20.8)
n/a
.....
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equity
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method
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Operating Revenue
Operating revenue decreased by approximately A1.8 million, or 0.5%, to A352.0 million in 2003
from A353.8 million in 2002. The decrease was principally attributable to a decrease in operating
revenue at our Mexico business unit (A6.9 million) and our Colombian business (A4.3 million),
principally due to the depreciation of the Colombian peso to the euro, and the closure of our
operations in Venezuela and Santo Domingo (A7.6 million), which more than offset an increase in
operating revenue at our Spain Bingo (A7.2 million) and Argentina (A5.5 million) business units and the
commencement of operations in Peru (A3.3 million).
102
Operating Expenses
Operating expenses increased by A0.9 million, or 0.3%, to A303.6 million in 2003 from
A302.7 million in 2002. The increase in operating expenses was principally attributable to a A7.2 million
increase in gaming taxes in Argentina and a A5.3 million increase in gaming taxes in Spain Bingo and
A4.1 million in expenses arising out of the commencement of operations in Peru, which more than
offset the decrease in expenses arising out of the winding down of operations in Venezuela
(A9.5 million) and Santo Domingo (A2.9 million) and a decrease of A3.6 million in rental and personnel
expenses at the Spain AWP business unit.
Operating Profit
Operating profit decreased by A2.7 million, or 5.3%, to A48.4 million in 2003 from A51.1 million in
2002. Operating margin was 13.8% in 2003 compared to 14.4% in 2002.
EBITDA
EBITDA decreased by A6.1 million, or 8.0%, in 2003 to A70.1 million from A76.2 million in 2002.
EBITDA margin decreased to 19.9% in 2003 from 21.5% in 2002. In constant 2002 exchange rates,
EBITDA increased by A2.1 million or 2.8% to A78.3 million. The decrease in EBITDA was principally
due to a A8.2 million decrease in the operating results of our Mexico business unit largely resulting
from the depreciation of the Mexican peso against the euro and a change in our consolidation
methodology in 2003, which resulted in a decrease in EBITDA of A0.9 million, or 1.3%, due to our
consolidating 44.8% of ERSA, rather than the 50.0% that was consolidated in 2002. In addition, the
decrease in EBITDA was also due to a A1.7 million increase in corporate headquarter expenses, which
was partially offset by A3.1 million and A1.6 million increases in EBITDA at our Spain AWP and Spain
Bingo business units, respectively.
Financial Revenues
Financial revenues decreased by A0.1 million, or 3.8%, to A2.5 million in 2003 from A2.6 million in
2002.
Financial Expenses
Financial expenses increased by A12.9 million, or 98.5%, to A26.0 million in 2003 from
A13.1 million in 2002. The increase was principally attributable to a mezzanine loan facility provided to
us in 2003 and the full-year effect of interest accrued with respect to the MCP Instrument.
Amortization of goodwill in consolidation decreased by A0.7 million, or 6.3%, to A10.5 million in
2003 from A11.2 million in 2002.
Net extraordinary profit (loss) in 2003 was a loss of A21.8 million compared to a loss of
Extraordinary profit amounted to A9.1 million in 2003, an increase of 4.7% from 2002, and
included the following items: (i) A4.1 million in extraordinary income, including A1.5 million in deferred
taxes, A0.9 million in gains on asset disposals and A0.8 million due to the positive effects of inflation
and (ii) A1.5 million in reimbursement of previously-paid taxes.
103
Extraordinary loss amounted to A30.9 million in 2003, a decrease of 50.0% from 2002, and
principally included the following items: (i) A11.6 million in changes in provisions, which included a net
addition of A10.9 million to our treasury stock allowance to adjust the net carrying value of our treasury
stock to its book value in accordance with Spanish GAAP, (ii) A12.3 million in extraordinary expenses,
which included an addition of A3.4 million to a reserve created in connection with our obligation to
repurchase 2,253,758 Codere, S.A. ordinary shares from Jesús Franco, one of our directors and
principal shareholders, and ICIL, a write-off of A2.9 million in connection with the early termination of
a management contract with certain former partners in Argentina, A2.2 million of severance payments
to employees and a write-off of A1.7 million related to our investment in the Venezuela Plaza Suite
project and (iii) A3.7 million in prior period losses and expenses.
Corporate income tax increased by A6.9 million, or 172.5%, to A10.9 million in 2003 from
A4.0 million in 2002. The increase in corporate income tax was principally attributable to a change of
accounting criteria in Spain which disallowed certain tax credits we previously took to lower our
corporate income taxes.
Minority Interest
Minority interest increased by A4.2 million, to A3.8 million in 2003 from a loss of A0.4 million in
2002. The increase in minority interest was principally attributable to the winding down of operations in
Venezuela, which had generated negative minority interests in 2002.
Net Income (loss)
As a result of the foregoing, net loss was A20.8 million in 2003, compared to a loss of A28.5 million
in 2002.
Spain AWP
2002
2003
% change
percentages)
145.3
145.2
(0.1)%
.
.
.
.
.
11.2
25.5
3.4
5.3
0.7
10.4
25.2
2.9
6.1
—
(7.1)%
(1.2)%
(14.7)%
15.1%
n/a
......................
......................
......................
49.0
10.1
12.6
49.6
7.7
12.3
1.2%
(24.1)%
(2.1)%
117.8
114.2
(3.1)%
27.5
31.0
12.7%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36.9
40.0
8.4%
Operating expenses:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
......................
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104
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Operating Revenue. The Spain AWP business unit’s operating revenue decreased by A0.1 million,
or 0.1%, to A145.2 million in 2003 from A145.3 million in 2002, which was principally attributable to 492
less average installed machines, somewhat compensated by a 2.6% higher average daily net box per
machine.
We had 12,314 AWP machines in operation in Spain as of December 31, 2003, compared to 12,677
as of December 31, 2002. The decline in our AWP machine portfolio was principally the result of a
strategy to focus on a portfolio of profitable machines in the absence of attractive acquisition targets.
In 2003, the Spain AWP business unit entered into 577 new contracts for the placement of 652 AWP
machines in bars, restaurants and other establishments, while 990 contracts relating to 1,223 AWP
machines expired and were not renewed or were otherwise terminated. In addition, in 2003 the Spain
AWP business unit acquired several AWP machine operators with a total of 44 AWP machines. The
average daily net box per AWP machine was A52.99 in 2003, compared to A51.64 in 2002. We believe
that this increase resulted from our efforts to place machines in the most profitable establishments and
our rotation or retirement of underperforming machines.
on gaming activities, personnel costs, AWP machine rental expenses and other operating expenses.
The Spain AWP business unit’s operating expenses decreased by A3.6 million, or 3.1%, to
follows:
and cost of revenues of some ancillary services provided to site owners, such as agency services.
2003 from A11.2 million in 2002. As a percentage of the Spain AWP business unit’s operating
revenue, these expenses decreased to 7.2% in 2003 from 7.7% in 2002. The main reason for the
decrease of this line item was the reduction in the number of machines with profit-sharing
agreements with certain AWP machine operators with whom we enter into collaboration
agreements.
• Personnel Expenses. Personnel expenses include wages and salaries for commercial, collection and
technical support employees. Personnel expenses decreased to A25.2 million, or 1.2%, in 2003
from A25.5 million in 2002. As a percentage of the Spain AWP business unit’s operating revenue,
personnel expenses decreased to 17.4% in 2003 from 17.5% in 2002. The main reason for the
decrease of this line item was a reduction in personnel from 845 in 2002 to 786 in 2003.
• Depreciation. Depreciation decreased by A0.5 million, or 14.7% to A2.9 million in 2003 from
A3.4 million in 2002, principally due to a lower number of purchased AWP machines in our
portfolio.
• Amortization. Amortization increased by A0.8 million, or 15.1% to A6.1 million in 2003 from
A5.3 million in 2003, principally due to an increase in agreements with site owners during 2003
(577 new clients were added in 2003 compared to 475 in 2002), which resulted in an increase in
up-front payments and loans to site owners relating to exclusivity rights.
rental of AWP machines, non-deductible VAT and other local taxes, repair and maintenance
expenses, professional services, supplies and employee travel expenses. The Spain AWP business
unit’s other operating expenses decreased by A2.1 million, or 2.9%, to A69.6 million in 2003 from
A71.7 million in 2002, principally due to a reduction in rental costs due to a smaller and older
AWP machine portfolio. As a percentage of the Spain AWP business unit’s operating revenue,
other operating expenses were 49.3% in 2003 and 47.9% in 2002.
105
Operating Profit. The Spain AWP business unit’s operating profit increased by A3.5 million, or
12.7%, to A31.0 million in 2003 from A27.5 million in 2002. Operating margin increased to 21.3% in
2003 from 18.9% in 2002.
A40.0 million in 2003 from A36.9 million in 2002. The Spain AWP business unit’s EBITDA margin was
27.5% in 2003 and 25.4% in 2002.
Spain Bingo
2002
2003
% change
percentages)
..........................
79.6
86.8
9.0%
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.
53.3
6.0
0.5
1.8
58.1
5.7
0.5
1.5
9.0%
(5.0)%
0.0%
(16.7)%
..........................
..........................
16.2
2.8
17.4
2.7
7.4%
(3.6)%
80.6
85.9
6.6%
(1.0)
0.9
n/a
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.3
2.9
123.1%
Operating expenses:
Depreciation . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
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Operating Revenue. The Spain bingo business unit’s operating revenue increased by A7.2 million,
or 9.0%, to A86.8 million in 2003 from A79.6 million in 2002, which was principally attributable to a
strong increase in operating revenue at the Canoe bingo hall, which implemented significant
commercial initiatives to commemorate its 25th anniversary, and the increase in the price of bingo
cards from A1.8 to A2.0 each. These positive factors more than offset the loss of operating revenue
arising from the closure of the Cartaya bingo hall in May of 2003.
Operating expenses. The Spain bingo business unit’s operating expenses principally include prizes,
The Spain bingo business unit’s operating expenses increased by A5.3 million, or 6.6%, to
follows:
bingo prizes and costs related to providing bingo clients with food and beverages. Consumption
and other external expenses increased by A4.8 million, or 9.0%, to A58.1 million in 2003 from
back office employees at the bingo halls. Personnel expenses decreased by A0.3 million, or 5.0%,
to A5.7 million from A6.0 million in 2002. As a percentage of the Spain bingo business unit’s
operating revenue, personnel expenses decreased to 6.6% in 2003 from 7.5% in 2002. The
decrease in personnel expenses was principally attributable to a workforce reduction related to
the closure of our Cartaya bingo hall in 2003 and reduction of workforce at the Star bingo hall
from 73 to 59 employees.
106
expenses. The Spain bingo business unit’s other operating expenses increased by A1.1 million, or
5.8%, to A20.1 million in 2003 from A19.0 million in 2002. As a percentage of the Spain bingo
business unit’s operating revenue, other operating expenses were 23.2% in 2003 and 23.9% in
2002. The increase in other operating expenses was principally attributable to the increase in
gaming taxes due to the increase in operating volume.
Operating Profit. The Spain bingo business unit’s operating profit increased by A1.9 million, to
A0.9 million in 2003 from A(1.0) million in 2002. Operating margin increased to 1.0% in 2003 from
(1.3)% in 2002.
EBITDA. The Spain bingo business unit’s EBITDA increased by A1.6 million, or 123.1%, to
A2.9 million in 2003 from A1.3 million in 2002. The Spain bingo business unit’s EBITDA margin was
3.3% in 2003 and 1.6% in 2002.
Mexico
2002
2003
% change
percentages)
37.7
30.8
(18.3)%
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.
8.2
0.8
0.4
0.7
10.9
0.7
0.5
0.8
32.9%
(12.5)%
25.0%
14.3%
..........................
..........................
—
4.8
—
3.5
n/a
(27.1)%
14.9
16.4
10.1%
22.8
14.4
(36.8)%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.9
15.7
(34.3)%
Operating expenses:
Depreciation . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
..........................
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Operating Revenue. The Mexico business unit’s operating revenue is principally comprised of a
50% participation in the net profit of bingo halls under our joint venture with CIE and revenue from a
bingo hall management services agreement entered into with Caliente, under which we record
operating revenue equal to 50% of the profit before tax of the bingo halls it manages. The Mexico
business unit’s operating revenue also includes sales of bingo halls to Caliente that we have built out
and equipped. Operating revenue decreased by A6.9 million, or 18.3%, to A30.8 million in 2003 from
A37.7 million in 2002. At constant 2002 exchange rates, operating revenue would have increased by
A3.8 million, or 10.1%, to A41.5 million.
At constant 2002 exchange rates, the increase in operating revenue would have been principally
attributable to an increase in the operating profit of the bingo halls we operate and an increase in the
number of bingo halls we sold to Caliente. In 2003, we opened 11 bingo halls in Mexico, reaching a
total of 33 bingo halls by year-end. Operating revenue in 2003 decreased by A1.1 million, or 0.3%, due
to a change in consolidation methodology that we adopted in 2003, which resulted in our consolidating
44.8% of ERSA, rather than the 50.0% that was consolidated in 2002. In addition, since our Mexico
business unit’s operating revenue reflects the net income and profit before taxes of our Mexico CIE
107
and Mexico Caliente businesses, the sale in 2003 of a 10% interest in certain companies in our Mexico
business unit also negatively affected the Mexico business unit’s operating revenue.
Operating expenses. The Mexico business unit’s operating expenses principally include the cost of
building out and equipping bingo halls sold to Caliente, professional services and travel and other
operating expenses.
Mexico’s operating expenses increased by A1.5 million, or 10.1%, to A16.4 million in 2003 from
A14.9 million in 2002. At constant 2002 exchange rates, operating expenses would have increased by
A7.2 million or 48.4% to A22.1 million. The key factor that lead to the increase in operating expenses
was the unwinding of a tax structure that had permitted the Mexico business unit to reduce operating
expenses significantly in 2002, and in prior years, and resulted in a 7% increase in operating expenses
in 2003 compared to 2002. The other key changes in operating expenses were as follows:
to bingo hall managers that we provide for Caliente’s bingo halls. Consumption and other
external expenses increased by A2.7 million, or 32.9%, to A10.9 million in 2003 from A8.2 million
in 2002, principally due to an increase in the number of bingo halls built out, equipped and sold
to Caliente in 2003 compared to 2002. As a percentage of the Mexico business’s operating
revenue, these expenses increased to 35.4% in 2003 from 21.8% in 2002.
• Personnel Expenses. Most of the employees of Codere in Mexico are employed by an outside
company that bills the Mexico business unit for such services. In 2003 and 2002, all of the
Mexican business unit’s personnel were provided by the outside company. In 2003 and 2002
A0.7 million and A0.8 million, respectively of professional services expenses were recorded as
personnel expenses.
• Other Operating Expenses. Other operating expenses in 2003 included professional services and
travel and other expenses. The Mexico business unit’s other operating expenses decreased by
A1.3 million, or 27.1%, to A3.5 million in 2003 from A4.8 million in 2002. As a percentage of the
Mexico business’s operating revenue, other operating expenses were 11.4% in 2003 and 12.7% in
2002. The decrease in other operating expenses was principally due to the devaluation of the
Mexican peso as compared to the euro. At constant exchange rates, other operating expenses
would have decreased only A0.1 million to A4.7 million.
Operating Profit. Mexico business’s operating profit decreased by A8.4 million, or 36.8%, to
A14.4 million in 2003 from A22.8 million in 2002. At constant 2002 exchange rates, operating profit
would have been A19.4 million or 14.8% lower than in 2002.
EBITDA. The Mexico business unit’s EBITDA decreased by A8.2 million, or 34.3%, to
A15.7 million in 2003 from A23.9 million in 2002. At constant 2002 exchange rates, EBITDA would have
been A2.7 million or 9.3% lower than in 2002. EBITDA decreased by A0.9 million, or 1.3%, due to a
change in consolidation methodology we adopted in 2003, which resulted in our consolidating 44.8% of
ERSA, rather than the 50.0% that was consolidated in 2002.
108
Argentina
2002
2003
% change
percentages)
........................
45.9
51.4
12.0%
........................
........................
........................
15.1
6.0
1.4
15.0
6.0
1.9
(0.7)%
0.0%
35.7%
........................
........................
7.3
6.7
15.8
5.0
116.4%
(25.4)%
36.5
43.7
19.7%
9.4
7.7
(18.1)%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.8
9.6
(11.1)%
Operating expenses:
Depreciation . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
located in our bingo halls after prize payouts. Operating revenue increased by A5.5 million, or 12.0%,
to A51.4 million in 2003 from A45.9 million in 2002, which was principally attributable to an increase in
the number of slot machine seats located at our bingo halls (from an average of 791 in 2003 to 687 in
2002) together with an increase in average revenue per slot machine seat per day from A75 in 2002 to
A88 in 2003. In addition, negative macroeconomic conditions in Argentina in 2002 adversely affected
operating revenue for such year. At constant 2002 exchange rates, operating revenue would have
increased by A13.0 million or 28.3% to A58.9 million.
prizes, personnel expenses, taxes on gaming and other operating expenses.
A43.7 million in 2003 from A36.5 million in 2002. At constant 2002 exchange rates, operating expenses
would have increased by A13.6 million or 37.3%. The key changes in operating expenses were as
follows:
include bingo prizes. Consumption and other external expenses decreased by A0.1 million, or
0.7%, to A15.0 million in 2003 from A15.1 million in 2002, principally due to the depreciation of
the Argentine peso against the euro. At constant 2002 exchange rates, consumption and other
external expenses would have increased by 13.9% due to increased bingo prizes paid, which in
turn was due to increased operating revenues. As a percentage of the Argentina business unit’s
operating revenue, these expenses decreased to 29.2% in 2003 from 32.9% in 2002.
back office employees at the bingo halls. Personnel expenses remained stable at A6.0 million. As
a percentage of the Argentina business unit’s operating revenue, personnel expenses decreased
to 11.7% in 2003 from 13.1% in 2002. At constant 2002 exchange rates, personnel expenses
would have increased by A0.9 million or 14.7% to A6.9 million. The increase in personnel
expenses at constant 2002 exchange rates was due to an increase in the number of employees.
• Depreciation. Depreciation increased by A0.5 million, or 35.7% to A1.9 million in 2003 from
A1.4 million in 2002, principally due to increased purchases of AWP machines.
109
• Other Operating Expenses. Other operating expenses include gaming and other taxes and
marketing expenses. The Argentina business unit’s other operating expenses increased by
A6.8 million, or 48.6%, to A20.8 million in 2003 from A14.0 million in 2002, principally due to a
change in gaming taxes applicable to slot machines from a fixed tax per machine to a variable
tax of 34% of the slot machine’s net win. As a percentage of the Argentina business unit’s
operating revenue, other operating expenses were 40.5% in 2003 and 30.5% in 2002. At constant
2002 exchange rates other operating expenses would have increased by A9.8 million or 70.0% to
A23.8 million.
Operating Profit. The Argentina business unit’s operating profit decreased by A1.7 million, or
18.1%, to A7.7 million in 2003 from A9.4 million in 2002. Operating margin decreased to 15.0% in 2003
from 20.5% in 2002.
EBITDA. The Argentina business unit’s EBITDA decreased by A1.2 million, or 11.1%, to
A9.6 million in 2003 from A10.8 million in 2002. At constant 2002 exchange rates, EBITDA increased by
A0.2 million or 1.9% to A11.0 million. The Argentina business unit’s EBITDA margin was 18.7% in
2003 and 23.5% in 2002.
Other Operations
Operating revenue from our Other Operations decreased by A6.7 million, or 15.1%, to
A37.9 million in 2003 from A44.5 million in 2002, which was principally attributable to the closure of
our operations in Venezuela and Santo Domingo and the depreciation of the Colombia peso against
the euro, which was partially offset by the commencement of our operations in Peru and Uruguay. Our
Other Operations’ operating expenses decreased by A9.9 million, or 22.2%, to A34.6 million in 2003
from A44.5 million in 2002, principally due to the same factors that affected our Other Operations’
operating revenue. The Other Operations’ operating profit increased by A3.2 million, to A3.2 million in
2003 from A0.0 million in 2002. Operating margin increased to 8.5% in 2003 from 0% in 2002. The
Other Operations’ EBITDA increased by A0.3 million, or 3.1%, to A10.1 million in 2003 from
A9.8 million in 2002 and EBITDA margin was 26.7% in 2003 and 22.0% in 2002.
Liquidity and Capital Resources
Liquidity
To date, our and our subsidiaries’ liquidity needs have been met principally from a combination of
cash flow from operating activities, capital contributions from our shareholders and borrowings under
our mezzanine loan facility, senior credit facilities and other bank borrowings. These borrowings have
generally included high rates of interest, including 15% per annum under our A135 million mezzanine
loan facility. We are seeking to improve our capital structure through the offering of the Notes in order
to gain more operating flexibility. We intend to use a significant portion of the net proceeds from the
offering of the Notes to repay substantially all of our existing indebtedness, including the A135 million
mezzanine loan facility (plus accrued interest) and the amount drawn down (approximately
A30.0 million) under the related A45 million senior credit facilities. Our goal is to reduce the average
cost of our debt, which was 12% for the year ended December 31, 2004, from the offering of the Notes
and the repayment of substantially all of our existing indebtedness.
110
The following table provides a profile of our liabilities at December 31, 2002, 2003 and 2004 and
March 31, 2005.
At December 31,
2002
2003
2004
At
March 31,
2005
(unaudited)
(E in millions)
Short-term debt payable to credit institutions . . . . . . . . . . . . . . . . .
Other current liabilities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56.8
72.5
23.2
66.9
24.3
77.4
24.6
95.4
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
129.3
90.1
101.7
120.0
Long-term debt payable to credit institutions . . . . . . . . . . . . . . . . .
Other long-term liabilities(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59.4
84.0
7.3
227.5
22.3
270.1
27.3
224.7
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
143.4
234.8
292.4
252.0
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
272.7
324.9
394.1
372.0
(1) Other current liabilities consist of commercial creditors, other non-commercial obligations and
period adjustments.
(2) Other long-term liabilities consist of amounts owed to joint venture partners, negative
consolidation differences, earnings to be distributed in subsequent years and provisions.
Historical Cash Flows
Under Spanish GAAP, we are not required to present a cash flow statement in our Consolidated
Financial Statements and Spanish GAAP does not provide any standards for the preparation of a cash
flow statement. In order to provide investors with information regarding our cash flows, however, we
have presented cash flow statements for the three years ended December 31, 2004 prepared pursuant
to IAS 7 and have included such cash flow statements in note 26 to our Consolidated Financial
Statements.
111
The following is our consolidated cash flow statement for the periods ended December 31, 2002,
2003 and 2004 and the three months ended March 31, 2004 and 2005:
Three months
ended
March 31,
2004
2005
(unaudited)
(E in millions)
Year ended
December 31,
2002
2003
2004
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . .
Non-operating expenses . . . . . . . . . . . . . . . . . . . . . . .
Non-operating income that represents cash movements
Change in working capital . . . . . . . . . . . . . . . . . . . . .
Corporate income tax . . . . . . . . . . . . . . . . . . . . . . . .
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Cash flow from operating and non-operating activities . . . . . . . . .
Capital expenditures(1) . . . . . . . . .
Long-term loans and receivables(2)
Investment(3) . . . . . . . . . . . . . . . .
Capitalized expenses(4) . . . . . . . . .
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51.1
48.4
54.1
24.3
21.7
26.3
(3.2) (4.0) (9.4)
2.3
5.6
3.0
0.8
(4.5) (5.8)
(12.7) (10.0) (10.3)
62.6
57.2
57.9
(36.9) (42.0) (43.7)
(3.3) (6.1) (7.9)
(0.4)
— (10.8)
(11.7) (8.5) (3.8)
14.6
6.0
(0.4)
1.1
(5.4)
(2.3)
12.7
7.5
(1.1)
0.2
3.0
(3.6)
13.6
18.7
(8.4) (13.5)
(3.9) (4.2)
(1.1) (2.9)
(1.8) (3.2)
Cash flow from (used in) investment activities . . . . . . . . . . . . . . .
(52.3) (56.6) (66.2) (15.2) (23.8)
Proceeds from the MCP Instrument .
Net change in financial debt(5) . . . .
Net change in other bank loans . . . .
Net dividends paid (received)(6) . . .
Net change in other financial debt(7)
Net investment in treasury shares . . .
Interest income . . . . . . . . . . . . . . . .
Interest expenses . . . . . . . . . . . . . . .
40.0
—
—
(19.4) 73.7
4.8
(8.1) (27.3)
8.9
(2.2) (1.9) (3.5)
9.5 (26.7) 18.9
(25.0) (6.3)
—
3.0
4.6
3.0
(10.4) (14.1) (14.8)
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—
(4.3)
1.2
(1.4)
4.5
—
0.9
(0.4)
—
1.3
1.7
(0.3)
2.9
—
1.1
(1.3)
Cash flow from (used in) financing activities . . . . . . . . . . . . . . . .
(12.6)
2.0
17.3
0.5
5.4
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2.3)
17.2
14.9
2.6
14.9
17.5
9.0
17.5
26.5
(1.1)
17.5
16.4
0.3
26.5
26.8
(1) Capital expenditures primarily consist of investments to maintain or improve the quality of our
facilities, to build out and equip bingo halls in connection with our arrangements with CIE, to
purchase new AWP or slot machines and to make exclusivity payments to site owners in
connection with contracts to install our AWP machines in their establishments.
(2) Long-term loans and receivables include amounts related to building out and equipping bingo halls
that are sold to Caliente, which pays for such bingo halls over a five-year period. Loans to site
owners and other loans are also included.
(3) Investments includes expenditures relating to acquisitions.
(4) Capitalized expenses include start-up operating expenses and expenses relating to professional
services.
(5) Net change in financial debt includes the mezzanine loan facility and our senior credit facilities.
(6) Net dividends received includes the net of dividends paid to minority shareholders and dividends
received from subsidiaries.
(7) Net change in other financial debt reflects movements in temporary financial investments.
112
Cash Requirements Related to Operations
During the periods under review, our principal sources of cash have been (i) cash generated from
operating activities, (ii) cash generated from non-operating activities, (iii) borrowings available under
our mezzanine loan facility and senior credit facilities and (iv) proceeds from the MCP Instrument. Our
cash generated from non-operating activities principally consists of taxes we were required to pay in
prior years that were returned to us as a result of our successful claims that such taxes were in excess
of the amount legally required. Our non-operating expenses are principally comprised of personnel
expenses arising from reductions in our workforce, payments of fines relating to minor regulatory
infractions and interest due on unpaid taxes.
During the three months ended March 31, 2005, we had a net increase in cash of A0.3 million. We
generated cash from operating and non-operating activities of A18.7 million (including A(0.9) million
from non-operating activities) and A5.4 million from financing activities. We used cash during such
period for capital expenditures relating to intangible and fixed assets (A13.5 million), to provide
long-term loans to Caliente (A3.1 million) and site owners (A1.1 million), to pay amounts in connection
with the Grupo Royal transaction (A2.3 million), to fund acquisitions of AWP machine operators in
Spain (A0.6 million) and for capitalized expenses (A3.2 million).
During the year ended December 31, 2004, we had a net cash increase of A9.0 million. We
from non-operating activities, which included non-operating expenses of A9.4 million and non-operating
income (primarily professional expenses) of A3.0 million) and A17.3 million from financing activities,
including A4.8 million from the drawdown of debt under our senior credit facilities. We used cash
during such period for capital expenditures relating to intangible and fixed assets (A43.7 million), to
provide long-term loans to Caliente (A5.5 million) and site owners (A2.3 million), to fund acquisitions of
AWP machine operators (A6.8 million), to acquire Opergiochi (A4.0 million) and for capitalized
expenses (A3.8 million).
During the year ended December 31, 2003, we had a net cash increase of A2.6 million. We
generated cash from operating and non-operating activities of A57.2 million (including A1.6 million from
non-operating activities, which included non-operating expenses paid of A4.0 million and non-operating
income of A5.6 million) and A2.0 million from financing activities, which included A135.0 million from
our mezzanine loan facility. We used cash during such period to repay our existing credit facilities, for
capital expenditures relating to intangible and fixed assets (A42.0 million), to repurchase our shares
from Jesús Franco, Joaquı́n Franco and certain minority shareholders (A10.0 million), to provide long
term loans to Caliente (A2.2 million) and site owners (A2.7 million) and other loans (A1.2 million), and
for capitalized expenses (A8.5 million).
During the year ended December 31, 2002, we had a net cash decrease of A2.3 million. We
from non-operating activities, which included non-operating expenses of A3.2 million and non-operating
income of A2.3 million) and A12.6 million from financing activities, which included A40.0 million from
the MCP Instrument. We used cash during such period for capital expenditures relating to intangible
and fixed assets (A36.9 million), to repurchase our shares from Jesús Franco and Joaquı́n Franco and
certain minority shareholders (A25.0 million) and to provide long-term loans to Caliente (A2.4 million)
and site owners (A1.0 million) to fund acquisitions of AWP machine operators (A0.4 million), and for
capitalized expenses (A11.7 million).
113
Working Capital Requirements
The following table, which is derived from our consolidated cash flow statement, sets forth
movements in our working capital for the periods indicated:
Variations in:
Receivables .
Inventories . .
Payables . . . .
Accruals, net
Other . . . . .
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Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2002
2003
2004
(E in millions)
Three Months ended
March 31,
2004
2005
(E in millions)
(3.2)
(1.7)
11.9
(1.7)
(4.5)
(1.2)
(1.6)
(1.7)
1.5
(1.5)
(18.2)
4.1
10.1
0.9
(2.7)
(11.2)
5.3
0.7
(0.3)
0.1
(7.2)
0.1
10.1
(0.1)
0.1
0.8
(4.5)
(5.8)
(5.4)
3.0
The operation of our various businesses, in the aggregate, is not working capital intensive. We
manage our working capital requirements on a decentralized basis and have historically funded our
working capital requirements through funds generated from our operating activities and from
borrowings under the mezzanine loan facility and the senior credit facilities.
During the periods under review, our working capital needs have been principally driven by
receivables and inventories in our Mexico business unit. The total variations in working capital changed
from A0.8 million in 2002 to A(4.5) million in 2003 to A(5.8) million in 2004.
We anticipate that our working capital requirements in the foreseeable future will generally be
stable. However, these requirements can fluctuate for a variety of factors, including the number of
bingo halls we build out and equip for Caliente, payables due to AWP machine operators we acquire
that provide us with financing for a portion of the purchase price, corporate income tax receivables
relating to tax payments to the Mexican government and exchange rate fluctuations.
114
Capital Expenditures
The following table sets forth our total capital expenditures, excluding capitalized expenses, by
geographical area and, based on management’s estimates, divided between maintenance and growth
capital expenditures for the period indicated. We generally classify capital expenditures as growth
capital expenditures to the extent that they relate to increasing the number of slot machines in our
portfolio, increasing the number of bingo seats in our bingo halls or otherwise expanding our business.
Maintenance capital expenditures are capital expenditures that are not related to expanding our
business.
Year ended
Three months ended
December 31,
March 31,
2002
2003
2004
2004
2005
(E in millions) (unaudited)
Spain AWP . . . . .
Maintenance . .
Growth . . . . . .
Spain Bingo . . . .
Maintenance . .
Growth . . . . . .
Holding Company
Maintenance . .
Growth . . . . . .
Chile . . . . . . . . .
Maintenance . .
Growth . . . . . .
Argentina . . . . . .
Maintenance . .
Growth . . . . . .
Mexico . . . . . . . .
Maintenance . .
Growth . . . . . .
Colombia . . . . . .
Maintenance . .
Growth . . . . . .
Peru . . . . . . . . . .
Maintenance . .
Growth . . . . . .
Uruguay . . . . . . .
Maintenance . .
Growth . . . . . .
Italy . . . . . . . . . .
Maintenance . .
Growth . . . . . .
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12.4
12.4
—
0.1
0.1
—
1.5
1.5
—
1.5
0.7
0.8
2.5
0.8
1.7
12.3
—
12.3
4.0
4.0
—
—
—
—
5.8
0.4
5.4
0.6
—
0.6
13.7
13.7
—
0.3
0.3
—
0.9
0.9
—
1.3
1.3
—
1.9
1.9
—
12.0
—
12.0
4.3
4.3
—
2.6
1.2
1.4
10.1
—
10.1
1.0
1.0
—
24.3
12.9
11.4
0.1
0.1
—
1.5
1.5
—
1.2
1.2
—
2.8
1.7
1.2
17.4
0.2
17.2
5.0
5.0
—
0.6
0.6
—
4.1
—
4.1
5.4
—
5.4
5.7
3.1
2.6
—
—
—
0.3
0.3
—
0.2
0.2
—
0.5
0.4
0.1
5.0
—
5.1
1.2
1.2
—
0.1
0.1
—
0.4
—
0.4
—
—
—
6.5
3.1
3.4
—
—
—
2.4
0.1
2.3
0.2
0.2
—
2.2
—
2.2
6.1
0.1
6.0
2.3
1.8
0.5
0.1
0.1
—
0.6
0.1
0.5
0.2
0.2
—
Total Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19.9
20.8
24.6
23.5
23.2
39.2
5.4
8.0
5.7
14.9
Total Capex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40.7
48.1
62.4
13.4
20.6
115
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We invested an aggregate amount of A171.8 million, excluding capitalized expenses, during the
periods under review. Our investing activities during the periods under review included the following
capital expenditures, long-term loans and receivables and investments:
Year ended
Three months ended
December 31,
March 31,
2002
2003
2004
2004
2005
(E in millions) (unaudited)
Spain AWP . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . .
Long-term loans and receivables . . . .
Investments . . . . . . . . . . . . . . . . . . .
Spain Bingo . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . .
Holding Company . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . .
Chile . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . .
Argentina . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . .
Colombia . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . .
Peru . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . .
Uruguay . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . .
Italy . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . .
Total capital expenditures . . . . . . . . . .
Total long-term loans and receivables . .
Total investments . . . . . . . . . . . . . . . .
Total cash invested excluding capitalized
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expenses
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116
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12.4
11.4
1.0
—
0.1
0.1
—
—
1.5
1.5
—
—
1.5
1.5
—
—
2.5
2.5
—
—
12.3
9.9
2.4
—
4.0
4.0
—
—
—
—
—
—
5.8
5.4
—
0.4
0.6
0.6
—
—
36.9
3.4
0.4
40.7
13.7
11.0
2.7
—
0.3
0.2
0.1
—
0.9
0.9
—
—
1.3
1.3
—
—
1.9
1.9
—
—
12.0
9.8
2.2
—
4.3
4.3
—
—
2.6
2.5
0.1
—
10.1
10.1
—
—
1.0
—
1.0
—
42.0
6.1
—
48.1
24.3
15.1
2.4
6.8
0.1
0.1
—
—
1.5
1.5
—
—
1.2
1.2
—
—
2.8
2.8
—
—
17.4
11.9
5.5
—
5.0
5.0
—
—
0.6
0.6
—
—
4.1
4.1
—
—
5.4
1.4
—
4.0
43.7
7.9
10.8
62.4
5.7
3.9
0.7
1.1
—
—
—
—
0.3
0.3
—
—
0.2
0.2
—
—
0.5
0.5
—
—
5.0
1.8
3.2
—
1.2
1.2
—
—
0.1
0.1
—
—
0.4
0.4
—
—
—
—
—
—
8.4
3.9
1.1
13.4
6.5
4.8
1.1
0.6
—
—
—
—
2.4
0.1
—
2.3
0.2
0.2
—
—
2.2
2.2
—
—
6.1
3.0
3.1
—
2.3
2.3
—
—
0.1
0.1
—
—
0.6
0.6
—
—
0.2
0.2
—
—
13.5
4.2
2.9
20.6
Excluding the A69.0 million we expect to expend to acquire Grupo Royal, we expect to expend
approximately A66.0 million in capital expenditures during 2005 (including amounts invested through
March 31, 2005 and shown above), including A22.4 million in Spain, A9.1 million in Italy, A14.2 million
in Mexico and A4.7 million in Argentina. If we acquire Grupo Royal, we expect to expend an additional
A1.8 million in capital expenditures in Argentina. Our estimated capital expenditures are based on our
current business plan and do not include capital expenditures for any strategic transactions that we
could undertake, such as potential capital expenditures in connection with the proposed Grupo Royal
acquisition. Our actual capital expenditures for these periods may be less than or exceed these
amounts. In particular, our actual capital expenditures may be affected by decisions we take to
undertake potential investments or acquisitions that we are currently considering or consider making in
the future. We expect that our capital expenditures will be funded primarily through cash from
operations.
Contractual Obligations
We have numerous contractual commitments providing for payments relating to warehouses and
office facilities, equipment leases, automobile leases and payments to site owners and certain AWP
machine operators with whom we enter into collaboration agreements in our AWP machine businesses.
We also have, and will continue to have, payment obligations pursuant to our outstanding borrowings,
including the financial obligations arising from the Notes.
Our consolidated contractual obligations as of December 31, 2004, after giving pro forma effect to
this offering and the use of the proceeds therefrom, would be as follows:
Pro Forma Contractual Obligations
Long-term debt(1) . . . . . . . . . . . . . . . . . . .
Capital lease agreements (short-term) . . . . .
Other obligations (short-term) . . . . . . . . . . .
Purchase obligations(trade account payables)
Payable to credit entities . . . . . . . . . . . . . . .
Total
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Payments due by period
Less than
After
1 year
1-3 years 4 years
(E in millions)
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402.0
0.7
13.9
28.3
21.1
—
0.7
13.9
28.3
13.6
63.2
—
—
—
4.8
338.8
—
—
—
2.7
Total contractual obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
466.0
56.5
68.0
341.5
(1) Includes the A335 million of Notes offered hereby. Long-term debt also includes the MCP
Instrument (A54.9 million), the deferred portion of the purchase price of AWP operators
(A6.7 million) and obligations to suboperators (A1.7 million).
The following is a description of our principal contractual obligations not included in the table
above:
On June 19, 2003, the date on which ICIL purchased 1,104,362 of Codere, S.A. shares from Jesús
Franco for A10 million, we granted ICIL a put option over all, but not part, of such shares pursuant to
which ICIL may require Codere, S.A. to purchase such shares at a purchase price such that ICIL
obtains at least an annual return of 15% on its initial investment of A10.0 million (i) at any time
between June 30, 2008 and June 30, 2009, (ii) upon the redemption by MCP of the MCP Instrument or
(iii) upon the occurrence of certain other events, including (A) in the event that the combined interest
of Jesús Franco, Joaquı́n Franco and the Martı́nez Sampedro family and their affiliates equals or falls
below 50% of the outstanding share capital of Codere, S.A. or (B) the liquidation of Codere, S.A. The
option expires upon the earlier of June 30, 2009 and the listing of Codere, S.A. shares on any
authorized secondary trading market in the United States or a member state of the European Union.
117
As of March 31, 2005, the cost to us if ICIL required us to purchase such shares would have been
A12.8 million.
MCP may, subject to certain conditions, request that we redeem a A40 million convertible
investment instrument, which accrues and capitalizes interest from September 20, 2002 at 15.0% per
annum, upon the occurrence of certain events or at any time between January 1, 2007 and up to but
excluding December 31, 2007, payable in cash or, in the case of a redemption during 2007, in cash, in
Codere, S.A. shares or in a combination of cash and Codere, S.A. shares, at our option. As of
March 31, 2005, the cost of such redemption by us would have been A57.0 million. If we are requested
to redeem the MCP Instrument and any part or all of the principal and accrued interest remains
unpaid when due, then the interest rate increases over time up to 30% if any amounts remain unpaid
after one year. After any failure by us to pay amounts owing upon redemption of the MCP Instrument,
MCP may compel us to apply any available cash (other than that required for certain capital
expenditures) to unpaid amounts due under the MCP Instrument, provided that MCP may not
otherwise seek enforcement, specifically or otherwise, of payment due under the MCP Instrument or
seek damages unless Codere, S.A. is in liquidation or bankruptcy. See ‘‘Description of Other
Indebtedness and Instruments—MCP Instrument’’.
We expect that MCP will enter into a subordination agreement under which it will agree that all
present and future moneys, debts and liabilities due, owing or incurred by Codere, S.A. in connection
with the MCP Instrument would be subordinated to future moneys, debts and liabilities due, owing or
incurred by Codere, S.A. in connection with the senior credit facilities agreement.
In addition, if MCP requests that we redeem the MCP Instrument, Monitor may exercise a put
option over 161,584 shares of Codere, S.A. and require us to purchase such shares at the higher of
(i) A7.88 per share for 121,827 shares and A9.055 per share for 39,757 shares, increased by 15% per
annum from January 1, 2004 for 121,827 shares and from July 1, 2004 for 39,757 shares, which as of
March 31, 2005 would have represented a payment of A1.5 million by us and (ii) (only in the event that
MCP requests that we redeem its investment on any date between January 1, 2007 and up to but
excluding December 31, 2007 or as a result of the voluntary or compulsory winding up and liquidation
of Codere, S.A.) the fair market value of such shares (calculated by dividing the equity value of
Codere, S.A. at the date of exercise of the put option by the total number of shares of Codere, S.A.
then outstanding). The 79,514 shares we expect to transfer to Monitor during 2005 in exchange for
consulting services provided or to be provided to us from July 2004 to June 2005 will be granted similar
put option rights.
Operbingo in which we indicated an interest in purchasing 100% of Operbingo. The memorandum of
understanding provides that if the Operbingo transaction is consummated the purchase price would
consist of a nominal cash payment and the assumption of debt, which we estimate will be A43.9 million
upon closing of the acquisition, and a deferred payment based on a multiple of Operbingo’s 2006
EBITDA, less such assumed debt.
Off-Balance Sheet Arrangements
We generally do not utilize off-balance sheet arrangements, other than an interest rate hedging
transaction we entered into with Credit Suisse First Boston International. See ‘‘Description of Other
Indebtedness and Instruments’’.
IFRS Financial Information
We are not currently required to prepare our consolidated financial statements under IFRS. Under
EU and Spanish rules, companies with publicly listed equity and certain debt securities will be required
to prepare their first set of complete consolidated financial statements under IFRS as of and for the
118
year-ended December 31, 2005, and comparable information in respect of the year ended
December 31, 2004. Though Ireland has not transposed the relevant EU IFRS rules into national law
and, therefore, the IFRS financial statement requirements of the Irish Stock Exchange where we intend
to list our Notes have yet to be finalized, in order to provide investors with a preliminary understanding
of our consolidated financial statements prepared under IFRS, we have prepared the audited
preliminary 2004 IFRS consolidated financial statements as of and for the year ended December 31,
2004 and the unaudited preliminary IFRS consolidated financial statements as of March 31, 2005 and
for the three months ended March 31, 2004 and 2005 included elsewhere in this offering memorandum.
See ‘‘Selected Financial Information and Other Data’’.
Effects of Inflation
Our performance is affected by inflation to a limited extent. In recent years, the impact of inflation
on our operations in Spain has not been material. However, our international operations, particularly
those in Latin America, are subject to relatively high inflation rates. Argentina experienced severe
inflationary effects in 2002. During 2002, the Argentine consumer price index increased 41% and the
wholesale price index increased 118%. However, under Spanish GAAP, Argentina is not characterized
as hyperinflationary. As a consequence, we have not made any inflation adjustments to our
Consolidated Financial Statements regarding Argentine inflation during the periods under review.
Market and Credit Risks
We are primarily exposed to market risk from changes in interest rates and foreign currency
exchange rates. We manage our exposure to these market risks through our regular operating and
financing activities. Financial instruments that potentially subject us to credit risk consist of cash
investments, loans to Caliente and trade receivables. We maintain cash and cash equivalents with
financial institutions in Spain with high credit standards.
Interest Rate Risks
We are subject to interest rate risks related to our borrowings. Almost all of our borrowings are in
euros with floating interest rates based on EURIBOR. Other than hedging arrangements related to a
certain amount of floating rate portion of the mezzanine loan facility, we do not currently hedge our
interest rate exposure and do not expect to do so in the future. See ‘‘Description of Other
Indebtedness and Instruments’’.
Foreign Currency Risks
Our principal exchange rate exposures relate to the euro-Mexican peso and euro-Argentine peso
exchange rates for translation-related exposure. We also have translation related exposures arising from
our operating revenue generated in the local currencies of Colombia, Chile, Peru and Uruguay.
We have not entered into any hedging arrangements relating to the translation-related risks
described above.
119
INDUSTRY AND REGULATION
Overview
We operate in the gaming industry in Spain, Mexico, Argentina, several other countries in Latin
America and Italy, with our current operations principally focused on the Spanish, Mexican, and
Argentine gaming markets. The gaming industry within these countries is comprised principally of slot
machines, bingo halls, on- and off-track betting, casinos and national and local lotteries.
The Spanish Gaming Market
Spain is the second largest gaming market in the European Union based on total amounts wagered
of A26.7 billion in 2003 according to Comisión Nacional del Juego (the Spanish National Gaming
Commission). The Spanish gaming market is divided into three segments: the private segment,
consisting primarily of AWP machines, bingo halls and casinos; the public segment, consisting of
national and regional lotteries in which we do not currently participate; and the national lottery
managed by Organización Nacional de Ciegos de España (the Spanish National Organization for the
Blind or ‘‘ONCE’’), which has been authorized by the Spanish government to operate such lottery. The
following table sets forth the historical yearly development of each of these segments of the Spanish
gaming market in terms of amounts wagered since 1998 and the compound annual growth rate, or
CAGR, for that period.
At December 31,
2000
2001
2002
2003
’98-’03
CAGR
1998
1999
Private Gaming
AWP Machines(1) . . . . . . . . . . . . . . .
Bingo Halls . . . . . . . . . . . . . . . . . . . .
Casinos(2) . . . . . . . . . . . . . . . . . . . . .
8,836
3,710
1,229
9,566
3,780
1,381
10,416
3,819
1,581
10,592
3,755
1,687
10,368
3,716
1,854
10,292
3,930
1,914
3.1%
1.2%
9.3%
Subtotal . . . . . . . . . . . . . . . . . . . . . . .
13,775
14,727
15,816
16,034
15,938
16,136
3.2%
Public Gaming(3)
Lotteries . . . . . . . . . . . . . . . . . . . . . .
8,592
8,979
9,313
10,002
10,020
10,591
4.3%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,367
23,706
25,129
26,036
25,958
26,727
3.6%
Source: Spanish National Gaming Commission Annual Reports (1998-2003). The Spanish National
Gaming Commission Annual Report for 2004 was not published as of the date of this offering
memorandum.
(1) Comprised of Type-B machines, which are described below.
(2) Includes amounts wagered in Type-C machines, which are the only type of gaming machines
allowed in casinos.
(3) Includes both the public segment and the national lottery managed by ONCE.
The private gaming sector in Spain was legalized in 1977. Initially, the Spanish national
government regulated the private gaming sector (AWP machines, bingo halls and casinos) through
national regulations applicable to the entire country. The Spanish Constitution, however, allowed the
Spanish Autonomous Regions to regulate gaming activities within each region’s territory, as long as
they did not invade the powers reserved to the State under the Constitution. Accordingly, the regions
adopted regulations in order to regulate gaming at a regional level. Where no regional regulation exists
or is not comprehensive or the game covers more than one region, national regulation applies. Most of
120
the regions have in fact passed extensive legislation governing private gaming, including the granting of
the relevant operating licenses and authorizations, tax measures and the monitoring of each type of
private game. Additionally, the regions are authorized to regulate the public gaming market (lotteries)
within their own territorial areas. Regulation of the private gaming market is similar across each of the
regions. Certain residual responsibilities remain with the Spanish National Gaming Commission, such
as assistance with standardization of AWP machines and collection of industry statistical information.
Gaming Machines Market
Overview
Spanish gaming regulations permit three types of gaming machines:
• Type-A machines. These machines are primarily placed in bars, cafes and arcades. They require
money to play and in exchange grant the player playing time. They also allow players to extend
their playing time based on their skill level. Type-A machines neither pay out cash prizes nor
provide pay outs that are exchangeable for cash prizes.
• Type-B machines. These machines are placed in bars, cafes, arcades and bingo halls and pay out
cash prizes as a percentage of total wagers over a pre-determined cycle of games.
• Type-C machines. These machines are only allowed to be placed in casinos and pay out random
cash prizes of no less than 80% of the amount wagered on the machine over a pre-determined
cycle of games.
Type-B machines
The Type-B machine market is the largest segment of the private gaming sector in Spain with total
amounts wagered of A10.3 billion in 2003, which represented 64% of the total amounts wagered in the
Spanish private gaming segment and 39% of the total amount wagered in the private and public
gaming segments combined. The market for the operation of Type-B machines is highly fragmented
despite some recent consolidation. At December 31, 2003, there were an estimated 5,500 registered
operators of Type-B machines in Spain, although the actual number of operators could be lower given
that large operators frequently have multiple registrations. We estimate that the top three operators—
Cirsa, S.A., or Cirsa, Companı́a Orenes de Recreativos, S.A., or Orenes, and us—together accounted
for less than 20% of total market share in 2003 based on their number of documented Type-B
machines.
While the number of installed Type-B machines in Spain has remained relatively stable since 1994,
amounts wagered per machine has grown at a compound annual growth rate of 3.1% since 1998.
According to the Spanish National Gaming Commission, the per capita amounts wagered in Spain was
A241 in 2003 compared to A222 in 1998. The Type-B machine market in Spain has historically shown
solid growth in demand due principally to the introduction of machine features like ‘‘double-bets’’ and
the continued growth of disposable income in Spain. We believe that growth in the Type-B machine
market stabilized in 2002 and 2003 as a result of regulations restricting new game features. The
121
following table sets forth the total amounts wagered, and the number of installed Type-B machines for
each year since 1998:
Total amounts wagered (A in millions) . . .
Total amounts wagered per capita (A) . . .
Installed Type-B AWP machines
(in thousands) . . . . . . . . . . . . . . . . . .
’98-’03
CAGR
1998
1999
2000
2001
2002
2003
8,836
221.73
9,556
237.94
10,416
259.09
10,592
257.61
10,368
252.17
10,292
240.91
3.1%
2.0%
223
227
234
241
245
242
1.6%
memorandum.
Competition
Competition in the AWP machine operation market in Spain is highly fragmented. In 2003, there
were approximately 5,500 registered operators of AWP machines in Spain. Regionally, our competitors
are local operators. Our primary competitors nationally are Cirsa, which had over 21,000 AWP
machines throughout Spain, including significant operations in Catalonia, and Orenes, which had over
8,000 AWP machines principally throughout Southeast Spain, including significant operations in Murcia
and Andalucı́a, according to our estimates, in each case as of December 31, 2003. Joaquı́n and Jesús
Franco, two of our directors and principal shareholders, own 50% of Orenes.
We believe that the AWP machine market in Spain remains highly fragmented and offers
considerable scope for further consolidation. According to our estimates, approximately 25% of the
AWP machines are controlled by six to eight large operators with portfolios of more than 3,000 AWP
machines, and a further 8% by operators with portfolios of 1,000-3,000 machines. Approximately 30%
of the AWP machines are controlled by operators with portfolios of 50-500 machines, and the balance
of the market is comprised of more than 5,000 operators with fewer than 50 AWP machines.
Regulation
According to Spanish national regulation, subject to a certain amount of variation by region,
Type-B machines must:
• have a maximum wager of A0.20 (although all regions permit ‘‘double bet’’ machines which
permit A0.40 wagers under certain circumstances);
• have a maximum prize of A80, except for certain games that permit ‘‘double bets’’ that have a
maximum prize of A120 and certain AWP machines permitted only in gaming halls, bingo halls
and casinos that have a maximum prize of A300;
• have a minimum payout of at least 75% (except in Asturias, where it is 70%, but which remains
in practice approximately 75%) of the amount spent by players on a machine over a cycle of
20,000 games and no less than a 40% payout over a cycle of 5,000 games;
• have a minimum average gaming time, generally no less than five seconds; and
• be in reel format (except in Catalonia, Aragón and the Basque Country where video Type-B
machine formats are permitted).
Except as otherwise noted, the following discussion applies equally to Type-A and Type-B machines
and operators. AWP machines must comply with specific requirements set forth in the applicable laws
and regulations of the relevant region. Before commencing operations, all AWP machine
manufacturers, distributors and operators, as well as others engaged in the AWP machine business,
122
must register with and be approved by the gaming authority of the region in which they intend to
conduct operations. The registration and authorization processes include, among other things, a
demonstration of sufficient technical and financial resources and professional expertise to operate the
AWP machines, criminal background checks and, in the case of Type-B machines, the deposit of a
guarantee to ensure regulatory compliance. AWP machine operators are also required to deposit an
additional guarantee with the relevant regional authority in an amount, which is based on the number
of AWP machines to be operated in the relevant region. The amounts of the required guarantees vary
across the regions.
In addition to regulations regarding the types of AWP machines, there are regulations regarding
the types of sites at which AWP machines can be placed and the number of AWP machines that can be
placed in each type of site. For example, most regions allow only one or two AWP machines per bar,
cafe or restaurant. In addition, for each AWP machine, the owner of the site and/or the operator of the
AWP machines must file an application with the relevant region to obtain approval to place the AWP
machines at the site. In most regions, the approval for installation of AWP machines is for a period of
one to five years. In some regions, site operator approvals require that a site owner use the same AWP
machine operator during the approved time period.
Each region has a sanctioning regime in the event of violations of the applicable gaming laws and
regulations. Additionally, manufacturing, distributing and operating authorizations and approvals may
be revoked, if the relevant regional authority determines that a manufacturer, distributor or operator
has not complied with applicable gaming laws and regulations.
Since 1990, gaming taxes have remained stable, growing only to keep pace with inflation. In 1997,
the Spanish government reformed the framework for taxation and regulation of AWP machines in
order to grant greater authority to the regions. Under the reformed law, almost all regions established
their own annual flat tax per machine, which averaged approximately A3,481 in 2004, generally payable
on an annual basis to the region in which the AWP machine is located. In addition, AWP machines are
subject to a corporate activity tax, which is payable by both the operator and owner of the AWP
machines.
Bingo Market
Overview
Bingo is a popular and traditional pari-mutuel gaming activity in Spain, with yearly wagered
amounts per capita of A92 in 2003, one of the highest wagered amounts per capita rates in the world.
Pari-mutuel gaming is a system whereby players wager against one another and not against the gaming
operator. The gaming operator collects wagers on a specific event and takes a commission for handling
such wagers. The amount remaining after the gaming operator receives a commission is distributed to
the players in the form of winnings. To play bingo, each player purchases one or more cards from an
operator, each printed with a nine by three number grid containing 15 preprinted numbers and blank
squares. The bingo hall operator announces numbers at random and players whose cards include
announced numbers fill in the corresponding square on their cards. The first player to have a card with
a row of five numbers completed shouts ‘‘linea’’ and collects a cash prize. Players win a larger prize by
completing all 15 numbers, which is known as ‘‘bingo’’, or a bonus prize based on a jackpot that
accumulates after each round of betting and, when the jackpot reaches a pre-determined level, is paid
out to the winner of that round. The process of identifying which numbers have been selected can be
accomplished manually by the player or by introducing the bingo card into an electronic machine,
which identifies the numbers or the cards and which numbers have been announced.
The bingo market is the second largest segment of the private gaming sector in Spain with total
amounts wagered of A3.9 billion in 2003, which represented 24% of the total amount wagered in the
123
Spanish private gaming segment and 15% of the total amount wagered in the private and public
gaming segments combined.
The bingo industry is still relatively fragmented with hundreds of independent operators of bingo
halls in Spain, although slow growth in card sale revenue has placed pressure on operators’ margins
resulting in the gradual consolidation of smaller, less efficient operators. This trend has been aided by a
preference among bingo players for larger bingo halls, which offer larger prizes due to the larger
number of players participating in each game. The operation of bingo halls in Spain is a mature
business with total amounts wagered remaining relatively stable since 1998. The following table sets
forth the number of bingo halls in Spain, the average amounts wagered per bingo hall and the total
amounts wagered at bingo halls for each year since 1998:
Number of bingo halls . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts wagered per bingo hall (A million) . . . . . . . . . .
Amounts wagered (A billions) . . . . . . . . . . . . . . . . . . . .
1998
1999
2000
2001
2002
2003
532
7.0
3.7
513
7.4
3.8
492
7.8
3.8
489
7.7
3.8
483
7.6
3.7
468
8.4
3.9
’98-’03
CAGR
(4.2)%
6.3%
1.8%
memorandum.
Competition
Competition in the Spanish bingo market is fragmented, with numerous smaller operators. Our
operations are in Madrid. According to the Spanish National Gaming Commission, the number of
bingo halls in the Madrid region declined from 107 to 77 halls, or by 28%, between 1991 and 2003 due
to the consolidation or closure of bingo halls with lower wagered amounts. Our main competitors in
the Madrid region are Cirsa, Sur, Ballesteros and Rank. In the Madrid region where we compete, Cirsa
operates 15 bingo halls, Ballesteros operates six halls, Sur operates six halls and Rank operates three
halls.
Regulation
Bingo is regulated by each region. In some regions, authorizations to establish and operate bingo
halls are only granted to charitable, cultural or sporting institutions and hotels. These institutions
usually enter into operating agreements with gaming companies to manage the bingo halls. In other
regions, an authorization may be awarded either to an institution or directly to a gaming company that
intends to establish and operate a bingo hall. In either case, a company or other entity intending to
establish and operate a bingo hall must satisfy several requirements in order to obtain the necessary
authorization. In the case of companies, they must have a minimum fully subscribed and paid-in share
capital, which varies depending on the region. In addition, the shareholders of record and directors of a
bingo company must not have been convicted of a criminal offense. Furthermore, in some regions (for
example, in Aragon and Catalonia), neither an individual nor a legal entity is permitted to be a
shareholder in more than a limited number of bingo hall companies. Additionally, in other regions,
such as in Catalonia, a company is not allowed to own more than a certain limited number of bingo
halls within the region.
In addition to registration with the relevant regional registry, a company or other legal entity is
required to obtain two authorizations from the relevant region in connection with the operation of
bingo halls: authorization for the installation of the bingo hall premises and authorization for the
operation of the bingo hall. The requirements for obtaining authorization to open a bingo hall include
proving the availability of a site, providing a guarantee to the relevant regional government in order to
124
assure compliance with regional regulations and obtaining the relevant local planning council’s
permission to build on the proposed site. The requirements for obtaining approval from the regional
authority to operate a bingo hall include authorization to open the bingo hall premises, filing certain
documents with the regional authority, such as a list of employees, and compliance with certain
conditions such as safety measures and maximum seating capacity that are determined in an on-site
inspection of the bingo hall premises. The authorization for operation of the bingo hall varies in
duration from three to ten years depending on the region, generally with automatic extensions for the
same periods of time. It is possible to transfer an ownership interest in a bingo company, so long as the
relevant region is notified or, in some regions, the region approves the transfer. Any substantial
deviation from the terms and conditions of an authorization to open a bingo hall or from the
authorization to operate the bingo hall must have prior approval from the relevant regional authority.
Non-material deviations, however, require only notification to the relevant regional authority. A
sanctioning regime exists in the event of breach or infringement of the applicable bingo laws and
regulations. Additionally, authorizations may be revoked if the holder does not comply with applicable
laws and regulations.
The cost to play a bingo game is determined by region and typically varies between A2 and A6 per
card. Operators must purchase official bingo cards for resale to players from the state-owned Fábrica
Nacional de Moneda y Timbre. Regional regulations require bingo hall operators to pay out between
50% and 70% of card sales as prizes. Operators of bingo halls may generate additional revenue
(typically representing less than 1% of their total bingo revenues) from Type-B machines which may be
installed outside of the bingo hall. Bingo hall operators are generally permitted to install one Type-B
machine for every 50 seats in the bingo hall.
Regional authorities are entitled to enact their own tax rates applicable to bingo gaming; however,
in regions that have not enacted a specific tax rate, national tax rates apply. Currently, tax rates on
bingo gaming range between 20% and 27% of the amount paid by players for each bingo card. These
taxes are paid to the regional government at the time bingo hall operators purchase the official bingo
cards from the state-owned supplier, together with the value of the bingo cards, which amounts to A0.01
per bingo card plus VAT.
In 2004, the region of Madrid passed new legislation allowing bingo operators in Madrid to
establish electronically interconnected bingo networks. These interconnected bingo networks allow for
the possibility of large bingo jackpots by allowing players to play a number of bingo games
simultaneously (bingo simultáneo) among interconnected bingo halls. The new regulations also reduced
the prize payout in Madrid from 68% of card sales to 67% and 66% if such hall is connected to an
on-line network. Bingo halls are also subject to a general tax on corporate activity, which is set as a
fixed amount per year and varies according to the category of bingo hall.
Casino Market
The casino market in Spain, in which we do not participate, is the smallest segment of the private
gaming sector with total amounts wagered of A1.9 billion in 2003, which represented 12% of the total
amounts wagered in the Spanish private gaming segment and 7% of the total amounts wagered in the
private and public gaming segments combined.
As of December 31, 2003, there were 37 casino licenses in Spain, but only 32 casinos in operation,
according to the Spanish National Gaming Commission. Casinos derive revenues from gaming tables,
Type-C machines (which in Spain are only permitted to be operated in casinos), tips, admission tickets
and, in some cases, from restaurant services.
125
The following table sets forth information on the total amounts wagered and the number of
casinos in operation in Spain:
Total amount wagered (A in billions)(1) . . . . . . .
Casinos in operation . . . . . . . . . . . . . . . . . . . . .
1998
1999
2000
2001
2002
2003
1,229
27
1,381
29
1,581
30
1,687
30
1,854
32
1,914
32
’98-’03
CAGR
15.9%
5.8%
Source: Spanish National Gaming Commission Annual Reports (1998-2003) The Spanish National
memorandum.
(1) Total amounts wagered are prior to prize payouts.
Lotteries
The private gaming industry in Spain faces competition from the public gaming segment, which
represented 40% of the total amounts wagered in the Spanish gaming market in 2003. The Spanish
public gaming segment is comprised primarily of national, regional and charitable lotteries, which have
become increasingly popular in Spain and are played in a variety of forms. Established in January 2000,
the National Lottery and Betting Organisation (entidad publica empresarial Loterias y Apuestas del
Estado) is Spain’s largest lottery organization and is responsible for the National Lottery (Loteria
Nacional), Primitive Lottery (Loteria Primitiva), Soccer Betting (Quiniela Futbolı́stica) and Bono-Loto.
The Mexican Gaming Market
Overview
The Mexican gaming market includes privately-run and state-run gaming operations. The privately
run gaming segment consists primarily of sports books (Libros Foráneos) and Spanish style bingo halls
(known in Mexico as Apuesta Numérica halls). The state run gaming segment consists of pari-mutuel
lotteries such as the Pronósticos Deportivos and the Loteria Nacional para la Asistencia Pública. Casinos
and slot machines are not legally permitted in Mexico.
Prior to 1973, gaming activity in Mexico was restricted to the national lottery and on-track betting
at live events such as horse and dog races. In 1973, the government authorized sports books, which
permitted off-track betting and were granted to racetrack and jai-alai operators only, to increase its tax
base and assist racetrackowners in offsetting their operating losses. The sports books are off-track
sports betting facilities that allow players to wager on horse and dog races and certain other sporting
events without being physically present at such events. In 1997, national regulators further liberalized
the gaming market, granting sports books licensees the right to open bingo halls at on- and off-track
betting locations.
Sports Books and Bingo Halls
The sports books and bingo halls market is heavily concentrated as licenses were awarded only to
racetrack, greyhound and jai-alai operators prior to September 2004. Corporación Interamericana
de Entretenimiento, or CIE, operator of the Mexico D.F. racetrack, and Grupo Caliente, or Caliente,
operator of the Tijuana racetrack have been awarded 133 out of our estimate of 176 sports books
licenses which, pursuant to the 1997 regulation described above, grants them the right to operate an
equivalent number of bingo halls.
Bingo in Mexico is very similar to Spanish bingo in gaming structure and pay-out method except
that in Mexican bingo bonus pay-outs are made to players that complete their bingo cards before a
pre-determined quantity of numbers is called out, whereas bonus payouts in Spain are based on
126
reaching a pre-determined jackpot amount, which is then awarded to the player that wins the next
bingo game after the jackpot amount is reached.
Regulation
Gaming in Mexico is subject to the 1947 Federal Law of Games and Lotteries (the ‘‘FGLA’’) and
its regulations. The FGLA prohibits all forms of gaming unless expressly permitted. Such permission is
granted by the Secretarı́a de Gobernación (‘‘SEGOB’’), a federal agency which issues licenses,
establishes the applicable tax regime and has the exclusive power to regulate gaming.
On September 17, 2004, the Mexican government issued regulations under the FGLA (the
Regulations to the FGLA or ‘‘RFGLA’’). The RFGLA significantly altered the gaming landscape in
Mexico by (i) expressly ratifying existing licenses, including the terms thereof, (ii) better defining the
licensing process, including removing the requirement that a potential gaming licensee operate a
racetrack and adding the requirement that a potential licensee obtain previous authorization from local
authorities and have previous gaming experience, (iii) strictly defining where gaming facilities may be
located, (iv) recognizing the role of a gaming operator as a provider of gaming services to a gaming
licensee, (v) authorizing limited forms of advertising and (vi) authorizing electronic versions of games
permitted at bingo halls under existing laws. The Mexican government has recently announced its
intention to grant additional gaming licenses in respect of a number of applications it has received,
once specified conditions are met. Following such announcement, it was reported that Grupo Televisa,
a large Mexican media company, had obtained licenses to operate off-track betting and bingo venues
throughout Mexico.
Racetrack operators are required to provide income reports to the relevant authorities on a
monthly basis, as well as quarterly and annual financial statements. Any sale or transfer of shares of the
licensee or change in the participation in the shareholders thereof must be notified to the relevant
authorities.
Sports books are not required to pay out a minimum percentage of total amounts wagered as it is
not a form of pari-mutuel gaming. Sports books and bingo halls must also comply with extensive rules
regarding electronic and non-electronic gaming. Also, specific records must be kept regarding each
winner and prizes awarded. Sports books must also inform the relevant authorities of any additional
signal broadcasting agreement to which it becomes a party.
In comparison to gaming taxes imposed in other jurisdictions, Mexican regulators impose relatively
low gaming taxes on sports books and bingo halls. The gaming tax that is applicable to the gaming
revenues of our Mexico businesses has been set at 0.25% for our Mexico CIE business and 2.0% for
our Mexico Caliente business, which in each case was established through privately negotiated
agreements with SEGOB.
Argentine Gaming Market
Overview
The Argentine gaming market consists of lotteries and horse race betting, bingo halls, slot
machines and casinos. The lotteries are sponsored at the federal and state level. Although the
Argentine lottery is strictly regulated by the government and certain associated entities, the government
recently decided to partially privatize the companies associated with the state lottery in order to raise
public revenues. The private segment of Argentina’s gaming industry includes bingo halls, which include
slot machines, casinos and pari-mutuel horse race betting operations.
127
Bingo Halls
The Argentine bingo hall market was legalized in Argentina’s largest province, Buenos Aires, in
1990. We estimate that the province of Buenos Aires had 42 licensed bingo halls as of December 31,
2004. Generally, bingo halls in Argentina offer both bingo games (similar in gaming method and payout
structure to Spanish bingo) and slot machines.
Casinos and Horse Race Betting Operations
Historically, casinos in Argentina were state-owned enterprises, although in recent years,
restrictions on privately owned casinos have eased, allowing for the emergence of privately operated
casinos. Although some privatization has occurred in the casino segment, the provincial governments
strictly regulate casinos. We do not operate in the casino market in Argentina. Pari-mutuel horse race
betting is also a well-established form of gaming in Argentina in which we do not participate. The
Argentinean Jockey Club regulates horse racing. Furthermore, off-track simulcast betting on horse
races exists throughout Argentina, but simulcasting outside Argentina and other types of sports betting
are not currently permitted.
Regulation
Gaming in Argentina is subject to federal and provincial regulation, but licensing of gaming
activities and gaming taxation have been delegated by the federal government to provincial
governments. In the Buenos Aires province, the Instituto Provincial de Loterı́a y Casinos (IPLyC) is
authorized to grant gaming licenses to non-profit organizations or NPOs (Entidades de Bien Públicos).
The NPO, usually a trust or foundation, is permitted to hire a gaming operator and enter into a
revenue sharing agreement with such operator. The IPLyC must approve the terms of the NPO’s
contractual arrangements with gaming operators and must also approve each gaming location. As of
December 31, 2004, there were 42 gaming licenses granted in the Buenos Aires province’s 32 districts.
These licenses expire beginning in 2006, and there is currently no established framework for license
renewal. Accordingly, there is currently doubt as to when, and under what conditions, gaming licenses
will be renewed, though we expect they will be reviewed on terms and conditions similar to the existing
licenses. Our operator contracts with various NPOs terminate upon the expiration of the NPO’s
licenses, though we expect that these contracts will be renewed in connection with any renewal of the
related license.
Buenos Aires provincial laws regulate both bingo games and slot machines. Law No. 11,018, which
was passed in 1990, provides that 58% of total amounts wagered on bingo (bingo card sales) must be
paid out as prizes, 21% must be paid in local and provincial taxes and the remaining 21% corresponds
to the operator, which is required to share between 1-6% of such amount with the non-profit
organization holding the gaming license (we currently share on average 2.6%). Law No. 13,063, which
was passed in 2003, provides that at least 85% of total amounts wagered on slot machines must be paid
out as prizes (we currently pay on average 92%). Of the remaining percentage of amounts wagered,
34% must be paid in provincial taxes and 66% corresponds to the operator, which is required to share
at least 1% of such amount with the non-profit organization. In December 2004, the government of the
Buenos Aires province proposed legislation to increase the tax rate on slot machine gaming from 34%
to 45% and to increase the number of slot machines in existing bingo halls, although as of the date of
this offering memorandum such legislation has not been approved. Law No. 13,063 also authorized an
increase in the number of slot machines that may be installed in a bingo hall up to a maximum of 50%
of the number of bingo seats located in such bingo hall, provided that there may be no more than one
slot machine per bingo hall employee. This law also required the creation of an online wagering control
system for all slot machines located in the Buenos Aires province.
128
Colombian Gaming Market
Overview
The Colombian gaming market can be divided into two segments, the national and local lotteries
and the privately operated bingo halls, casinos, slot machines and horse race tracks. The Colombian
lottery market includes the national lottery (Baloto) and the Red Cross lottery (Loteria de la Cruz
Roja), as well as various local lotteries.
Casinos, Slot Machines and Bingo Halls
Casinos in Colombia generally offer table games, as well as a limited number of slot machines and
bingo hall seats. The casino, slot machine and bingo hall market is highly fragmented and is comprised
of a number of small operators.
Regulation
The Colombian gaming market is highly regulated and operators are required to obtain licenses in
order to operate all non-lottery gaming operations. In 2001, the Colombian government passed Law
643, which reformed the previous gaming law and created the Empresa Territorial para La Salud
(‘‘ETESA’’), an agency that regulates the issuance of licenses to gaming operators and the collection of
taxes. Gaming activity is a monopoly of the State and may only be conducted by entering into an
agreement with ETESA. Gaming licenses generally have terms of between three and five years. Our
Colombia business’s licenses are valid until October 2007.
Slot machine taxes are calculated as a percentage of the value of one minimum wage monthly
salary (‘‘legal minimum salary’’) as provided by Colombian labor law and vary according to the type of
wagering permitted by each slot machine. Slot machines with a wager of between COP$50 and
COP$500 are required to pay gaming taxes of approximately 32.5% of the legal minimum salary and
slot machines with a wager of between COP$500 and COP$1000 are required to pay gaming taxes of
approximately 42.5% of the legal minimum salary. This tax increases to a maximum of approximately
47.5% of the legal minimum salary in the case of slot machines that are placed in series. In addition to
the foregoing gaming taxes, a sales tax of 5% of the legal minimum salary per slot machine and 5% of
14 legal minimum salaries per casino table is required to be paid. Finally, a tax of 38.5% is levied on
all gaming profits. ETESA also charges a monthly administration fee of 1% of total taxes. New
legislation currently pending in the Colombian Congress would increase this administration fee rate to
5%. As of December 31, 2004, the legal minimum salary was COP$358,000.
Chilean Gaming Market
Overview
The Chilean gaming industry is divided into state-sponsored lotteries and privately operated
casinos, which include slot machines and horse race betting. The main state-sponsored lotteries in Chile
are the Loteria de Concepción, which benefits certain charitable organizations, and the Polla Chilena
de Beneficencia, which is operated by a state-owned company that administers national lottery games
such as lotto, numbers, toto and instants. Pari-mutuel betting is organized by the Hipodromo Chile and
betting is available on- and off-track.
Regulation
Other than the state-sponsored lotteries and the seven casinos that have been authorized to
operate under special legislation adopted by the federal government, all forms of gaming are illegal in
Chile. A new gaming law was approved by the Chilean congress on November 2, 2004. The law, which
creates a new casino regulatory authority (Superintendencia de Casinos), came into effect on May 7,
129
2005. The new law authorizes the operation of 24 casinos in Chile with a minimum of one and a
maximum of three in each governmental region (Gobierno Regional). Licenses may be granted for a
term of up to 15 years. However, the Región Metropolitana, which includes Santiago, will not be
permitted any new casinos. In addition, no licenses will be granted by the government prior to 2007.
The law also states that casinos must be at least 70 kilometers apart (except in the region of Arica).
The new legislation states that taxes on all gaming will be a flat rate of 20% of total amounts
wagered. Currently taxes vary by region and average approximately 50% of net box.
Peruvian Gaming Market
Overview
The Peruvian gaming market consists of privately operated casinos, slot machines, horse race
betting and lotteries. Casinos in Peru consist of mostly table games and slot machines. Historically, slot
machines have been located in gaming halls but new regulations require operators to convert slot
machine halls into casinos and relocate their operations to high-end luxury hotels or restaurants. Horse
racing in Peru is organized by the Jockey Club of Peru, which allows both on-and off-track betting.
Regulation
The operation of casinos and slot machines must be authorized by the National Directorate of
Tourism. Law 27153 generally regulates gaming in Peru. Law 27796, which was passed in July 2002 and
amended Law 27153 increased governmental regulation of the Peruvian gaming market by restricting
the number of casinos and slot machines in the market. Law 27796 requires slot machines and casinos
to be located in luxury hotels or luxury restaurants and prohibits the placement of new casinos inside
discotheques or bingo halls. In addition, the operation of slot machines within 150 meters of churches,
educational centers, hospitals and military quarters is prohibited. Current gaming companies were
granted a three to five year transition period, which expires in December 2005, in which to comply with
Law 27796.
There are no minimum wager requirements or maximum pay-outs for casinos and slot machines in
Perú.
Law 27153 set gaming taxes for casinos and slot machines at 11.8% of net box.
Uruguayan Gaming Market
Overview
Uruguay’s gaming market consists of privately operated lotteries, state and privately operated
casinos and privately owned horse race betting, which includes on- and off-track betting and a limited
number of slot machines. The Banca de Cubierta Colectiva de Quinelas de Montevideo is a private
company that administers Uruguay’s major lottery, but is under the control of the government agency
Direcciün de Loterias y Quinelas. Horse race betting operations include live racing at Maroñas
Racetrack, the largest racetrack in Uruguay, and nine smaller regional racetracks across the country
and betting on simulcasted international horse and dog races. The government authorities have granted
our joint venture an exclusive license to operate the Maroñas Racetrack, the right to operate off-track
betting agencies with full card simulcasting, and slot machines within a limited number of licensed
off-track betting agencies.
130
Italian Gaming Market
Overview
The Italian gaming market is comprised of:
• Lotteries. The Italian lottery is comprised of the Lotto, the oldest and most popular Italian
lottery, sports lotteries and other local forms of lotteries.
• Casinos. Currently, there are four casinos in Italy, three state operated and one privately
operated.
• Betting Agencies. Betting agencies in Italy allow players to place single and multiple bets via
Internet, television, telephone or in person.
• Bingo Halls. As of December 31, 2004, there were approximately 250 operating bingo halls in
Italy, which are similar to Spanish bingo halls.
• AWP Machines. As of December 31, 2004, we estimate there were approximately 90,000 AWP
machines in Italy, which, prior to January 2003, were subject to modest taxes and were
prohibited from granting cash prizes. In Italy, AWP machines are prohibited from mimicking
poker style gaming features.
Regulation
The federal agency Amministrazione Autonoma dei Monopoli di Stati (‘‘AAMS’’) regulates gaming in
Italy. The AAMS grants gaming licenses to betting agency operators and assesses an average tax of
15% on wagers placed at betting agencies. Italy’s four casinos are licensed and are taxed by the local
governments in the area in which the casinos are located. Bingo halls were officially legalized in
January 2000 and are taxed as follows: 20% of the face value of the bingo card is payable to the Italian
tax authorities and 3.8% is payable to AAMS, 58% of the face value is dedicated to prize payments.
In January 2003, the Italian Ministry of Finance issued a decree that reformed the AWP machine
market. The new legislation regulates wagers, gaming times and payouts, creates a system that ensures
tax compliance and allows for cash prizes. Under the new decree, (i) taxes are assessed at 13.5% of
amounts wagered, (ii) pay-out ratios are set at 75% over a cycle of 7,000 games, (iii) the price per
game is set at A0.50, (iv) maximum prizes are set at A50, (v) AWP machines are not permitted at bingo
halls, (vi) up to four AWP machines can be installed at bars and (vii) gaming time must last at least
10 seconds. One other important characteristic of the new AWP legislation is that AWP machines are
required to be connected to a telecommunications network that would enable the government to
monitor wagers in real-time and disconnect non-compliant AWP machines. The new decree also recasts
AWP operators as service providers, which must enter into agreements with site owners and the
operator of the telecommunications network, which provides the interconnectivity required by law.
131
BUSINESS
Overview
of exclusive gaming sites for our AWP machines. Our role as an AWP machine operator primarily
involves entering into exclusivity agreements with hospitality establishments, such as bars or restaurants,
permitting us to place one or more AWP machines at the establishment. We select and rent or
purchase AWP machines and install them in sites where we have obtained the right to operate AWP
machines. We also maintain the AWP machines and are generally responsible for collecting gaming
proceeds from our AWP machines. Our gaming experience, our ability to renew our portfolio of
innovative AWP machines and rotate them among different establishments and our extensive
relationships with hospitality establishments allows us to generate higher average daily net box per
AWP machine (which is equal to average daily amounts wagered less prize payout per AWP machine)
in Spain than the national average. In addition to our Spain AWP business, we also operate the Canoe
bingo hall in Madrid, which we believe is the largest bingo hall in continental Europe with 1,140 seats.
In the year ended December 31, 2004 and in the three months ended March 31, 2005, our Spain AWP
business generated revenues of A148.7 million and A39.3 million and EBITDA (before corporate
headquarters expenses) of A41.5 million and A11.5 million, respectively, and our Spain bingo business
generated revenues of A88.5 million and A22.8 million and EBITDA (before corporate headquarters
expenses) of A3.7 million and A1.1 million, respectively.
joint venture with Corporación Interamericana de Entretenimiento S.A. de C.V. (‘‘CIE’’) and our
management services agreement with Grupo Caliente, S.A. de C.V. (‘‘Caliente’’), we are the largest
operator of gaming sites, with 48 off-track betting sites, 43 of which include bingo halls, as of
December 31, 2004. As of March 31, 2005, CIE holds licenses to build and operate an additional
14 halls and Caliente holds licenses to build and operate an additional 69 halls. Pursuant to our
joint-venture agreement with CIE and our management services agreement with Caliente, we expect to
open 13 new bingo halls in 2005. In the year ended December 31, 2004 and in the three months ended
March 31, 2005, our Mexico business generated revenues of A34.5 million and A9.8 million and
EBITDA (before corporate headquarters expenses) of A18.7 million and A4.2 million, respectively.
respectively.
132
The following table sets forth the number of slot machines, bingo halls and other gaming facilities
we operated as of December 31, 2004, and the contribution of each of our businesses to our total
consolidated revenues and EBITDA for the year ended December 31, 2004.
AWP/Slot
Machines
Spain AWP . . . . .
Spain Bingo . . . . .
Mexico . . . . . . . . .
Argentina . . . . . . .
Other Operations:
Colombia . . . . .
Chile . . . . . . . .
Peru . . . . . . . . .
Uruguay . . . . . .
Italy . . . . . . . . .
Bingo halls/
Off-track
Betting
Facilities
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
12,847
—
—
1,131
—
2/0(1)
43/31
8/0
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
11,366
2,208
1,365
1,294
1,796
1/0
—
—
0/4
12/0(3)
Total . . . . . . . . . . . . . . . . . . .
32,007
66/35
Casinos
Horse
Racing
Track
Revenues
EBITDA
(in millions)
—
—
—
—
—
—
—
—
A148.7
88.5
34.5
59.1
1
4(2)
1
—
—
—
—
—
1
—
20.7
18.1
4.9
14.5
5.5
1
A394.5
6
A41.5
3.7
18.7
14.6
5.7
6.0
0.7
1.8
(1.5)
A91.2(4)
Percent of
EBITDA
45.5%
4.0%
20.5%
16.0%
6.2%
6.6%
0.8%
2.0%
(1.6)%
100.0%
(1) One of these two bingo halls has closed.
(2) We hold less than a majority interest and these are operated by a third party.
(3) We provide management services to Operbingo, which owned 11 bingo halls in Italy as of
March 31, 2005. See ‘‘Related Party Transactions—Agreements with Francomar—Memorandum of
Understanding—Operbingo Purchase’’. One of Operbingo’s bingo halls was closed in February,
2005 and a second one is in the process of being closed.
(4) EBITDA does not reflect expenses relating to corporate services provided to each of our business
units and Other Operations by our Group headquarters in Spain. Accordingly, EBITDA for our
four business units and Other Operations is overstated to the extent of the headquarters expenses
corresponding to the business units and Other Operations. In the year ended December 31, 2004
our EBITDA was reduced by corporate overhead expenses by A8.9 million and, accordingly, our
consolidated EBITDA for such year was A82.3 million.
History
Codere, S.A was founded in December 1980 by the Martı́nez Sampedro family and Jesús Franco
and Joaquı́n Franco. Jesús Franco and Joaquı́n Franco own Recreativos Franco, S.A. (‘‘Recreativos
Franco’’), one of the largest gaming machine manufacturers in Spain. At that time, Jesús Franco,
Joaquı́n Franco and the Martı́nez Sampedro family had established businesses in the operation and
distribution of non-prize entertainment games, such as flipper and pinball. These businesses formed the
basis of what is now the Codere Group. Codere, S.A. began AWP operations in 1981, mainly in
Madrid, and grew rapidly. In 1983, we began our expansion outside Madrid by adding operations in the
Spanish provinces of Catalonia and Valencia and in the following year, we commenced AWP machine
operations in Colombia. As the Spanish AWP market began to mature, we continued our strategy of
expansion in Latin America, diversifying into bingo, sports betting and casinos. We added bingo halls to
our operations in the early 1990s by opening several bingo halls in Argentina, primarily in the province
of Buenos Aires. We continued to diversify our gaming operations with the opening of one of the
largest casinos in Latin America in Cali, Colombia in 1997. In 1998, we began bingo operations in
Mexico with Caliente and CIE. In 1999, we entered the Spanish bingo market with our acquisition of
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the Cartaya bingo hall in Valencia. In 2000, our AWP machine operations continued to grow in Spain
with our acquisition of Operiberica S.A.U., which had 3,500 AWP machines, from Jesús Franco and
Joaquı́n Franco, and we have acquired many additional smaller AWP machine operators since then. We
also acquired Bingo Canoe in Madrid, which we believe is the largest bingo hall in continental Europe
in 2000 and have also added slot machines, bingo halls, casinos and/or off-track betting facilities in
Chile and Italy. In 2002, our Uruguayan joint venture obtained a license to reopen the historic
Hipódromo de Maroñas horse racing track in Uruguay and operate off-track betting agencies and slot
machines.
In September 2002, Monitor Clipper Equity Partners, L. P. (‘‘MCP’’) purchased a A40 million
investment instrument issued by Codere, S.A., which is convertible into Codere, S.A. shares. In 2003,
we reorganized our business along geographic lines by establishing new intermediate holding companies
for our Spanish operations and our international operations. Codere España, S.L.U., the intermediate
holding company for our Spanish operations, entered into a A135 million mezzanine loan facility,
A45 million of senior credit facilities and a A15 million senior guarantee facility with several financial
institutions in 2003. Also in 2003, in connection with our entering into the mezzanine loan facility,
Intermediate Capital Investment, Ltd. (‘‘ICIL’’), a private equity firm, purchased 1,104,362 of
Codere, S.A. shares from Jesús Franco for A10 million to become one of our principal shareholders. In
2004, we launched an AWP machine business in Italy and continued the expansion of our operations in
Mexico and began to install electronic bingo terminals in several of our bingo halls in light of the new
regulations enacted in September 2004.
Recent Developments
Grupo Royal
March 31, 2005. Following our exercise of the purchase option, we will own over 90% of Grupo Royal,
between us.
March 31, 2005, respectively.
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Following the proposed acquisition of Recreativos Franco’s interests in Grupo Royal, we believe
we will be the industry leader in the bingo and the slot machine markets in Buenos Aires province,
each in terms of revenues in the year ended December 31, 2004. We also believe our proposed
and economies of scale in purchasing. See ‘‘—Argentina’’ for a more detailed description of the
transactions described above and additional information regarding Grupo Royal.
Italy
Operbingo Italia, S.p.A. (‘‘Operbingo’’) in which we indicated an interest in purchasing 100% of
Operbingo, the owner and operator of 11 bingo halls throughout Italy, to which Codere Italia, S.p.A.
(‘‘Codere Italia’’) currently provides management services. Such purchase is subject to certain
conditions, including the completion of a due diligence review and an audit of Operbingo’s financial
statements and the entry into definitive documentation. The memorandum of understanding provides
that if the Operbingo transaction is consummated the purchase price would consist of a nominal cash
payment and the assumption of debt, which we estimate will be A43.9 million upon closing of the
acquisition, and a deferred payment based on a multiple of Operbingo’s 2006 EBITDA, less such
assumed debt. The term of the memorandum of understanding expires on September 30, 2005. See
‘‘Related Party Transactions—Agreements with Francomar—Memorandum of Understanding—
Operbingo Purchase’’. In the year ended December 31, 2004, Operbingo generated revenues of
A148.7 million and EBITDA of A1.7 million, in each case according to the unaudited Italian GAAP
statutory accounts it has deposited with the Camera di Comercio.
Operbingo’s shareholders are (i) Francomar Investments, S.A. (‘‘Francomar’’), which is owned by
Jesús Franco and Joaquı́n Franco, two of our significant shareholders and members of our Board of
Directors, and José Antonio Martı́nez Sampedro, our Chief Executive Officer and also one of our
significant shareholders and a member of our Board of Directors, and certain Martinez Sampedro
family members and (ii) our local Italian partners, Mr. Leonardo Ceoldo and Mr. Vittorio Casale. Our
Italian partners also own 43.5% of Codere Italia. See ‘‘Related Party Transactions—Agreements with
Francomar’’.
We believe that acquiring Operbingo would enable us to strengthen our position in the Italian
bingo market at an attractive cost and that such acquisition would lead to cost synergies by allowing us
to share certain headquarters expenses with our Italian AWP operations. We also believe that favorable
regulatory changes may provide us with additional opportunities for revenue growth, such as by
permitting us to interlink our bingo halls.
See ‘‘—Italy’’ for a more detailed description of the possible Operbingo transaction and additional
information regarding our Italian operations.
Puerto Rico
One of our subsidiaries, Codere Puerto Rico Inc., has an application for a license pending final
resolution (which we expect to be granted by late 2005) to operate the El Comandante Racetrack in
San Juan, Puerto Rico. If licensed, Codere Puerto Rico Inc. could also, under certain circumstances,
install and operate a VGS (Video Gaming System) in off-track betting agencies in Puerto Rico. The El
Comandante Racetrack is indirectly owned by Equus Gaming Company, LP (Equus), a company listed
on the NASDAQ. Certain of Equus’ subsidiaries, including the owner of the racetrack premises and the
operator of the racetrack, have sought protection under Chapter 11 of the U.S. bankruptcy laws. The
award of the license, and our decision to operate the El Comandante Racetrack pursuant to the
license, depend on a number of factors, including the ongoing application process, the outcome of our
negotiations with Equus to obtain a lease of the racetrack premises, the provisions of the regulations to
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be promulgated governing the license and VGS operations, and bankruptcy court approval of the
debtors’ proposal.
Panama
We are currently in negotiations for the purchase of a 90% interest in the Hipódromo Presidente
Remón horse racetrack in Panama City, Panama. If we acquire the 90% interest in the racetrack, we
would plan to install slot machines and provide a simulcast of sporting and racing events and off-track
betting for such events, in addition to betting on live races.
Our Competitive Strengths
We believe that the following factors contribute to our strong competitive position:
• Proven and Attractive AWP Business Model. Our Spanish AWP machines produce average daily
net box revenues that are substantially higher than the industry average according to the Spanish
National Gaming Commission. Our strong net box performance is principally attributable to our
business model, which is focused on obtaining the most attractive points of sale and the highest
producing AWP machines, which increases the likelihood site owners will renew their contracts
with us. We are able to obtain the highest producing AWP machines by leveraging our position
as a leader in the Spanish AWP machine market, which permits us to test a significant
percentage of new AWP machine models produced each year. We also optimize the performance
of our AWP machine portfolio by rotating AWP machines among numerous locations and by
replacing poorly performing AWP machines with new models. This is facilitated by our
framework rental agreement with Recreativos Franco, pursuant to which we may exchange
rented AWP machines more quickly than would be economically feasible with purchased AWP
machines. In addition, we maintain a low average age of our AWP machines. As of
December 31, 2004, the average age of our AWP machine portfolio was 23.3 months, compared
to our estimate of the market average of 30 months. We believe that we will be able to apply
our Spain AWP business model successfully to other markets in which we have operations, such
as Colombia and Italy, and thereby strengthen our competitive position in such markets.
• Sophisticated Information Systems and Cash Collection Controls. We believe that our proprietary
information systems and cash collection controls, particularly in respect of our Spain AWP
business, help us maximize revenues and minimize losses due to fraud or theft. Our information
systems assist us in making operating decisions, such as when to rotate an AWP or slot machine
to a different location or to retire it. Such data also provides information on player tendencies,
which assists us in selecting new AWP or slot machines. We believe that our information systems
generate better operating information, such as identifying poorly performing AWP machines,
than is available to many of our smaller competitors and have thereby significantly contributed
to our achieving average daily net box per AWP machine that substantially exceeds that of the
industry average in Spain over the last eight years. Our cash collection controls track the cash
we receive from AWP or slot machines at our points of sale to the counting and matching of
amounts at our regional offices and finally to the delivery of cash to our bank accounts. These
controls have been effective at providing us with accurate and timely operating information while
minimizing both fraud and theft. We intend to apply our experience in information systems and
cash collection controls in our Spain AWP business to our other businesses which have, or will
have, highly dispersed operations, such as our Mexico Caliente, Mexico CIE and Colombia
businesses.
• Leadership Positions in Major Markets with Significant Barriers to Entry. We were one of the first
companies to operate AWP machines when the Spanish market was opened to licensed
operators in the early 1980s. We have grown rapidly and have become a market leader in several
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of the most populous and affluent regions of Spain, including Madrid, Catalonia and Valencia, in
terms of the number of AWP machines as of December 31, 2004. We are now the second-largest
operator of AWP machines in Spain, with approximately 12,800 AWP machines installed in over
8,600 points of sale as of December 31, 2004. Through our joint venture with CIE and
management services agreement with Caliente, we are the largest operator of gaming sites in
Mexico. In Argentina, we are the second largest operator of bingo halls in Buenos Aires
province with eight bingo venues in operation as of December 31, 2004, and have recently
acquired an option to acquire Recreativos Franco’s interests in Grupo Royal, which would add
six additional bingo halls to our Argentine operations. As a market leader, we are often given
the opportunity to test the most attractive AWP machines produced each year, which permits us
to select the highest producing AWP machines for our portfolio. Our access to high producing
AWP machines enhances our ability to obtain the most attractive points of sale. In addition, our
size allows us to spread many of our required costs and investments, such as those relating to
designing and building information systems and cash collection controls and hiring and training
personnel, across our operations, which results in lower costs for each of our businesses. Our
presence in the markets in which we operate creates a barrier to entry for other operators that
lack the resources or know-how to compete. For this reason most of the markets in which we
operate are characterized by a small number of large operators and a large number of small
operators with limited numbers of new entrants.
• Significant Experience Interacting With Gaming Regulators. We are a diversified international
gaming company with established operations in eight countries throughout the world and a
gaming portfolio that includes AWP machines, bingo halls, off-track betting, a horse racetrack
and casinos. The breadth and longevity of our operations has enabled us to acquire valuable
experience in working with gaming regulators in a diverse range of countries and regional
jurisdictions. In several cases, we have collaborated with gaming regulators in the development
of new gaming regulations or markets. We believe that our strong market positions and close
and cooperative relationships with gaming regulators provide us with a competitive advantage
over most of our competitors and makes us an attractive partner with whom to develop new
gaming businesses.
• Experienced Management Team. Our senior management team has an average of eight years of
industry experience. Our chief executive officer, José Antonio Martı́nez Sampedro, was a
co-founder of the company and has overseen the growth of our company from several dozen
AWP machines in Spain to a geographically diversified operator with a broad gaming product
offering. Javier Martı́nez Sampedro, the brother of José Antonio Martı́nez Sampedro and a
member of our Board of Directors, is head of our Latin American operations and has been with
us for over 17 years. In addition, our key operations in Spain, Mexico and Argentina are
managed by executives with extensive gaming industry experience. We have further strengthened
our senior management team in the past several years by bringing in talented executives with
proven track records of success in related or complementary industries.
• Strong and Active Board of Directors With Extensive Gaming and Related Experience. Our Board of
Directors includes prominent individuals with extensive government and gaming expertise,
including Jesús Franco and Joaquı́n Franco, pioneers of the Spanish gaming industry and also
our co-founders, Jose Ignacio Cases Mendez, who served as the head of the Spanish National
Gaming Commission from 1994 to 1998, Joseph Zappala, who served as U.S. Ambassador to
Spain from 1989 to 1992 and José Ramón Romero Rodrı́guez, who has been our outside legal
counsel since July 2002 and has specialized in gaming legislation since 1981. Their government
and gaming experience is important to our ability to establish and maintain good relationships
with regulators in the markets in which we operate, which we believe serves to distinguish us
from our smaller competitors.
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Our Strategy
Our goal is to continue to maximize the cash flow generation of our businesses by growing our
existing business and selectively participating in low capital intensive acquisitions, entering into new
markets where there are opportunities to achieve a leading market position and pursuing regulatory
improvements in all of the markets in which we operate. The key elements of this strategy are:
• Leverage Strong Positions in the Spain AWP Machine and Madrid Bingo Markets. Our Spain AWP
machine strategy is focused on maximizing EBITDA and cashflows with the minimum required
investment and selecting the highest possible number of high performing AWP machines for our
installed portfolio. We pursue this strategy by leveraging our strong position in the Spain AWP
machine market to obtain the most attractive points of sale and highest producing AWP
machines. We intend to continue actively evaluating new AWP machines that we are given an
opportunity to test by manufacturers or pursuant to our right under our framework rental
agreement to test AWP machines and return those that perform poorly. In addition, we intend
to continue optimizing the performance of our AWP machines by rotating them among points of
sale, when player interest for a given model in a specific location begins to decline, and by
replacing AWP machines promptly when their performance deteriorates, which is facilitated by
our framework rental agreement with Recreativos Franco. In our Spanish bingo hall business, we
are focused on continuing to achieve average play per visitor at our Canoe bingo hall that we
believe is higher than that achieved at our competitors’ bingo halls. We are also focused on
increasing the number of visitors to Canoe by offering new products, such as computer-based
multi-card bingo terminals, and developing targeted public relations events and a customer
retention campaign to stimulate repeat visits by our most profitable customers. In both the AWP
machine and bingo businesses, we actively pursue regulatory improvements, including the
possibility of higher maximum wagers and prizes, video formats and lower prize payouts.
• Focus on Well-Regulated Local Gaming Markets. We will continue to focus on offering gaming
activities oriented toward the local resident population rather than the tourist-oriented gaming
market, which requires investment in capital intensive Las Vegas-style casinos and gaming
facilities. We believe that this focus limits required capital investment, and that these local
market-oriented gaming activities generate significant tax revenue for the jurisdictions in which
we operate, ensuring transparent regulation and political support for these gaming activities.
• Pursue Selected Growth Opportunities. We believe that we are in a strong position to capitalize on
selected growth opportunities available in our existing markets and in new markets we have yet
to enter. In Spain, we are focused on acquisitions of smaller AWP machine operators that
require low investment and present limited execution risk. These acquisitions are attractive
because we believe we can increase the average daily net box of the AWP machines that we
acquire through AWP machine rotation and replacing poorly performing AWP machines with
higher producing AWP machines. In Argentina, we have acquired an option to purchase
Recreativos Franco’s interests in Grupo Royal, a transaction which would add six bingo halls to
our strong position in the Buenos Aires province’s bingo market. In Italy, we have entered into a
memorandum of understanding in which we indicated an interest in purchasing Operbingo, the
owner and operator of 11 bingo halls throughout Italy. Through our joint venture with CIE and
management services agreement with Caliente, we had as of March 31, 2005, 88 licenses to
operate bingo halls in Mexico yet to exploit and, in light of recent regulatory developments, we
expect to exploit those licenses in the next few years. In addition, we have had success with the
‘‘racino’’ business model, which combines horse racing and slots machines, in Uruguay and are
considering opportunities to develop similar operations in other Latin American markets,
including Panama, Brazil and Puerto Rico. We believe that acquisitions in the regions, where we
currently enjoy significant local market share are particularly attractive, since we can leverage
our existing cost structure and relationships with local regulators.
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• Achieve and maintain an optimal capital structure and preserve our business model. Our goal is to
achieve and maintain a stable and low-cost capital structure and a cash-generative business
model in the rapidly consolidating industry in which we operate. Through this offering of the
Notes, we are seeking to improve our capital structure, lower our cost of capital and ensure we
have sufficient funds to execute our business plan. Our Spanish business for many years has
been characterized by strong and stable cash-flows, underpinned by the relatively low levels of
capital expenditure required to maintain the existing business. Our existing international
operations, particularly those in Mexico and Argentina, have completed the initial phase of
developments where the cash-flow generated was largely reinvested. We believe these businesses
will similarly be characterized by strong cash flows and a relatively low level of regular capital
expenditure. We intend to maintain this capital structure and business model as we continue to
participate selectively in both consolidation and expansion opportunities in Spain and
international markets.
• Continue to strengthen management and improve internal controls. We believe that strengthening
our corporate governance policies and procedures, management capabilities, and effective
internal controls has been and will continue be critical to our growth and success and to the
enhancement of our reputation in the gaming industry. We will continue to pursue a program to
strengthen our management team by attracting experienced executives to complement the skills
of our founding families, as demonstrated by the hiring of Robert A. Gray, as Chief Financial
Officer, who has over 23 years of investment banking experience, and Rafael Catalá, as Chief
Legal Officer, who has over 18 years of legal experience in various Spanish regulatory positions
and the appointment of Javier Encinar, as Internal Audit and Compliance Officer, who has over
10 years of internal audit and compliance experience with us. We continually review and
strengthen our internal controls and procedures, particularly those relating to compliance, money
laundering, the handling of cash, large prize payouts and transaction authorization, and intend to
continue to build on our strong management by adopting industry best practices.
Spain
In the year ended December 31, 2004 and in the three months ended March 31, 2005, our
operations in Spain, which are comprised of our Spain AWP and Spain bingo businesses, generated
revenues of A237.2 million and A62.1 million and EBITDA (before corporate headquarters expenses) of
A45.2 million and A12.6 million, respectively. In Spain, we are the second largest operator of AWP
machines with over 12,800 AWP machines as of December 31, 2004. We also own and operate the
largest bingo hall in Spain with 1,140 seats, which we believe is the largest bingo hall in continental
Europe.
Spain AWP Machines
Our main business in Spain is the management and operation of AWP machines. We install,
maintain, service and collect cash from over 12,800 AWP machines throughout Spain in over 8,600
bars, restaurants and nightclubs. Our installed base of AWP machines has increased through organic
growth and acquisitions. We had 12,847 AWP machines in operation in Spain as of December 31, 2004,
compared to 12,314 as of December 31, 2003. In 2004, the Spain AWP business unit entered into 884
new contracts for the placement of 1,020 AWP machines in bars, restaurants and other establishments,
while 475 contracts relating to 543 AWP machines expired and were not renewed or were otherwise
terminated. In addition, in 2004 the Spain AWP business unit acquired AWP machine operators with a
total of 439 AWP machines and reduced the number of AWP machines in storage by 383 machines. We
have also been successful in increasing the average daily net box per AWP machine, which grew at a
compound annual rate of 6.2% from 2000 to the year ended December 31, 2004. We believe that this
increase resulted from our efforts to place machines in the most attractive points of sale, our ability to
139
obtain high production machines and our frequent rotation or retirement of underperforming machines.
In the year ended December 31, 2004 and in the three months ended March 31, 2005, our Spanish
AWP machine business generated revenues of A148.7 million and A39.3 million and EBITDA of
A41.5 million and A11.5 million, respectively, representing 37.6% and 36.1% of our total consolidated
revenues and 50.4% and 56.4% of our consolidated EBITDA (before corporate headquarters
expenses), respectively.
We are a market leader in the highly fragmented AWP machine market in Spain and have become
a market leader in terms of the number of AWP machines in certain regions of Spain, including
Madrid, Catalonia and Valencia. The following table sets forth the number of AWP machines we
operate in the five autonomous regions where we have the greatest number of AWP machines and our
market share throughout Spain:
Madrid
Number of AWP machines in region(1) . .
Number of our AWP machines in region .
Market share . . . . . . . . . . . . . . . . . . . . .
At December 31, 2003
Castilla-La
Valencia
Mancha
Catalonia
30,196
38,756
29,643
3,445
2,392
1,897
11.4%
6.2%
6.4%
Andalucı́a
9,172
1,154
12.6%
Spain
35,796
241,907
979
12,314
2.7%
5.1%
(1) Based on the latest available information provided by the Spanish National Gaming Commission at
the date of this offering memorandum.
Operations and the Economics of the AWP Machine Business
The following table sets forth certain historical data concerning our AWP machine operations in
Spain and the average daily net box per AWP machine:
2000
AWP machines
Number of AWP machines operated (at year-end) . . . . .
Average daily net box per AWP machine (in E)(1)
Spanish market average(2) . . . . . . . . . . . . . . . . . . . . . .
Our average(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2001
2002
2003
2004
13,647
13,148
12,677
12,314
12,847
30.4
42.8
30.1
45.6
29.1
51.6
29.2
53.0
n/a
54.4
(1) Average daily net box per AWP machine is calculated as average daily amount wagered less prize
payout per AWP machine.
(2) Based on information provided by the Spanish National Gaming Commission regarding all AWP
machines registered in Spain.
(3) Based on our installed AWP machines, which excludes our AWP machines in storage.
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The following chart sets forth the business model economics for our Spanish AWP machine
operations:
Amounts Wagered (100%)
Amounts wagered represents the total
amount of money wagered on AWP machines
by gaming customers
Less
Prizes Payout (75%)
Prize payouts represents the percentage of
amounts wagered that is required to be paid
out to players on a AWP machine over a
cycle of a certain number of games, as
specified in applicable regulation
Equals
Net Box (Net Win)(25%)
Net box represents amounts wagered less
prize payouts
Less
Site Owner (10.5%)
Site owner represents the percentage of
amounts wagered that is paid to the owner of
the site in which the AWP machine is located
Equals
Operator Revenues (14.5%)
Operator revenues represents the percentage
of amounts wagered we retain as AWP
machine operator, prior to payment of
applicable gaming taxes. We recognize this
amount as operating revenue under Spanish
GAAP
Less
Gaming Taxes (4.9%)
Gaming taxes represents our estimate, based
on historical experience, of the percentage of
amounts wagered represented by legally
mandated tax payments per AWP machine.
AWP machine taxes are established by
regulation in each Spanish region in which we
operate as a fixed yearly amount per machine
Equals
Operator Revenues After Gaming Taxes
(9.6%)
Operator revenues after gaming taxes
represents the percentage of amounts
wagered that we retain as AWP operator
Relationship with Site Owners. We have established relationships with over 8,600 bars, restaurants
and nightclubs through installation agreements. These agreements generally give us the exclusive right
to place one or more of our AWP machines in the owner’s establishment for a period of up to five
years (in Asturias, this period is up to 10 years). In return, the owner typically receives 50% of net box
per machine after deducting gaming taxes, although under certain arrangements this revenue split
differs. We are responsible for paying applicable AWP machine taxes to the regulatory authority in
each Spanish region in which we operate.
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In addition to revenue sharing, we often make interest-free loans or cash payments to owners to
induce them to enter into or extend contracts and grant us exclusive rights to install AWP machines in
their establishments. Site owners typically repay these loans over a 12-24 month period through an
offset against their share of revenues. For the year ended December 31, 2004, exclusivity payments,
loans and cash payments to site owners amounted to approximately A21.2 million (not including loan
repayments of approximately A5.5 million).
Upon reaching an agreement with a site owner, we install and maintain the AWP machines.
Working with the site owner, we also ensure that each AWP machine complies with regional and
national regulations. We pay any required gaming taxes and, where required, post monetary guarantees
with the relevant regulator. For the year ended December 31, 2004, these guarantees amounted to
A14.9 million.
Although we prefer to enter into agreements directly with site owners, if there is a strong
relationship between a gaming machine operator and site owners in an area in which we are interested,
it is often preferable, and occasionally necessary, for us when we acquire that operator’s business to
agree that the operator will continue to maintain his or her relationship with the site owner in
exchange for a percentage of the revenues. Typically, we pay the operator (‘‘colaborador’’) 50% of our
share of the net box per AWP machine after deducting gaming taxes and operating and depreciation
costs due to us from the site owner. In order to get a toehold in a particular area and develop a
relationship with local site owners, occasionally we also enter into another type of collaboration
agreement (aportacion agreements) with local operators in which we operate the AWP machines in
exchange for a fee from the operator. We receive 50% of net box after all costs and expenses other
than rental costs. As of December 31, 2004, we had aportacion agreements and colaborador agreements
covering approximately 1.5% and 13.3% of our Spanish AWP machines, respectively. Payouts to
operators under colaborador agreements totaled approximately A3.8 million and fees earned under
aportacion agreements totaled approximately A0.6 million for the year ended December 31, 2004.
AWP Machine Rental. In the past three years, we have increased the percentage of our AWP
machines that we rent, rather than purchase, from approximately 75% to approximately 93% as of
December 31, 2004. This has been the case due to our belief that the financial terms of renting AWP
machines have been more attractive than those corresponding to purchases and that our supplier of
rental AWP machines, Recreativos Franco, has been producing the best performing AWP machines in
the Spanish market, the Gnomos machines. Recreativos Franco is controlled by Joaquı́n Franco and
Jesús Franco, who are founding shareholders of Codere and members of our Board of Directors and
who currently hold 41.6% of our outstanding capital stock. See ‘‘Related Party Transactions’’. We
generally test AWP machines produced by six to eight manufacturers each year. Although we have
chosen to rent most of our machines from Recreativos Franco, we are not obliged to do so and are
subject to no contractual restrictions over the ability to purchase or rent other manufacturer’s
machines. In addition to AWP machines that we rent from Recreativos Franco, we owned
approximately 7% of our AWP machines that we purchased from other manufacturers, including
Unidesa, Europea Invest and Sega, as of March 31, 2005.
Our AWP machine rental agreements generally provide for a monthly rental fee which decreases
after each six-month period and we may generally terminate the rental agreements after one year and
return the AWP machine. Rental fees are renewed or changed by Recreativos Franco on a yearly basis,
but they have not changed in the past four years and we retain our right to terminate the agreement
after the initial one-year rental period in any event. Our interests are aligned with those of Recreativos
Franco in that if they manufacture better performing AWP machines, we are more likely to rent those
AWP machines for their useful life, thereby increasing the revenues they receive under the rental
agreement. Under the rental agreements, Recreativos Franco also provides us with prototype AWP
machines on a risk-free basis for up to six months before we are required to make any rental payments.
If the prototype is successful, we agree to rent it and pay Recreativos Franco for the six-month trial
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period. If the prototype is not successful, we return it to Recreativos Franco without any obligation to
pay rent.
The following chart describes how AWP machine rental fees per month change over the life of the
rental term:
Monthly AWP machine rental fees in euro
200
150
120
99
100
60
39
50
0
Month 1-6
Month 7-12
Month 13-18
Life of rental agreement
Month 19-
8JUN200512504093
The following chart compares the economics of renting versus purchasing AWP machines:
4000
3000
Average purchase price of
Recreativos Franco AWP machine
€ 2000
We only pay
more for highly
successful models
Cumulative monthly rental cost for a
Recreativos Franco AWP machine
1000
0
0
2
24
36
months
48
60
5JUN200513332841
We believe the terms of our AWP machine rental agreements are more attractive than they would
be if we were to purchase the machines. Renting, rather than buying, AWP machines allows us to
maximize our net box and minimize our capital commitments, thereby reducing the overall risks we
face in AWP machine selection. In addition, although the average daily net box per AWP machine is
highest over the first 12 months following the machine’s introduction and decreases as the age of the
AWP machine increases, our rental costs decrease faster than the net box decreases over the same
period. Accordingly, our rental agreement allows us to keep AWP machines during the optimal period
of their life-cycle and return them when their productivity will begin to decline. For the AWP machines
that are not returned after 12 months or that we own, AWP machine rotation lengthens the AWP
machines’ average life since they can be moved from one location to the next as they age, retaining
their novelty and appeal in each new location, thereby increasing the AWP machines’ net box
performance.
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Coin Collection and Information and Collection Controls System. In Spain, we have a collections
department that is responsible for carrying out coin collection from our AWP machines. Each of our
125 collectors carries an electronic portable device that details the latest cash balances for the AWP
machines and the pending balances with the site owners on their route, obtained from our proprietary
computerized information and control system. The software that we use has been developed by our
information technology department. The portable devices provide our collectors with a significant
amount of information, including the share of the cash balance in the AWP machines payable to us and
to the site owner, prize payout, the time during which the AWP machine was in use and the payment
conditions established in the applicable installation agreement. The electronic portable devices read two
sets of counters in the AWP machines, one electronic and one mechanical. The electronic counter
controls in the case of a conflict due to its enhanced security. In addition, counters within the AWP
machines record the physical entrance and exit of coins. This provides a cross-check on the number of
coins collected from each machine. On average, each AWP machine is visited by one of our collectors
once per week. As of December 31, 2004, we employed 125 collectors in Spain. The collectors are
based in each Spanish region in which we have operations and report each day to our regional
headquarters.
Our collectors do not carry a significant amount of cash at any given time and we do not believe
that additional security in the form of security vans or armed guards is necessary in light of the low
incidence of crimes committed against our collectors while carrying out the collections. Since 2003,
however, when our AWP machines began to admit bank notes, our collectors are required to deposit
bank notes in local bank branches while on their daily route to reduce the amount they carry at any
time.
Each AWP machine contains a ‘‘hopper,’’ which holds cash to ensure the AWP machine always has
a sufficient amount of cash to pay out prizes. The amount of the hopper is approximately A240 per
AWP machine contributed approximately equally by us and the site owner.
Approximately 50% of the site owners keep a key to the AWP machine on the premises, in which
case they will collect the cash on the basis of the AWP machine’s counter. When the site owner does
not have a key to the AWP machine, our collector will count and divide up the cash with the site
owner in accordance with the installation agreement. The collection report issued by the electronic
portable device is signed and accepted by the site owner.
Each day, we upload data from the electronic portable device to our computerized information
and control system. Our computerized information and control system matches the amount due to the
operator to the amount received from the collector. Any discrepancy between the amount due and the
amount collected is analyzed (usually on the same business day that it is collected) and, if necessary,
investigated, thereby minimizing losses during collection. In the coin-to-revenue cycle—tracking the
path of a coin inserted into an AWP machine until that amount is recorded as revenue by us—the
functions of authorization, custody and accounting are segregated. Employees that handle cash do not
have access to accounting data, and employees that do not participate in operations control the
accounting data. Cash provided to the cashier is collected daily and the cash is deposited in our bank
accounts.
We believe that our information and collection controls system helps us maximize our net box
performance through more efficient and accurate collections. Our information and collection control
system also generates better machine performance and revenue data than is collected by many of our
smaller competitors. Our revenue and game-use data assists us in monitoring individual machines and
in determining when to rotate a machine to different locations or to retire it, as well as providing
information on player tendencies. As a result, we believe our collection and controls system provides us
with real-time information to optimize decisions regarding the performance of individual AWP
144
machines and host premises, and has helped us achieve average daily net box per AWP machine that is
substantially higher than the industry average in Spain.
Expansion of AWP Machine Portfolio. We primarily grow the number of AWP machines in our
portfolio through acquisitions of smaller AWP operators and organic growth. Many of the smaller
operators represent attractive acquisition opportunities because their acquisition generally requires a
low capital investment, and result in a high EBITDA and cashflow contribution to our Spain AWP
operations. Once we have identified a potential business to acquire or location to develop, we prefer to
take a controlling stake in the business. This typically includes taking over the acquired operator’s
rights under its installation agreements, and its obligations under its service and maintenance
agreements. We believe we can significantly increase the average daily net box of the AWP machines
we acquire through AWP machine rotation and the other performance optimization measures described
above. We believe that acquisitions in the regions where we currently enjoy significant local market
share are particularly attractive, since we can leverage our existing cost structure and relationships with
local regulators.
We also seek to grow the number of our AWP machines by negotiating the renewal of our existing
contracts with site owners and generally attempting to limit the number of contracts that are
terminated to those that we do not wish to renew. The higher average daily net box produced by our
AWP machines is a key element in our negotiations with site owners, as are the exclusivity payments
that we make in order to guarantee our exclusive right to install AWP machines in particular sites.
Sales and Marketing
In Spain, our sales force of approximately 100 people, together with our colaboradores, is
responsible for maintaining our relationships with site owners and identifying new locations to install
AWP machines and acquisition opportunities. Our sales force is spread throughout the country and is
generally based out of our regional headquarters. Our sales employees salaries are comprised of fixed
and variable components, the latter of which is based on commissions related to the value of contracts
they are able to close.
Although government regulations on advertising have become more relaxed in recent years, the
current regulations limit the extent and manner by which we and our competitors can advertise. In
particular, government regulation prohibits all direct and indirect advertisements to potential AWP
machine players. Due to such restrictions, our marketing and public relations expenditures tend to be
modest and totaled less than A0.5 million in 2004.
Spain Bingo
We entered the Spanish bingo market in 1999 with the acquisition of Cartaya, a regional mid-sized
bingo hall with 250 seats located in southeast Spain. In March 2000, we acquired Bingo Canoe, which
we believe is the largest bingo hall in continental Europe with 1,140 seats, and Star, with 592 seats,
both located in Madrid. In May 2003, we closed down the Cartaya bingo hall due to its low profitability
following the opening of another bingo hall nearby in Denia and in May 2005, we closed the Star bingo
hall because its failure to grow average number of visitors per day made it unprofitable. In the year
ended December 31, 2004 and in the three months ended March 31, 2005, our Spanish bingo business
generated revenues of A88.5 million and A22.8 million and EBITDA of A3.7 million and A1.1 million,
respectively, representing 22.4% and 21.0% of our total consolidated revenues and 4.1% and 4.6% of
145
our consolidated EBITDA (before corporate headquarters expenses), respectively. The following table
sets forth certain data on our bingo halls in Spain:
Name of Bingo Hall
Location
Seats
Acquisition Date
Lease
Expiration Date
Canoe . . . . . . . . . . . . . . . . . . . . .
Madrid
1,140
March 2000
October 2012
Operations
As owner and operator of the Canoe bingo hall, we rent and refurbish its premises, pay required
gaming taxes and withhold payout taxes on prizes, control players’ entrance into and security at the
bingo hall and generally operate all aspects of the bingo game. The following table sets forth certain
operational information regarding our bingo operations in Spain for the periods indicated:
Number
Number
Number
Average
Average
of halls (at year-end) . . . .
of seats (at year-end) . . . .
of visitors (in thousands) . .
amount wagered per visitor
number of employees . . . .
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2002
2003
3
1,982
775
A98
249
2
1,732
664
A125
221
2004
2(1)
1,732
638
A133
189
(1) In May 2005, we closed the Star bingo hall.
We believe there are four main factors that contribute to the relative success or failure of a bingo
hall in Spain: the size of the hall, the location of the hall, the scope of the product offer in the hall—
standard paper bingo cards, electronic bingo terminals or bingo games linked with multiple bingo
halls—and the atmosphere and quality of service at the hall. These factors drive traffic to the hall,
which, together with the number of cards played per player, increases the jackpot size, which in turn
attracts more players and induces those players to purchase more cards. The number of players is
limited by the attractiveness of other gaming options or other entertainment activities, as well as by the
attractiveness of the bingo hall itself as measured by the four factors listed above. The number of cards
per player is generally limited by the ability of players to keep track of multiple cards, their sensitivity
to the price of the cards and restrictions contained in applicable regulations. Both our Cartaya and Star
bingo halls did not grow sufficiently to permit increasing prizes to higher amounts than those of
competing bingo halls and, accordingly, they were not profitable. We expect to incur redundancy costs
of less than A1.0 million in 2005 in connection with the closure of the Star bingo hall.
The large size of our Canoe bingo hall allows us to offer larger prizes than most mid-and-small
sized halls in the region, attracting a larger client base. Extending the opening hours to the maximum
time authorized by regional regulators (12 hours) has also helped to attract clients looking for late and
early gambling.
We are currently focusing on cost control with the aim of improving further the profitability of our
Canoe bingo hall. We offer certain Spanish bingo employees compensation based in part on revenue
sharing, which we believe positively aligns the employees’ economic interests with those of management
and shareholders. To improve the productivity of our sales force, we have reassigned work shifts to
allow us to staff our Canoe bingo hall in the event of employees out of work due to illness or vacation
with fewer resources and reorganized our floor space to allow each employee who sells cards to cover
more of the bingo hall floor. We are also focusing on reducing other expenses of our bingo hall
operations by managing our food and beverage purchases more efficiently.
Additionally, we are attempting to introduce new playing formulas into our Canoe bingo hall,
following a regulatory change in July 2004 allowing bingo operators in Madrid to establish electronically
146
interconnected bingo networks. Electronically interconnected bingo networks allow operators to offer
larger bingo jackpots by playing a number of bingo games simultaneously among interconnected bingo
halls. The new regulations also reduced the prize payout in Madrid from 68% of amounts wagered
(card sales) to 67% if the bingo hall is not connected to an on-line network and 66% if such hall is
connected to a network.
We believe that our Spanish bingo business is strategically important to our overall operations. Our
Spanish bingo business has required low levels of capital expenditures and working capital and, as such,
it is highly cash generative. In addition, operating our Spanish bingo business provides our management
with know-how and best practices to apply to our bingo hall operations in Mexico, Argentina and Italy.
Our application to join ‘‘Red Madrid’’, the provider of bingo hall network interconnection services
owned in part by one of our principal competitors in Spain, Cirsa, has been accepted. We applied to
join this network so that we can offer simultaneous bingo and the possibility of larger jackpots to our
customers and increase our operating margin by reducing total prize payout as permitted by the recent
regulatory changes. We are currently in the process of making the necessary technical adjustments to
our computer systems at our Canoe bingo hall to permit interconnection to bingo halls owned by other
operators.
Sales and Marketing
As in the AWP machines market, national and regional regulations in Spain limit the extent and
manner by which we can advertise our Canoe bingo hall. In particular, government regulation severely
limits all direct and indirect advertisements to potential bingo players. See ‘‘Industry and Regulation’’.
In lieu of conventional advertising, our marketing efforts are concentrated on promotional ‘‘soft
marketing’’ initiatives at our Canoe bingo hall.
Mexico
Our operations in Mexico are conducted through a joint venture with CIE and a management
services agreement with Caliente. In the year ended December 31, 2004 and in the three months ended
March 31, 2005, our Mexican operations generated revenues of A34.5 million and A9.8 million and
EBITDA of A18.7 million and A4.2 million, respectively, representing 8.7% and 9.0% of our total
consolidated revenues and 22.7% and 17.6% of our consolidated EBITDA (before corporate
headquarters expenses), respectively. In Mexico, the development and management of bingo halls is our
most significant activity. As of December 31, 2004, our Mexico business managed and operated
43 bingo halls in Mexico. In addition, through our joint venture with CIE, we also operate off-track
betting sites (Libros Foráneos) providing betting on horse and dog races and sporting events at 26 of
CIE’s bingo halls, as well as at five additional off-track betting sites where bingo has not been
introduced.
CIE and Caliente hold 45 licenses and 88 licenses, respectively, to operate bingo halls and off-track
betting sites. We estimate that a total of 176 licenses have been granted by the Mexican government to
date. Under our joint venture with CIE, CIE is required to provide us with a right of first refusal to
participate with them in any new gaming opportunities and we are subject to an identical requirement
(other than opportunities we have the right to pursue with Caliente). Under our management services
agreement with Caliente we are subject to limitations on operating sports books, horse racing tracks
and dog racing tracks in Mexico and on operating in Baja California without its participation. Although
other Mexican gaming and leisure companies have been granted gaming licenses, to date they have
opened only four bingo halls in Mexico. The Mexican government has recently announced its intention
to grant additional gaming licenses in respect of a number of applications it has received, once
specified conditions are met. Following such announcement, it was reported that Grupo Televisa, a
large Mexican media company, had obtained licenses to operate off-track betting and bingo venues
147
throughout Mexico. Our Mexico business has separate teams of employees dedicated to our businesses
with CIE and Caliente that maintain divisions between our activities conducted in conjunction with
each of them.
We believe the Mexican gaming market has significant growth potential in light of the fact that
total amounts wagered represent a relatively low percentage of GDP. On a regional level, we are
noticing saturation in large, urban areas such as Mexico City and Monterrey for bingo halls as the
increasing number of bingo halls has not resulted in corresponding increases in the number of visitors.
As a result, we believe our growth opportunities in Mexico will be in smaller cities, where we will need
to spend less on new bingo halls.
Operations
The following tables set forth certain historical and operating data for our off-track betting sites
and bingo halls in Mexico:
Number of off-track betting sites (at year end):
With sports books and bingo . . . . . . . . . . . . . . . .
With sports books only . . . . . . . . . . . . . . . . . . . .
With bingo only . . . . . . . . . . . . . . . . . . . . . . . . .
Number of bingo halls opened . . . . . . . . . . . . . . . .
Number of bingo halls closed . . . . . . . . . . . . . . . . .
Average amount wagered per day per bingo hall seat
pesos) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
..........
..........
..........
..........
..........
(in Mexican
..........
2000
2001
2002
2003
2004
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4
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6
5
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8
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7
5
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12
4
10
7
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19
5
13
10
1
26
5
17
14
3
....
546
680
709
663
583
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2000
Gross amounts wagered for bingo halls opened
2000 (and prior years) . . . . . . . . . . . . . . . .
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
in:
...
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...
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947
1,913
65
2,446
557
144
2,409
872
645
360
2,224
954
517
898
342
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
947
1,978
3,147
4,288
4,936
148
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2001
2002
2003
2004
(in millions of Mexican pesos)
Mexico CIE—Background and Operations
The following chart sets forth the corporate organization of our Mexico CIE business.
Codere Mexico
90%
CIE
CIMSA
50%
50%
75%
Manages
the halls
ERSA
98% of net
income
AMH
Owns
licenses
1% of
net
income
1% of
net
income
Asociación en Participación (Bingo Hall
operations)
Ownership
5JUN200522295934
Other Flows / Relations
We entered into a joint venture with CIE in December 1999 to develop and operate bingo halls
and sports books in Mexico. CIE is a leading live entertainment company, which serves the Spanishand Portuguese-speaking markets in Latin America, the United States, and Spain. CIE has interests in
companies that offer the following recreational and entertainment products and services:
• The operation of entertainment venues and amusement parks;
• The promotion and staging of a wide variety of live events;
• The promotion of trade fairs and exhibitions;
• The sale of sponsorships and advertising, as well as food, beverage and merchandise at events
and venues; and
• Automated ticketing for public events.
Since 1995, CIE’s shares have been traded on the Mexican Stock Exchange, under the symbol
‘‘CIE B’’. In 1998, a subsidiary of CIE, Administradora Mexicana de Hipódromos, S.A. de C.V.
(‘‘AMH’’), was awarded a 25-year license to operate the racetrack Hipódromo de las Américas in
Mexico City. In connection with this license, CIE obtained permission to operate 45 off-track betting
sites countrywide for a 25-year period and offer bingo at these locations, which are operated by
Entretenimiento Recreativos S.A. de C.V. (‘‘ERSA’’). As of December 31, 2004, our Mexico CIE
business operated 31 off-track betting sites, all of which had sports books and 26 of which had bingo
halls with a total of 15,292 seats. CIE has 14 other gaming licenses with which to develop bingo halls at
off-track betting sites. We expect to open nine new bingo halls in 2005 and five additional new bingo
halls in 2006 under our joint venture with CIE. In the year ended December 31, 2004 and in the three
months ended March 31, 2005, our Mexico CIE business generated revenues of A16.5 million and
A3.4 million and EBITDA of A14.2 million and A2.8 million, respectively, representing 4.2% and 0.9%
of our total consolidated revenues and 17.3% and 13.7% of our consolidated EBITDA (before
corporate headquarters expenses), respectively.
149
Our joint venture with CIE is operated through ERSA, in which our 90%-owned subsidiary
Compañia de Inversiones Mexicanas S.A. de C.V. (‘‘CIMSA’’) holds a 50% interest less one share and
CIE holds the remaining 50% interest plus one share. Mr. Fernando Martin-Laborda, the head of
Codere Mexico, owns the remaining 10% interest in CIMSA. Under the joint venture agreement,
ERSA receives 98% of the net income generated by all of the joint venture’s bingo halls and off-track
betting activities.
The joint venture agreement provides that we are generally responsible for setting up and
operating the bingo halls and sports books and CIE is responsible for obtaining all relevant
authorizations from municipal authorities, providing administrative services and managing the finances.
ERSA finances and supervises the construction or refurbishment of bingo halls and provides
equipment, while CIE identifies locations for bingo halls, which we must approve, and negotiates leases.
CIMSA employs the senior hall manager of each bingo hall and trains all employees working directly in
the bingo games and a subsidiary of CIE employs all other personnel. The joint venture agreement
establishes extensive shared corporate governance and control procedures, including requirements that
capital expenditure budgets be agreed between us and CIE and that distributions of cash from ERSA
may be made only by means of dividends shared between the joint venture partners. This agreement
terminates upon the earlier of (i) 25 years from June 30, 1998 or (ii) upon termination of CIE’s license
to operate the Hipódromo de las Américas racetrack, unless either we or CIE were the cause of such
termination, in which case the joint venture agreement continues until the expiration date.
From 2001 through 2004, ERSA’s operating revenue included fees received from a four-year
management contract between CIMSA and ERSA that was entered into in connection with ERSA’s
initial formation at the beginning of our joint venture with CIE. These fees amounted to
U.S.$3.0 million in each of 2001, 2002 and 2003 and a final payment of U.S.$2.5 million in 2004. Since
the management contract expired on December 31, 2004, the Mexico CIE business’s operating revenue
will not include such fees in future periods.
Since the inception of the joint venture, the free cash flows have been reinvested in new bingo hall
development and no specific dividend policy for the distribution of excess cash to the joint venture
partners has been established. Beginning in 2004, the joint venture began to generate cash flows in
excess of amounts invested in new bingo halls, and as of March 31, 2005, the joint venture’s bingo
operations held A25.3 million of cash. We and CIE have engaged in discussions from time to time,
including over the past several months, regarding potential modifications to our joint venture
agreement, including the establishment of certain corporate governance provisions and the
establishment of a specific dividend policy, but we have not reached an agreement on such matters to
date. We cannot provide any assurances that we will reach an agreement in the near-term, or at all, or
that our Mexico CIE joint venture will pay out any dividends to its shareholders in the near-term.
ERSA’s off-track betting operations include betting on horse and dog races, which occur in Mexico
and the United States, and betting on sporting events, which occur principally in Mexico and the
United States. Broadcasts of live horse and dog races or sports events are available through a simulcast
provided by Caliente and are displayed on televisions located in the off-track betting areas of the bingo
halls. ERSA does not assume any financial risk for the bets placed at its off-track betting sites. The
financial risk is assumed by Caliente; ERSA acts only as agent for Caliente and collects a commission
of approximately 11% to 12% of amounts wagered, regardless of the outcome of the bets. In the year
ended December 31, 2004, gross amounts wagered at Mexico CIE’s off-track betting sites were
1,127 million Mexican pesos (A72 million), resulting in a commission of 123 million Mexican pesos
(A8 million) for Mexico CIE.
150
Mexico Caliente—Background and Operations
The following chart sets forth the corporate organization of our Mexico Caliente business.
Codere Mexico
90%
Loan
repayment
Caliente
CTH
Funds hall
construction,
Sells halls at
cost
50% of
Manages
Profit before
the halls
tax
Owns the license
and the halls
Bingo Halls
Ownership
Other Flows / Relations
7JUN200523465326
Our management services agreement with Caliente focuses on the development and management
of bingo halls at its off-track betting sites. Caliente is owned by the Hank family, a prominent Mexican
family whose members have held various political offices in Mexico over the past 30 years, including
Jorge Hank who was elected mayor of Tijuana in August 2004. Caliente is a Mexican company that
started operations on January 1, 1916 with a horse racetrack in Tijuana, Mexico. Since 1950, Caliente
has operated a greyhound track, with daily racing all year round. Caliente has developed a network of
over 130 off-track betting sites located in Mexico, as well as Latin America and Europe. In connection
with its license to operate the horse racing track, Caliente has been awarded 88 additional licenses to
operate off-track betting sites, which are also authorized to include bingo halls, throughout Mexico.
Pursuant to the management services agreement with Caliente described below, as of December 31,
2004, our Mexico Caliente business operated 17 bingo halls with a total of 10,227 seats. Caliente had
69 of its 88 gaming licenses, most of which are currently being used to operate off-track betting sites,
with which to develop additional bingo halls as of March 31, 2005. Our Mexico Caliente business does
not operate any sports books. Caliente’s licenses to operate the off-track betting sites and bingo halls
expire between 2014 and 2022. We expect to complete the build-out and open four new bingo halls in
2005. In the year ended December 31, 2004 and in the three months ended March 31, 2005, our
Mexico Caliente business generated revenues of A17.9 million and A6.4 million and EBITDA of
A4.5 million and A1.4 million, respectively, representing 4.5% and 5.9% of our total consolidated
revenues and 5.5% and 6.9% of our consolidated EBITDA (before corporate headquarters expenses),
respectively.
Our 90%-owned subsidiary, Promociones Recreativas de Tijuana, S.A. de C.V. (‘‘PRT’’), entered
into the management services agreement with Caliente in May 1998 to develop and manage bingo halls
at Caliente’s off-track betting sites. In 2003, PRT merged with and into our 90%-owned subsidiary,
CTH. Fernando Martı́n-Laborda owns the remaining 10% of CTH. Under the management services
agreement, CTH identifies locations for bingo halls, negotiates leases, constructs or refurbishes the
halls, provides equipment, trains all bingo hall employees, and provides managers for the bingo halls.
Caliente owns the licenses and the bingo halls and pays the salaries of the bingo hall managers. Upon
completion of the construction of a bingo hall, CTH sells the hall to Caliente at cost, fixed in U.S.
dollars at the time of transfer. Caliente repays CTH the construction or refurbishment costs of bingo
151
halls over a five-year period in 60 equal monthly payments in U.S. dollars. As of December 31, 2004,
payments to us by Caliente of A6.8 million, A5.7 million, A4.7 million and A3.8 million relating to
completed halls will become due in 2005, 2006, 2007 and beyond 2007, respectively. Under the
management services agreement, CTH receives 50% of the income before taxes and depreciation of
start-up expenses, less a contribution to a contingency fund (which is used to fund prizes during special
promotions and to provide capital expenditure for start-up expenses at new bingo halls) generated by
all of the bingo halls we manage, excluding off-track betting activities as CTH does not participate in
these activities. CTH and Codere America have provided loans in an aggregate of U.S.$16.0 million to
Caliente in the past, A8.9 million of which is outstanding as of March 31, 2005. These loans have
five-year terms and interest rates have ranged from 8% to 13%. CTH, Codere America or one of our
other affiliates may loan money to Caliente in the future. Our management services agreement with
Caliente may be terminated upon the expiration of Caliente’s license to operate the Hipódromo de
Agua Caliente racetrack or upon noncompliance by either party with its obligations under the
management services agreement, including the failure by Caliente to pay principal and interest when
due on the loans described above.
The new bingo halls that we are constructing under the management services agreement are
mainly in smaller cities where there are no existing halls. Due to the relative saturation of bingo halls
in larger Mexican cities and the high costs associated with construction and operation of bingo halls
located in urban areas, we expect that development of new bingo halls in future years will be
increasingly focused on smaller, semi-urban or suburban areas where we believe unmet gaming demand
exists. We expect that the initial investment for each bingo hall will be approximately 60% less than in
our bingo halls in larger Mexican cities.
Electronic Bingo
On September 17, 2004, the Mexican government enacted new regulations which authorized
development of electronic versions of games permitted under the licenses held by Caliente and CIE at
bingo halls. In order to benefit from these regulations, we plan to:
• selectively open new bingo halls (‘‘remote bingo halls’’) at which all the games will be linked to
an existing larger bingo hall, allowing us to offer attractive prizes from the date on which we
open the hall and to reduce our start-up costs;
• install electronic terminals, which are described below; and
• explore the potential to interlink our bingo halls to create larger jackpots.
We recently began to install electronic bingo terminals in certain of our bingo halls. Electronic
bingo terminals permit individuals to play an electronic version of bingo. We have entered into
agreements with various suppliers of electronic bingo terminals. Under the terms of these agreements,
we are provided electronic bingo terminals in exchange for a percentage of gaming revenue ranging. In
addition, since we have installed the electronic bingo terminals in existing space in our bingo halls, we
have not been required to invest in new buildings or extensive refurbishment of our existing sites.
Sales and Marketing
Historically, marketing efforts by our Mexico business have been extremely limited. As a result of
the regulations enacted by the Mexican government on September 17, 2004, however, certain forms of
mass media advertising relating to gaming activities in Mexico have been expressly authorized. Pursuant
to this new law, we intend to begin to advertise our Mexico bingo halls and off-track betting sites in
mass media, such as newspapers and magazine with wide circulation.
152
Argentina
In Argentina, we are focused on the development and management of bingo halls with slot
machines. As of December 31, 2004, our Argentina business owned and operated eight bingo halls with
a total of 2,775 bingo seats and 1,184 slot and other gaming machine seats. In addition to the eight
bingo halls we own and operate, we also held, as of such date, a 25% interest in six bingo halls owned
by Grupo Royal, which had a total of 3,349 bingo seats and 1,715 slot and other gaming machine seats
as of December 31, 2004. Beginning in 2001, we have been involved in a series of litigation proceedings
with the controlling shareholders of Grupo Royal, Mr. Carlos Manuel Vazquez Loureda and his wife
(the ‘‘Louredas’’). As a result of these disputes, despite our 25% interest in six bingo halls owned by
Grupo Royal, we were not able to influence its management and, therefore, accounted for these
interests under the equity method, rather than by proportional integration, in the years ended
December 31, 2002, 2003 and 2004 and in the three months ended March 31, 2004 and 2005. As
further described below, on April 4, 2005, Recreativos Franco, which is owned by two of our significant
shareholders and members of our Board of Directors, Jesús Franco and Joaquı́n Franco, acquired on
our behalf a controlling interest in Grupo Royal and on May 24, 2005 we entered into an option
agreement with Recreativos Franco to acquire its interests in Grupo Royal. Excluding our interests in
the Grupo Royal bingo halls, in the year ended December 31, 2004 and in the three months ended
March 31, 2005, our Argentine business generated revenues of A59.1 million and A18.9 million and
EBITDA of A14.6 million and A5.2 million, representing 15.0% and 17.4% of our total consolidated
revenues and 16.0% and 21.8% of our consolidated EBITDA (before corporate headquarters
expenses).
The Grupo Royal Acquisition
We acquired our 25% interest in Grupo Royal in 1998 with the intention of growing the business
and exploring a possible acquisition of the remaining interest at a later date. In 2002, our relationship
with the Louredas deteriorated and we initiated a series of litigation proceedings against the Louredas
claiming, among other things, that the Louredas had misappropriated U.S.$15.0 million in Grupo Royal
dividends that should have been distributed to us. The Louredas also initiated litigation against us. In
the context of these litigation proceedings and our desire to consolidate our interest in Grupo Royal, in
April 2005, we and the Louredas agreed that Recreativos Franco would acquire the Louredas’ interests
in Grupo Royal on our behalf at a price that would take into account the amount we claimed had not
been distributed to us and we and the Louredas would terminate all pending litigation between us.
On March 4, 2005, Recreativos Franco entered into a stock purchase agreement (the ‘‘SPA’’) to
acquire controlling interests in the various companies comprising Grupo Royal from the Louredas.
Under the terms of the SPA, Recreativos Franco agreed to pay U.S.$69.1 million and assumed
A780 thousand in long-term debt. The purchase price reflected an adjustment for the funds we claimed
had not been distributed to us. In addition, Recreativos Franco agreed to assume all of Grupo Royal’s
tax and other contingencies, for which Grupo Royal recorded A10.6 million in provisions as of
March 31, 2005. As of March 31, 2005, Grupo Royal had A10.5 million in cash on its combined balance
sheets. Upon signing the SPA, we and the Louredas terminated all of our respective litigation claims
against each other.
Pursuant to SPA, Recreativos Franco also agreed, among other matters, to:
• Indemnify all directors and certain officers (apoderados and sindicos) of all Grupo Royal
companies against any claim or loss that may arise in connection with such persons’ performance
of their responsibilities on behalf of the relevant Grupo Royal companies up to April 1, 2005.
The indemnification obligation continues until the expiration of the statute of limitations for all
claims that could be made against such persons;
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• Assume all of Grupo Royal’s tax, litigation and other contingencies, including related to stamp
tax and cannon tax disputes with Buenos Aires province;
• Assume all of the Louredas’ personal guarantees in respect of obligations of Grupo Royal
companies; and
• License all of Grupo Royal’s trademarks and logos from the Louredas until December 31, 2005,
with an option to extend such license until April 30, 2006, for AR$50 thousand per month.
The Louredas provided no representations or warranties under the SPA as to any aspect of the
Grupo Royal companies. Accordingly, immediately following the entering into of the SPA on March 4,
2005, we assumed management control of all Grupo Royal companies and began an extensive financial,
accounting and legal audit of each company. The audit was completed satisfactorily and the closing of
the SPA occurred on April 1, 2005.
The Option Agreement
As previously arranged with Recreativos Franco, on May 24, 2005, we acquired from Recreativos
Franco an option to purchase its interest in Grupo Royal. Under our option agreement with
Recreativos Franco, which expires on July 31, 2005, upon exercise of the option, we would be required
to pay Recreativos Franco U.S.$65.7 million plus U.S.$50,000 per day, beginning March 4, 2005 through
the option exercise date, and an amount equivalent to the interest paid by Recreativos Franco under
certain promissory notes granted to the Louredas in respect of a portion of the Grupo Royal purchase
price paid by Recreativos Franco. In addition, under the option agreement, upon exercise of the option
we would be required to assume all of Recreativos Franco’s obligations under the SPA, including
Grupo Royal’s tax, litigation and other contingencies, and indemnify Recreativos Franco for any losses
it incurs arising under the SPA. Since entering into the SPA, Recreativos Franco has received loans and
advances from Grupo Royal for a total of approximately U.S.$10.0 million. Under the option
agreement, Recreativos Franco agreed that following our exercise of the option it will repay all loans
and advances received from Grupo Royal. A portion of such loans and the advances would be netted
against our obligation to pay Recreativos Franco U.S.$50,000 per day upon the exercise of the option.
We expect to exercise the option immediately following the closing of this offering and to use
approximately A69.0 million of the net proceeds therefrom to make the following payments in
connection with our acquisition of Grupo Royal:
Royal Acquisition Costs
Payment to Recreativos Franco . . . . . . .
Acquisition of minorities . . . . . . . . . . . .
Contingencies . . . . . . . . . . . . . . . . . . . .
Fees and expenses . . . . . . . . . . . . . . . .
Holding costs paid to Recreativos Franco
Other . . . . . . . . . . . . . . . . . . . . . . . . . .
(E in millions)
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55.6
2.6
2.1
4.3
4.0
0.4
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69.0
Following our exercise of the purchase option, we will own over 90% of Grupo Royal, which we
expect to increase over time by buying out certain remaining minority shareholders of several of the
Grupo Royal companies.
In addition, though we do not believe it is probable, we may be required to divest part of the
Grupo Royal business and/or part of our existing business in Argentina in connection with the review
by the Argentine competition authorities of Recreativos Franco’s acquisition of Grupo Royal which, as
of the date of this offering memorandum, is ongoing.
154
Operations
If we acquire Grupo Royal, we believe we will be the industry leader in the bingo and the slot
machine markets in Buenos Aires province, each in terms of revenues in the year ended December 31,
2004. Grupo Royal generated revenues of A110.7 million and EBITDA of A29.5 million in the year
ended December 31, 2004. On a pro forma basis to reflect the proposed acquisition of Grupo Royal as
if it had occurred as of January 1, 2004, our Argentine business would have generated revenues of
A169.8 million and A46.6 million, representing 33.6% and 34.1% of our total consolidated revenues, and
EBITDA (before corporate headquarters expenses) of A44.1 million and A11.9 million, representing
39.4% and 44.1% of our consolidated EBITDA (before corporate headquarters expenses) for the year
ended December 31, 2004 and the three months ended March 31, 2005, respectively. We believe our
and economies of scale in purchasing.
The following table sets forth the historical development of our Argentine business’ operations,
excluding our 25% interest in the six bingo halls owned by Grupo Royal, and on a pro forma basis
reflecting our proposed acquisition of Grupo Royal as of January 1, 2004:
Number of bingo halls . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of bingo halls seats . . . . . . . . . . . . . . . . . . . . . . .
Number of slot machine seats . . . . . . . . . . . . . . . . . . . . . .
Amounts wagered per day per bingo hall seat (in Argentine
pesos) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts wagered per day per bingo hall seat (in euro) . . .
Net win per slot seat per day (in Argentine pesos) . . . . . . .
Net win per slot seat per day (in euro) . . . . . . . . . . . . . . .
2001
2002
2003
2004
Pro Forma
2004
.
.
.
8
3,470
650
8
3,150
725
8
2,884
938
8
2,765
1,131
14
6,114
2,846
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.
.
.
61.0
54.6
150.2
134.5
58.7
20.1
221.1
75.4
77.2
23.0
294.4
87.6
87.6
23.9
353.7
96.6
109.7
30.0
425.3
116.2
The following table sets forth certain historical information regarding our Argentina business’
bingo halls as of December 31, 2004. All of the bingo halls are located in Buenos Aires province.
Opening
Date
Name
Bingo
Bingo
Bingo
Bingo
Bingo
Bingo
Bingo
Bingo
Sol . . . . . .
Platense . .
San Miguel
del Mar . .
Lomas . . .
Peatonal . .
Centro . . .
Temperley .
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Total . . . . . . . . . . . .
Feb.
June
May
Sep.
July
Jan.
Jan.
Aug.
1991
1992
1999
1991
1991
1991
1994
2001
Concession
Expiration
Date
Feb.
June
May
Sept.
July
Jan.
Jan.
Aug.
2006
2007
2014
2006
2006
2006
2009
2016
Number
of Seats
Slot
Machine
Seats
2004
Revenues
(Argentine
pesos in
millions)(1)
Company
Intermar Bingos S.A.
Bingos Platenses S.A.
Interjuegos S.A.
Bingos del Oeste S.A.
Bingos del Oeste S.A.
357
496
502
444
388
230
152
196
130
240
145
154
189
120
53
100
AR$ 33.4
61.6
36.0
31.3
34.3
14.9
5.0
8.2
2,765
1,131
AR$224.7
(1) Revenues are comprised of total amounts wagered at bingo halls, net win for the slot machines,
food and beverage sales and other revenues.
Bingo played in Argentina is the same game played in Spain. Slot machines that are installed in
bingo halls, however, are different from AWP machines in Spain in that they permit higher wager
amounts and allow for higher maximum prize payouts and are similar to the Class III machines present
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in the United States. In addition, the Argentine business’ bingo halls contain a limited number of
non-slot gaming machines, such as a simulated roulette-type machine and a simulated horse race
machine. These machines are regulated in the same manner as slot machines.
For our Argentine operations, we buy machines from a variety of manufacturers including
Recreativos Franco. We typically finance the purchase of slot machines in Argentina over a two- to
three-year period. Each machine costs approximately U.S.$10 thousand to U.S.$12 thousand. See
‘‘Related Party Transactions’’.
Argentine law requires that gaming licenses be awarded to Argentine non-profit organizations
which, in turn, enter into agreements with gaming operators, such as us. Accordingly, in Argentina we
have entered into operator agreements with various local non-profit organizations. Four of the eight
gaming licenses granted to such Argentine non-profit organizations are due to expire in 2006 and an
additional license expires in 2007. In addition, one of the six gaming licenses granted to Argentine
non-profit organizations in connection with Grupo Royal’s bingo operations expires in 2007. We are
negotiating for the renewal of our Argentine gaming licenses and are currently working with local
regulators to obtain their renewal. We expect that such licenses will be renewed prior to expiration, but
as our bingo licenses are the first gaming licenses nearing expiration in Argentina, we cannot assure
you that these licenses will be renewed or that they will be renewed on satisfactory terms.
Main operating projects
Our Argentine operations’ principal operating project in the near-term is the continued general
refurbishment and updating of our bingo halls and slot machines. In addition, we believe that there is
unmet demand in the slot machine market in the geographical areas where we operate and in order to
meet this demand, Codere Argentina is currently implementing an investment plan which will increase
total slot machine seats from 965 as of June 2004 to approximately 1,450 slot machine seats by
July 2005, including through the purchase of newer, more productive slot machine models. We estimate
that to refurbish our bingo halls and increase the number and quality of our slot machines will require
an investment of approximately A8.5 million in 2005.
Sales and Marketing
Argentine regulations limit the extent and manner by which we can advertise our bingo halls and
slot machines. In particular, government regulation prohibits all direct and indirect advertisements to
potential gaming players. See ‘‘Industry and Regulation—Argentine Gaming Market’’.
Grupo Royal
The following table sets forth the historical development of Grupo Royal’s operations:
Number of bingo halls (at year-end) . . . . . . . . . . . . . . . . . .
Number of bingo halls seats (at year-end) . . . . . . . . . . . . . .
Number of slot machine seats (at year-end) . . . . . . . . . . . .
Amounts wagered per day per bingo hall seat (in Argentine
pesos) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts watered per day per bingo hall seat (in euro) . . . .
Amounts wagered per day per slot machine (in Argentine
pesos) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts wagered per day per slot machine (in euro) . . . . .
156
2000
2001
2002
2003
2004
...
...
...
6
n/a
1,067
6
n/a
1,391
6
n/a
1,487
6
3,484
1,668
6
3,349
1,715
...
...
n/a
n/a
n/a
n/a
n/a
n/a
98.1
29.2
127.8
34.9
...
...
188
173.3
175
156.7
273
93.1
379
112.8
455
124.3
The following table sets forth certain information regarding the Grupo Royal bingo halls as of
December 31, 2004. All of the bingo halls are located in Buenos Aires province.
Name
Bingo
Bingo
Bingo
Bingo
Bingo
Bingo
Lanus . . . . .
San Martı́n . .
Morón . . . . .
Ramos Mejı́a
Laferrere . . .
San Justo . . .
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Opening
Date
Concession
Expiration
Date
Apr. 1992
Oct. 1994
June 1998
Apr. 1999
Sep. 1999
Oct. 1999
Apr. 2007
Oct. 2009
June 2013
Apr. 2014
Sep. 2014
Oct. 2014
Total . . . . . . . . . . . . . . .
Number
of Seats
Slot
Machine
Seats
2004
Revenues(1)
(Argentine
pesos in
millions)
Company
Loarsa, S.A.
Iberargen, S.A.
Punto 3, S.A.
Pacı́fico, S.A.
Interbas, S.A.
Rajoy Palace, S.A.
629
807
639
250
256
768
363
451
322
184
94
301
AR$107.9
121.9
88.6
49.4
18.3
78.5
3,349
1,715
AR$464.6
(1) Revenues are total amounts wagered at bingo halls, net win for the slot machines, food and
beverage sales and other revenues.
Main operating projects
The main operating projects that we expect to carry out if we exercise our option to acquire
Grupo Royal are the following:
• Identify cost synergies as the operations of Grupo Royal are integrated with Codere Argentina’s
existing operations;
• Develop a branding plan for our operations combined with those acquired from Grupo Royal;
and
• Analyze the possibility of moving one of the Grupo Royal bingo halls to a new location, where
we estimate that we can increase the number of slot seats at such hall by 300 at a cost of
approximately A8.0 million.
Other Operations
Colombia
Our Colombia business focuses on the ownership and operation of slot machines. We entered the
Colombian market when the operation of slot machines was legalized in 1984. As of December 31,
2004, we operated 11,366 slot machines located in bars, restaurants and salons in major cities
throughout Colombia. We also operate a casino, which includes a bingo hall and slot machines, in Cali.
In the year ended December 31, 2004 and in the three months ended March 31, 2005, our operations
in Colombia generated revenues of A20.7 million and A5.4 million and EBITDA of A5.7 million and
A1.1 million, respectively, representing 5.2% and 5.0% of our total consolidated revenues and 6.9% and
5.4% of our consolidated EBITDA (before corporate headquarters expenses), respectively.
According to ETESA, a Colombian gaming authority, the total number of slot machines in
operation as of December 31, 2004 was approximately 42,000. Our estimate (which includes machines
not legally licensed) is that approximately 78,000 machines are in operation in Colombia. Slot machines
in the Colombian market are generally type-C machines, which differ from slot machines in Spain in
that they permit unlimited flexibility in setting both the wager amount and the maximum prize. The
Colombian gaming market, with over 500 legal operators, is highly fragmented. Our main competitors
in the legal market are Unidelca, with over 4,000 slot machines, Winner Group, which is affiliated with
Cirsa, our main competitor in Spain, with approximately 1,800 slot machines, Intergames, with
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approximately 1,200 slot machines and Aladin, with over 1,000 slot machines, each as of December 31,
2004. We buy many of our slot machines from an affiliate of Recreativos Franco in Colombia on terms
we consider to be arm’s-length in the industry. See ‘‘Related Party Transactions’’.
Operations
The following table sets forth the historical development of our Colombia business’ operations:
Number of AWP machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts wagered per day per slot machine (in Colombian pesos) .
2001
2002
2003
2004
12,019
10,244
11,979
11,793
11,581
12,313
11,366
14,254
Our gaming license in Colombia is due to expire in October 2007.
Chile
In Chile, we are a financial partner in four of the seven casinos permitted under Chilean law
pursuant to a joint venture agreement with the Antonio Martı́nez Group (‘‘AMG’’), a privately held
Chilean gaming company, which is responsible for operating the casinos. AMG has operations in the
gaming, agriculture, entertainment, travel, real estate and marketing industries in addition to its casino
operations. As of December 31, 2004, the four casinos operated by AMG had 2,208 slot machines. In
2004, our Chilean business generated revenues of A18.1 million and EBITDA of A6.0 million,
representing 4.6% of our total consolidated revenues and 6.6% of our consolidated EBITDA for the
year ended December 31, 2004 (before corporate headquarters expenses).
Recent regulatory changes in Chile have, we believe, made gaming in Chile a more tourismoriented business. See ‘‘Industry and Regulation—Chilean Gaming Market’’. We believe that given
gaming industry trends in Chile, together with recent regulatory changes, including a limit of one casino
per province and a prohibition on bingo gaming, further expansion in the gaming industry will entail
substantial capital investment in new tourism-oriented casinos and related hospitality facilities, which is
not consistent with our strategic focus. In light of the foregoing, we are currently discussing with AMG
a possible divestiture of our interests in the Chilean casinos described above, including the possible
exchange of such interests for AMG’s 100% interest in Crown Casinos in Panama.
Peru
Our Peru business focuses on the operation of slot machines in nine slot machine halls and one
casino. We entered the Peruvian market when we purchased Francomar’s Peruvian operations on
December 31, 2002. Our Peru business operates the slot machine halls and casinos with local partners,
typically through joint ventures in which we hold a 60% interest. One of our joint venture partners,
Mr. Walfredo Oscarima, who is a local gaming and leisure activities operator owned four of our nine
slot machine halls as of December 31, 2004 and as of the date of this offering memorandum, two of
our seven slot machine halls. As of December 31, 2004, our Peru business operated 1,365 slot
machines. In the year ended December 31, 2004 and in the three months ended March 31, 2005, our
Peru business generated revenues of A4.9 million and A1.0 million and EBITDA of A0.7 million and
A0.1 million, respectively, representing 1.2% and 0.9% of our total consolidated revenues and 0.9% and
0.5% of our consolidated EBITDA (before corporate headquarters expenses), respectively. The average
termination date for our Peruvian slot machine hall licenses is December 31, 2005 and our casino’s
license expires in 2006.
Uruguay
In June 2002, the Uruguayan government granted Hı́pica Rioplatense Uruguay (‘‘HRU’’), a 50/50
joint venture between us and the Sociedad Latinoamericana de Inversiones Group, or the SLI Group,
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an exclusive 30-year concession to operate the historic Maroñas horse racing track in Montevideo and
five off-track betting sites which include slot machines. The concession includes the right to operate
off-track betting agencies, which may include full-card simulcasting and in up to five such off-track
betting agencies, slot machine parlors are permitted with an aggregate of up to 1,500 slot machines.
Our partner, the SLI Group, also owns the Haras de La Pomme horse breeding center, which is one of
the most prestigious in Latin America. The SLI Group is also involved in the hotel business, real estate
investments, telecommunications and Internet services.
As of December 31, 2004, our Uruguay business operated the Maroñas horse racing track and four
off-track betting sites with slot machine parlors (with a total of 1,294 slot machines installed). In
addition, we also had off-track betting agencies at which there were no slot machines and we simulcast
horse racing at the Maroñas horse racing track in Latin America and Austria. In the year ended
December 31, 2004 and in the three months ended March 31, 2005, our Uruguay business generated
revenues of A14.5 million and A4.4 million and EBITDA of A1.8 million and A0.6 million, respectively,
representing 3.7% and 4.0% of our total consolidated revenues and 2.2% and 2.9% of our consolidated
EBITDA (before corporate headquarters expenses), respectively.
The Uruguay business’ operation of the Maroñas horse racing track and related on-track and
off-track betting and slot machine sites is our first development of the ‘‘racino’’ gaming business model.
The racino business model consists of combining generally more profitable casino gaming, such as slot
machines, with a racing product, which is a generally less profitable area of the gaming business. By
increasing overall profitability, purses to horsemen may be increased, attracting the best horsemen to
the racetrack, which tends to increase betting. Top-class horse racing may also be leveraged by offering
racing simulcasts to off-track betting sites, as well as other horse racing tracks. Racino gaming has
grown rapidly in the United States and Canada in recent years.
Italy
In 2002 we decided to enter the Italian bingo market with local Italian partners, Mr. Leonardo
Ceoldo and Mr. Vittorio Casale. At that time, however, Italian regulation limited ownership in bingo
halls to individuals or listed companies, which prevented us from participating directly in the Italian
bingo market. Several of our shareholders elected to participate in the Italian bingo market through the
ownership of bingo halls by individual nominees of Francomar, together with such Italian partners. We,
together with such Italian partners, in turn, formed Codere Italia, in which we held a 50.0% interest
and such Italian partners held the other 50.0%, to provide management services to such bingo halls.
We currently hold a 56.5% interest in Codere Italia and our Italian partners hold the other 43.5%.
These arrangements were entered into with the understanding that we would acquire direct interests in
the bingo halls after a change in Italian law permitted us to do so. When Italian regulations changed to
permit non-listed companies to own bingo halls, however, we did not believe it was the appropriate
moment to acquire the Italian bingo halls and, instead, Francomar and such Italian partners established
Operbingo to hold the bingo halls they owned. From time to time we have evaluated the possibility of
acquiring Operbingo and on May 18, 2005, we entered into a memorandum of understanding with
Francomar and our Italian partners to purchase 100% of Operbingo. Jesús Franco and Joaquı́n Franco,
two of our significant shareholders and members of our Board of Directors, own 50% of Francomar
and José Antonio Martı́nez Sampedro, our Chief Executive Officer and also one of our significant
shareholders and a member of our Board of Directors, and certain Martı́nez Sampedro family members
own the other 50%.
Since 2004, Codere Italia has also been focused on the ownership and operation of AWP
machines. We commenced the deployment of AWP machines in Italy in July 2004 and on December 2,
2004, we acquired Opergiochi, an operator of AWP machines in the north of Italy which is indirectly
owned by Francomar and our Italian partners, for A7.0 million. See ‘‘Related Party Transactions’’. As of
December 31, 2004, we had 1,796 slot machines installed in bars, nightclubs and restaurants in Italy.
159
In 2004, our Italian business generated revenues of A5.5 million and EBITDA of A(1.5) million,
representing 1.4% of our total consolidated revenues and (1.6)% of our consolidated EBITDA for the
year ended December 31, 2004 (before corporate headquarters expenses).
Operations—AWP
In the AWP machine business, Codere Italia (or its subsidiaries or joint-venture subsidiaries, as the
case may be) enters into agreements with site owners under which Codere Italia places its AWP
machines in the sites and provides maintenance services for such AWP machines, in exchange for a
variable fee that is generally equal to 50% of net box after deducting prizes, gaming taxes and the cost
of the network provision.
There are three key differences between the Italian AWP machine business and the Spanish AWP
machine business. First, in Italy all AWP machines are required to be interconnected through a
national network and a network provider must make all gaming tax payments and is expected to carry
out all money collection activities (though currently operators are in fact carrying out money collection
activities), while in Spain, network interconnection is not required and tax payment and collection
activities are carried out by the AWP machine operator. Second, in Italy an operator is a service
provider with lower exposure to regulatory authorities, while in Spain the AWP machine operator’s
activities are highly regulated. Third, in Italy the use of video AWP machines is much more prevalent
than it is in Spain.
Our strategy for expanding our operations in Italy includes the direct installation of AWP
machines through retail deployment and umbrella agreements with owners’ associations acting on
behalf of site owners and the acquisition or creation of joint ventures with established AWP operators.
Operations—Bingo
Since 2002 Codere Italia has provided bingo management services to the bingo halls owned by
Operbingo. These services include the day-to-day general management of bingo operations, including
the hiring of personnel, accounting, back office employees at the bingo halls and other administrative
functions. As of December 31, 2004, aggregate fees for bingo management services paid by bingo halls
owned by Operbingo to Codere Italia amounted to A14.2 million. During 2005, Codere Italia will
receive A750 thousand per year for such bingo management services. Given the close relationship
between Codere Italia and Francomar and our Italian partners, in 2002 and 2003, Codere Italia was
requested to provide guarantees of the obligations of certain of the bingo hall companies indirectly
owned by Francomar and our Italian partners and Codere Italia agreed to issue an aggregate of
A36.7 million of such guarantees. See ‘‘Related Party Transactions—Agreements with Francomar’’.
As described above, on May 18, 2005, we entered into a memorandum of understanding to acquire
Operbingo, which owns and operates 11 bingo halls throughout Italy. The memorandum of
understanding, which expires on September 30, 2005, provides that if the transaction is consummated,
the purchase price would consist of a fixed component and a variable deferred component. The fixed
component would be a nominal payment of A9 thousand for Operbingo’s shares, together with the
assumption of Operbingo’s debt and financial liabilities, which we estimate will be A43.9 million upon
closing of the acquisition. The variable deferred component, which would be payable on April 30, 2007,
would be equal to 6.8 times Operbingo’s 2006 EBITDA (as such term is defined in the memorandum
of understanding) less A43.9 million, provided this difference is positive. In the year ended
December 31, 2004 Operbingo generated unaudited revenues of A148.7 million and EBITDA of
A1.7 million, in each case according to the Italian GAAP statutory accounts it has deposited with the
Camera di Comercio.
160
In addition to the entry into of definitive documentation, the Operbingo transaction is subject to
satisfaction of the following conditions:
• Receipt by our Board of Directors of a ‘‘fairness opinion’’ from an internationally recognized
investment bank, which provides that the terms of the Operbingo acquisition as set forth in the
memorandum of understanding are fair to Codere from a financial point of view;
• Operbingo’s shareholders shall have subscribed to a share capital increase of A16.0 million, and
Operbingo shall have applied the proceeds thereof to reduce its outstanding indebtedness;
• Operbingo shall have refinanced its current outstanding debt and entered into substitute credit
facilities for at least A47.0 million on terms and conditions consistent with Operbingo’s strategic
business plan as described in the memorandum of understanding;
• The results of our due diligence regarding Operbingo and its subsidiaries are satisfactory to us;
and
• The results of an audit by our external auditors of Operbingo’s consolidated financial statements
as at and for the period ended March 31, 2005 are satisfactory to us.
The following table sets forth certain information regarding Operbingo’s operations:
Name of Bingo Hall
City/Region
Re . . . . . . . . . . . . . .
Modernissimo . . . . .
Living . . . . . . . . . . .
Marconi .
Garbini .
Ariston .
Caronda
Savoia . .
Vittoria .
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Cola di Rienzo . . . . .
Donatello . . . . . . . .
Operbingo’s
2004
Direct and
Amounts
Indirect
Wagered
Beneficial
Concession
No. of (in thousands Interest in the
Opening Date Expiration Date Seats
of E)
Bingo Hall
Rome, Lazio
Feb. 2002
Salerno, Campagnia
Mar. 2002
Bologna, Emilia
Apr. 2002
Romagna
Vigevano, Lombardia May 2002
Viterbo, Lazio
Aug. 2002
Lecce, Puglia
Sep. 2002
Catania, Sicily
Oct. 2002
Acireale, Sicily
May 2003
Parma, Emilia
Apr. 2004
Romagna
Rome, Lazio
Dec. 2004
Imola, Emilia
Sep. 2002
Romagna
Feb. 2014
Mar. 2014
Apr. 2014
900
470
404
59,305
12,023
7,479
100%
100%
100%
Apr.
Aug.
Sep.
Oct.
May
Apr.
2014
2014
2014
2014
2015
2016
372
471
649
341
320
476
6,095
6,957
17,606
22,582
6,690
6,440
100%
100%
100%
50%(1)
50%(1)
100%
Dec. 2016
Sep. 2014
525
572
332
2,458
100%
100%
(1) The remaining 50% is held by our Italian partners.
We believe that acquiring Operbingo will enable us to strengthen our position in the Italian bingo
market at an attractive cost and that our acquisition of Operbingo would lead to cost synergies by
allowing us to share certain headquarters expenses with our Italian AWP operations. We also believe
that favorable regulatory changes may provide us with additional opportunities for revenue growth,
such as by permitting us to interlink our bingo halls.
As described above, the proposed acquisition is subject to definitive documentation and certain
other important conditions and we cannot assure you that such conditions will be satisfied or that we
will enter into the proposed acquisition on the terms set forth in the memorandum of understanding or
at all.
161
Employees
We focus significant resources on the selection and training of our employees. In Spain, we have
three employees dedicated full-time to recruiting and training and allocate to such activities a budget of
1.0% of Spanish personnel expenses. The tables below set forth the average number of our permanent
employees during 2002, 2003 and 2004 and the breakdown of those employees by activity and
geographically.
Category of Activity
2002
Managers and supervisors
Specialists . . . . . . . . . . .
Sales personnel . . . . . . .
Collectors . . . . . . . . . . .
Mechanics . . . . . . . . . . .
Clerical staff . . . . . . . . .
Assistants . . . . . . . . . . .
Other personnel . . . . . . .
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2003
2004
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416
548
570
287
210
395
526
897
366
547
576
307
227
411
347
1,663
467
504
636
319
280
454
453
1,837
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,849
4,444
4,950
2002
2003
2004
.
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.
1,079
0
758
614
750
258
11
20
359
1,009
0
793
576
1,191
303
562
10
0
1,064
0
854
603
1,191
333
617
288
0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,849
4,444
4,950
Geographic area
Spain . . . . . . . . . . . . . .
Mexico(1) . . . . . . . . . .
Argentina . . . . . . . . . .
Colombia . . . . . . . . . . .
Chile . . . . . . . . . . . . . .
Peru . . . . . . . . . . . . . .
Uruguay . . . . . . . . . . .
Italy . . . . . . . . . . . . . .
Discontinued operations
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(1) As a result of provisions of Mexican labor law that require employees to participate in the profits
of their employer, these employees are provided by an unaffiliated third party that bills the
Mexican business unit’s companies for such services.
The extent of labor union membership of our employees varies between countries. We believe that
we maintain good relationships with both our union-represented and non-union represented employees
and their union representatives. Over the last five years, we have not had any work stoppages. We are
involved in limited numbers of labor disputes in the ordinary course of business, none of which would
have a material adverse affect on us if not resolved in our favor.
We are subject to collective bargaining agreements in Spain and the other countries in which we
operate. Under these agreements, salary scales are established for each position in each industry. The
salary scales are usually revised annually and typically provide for increases in the salary scales in
accordance with the increases in the consumer price index in each country, or a slightly larger increase.
We do not have a pension plan.
162
Licenses and Trademarks
We, or our partners and clients, hold gaming licenses in each jurisdiction in which we operate. In
addition, in some countries we hold licenses or authorizations permitting us to import AWP machines
into such country. We have no material patents or trademarks.
Litigation
In the ordinary course of business, we have been and are involved in disputes and litigation. While
the result of these disputes or litigation cannot be predicted with certainty, we do not believe that the
resolution of any such disputes or litigation, except the Ballesteros transaction litigation, individually or
in the aggregate, could have a material adverse effect on our business, results of operations or financial
position.
Ballesteros Transaction
On March 2, 2000, acting on our behalf, Hispano Chilenos, S.A., a company owned by Jesús
Franco, one of our principal shareholders and member of our Board of Directors, entered into a
purchase and sale agreement with José Ballesteros Requejo and his wife (‘‘Ballesteros’’) whereby
Hispano Chilenos, S.A. agreed to purchase from Ballesteros 50% of the shares of all the entities that
operated Ballesteros’ businesses in Spain and Venezuela—twelve bingo halls in the Castilla-Leon region
of Spain, one in Venezuela as well as an additional license to operate bingo halls in Venezuela for
A12.0 million. On September 15, 2000 the purchase and sale agreement was novated and Codere
assumed all of Hispano Chilenos, S.A.’s rights and obligations thereunder and paid an additional
A2.4 million owed to Ballesteros. On January 2, 2001, Codere paid to Hispano Chilenos, S.A.
A12.0 million in respect of the funds Hispano Chilenos, S.A. had advanced to Ballesteros and
A1.1 million in interest.
Under the terms of the agreement, the A12.0 million payment made to Ballesteros was to be
returned if the transactions contemplated by the agreement were not consummated due to the fault of
Ballesteros, plus A6.0 million in penalties. The agreement also stipulated that if the transaction was not
consummated due to the fault of Hispano Chilenos, S.A, Hispano Chilenos, S.A would recover only
A6.0 million of the A14.4 million that had been paid to Ballesteros.
After signing the March 2, 2000 purchase and sale agreement, but during our due diligence of the
Ballesteros Group’s operations, it became apparent to us that the legal and economic aspects of the
transaction were not as represented and, in particular, that the Ballesteros Group did not hold a license
to operate in Venezuela and that the Venezuelan economic and political crisis had significantly reduced
the value of the Ballesteros Group’s businesses. Since we were unsuccessful in obtaining a refund of the
A15.5 million that we had paid in connection with the transaction from the Ballesteros Group, on
October 29, 2003, we initiated a suit against Ballesteros in the First Instance Court of Madrid (Juzgado
de Primera Instancia de Madrid). In the suit, we claimed that: (i) the purchase and sale agreement
should be terminated based on breaches of representations and warranties and covenants by
Ballesteros; (ii) we are entitled to recover A14.4 million based on Ballesteros’ failure to consummate
the transactions contemplated by the agreement; and (iii) Ballesteros should pay us A6.0 million as a
penalty under the terms of the agreement and A1.1 million in damages. As required by the 49th First
Instance Court of Madrid, we have posted a bank guarantee in the amount of A1.8 million in relation
to our claim against Ballesteros.
On October 14, 2004, Ballesteros filed a counter-claim alleging that we breached the purchase and
sale agreement by failing to perform our obligations under such agreement. Ballesteros claimed
A33.4 million in damages, including expenses incurred in making investments under the terms of the
agreement, pain and suffering and loss of profits. Setting off the amount of A6.0 million that we are
entitled to recover from the up-front payment under the terms of the agreement, Ballesteros’ counter-
163
claim requests a total of A27.4 million in damages. The first hearing (audiencia previa) before the 49th
First Instance Court of Madrid regarding these proceedings was held on March 10, 2005 and oral
arguments were held on May 17, 2005. The court will pass judgment on these claims after each party
submits their final briefs in support of their respective claims.
We have made provisions of A15.5 million regarding the potential loss of the payments we have
made in connection with the Ballesteros transaction, but have not made any additional provisions in
connection with the Ballesteros litigation.
Tax Contingencies
Stamp Tax Dispute
We are involved in two tax-related disputes with the authorities in the Buenos Aires province of
Argentina concerning payment of certain stamp tax obligations that arise in connection with the
execution of certain legal documents. The disputes relate to the tax rate that should be applied to
certain agreements entered into by our Argentine affiliates, Intermar Bingos S.A. and Interjuegos S.A.,
the applicable interest rate that should be applied to the taxes claimed to be owed and whether certain
of the province’s claims are barred by applicable statutes of limitation. We estimate that our total
exposure in respect of these disputes is AR$1.5 million (approximately U.S.$0.5 million), which includes
fines and interest.
The first dispute relates to Intermar Bingos S.A., in which the province has requested a payment
of AR$4.9 million (approximately U.S. $1.8 million), has been the subject of a tax ‘‘amnesty’’ pursuant
to which we may resolve the matter with a payment of AR$0.5 million (approximately
U.S.$170 thousand). The tax dispute relating to Interjuegos S.A., in which the province has requested a
payment of AR$2.4 million (approximately U.S.$0.8 million), has also been the subject of a tax
‘‘amnesty’’ pursuant to which we may resolved the matter with a payment of AR$1.0 million
(approximately U.S.$334 thousand). Under these tax ‘‘amnesties’’ we must make the required payments
on or before June 10, 2005.
Income Tax Dispute
We are in a separate dispute with the Argentine federal tax authorities regarding the application of
Section 73 of the Argentine Income Tax law to certain intercompany loans with our Argentine affiliates.
Section 73 also generally applies to loans to third parties and we have argued that the Argentine
companies involved in the questioned loans are part of a single economic group. If this dispute is
determined adversely to us, we estimate that we would be required to pay AR$10.2 million
(approximately U.S.$3.5 million).
Grupo Royal Tax Contingencies
Grupo Royal is involved in two stamp tax disputes in which the province of Buenos Aires province
has claimed a total of AR$147.8 million (approximately U.S.$50.9 million) in back taxes, fines and
interest. These disputes, which relate to Loarsa S.A. and Punto 3 S.A., concern the appropriate taxable
base off which should be used to calculate the stamp taxes that are due. The province claims that the
correct taxable base corresponds to the total amount of revenue of the companies that entered into the
applicable contracts, rather than the value of goods and services contracted in such agreements. Buenos
Aires province has also rejected the application by Grupo Royal of a 50% tax reduction that is
available for contracts with certain public entities, such as non-profit organizations. We estimate that if
we exercise our option to acquire Recreativos Franco’s interests in Grupo Royal, our total exposure in
respect of these disputes would be AR$19.5 million (approximately U.S.$6.6 million).
164
The Loarsa S.A. dispute, in which the province has requested a payment of AR$137.0 million
(approximately U.S. $47.2 million), of which AR$3.4 million is the tax claimed due, was the subject of
an adverse decision at the lower court level and Grupo Royal appealed such decision to the tax court.
Following such appeal, the province announced a new tax ‘‘amnesty’’ underwhich Grupo Royal may
resolve the matter with a payment of AR$16.0 million (approximately U.S.$5.4 million).
The Punto 3 S.A. dispute, in which the province has requested a payment of AR$10.8 million
(approximately U.S.$3.7 million), of which AR$1.4 million is the tax claimed due, remains at the lower
court level. Under the same tax ‘‘amnesty’’ affecting the Loarsa, S.A. dispute, Grupo Royal may resolve
the matter with a payment of AR$3.5 million (approximately U.S.$1.2 million). Under the tax
‘‘amnesty’’, these payments must be made on or before June 10, 2005. Under this tax ‘‘amnesty’’ Grupo
Royal must make the required payments on or before June 10, 2005.
Canon Tax Dispute
We and Grupo Royal are also in tax-related disputes with the authorities in the Buenos Aires
province of Argentina concerning payment of certain gaming taxes under Provincial Decree 1,372/02
(the ‘‘Decree’’) enacted in June 2002, which established that all slot machines operated in bingo halls
must be connected to an on-line control system within 120 days of the Decree’s enactment.
The Decree established a fixed amount per machine to be paid as gaming taxes until the expiration
of the 120-day period, which ended in December 2002. Under the Decree, provincial gaming tax
authorities were to calculate the taxes due by using the average amount wagered in the first quarter of
2003 and comparing it with the amounts paid as fixed taxes in advance of the 120-day implementation
period. If such amount was lower that the amount paid as fixed tax, then the operator should have a
credit against the provincial gaming tax authorities for the difference.
In April 2004, however, the provincial gaming tax authorities ordered bingo hall operators to pay
any difference between the taxes due using the average amounts wagered in the first quarter of 2003
and what was paid in advance by the bingo halls in advance of the 120-day implementation period.
The claim against us for such difference amounts to a total of AR$4.7 million (approximately
U.S.$1.6 million). The claim against Grupo Royal for such difference amounts to a total of
AR$15.0 million (approximately U.S.$5.2 million). We and Grupo Royal have challenged these claims
on the grounds that they lack a legal basis.
Other Tax Disputes
We are involved in several disputes with state tax authorities in Mexico concerning the payment of
value added taxes and the application of state lottery taxes to our bingo hall operations. These disputes
arose following the recognition by regulations enacted under the Mexican Federal Law of Games and
Lotteries on September 17, 2004, of bingo as a form of lottery, which technically empowered the
Mexican states to tax bingo activity. Caliente and CIE have each disputed the Mexican state
governments’ right to impose taxes on bingo activity, claiming that only the federal government is
constitutionally empowered to take such action. Caliente and CIE have obtained injunctions absolving
them of the obligation to pay such taxes in several states but the disputes are ongoing in other states. If
these disputes are determined adversely to us, we could be required to pay approximately A3.1 million.
In addition, we are involved in several tax-related disputes with the tax authorities in Spain
concerning the payment of certain gaming taxes, income taxes, transfer taxes and tax surcharges. If all
of such tax disputes are determined adversely to us, we estimate that we would be required to make a
payment of A1.2 million, as of December 31, 2004.
We are also involved in disputes with local tax authorities in Bogotá and Cali, Colombia regarding
the application of gaming taxes to certain arrangements we enter into to operate slot machines owned
165
by third parties. Such gaming taxes generally apply only to the company that controls the slot machines
and we have argued that since we do not control these slot machines we should not be responsible to
pay such gaming taxes. If these disputes are determined adversely to us, we estimate that we would be
required to pay COP$15.7 billion (approximately A5.1 million), plus interest and penalties.
Other Litigation
In 1996, Mr. Ernesto Lopez Moreno, the lessor of a bingo hall to Intermar Bingos S.A., of which
we currently hold 58.95%, filed suit in Mar del Plata Courts, Argentina. Mr. Ernesto López Moreno
claimed that Intermar Bingos owed approximately U.S.$1.5 million in rental payments. On behalf of
Intermar Bingos, we filed a counter suit, arguing that we do not owe any rental payments for the bingo
hall since we were not allowed to use the premises. The Court suspended Mr. Lopez’s claim pending
the resolution of our counter claim, which was rejected by the Lower Court and by the Court of
Appeals. We have appealed our counter claim to the Provincial Supreme Court.
Codere is the subject of two criminal investigations in Argentina, one in relation to money
laundering activities, in which several other Argentine gaming companies, including Grupo Royal, are
also named, and another in relation to the illegal importation of slot machines, which is directed at all
Argentine slot machine operators. The investigations are at a preliminary stage and we have been
cooperating fully with the authorities. No director, officer or employee of Codere has been named in
either investigation. We do not believe the investigations, insofar as they relate to Codere, have merit.
Real Property
Our principal executive offices are located at Rufino González 25, Madrid, Spain and are rented
from a company that is owned by Jesús Franco and Joaquı́n Franco, two of our principal shareholders
and members of our Board of Directors. See ‘‘Related Party Transactions—Lease of Corporate
Headquarters in Madrid, Spain’’.
The majority of our offices and gaming facilities are leased and the leases generally run for at least
as long as the relevant gaming license in the relevant jurisdiction.
The aggregate book value of the real property we own, which principally includes office space in
certain cities in Spain, an office, a bingo hall and a casino in Colombia and bingo halls in Argentina,
was A16.0 million as of December 31, 2004.
166
MANAGEMENT
Our Board of Directors
Pursuant to Spanish corporate law, our Board of Directors has ultimate responsibility for the
organization and management of our affairs including the appointment of our executive officers, subject
to the provisions of the estatutos sociales (the ‘‘By-Laws’’) and the resolutions of shareholders at our
Junta General de Accionistas (General Shareholders’ Meeting). To the extent permitted to do so, our
Board of Directors has delegated all of its powers to José Antonio Martı́nez Sampedro, who is our
Chief Executive Officer. Pursuant to Spanish corporate law, our Board of Directors has also granted
limited powers of attorney to certain individuals to conduct our affairs. Also, pursuant to the MCP
Instrument and ICIL’s ownership interest in us, MCP and ICIL are entitled to appoint two and one
members of our Board of Directors, respectively.
The following table set forth, as of the date of this offering memorandum, the name, age and title
of each member of our Board of Directors followed by a brief description of each director’s business
experience and education.
Name
Age
Title
José Antonio Martı́nez Sampedro . . . . . . . . . .
49
Jesús Franco Muñoz . . . . . . . . . . . .
Joaquı́n Franco Muñoz . . . . . . . . . .
Encarnación Martı́nez Sampedro(2) .
Luis Javier Martı́nez Sampedro . . . .
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67
46
45
Francisco Javier Carro Calleja(2) . .
José Ramón Romero Rodrı́guez(1)
José Ignacio Cases Méndez(1) . . . .
William Lee Young . . . . . . . . . . . .
Mark Trevillyan Thomas . . . . . . . .
José Marı́a Vegas Cordobés . . . . .
Joseph Zappala . . . . . . . . . . . . . .
Eugenio Vela Sastre(1) . . . . . . . . .
Juan José Zornoza Pérez(2) . . . . .
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43
49
63
51
51
35
71
57
48
Chairman of the Board and Chief Executive
Officer of Codere Group
Director
Director
Executive Director
Director and Executive Director of Codere
América Latina
Director
Director
Director
Director
Director
Director
Director
Independent Director
Independent Director
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(1) Member of the Compensation and Appointments Committee.
(2) Member of the Audit and Compliance Committee.
The official address of each of the directors is the registered office of Codere, S.A.
José Antonio Martı́nez Sampedro has been the Chairman of the Board of Directors and Chief
Executive Officer of Codere since co-founding the company in 1980. Mr. Martı́nez is also a director
and shareholder of other companies which operate in the gaming and leisure industries in Spain and
Italy. Mr. Martı́nez is the brother of Luis Javier Martı́nez Sampedro and Encarnación Martı́nez
Sampedro, each of whom are also members of our Board of Directors. Mr. Martı́nez Sampedro studied
industrial engineering at Universidad Politécnica of Madrid.
Jesús Franco Muñoz has been Co-Chairman of Grupo Recreativos Franco since 1975 and has been
a director of Codere since 1980. Mr. Jesús Franco is also a director of other companies within the
Recreativos Franco group of companies, which operate in the gaming and leisure industries in Spain,
Italy, Argentina, Colombia, Panama and Brazil. Mr. Jesús Franco is the brother of Joaquı́n Franco, who
167
is also a member of Codere’s Board of Directors. Mr. Jesús Franco owns a 25% interest in Compañı́a
Orenes de Recreativos, S.A., or Orenes, one of our competitors.
Joaquı́n Franco Muñoz has been Co-Chairman of Grupo Recreativos Franco since 1975 and has
been a director of Codere since 1980. Mr. Joaquı́n Franco is also a director of other companies within
the Recreativos Franco group of companies, which operate in the gaming and leisure industries in
Spain, Italy, Argentina, Colombia, Panama and Brazil. Mr. Joaquı́n Franco is the brother of Jesús
Franco, who is also a member of Codere’s Board of Directors. Mr. Joaquı́n Franco owns a 25% interest
in Companı́a Orenes de Recreativos, S.A., or Orenes, one of our competitors.
Encarnación Martı́nez Sampedro has been the Executive Director of Codere since 1983 and has
been a director of Codere since 1999. Ms. Martı́nez Sampedro is also a director of other companies
operating in the gaming and leisure industries in Spain, Italy, Mexico, Argentina, Colombia, Chile,
Peru, Puerto Rico, Uruguay and Brazil, including several companies within the Operbingo Group of
bingo hall operators in Italy, in which other members of the Martı́nez Sampedro family have interests.
Prior to joining Codere, Ms. Martı́nez Sampedro worked as an economist at Argade, S.A. from
November 1986 to September 1992. Ms. Martı́nez Sampedro is the sister of José Antonio Martı́nez
Sampedro and Luis Javier Martı́nez Sampedro, each of whom are also members of Codere’s Board of
Directors. Ms. Martı́nez Sampedro holds a degree in Management and Economics from Universidad
Complutense de Madrid, Spain and an M.B.A. from Instituto de Empresa Business School, Madrid.
Luis Javier Martı́nez Sampedro has been the head of Codere Latin America since 2002 and has
been a director of Codere since 1987. Mr. Martı́nez is also a director of Grupo Argentina.
Mr. Martı́nez is the brother of José Antonio Martı́nez Sampedro and Encarnación Martı́nez Sampedro,
each of whom are also members of Codere’s Board of Directors. Mr. Martı́nez Sampedro holds a
degree in Economics from Universidad Complutense de Madrid and an M.B.A. from Instituto
de Empresa Business School, Madrid.
Francisco Javier Carro Calleja has been the Executive Director and Secretary to the Board of
Directors of Grupo Recreativos Franco since 1997 and has been a director of Codere since 1999.
Mr. Carro is also the Financial Director of Vigilancia Integrada (Grupo ONCE), Rete Franco (Italia),
Re Creativo (Italia) and Alta Cordillera (Panamá). Mr. Carro also holds various positions in Philips
Ibérica. Mr. Carro holds a degree in Economics from Instituto Católico de Dirección de Empresas
(ICADE), Madrid.
José Ramón Romero Rodrı́guez has been our outside legal counsel since July 2002, and legal counsel
at Loyra Abogados specializing in gaming legislation since 1981 and has been a director of Codere
since 1999. Mr. Romero holds a degree in Law from the Universidad Autónoma de Madrid and a
master in Law from Universidad Complutense de Madrid.
José Ignacio Cases Méndez has been a Professor of both Political Law and Constitutional Law since
1964. In October 1981, Mr. Cases was made a permanent Professor of Political Science and Civil
Service and is currently Vice-Dean of the Facultad de Ciencias Sociales y Jurı́dicas of the Universidad
Carlos III (Madrid). Mr. Cases has been a director of Codere since June 1999. He has been the sole
shareholder of Datapublic and President-Director of Sistemas de Televisión from since 1992. Mr. Cases
was a member of the Board of Directors of Sistemas de Televisión until 2003 and was President of the
Spanish Gaming National Commission from 1994 to 1998. Mr. Cases also served as director of Formula
Giochi and as a director of Retevision. Mr. Cases holds a degree in Political Science, Economics and
Commerce from Universidad Complutense de Madrid and a degree in Law from Universidad
Complutense de Madrid.
William Lee Young has been with Monitor Group since 1989 and has served as Group Managing
Director since 1995. He has also served as a Managing Director of Monitor Clipper Partners since
1997. Mr. Young has been a director of Codere since 2002. Prior to joining Monitor, Mr. Young was a
168
founding partner of Westbourne Management Group in Toronto, Canada, providing management
services to companies requiring or undertaking significant restructurings or turnarounds. From 1981 to
1989, Mr. Young was a strategy consultant at Bain and Company in London, England, where he was
elected to the partnership in 1985. Mr. Young is currently on the Board of Queen’s University in
Kingston, Ontario and the Belmont Day School and is also a director of American Fibers and Yarns,
Hinckley and Technical. Mr. Young holds a degree in chemical engineering from Queen’s University
and an M.B.A. from Harvard Business School.
Mark Trevillyan Thomas is a partner and vice chairman of the Monitor Group, which he
co-founded in 1982. Mr. Thomas has also been a partner of Monitor Clipper Partners since 1997 and
has been director of Codere since 2002. Mr. Thomas holds a degree in Chemical Engineering from
Queen’s University and an M.B.A. from Harvard Business School.
José Marı́a Vegas Cordobés has been an Investment Director of the Intermediate Capital Group
since 2002 and has been a director of Codere since 2003. Prior to joining Intermediate Capital Group
in 2002, he worked for HSBC Investment Banking for three years in Madrid as a manager in corporate
banking and as head of the export and project finance division in Spain. He then worked for BNP
Paribas in their Madrid acquisition finance group for three years as Associate Director and then for
Credit Lyonnais as head of their acquisition finance group in Madrid for two years. Mr. Vegas holds a
degree in business administration from CEU-Complutense University and an M.B.A. from I.E.S.E.,
Navarra University.
Joseph Zappala was the U.S. Ambassador to Spain from 1989 to 1992 and has been the President
and Chairman of Joseph Zappala Investments, a holding company that invests in businesses that
operate in the real estate development, healthcare, gaming and entertainment industries. He also is a
director of several privately-held healthcare companies and is on the board of M.D. Anderson Cancer
Research Hospital, the Woodrow Wilson Foundation and the Columbus Citizens Foundation.
Eugenio Vela Sastre is the President of Inster and has served as a director and head of the
Compensation and Appointment Comittee of Codere since 1999. Mr. Vela was the President of Grupo
Tecnobit from 1996 to 2003. He was a Managing Director of Indra and Amper from 1991 to 1998.
Mr. Vela holds degrees in Economics and Engineering from Universidad Complutense of Madrid and
Universidad Politécnica of Madrid, respectively and a M.B.A. from EOI of Madrid.
Juan José Zornoza Pérez is a professor of finance and tax law at the Universidad Carlos III of
Madrid and the University of Castilla-La Mancha. Mr. Zornoza is also a researcher at the Institute of
Tax Studies of the Treasury Ministry. Mr. Zornoza has served as a director and as head of the Audit
and Compliance Committee of Codere since 1999. He is also a member of the Rector Council of the
Madrid Tax Agency. Mr. Zornoza holds both a degree and doctorate in law from Universidad
Autonoma de Madrid.
169
Senior Management
Our senior management team is led by José Antonio Martı́nez Sampedro, our Chairman and Chief
Executive Officer. The following table sets forth our current senior management team and their
respective ages and positions with the Group.
Name
Age
Position
José Antonio Martı́nez Sampedro . . . . . . . . . .
49
Luis Javier Martı́nez Sampedro . . . . . . . . . . . .
45
Robert Gray . . . .
Javier Encinar . .
Ricardo Moreno .
Fernando Anda .
Chairman of the Board and Chief Executive
Officer of Codere Group
Director and Executive Director of Codere
América Latina
Chief Financial Officer
Internal Audit and Compliance Officer
Managing Director—Corporate Development
Managing Director—Office of the Chairman
and Chief Executive Officer
Secretary of the Board and Chief Legal Officer
Chief Technology Officer
Executive Director of Business Development
Human Resources
Legal
CEO’s Chief of Staff
Chile, Mexico, Italy
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48
44
42
53
Rafael Catalá . . . . . . . . . . .
Jorge Martı́n Francesconi . .
Fernando Ors . . . . . . . . . . .
Rafael López Enrı́quez . . . .
Carlos Pueyo . . . . . . . . . . .
Jaime Estalella . . . . . . . . . .
Luis Miguel Cabeza de Vaca
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43
39
36
44
58
42
58
The following is biographical information for each of the members of our senior management
team, who do not also serve on our Board of Directors:
Robert Gray has been the Chief Financial Officer of Codere since December 2004. From
February 2004 to December 2004, he was Chief Financial Officer of Codere América, S.L. Prior to
joining Codere, Mr. Gray was a Managing Director of Deutsche Bank from 1999 to 2004. From 1980 to
1999, Mr. Gray served in various positions at JP Morgan, including President of JP Morgan Venezuela
and as Credit Country Manager (Global Credit Latin America) in Colombia, Venezuela and Mexico.
Mr. Gray is the President of the Colombian American Association, and a director of the Venezuelan
American Association of the United States. Mr. Gray holds a B.A. from Dartmouth College and an
M.B.A from Harvard Business School.
Javier Encinar has been the Internal Audit and Compliance Officer of Codere since 2000. From
1989 to 1995, Mr. Encinar was Codere’s National Internal Audit Manager and he was Codere’s
Corporate Finance-Administrative Manager from 1995 to 2000. Prior to joining Codere, Mr. Encinar
was an auditor at Ernst & Young, S.L. from 1985 to 1989. Mr. Encinar is a certified accounts auditor
and has a degree in economics and business studies from Universidad Complutense de Madrid.
Ricardo Moreno has been the Managing Director of Corporate Development of Codere since
December 2004. From April 2004 to December 2004, he served as Managing Director of the Office of
the Chairman and Chief Executive Officer. Prior to joining Codere, Mr. Moreno was Co-Director of
Apax Partners España from 1999 to 2004 and was Vice President of Kleinwort Benson Ltd from 1996
to 1999. Mr. Moreno also teaches capital markets part-time at the Instituto de Empresa Business
School. Mr. Moreno holds a degree in civil engineering from the University of Buenos Aires and an
M.B.A from Instituto de Empresa Business School.
Fernando Anda has been the Managing Director in the Office of the Chairman and Chief Executive
Officer of Codere since December 2004. From January 2000 to December 2004, he was Codere’s Chief
Financial Officer. Prior to joining Codere, Mr. Anda was the Chief Financial Officer of Unión
Española de Explosivos from 1997 to 2000. From 1991 to 1997, Mr. Anda was the Chief Financial
170
Officer and Executive Vice President of Grupo Industria Española Del Aluminio (INESPAL). Prior to
joining INESPAL, Mr. Anda held various positions including Chief Financial Officer with Empresa
Nacional Del Uranio from 1981 to 1991. Mr. Anda holds a degree in industrial engineering from
University of Madrid and holds an M.B.A from Manchester Business School/Escuela de Organización
Industrial and Post Degree Studies (PADE) from I.E.S.E., Navarra University.
Rafael Catalá has been the Secretary to the Board of Directors and Chief Legal Officer of Codere
since March 2005. Prior to joining Codere, Mr. Catalá worked for Cuerpo Superior de Administradores
Civiles del Estado in 1985 and has held various positions in the Spanish government from 1986 to 2000.
He was the Subsecretario del Ministerio de Hacienda from 2000 to 2002, Secretario de Estado
de Justicia from 2002 to 2004 and was General Manager of the Hospital Ramón y Cajal from 2004 to
2005. Mr. Catalá holds a degree in law from Universidad Complutense and a Ph.D. in Law from
Universidad San Pablo-CEU.
Jorge Martı́n Francesconi has been the chief information officer and chief technology officer of
Codere since May 2005. Prior to joining Codere, Mr. Martı́n held various positions with Microsoft,
where he had worked since 1994, including Director of Competitive Strategy in the Government
division for the EMEA (Europe, Middle East and Africa) region. From 1990 to 1994, he worked as a
Technical Director for a subsidiary of IBM and from 1984 to 1990 as a Technical Consultant to
financial services and insurance firms. He holds a degree in information technology from Florida
International University.
Fernando Ors has been Executive Director of Business Development of Codere, focusing
particularly on technology and betting development, since 2001. From 1996 to 2000 he worked for
Bernardo Alfageme S.A. as Commercial Development Manager and as COO. He also worked as
Private Label Manager for Continente S.A. from 1994 to 1996, and as strategy consultant at Andersen
Consulting in 1993. Mr. Ors holds a degree in business and economics from Universidad San
Pablo-CEU, an MBA from IESE Navarra University, a Master in Finance from Centro de Estudios
Financieros (CEF), and a Master in Corporate Coaching from Colorado Coaching University.
Rafael López-Enrı́quez has been the Human Resources Corporate Manager of Codere since
October 2001. Prior to joining Codere, Mr. López-Enrı́quez was the director for Banco Uno in Latin
America from 2000 to 2001. From 1992 to 2000, Mr. López-Enrı́quez held various positions with Banco
Argentina. From 1988 to 1992, Mr. López-Enrı́quez held various positions with Banco Zaragozano.
Mr. López-Enrı́quez holds a degree in law from University of Salamanca and an MBA from I.E.S.E.,
Navarra University.
Carlos Pueyo has been Legal Counsel to Codere since 1993 and Vice-Secretary to the Board of
Directors of Codere since 1998. Mr. Pueyo started with Codere in 1981 as an advisor on tax and labor
law. Mr. Pueyo has been a director of Codere Italia and Operbingo Italia since 2003 and has been
Secretary to the Board of Directors of Misuri, S.A., and Juego de Bingo, S.A. since 2000. Mr. Pueyo
holds a degree in law from Universidad Complutense of Madrid.
Jaime Estalella has been Chief of Staff to the Chief Executive Officer of Codere since April 2005.
Prior to joining Codere, Mr. Estalella was a Private Banking Executive for Agepasa-Banco Inversión
from 1987 to 1990, a Partner and Chief Executive Officer of Eurocomex from 1992 to 1997, a Senior
Consultant at Monitor Company from 1997 to 2001 and Corporate Development Manager at Tecnocom
from 2001 to 2005. Mr. Estalella holds a degree in law and business from Instituto Católico
de Dirección de Empresas (ICADE) and an M.B.A from Harvard Business School.
Luis Miguel Cabeza de Vaca has been an Advisor to the Chairman and Chief Executive Officer
since January 2000. Mr. Cabeza de Vaca is a director of Misuri, Juego de Bingo, Codere Mexico,
Codere Chile and Codere Panama. Prior to joining Codere, Mr. Cabeza de Vaca was head of the
International Department of Recreativos Franco from 1984 to 2000. Mr. Cabeza de Vaca holds a
degree in physics from Universidad Complutense de Madrid.
171
Country Managers
The following table sets forth our current managers in the countries in which we operate and their
respective ages and positions with the Group.
Name
Pedro Vidal Aragón . . . . .
Felipe Toro . . . . . . . . . . .
Vicente di Loreto . . . . . .
Diego Espinal . . . . . . . . .
Fernando Martı́n-Laborda
José Ramón Ortúzar . . . .
Marco Castaldo . . . . . . . .
Martı́n Cánepa . . . . . . . .
Héctor Luna . . . . . . . . . .
Kim Pasha-Sharpe . . . . . .
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Age
Position
39
49
39
50
55
58
47
54
55
49
Spain AWP
Spain Bingo
Codere South America
Codere Andean Region
Codere Mexico
Codere Italy
Codere Italy AWP
Codere Uruguay
Codere Argentina
Codere Mexico
The following is biographical information for each of our country managers:
Pedro Vidal Aragón has been the head of Codere Spain AWP since 2003. Prior to joining Codere,
Mr. Vidal-Aragón was a Business Analyst at Lyonnaise des Eaux from 1989 to 1991, a Project Manager
at Société Generale from 1991 to 1994 and the Country Manager for Portugal and Assistant to the
CEO at Artel, a subsidiary of Planeta Agostini from 1994 to 2000. Mr. Vidal-Aragón was a director of
Unidad Territorial Centro from May 2000 to December 2001 and a director of Unidad Territorial
Centro y Levante from December 2001 to February 2003. He holds a degree in industrial engineering
from ICAI—Universidad Pontificia Comillas—Madrid and Masters degrees in commercial and
marketing management from Instituto de Empresa—Madrid and a degree in engineering and business
engineering from EPF—Sceaux Paris.
Felipe Toro Echavarria has been the head of Codere Spain Bingo since 2002. From January 2002 to
April 2002 he was Deputy Director of the Andean area for Codere. Prior to joining Codere, Mr. Toro
was Department Manager from 1979 to 1980 of Avicola Nacional, a Colombian company dedicated to
poultry production and Managing Director from 1980 to 1981 of Fernandez & Cia. Mr. Toro worked as
a Controller from 1981 to 1985 for Bonem. He was an Executive Manager and President from 1985 to
2001 of Dissantamaria and from 1991 to 2001 he was a General Manager of Grupo Santamaria, a
Colombian conglomerate with operations in the manufacturing, wholesale and retail distribution,
agricultural and real estate industries. Mr. Toro continues to serve as Chief Executive of the main
companies which form Grupo Santamarı́a. Mr. Toro holds a B.A. in business administration from Texas
Tech University and an M.B.A. from the University of Texas, and he has completed a Senior
Management Program at Instituto de Empresa Madrid.
Vicente di Loreto has been the Chief Executive Officer of Codere Argentina since July 2004. In
addition, he works in the Corporate Development of Codere America. Prior to joining Codere,
Mr. Di Loreto worked for both Arthur Andersen & Co. and Pepsi-Cola from 1987 to 1992 and was
Administrative Manager at Bunge & Born from 1992 to 1995. He worked as Planning and Control
Manager for Molinos Rio de la Plata from 1995 to 1998 and was Executive Board Director (Corporate
Control) at Grupo Clarin from 1998 to 2004. Mr. Di Loreto is a Certified Public Accountant from
University of Buenos Aires (Argentina), holds an M.B.A from Instituto de Altos Estudios
Empresariales (Buenos Aires, Argentina). Mr Di Loreto has also completed postgraduate trainings on
General Management at Harvard Business School (Boston, USA) and on Leadership and
Organizational Learning, at MIT Organizational Learning Center (Boston, USA).
Diego Espinal has been the head of Codere Andean Region and General Manager for Codere
Colombia since May 1, 2000. Mr. Espinal joined the company in September 1999 as General Manager
172
of Codere Colombia. From December 1999, he was Assistant Vice-President for the Andean Region
(Venezuela, Dominican Republic and Colombia). Prior to joining Codere, Mr. Espinal was the General
Manager at Arias Serna Saravia Ltda. and Coninpre Ltda. from 1988 to 1999. He was also
Construction Director at Sistemas y Servicios de Construcción Ltda. and Project Engineer from 1982 to
1988. During his studies at Northeastern University and Harvard University, he worked at Coffin and
Richardson Consulting Engineers Inc. in Boston, Massachusetts for a period of two years. Mr. Espinal
has been a member of the Board at Colombian Gaming Federation from 2000 and is also member of
the Board of Directors of Codere Colombia, S.A. Mr. Espinal holds a degree in civil engineering from
Northeastern University and has taken extension courses in finance and administration at Harvard
University.
Fernando Martı́n-Laborda has been the President of CIMSA and CTH since 1998 and has been the
Sole Administrator of Alquicel, a family owned business in Spain, since 1975. Prior to joining Codere,
Mr. Martı́n-Laborda was an associate in the law firm Gil Robles and he directed and owned a number
of ventures in the gaming sector such as Azar (Spain), Marga (Dominican Republic), Fabama (Brazil)
and Eriador (Hungary, Cyprus, Russia). Mr. Martı́n-Laborda holds a degree in law from Universidad
Complutense de Madrid.
José Ramón Ortúzar has been the head of Codere Italia since September 2001. Mr. Ortúzar was the
head of Codere Spain Bingo from August 2000 to September 2001. He is also the non-executive
president of SGEL. Prior to joining Codere, Mr. Ortúzar was employed in various capacities by Cartera
Kairos, Grupo Federico Joly y Compañı́a, Mutualidad de Endesa, Corporación Financiera de la Caja
de Madrid, SGEL Grupo Hachette, Casino Costa Blanca, Ford España, Control Data Corporation, and
Grupo Liga Financiera (Garrigues—Chase Manhattan Bank). Mr. Ortúzar was a director of Cartera
Kairos from 1998 to 2000, Montaria & Gestao and Kawama Caribbean Hotels from 1994 to 1997 and
Corporación Financiera of Caja de Madrid and Sociedad de Promoción y Participación Empresarial of
Caja de Madrid, Caja Salud from 1988 to 1992. He holds a degree in law and economics from the
Instituto Católico de Dirección de Empresas (ICADE), Madrid.
Marco Castaldo has been the head of Codere Italy AWP since May 2005. Prior to joining Codere,
Mr. Castaldo held various positions with the Monitor Group, where he worked from 1988 to 2002,
including Head of Italian operations, Head of French operations and Global Account Manager. From
1979 to 1986, Mr. Castaldo worked in various positions for Schlumberger Technical Services, including
Division Technical Manager and Base Manager. He is a member of the board of directors of
Monticchio Gaudianello and Partecipazioni Italiane. He holds a degree in physics from the
Massachusetts Institute of Technology, Cambridge, Massachusetts and an M.B.A. from INSEAD,
Fontainebleu, France.
Martı́n Cánepa has been the President of Hı́pica Rioplatense Uruguay since 2002 and Codere
Uruguay since 2003. Prior to joining Codere, Mr. Cánepa was employed in various capacities including
as a director and General Manager of the Casino de Tigre at the Boldt Group from 1999 to 2001.
Mr. Cánepa was the President of the Latin American Gaming Association (ALAJA) from 2000 to 2004.
He has also been a Vice President of the Latin American Jockey Club Association since April 2004.
Additionally, Mr. Cánepa served as director of Societat de Gestió Catastral I Tributaria (Barcelona,
España), responsible for the gaming & entertainment department. Mr. Cánepa holds a degree in law
from Universidad de Buenos Aires (UBA).
Héctor Luna has been the Vice-President of Codere Argentina since 2001. From 2002 to 2004, he
was the Manager of Institutional Relations for Codere. Prior to joining Codere, Mr. Luna served as an
Associate to the commercial management team at JET from 1973 to 1979. Mr. Luna was a Managing
Partner of Park Lane from 1980 to 1985, a Manager of Luna y Asociados from 1986 to 1999 and an
advisor to the President of Geginsa from 2000 to 2001. Mr. Luna holds a degree in philosophy and is
173
an Assistant Professor at the Universidad de Buenos Aires /Universidad Argentina de Ciencias Sociales
(Argentina). He holds a Masters in philosophy from Universidad Maimonides.
Kim Pasha-Sharpe has been the Vice President of CIMSA and CTH since 1998. Prior to joining
Codere, Mr. Pasha worked in the gaming industry with Mr. Fernando Martin-Laborda in the Eriador
ventures. Prior to that, he was the Country Manager for Spain of General Electric Information Services
Co. Mr. Pasha-Sharpe holds both a degree and a Masters in economics from the London School of
Economics.
Board Practices
Our By-Laws provide for a Board of Directors of a minimum of four and a maximum of
15 directors appointed at our General Shareholders’ Meeting. Each Director must have held at least
100 Codere, S.A. shares for at least two years prior to their appointment to the Board unless such
director is either (i) approved by a majority of shareholders at a General Shareholders’ Meeting where
holders of at least 55% of the total share capital of Codere, S.A. are either present or represented, or
(ii) nominated by the Board of Directors as an Independent Director. The term of office of a Director
is five years, and a Director may serve any number of consecutive terms. If a Director ceases to hold
office prior to the expiration of his term, the Board of Directors may fill the vacancy by appointing,
from among the shareholders of the Company, a new interim Director to replace the outgoing
Director. The Director so appointed will hold office until the next General Shareholders’ Meeting,
when his appointment may be confirmed. A Director may resign or be removed from office by a
resolution of shareholders at our General Shareholders’ Meeting at any time.
Our Board of Directors elects its chairman from among its members and may nominate one or
more vice chairmen from among its members. Our Board also elects a secretary and may nominate a
vice secretary, neither or whom are required to be Directors. Our Board meets as frequently as the
interests of the Company require in the judgment of the chairman, or when a meeting is requested in
writing by at least one-third of the members of the Board of Directors. Our By-Laws provide that a
majority of the members of the Board (represented in person or by proxy by another member of the
Board of Directors) constitutes a quorum. Resolutions of the Board of Directors are passed by an
absolute majority of the Directors present at a Board meeting.
Jesús Franco, Joaquı́n Franco and the Martı́nez Sampedro family together have the power to elect
the majority of our Board of Directors, control changes in our management and determine the
outcome of substantially all matters to be decided by a vote of shareholders, including resolutions
relating to corporate reorganizations, mergers, certain amendments to our articles of association and
by-laws, dividends, the remuneration of the members of our board of directors and our executive
officers, and day-to-day management. Jesús Franco, Joaquı́n Franco and the Martı́nez Sampedro family
have entered into a shareholders’ agreement, which includes a voting agreement regarding certain
significant matters, including voting for directors and approval of major transactions. The voting
agreement provides that if 78% of the shares held by Jesús Franco, Joaquı́n Franco and the Martı́nez
Sampedro family agree to vote as a block on such matters, all shares held by Jesús Franco, Joaquı́n
Franco and the Martı́nez Sampedro family must vote in favor of any shareholder proposal relating to
any such matter. If the 78% majority of the shares held by Jesús Franco, Joaquı́n Franco and the
Martı́nez Sampedro family is not obtained, all shares held by Jesús Franco, Joaquı́n Franco and the
Martı́nez Sampedro family represented at such meeting must vote against any such shareholder
proposals at the shareholders’ meeting. Under the MCP Instrument and related documentation, MCP
has the ability to block certain corporate actions and has the right to appoint two members of our
Board of Directors. In addition, ICIL has the right to appoint one member of our Board of Directors
and, under certain circumstances, may have the ability to block certain corporate actions.
174
Board Committees
Audit and Compliance Committee
In its meeting on June 28, 1999, our Board of Directors agreed to establish the Audit and
Compliance Committee.
The Audit and Compliance Committee consists of a minimum of three directors and a maximum
of 15 directors (the maximum number of directors on our Board of Directors). The members of the
Audit and Compliance Committee appoint among themselves a chairman of the committee. As of the
date of this offering memorandum, our Audit and Compliance Committee consists of Encarnacı́on
Martı́nez Sampedro, Francisco Javier Carro Calleja and Juan José Zornoza Pérez.
Compensation and Appointments Committee
In its meeting on June 28, 1999, our Board of Directors agreed to establish the Compensation and
Appointments Committee. The Compensation and Appointments Committee is responsible for the
following: (i) to propose to our Board of Directors the compensation agreements for Board members,
including any related proposals for amendments to our By-Laws; (ii) to propose to our Board of
Directors the appointment of new directors to our Board of Directors or committees thereof; (iii) to
formulate for our Board of Directors, in the absence of the Chairman of the Board, proposals for the
compensation package for the Chairman in his role as CEO, which package is independent from any
other compensation that the Chairman receives in his role as a director; (iv) to propose to the Board
the compensation policy for our senior officers, including the senior officers of subsidiaries of the
Group; (v) to establish and monitor the guidelines relating to the selection, appointment, development,
promotion and resignation of senior officers; (vi) to monitor the fulfillment of the Regulations of the
Board, the Committees and the Code of Conduct, informing the Board periodically about any
appropriate disciplinary measure to be taken and (vii) to present reports and proposals to the Board
about how to proceed in case of any conflict of interest.
The Compensation and Appointments Committee consists of a minimum of three directors and a
maximum of 15 directors (the maximum number of directors on the Board). The members of the
Compensation and Appointments Committee appoint among themselves a chairman of the committee.
As of the date of this offering memorandum, our Compensation and Appointments Committee consists
of José Ramón Romero Rodrı́guez, José Ignacio Cases Méndez and Eugenio Vela Sastre.
Director and Executive Compensation
The compensation of the members of our Board of Directors is determined by a General
Shareholders’ Meeting. For the year ended December 31, 2004, the aggregate compensation paid to our
directors was A1.0 million. For the year ended December 31, 2004, we paid an aggregate of
approximately A3.3 million to members of our senior management team named above, including cash
compensation for salary and bonuses.
Compensation of the members of our Board of Directors is based on three elements: a fixed
annual amount, a variable amount payable per meeting attended and an amount payable in
Codere, S.A. shares.
• As of December 31, 2004, each director is paid a fixed amount of A26,300 per year.
• As of December 31, 2004, each director is paid A2,630.04 for each meeting of the Board of
Directors that such director attends.
• An amount of Codere, S.A. shares equal to 1% of our consolidated net income for a given fiscal
year less 50% of the total fixed annual amount paid to the directors in such fiscal year is
175
granted to the directors annually and is distributed among the directors as determined by the
Board of Directors.
The above amounts are independent of any other compensation that a director may receive in
consideration of his or her professional services he or she renders to us. Those amounts will be
annually updated according to the ‘‘Índice de Precios al Consumo’’ adjustments published by the
‘‘Instituto Nacional de Estadı́stica’’.
Stock Option Plan
As of the date of this offering memorandum, we do not have a stock option plan for members of
our Board of Directors, our senior management team or any other person. However, we have been
studying the adoption of a stock option program for senior officers that we may implement in the
future.
Loans and Similar Undertakings
As of the date hereof, no loans to members of our Board of Directors and senior management
team are outstanding.
Employment Agreements
Several of the Spanish members of our senior management team have employment agreements
which include provisions for special severance payments in addition to those required under applicable
law. The aggregate value of the severance payments under these agreements was A644,410.22 as of
March 31, 2005.
Independent Auditors
Ernst & Young have been our auditor since 1997. The total audit fees paid to Ernst & Young for
the year ended December 31, 2004 totalled A0.4 million. No audit fees have been paid during the three
months ended March 31, 2005. In addition, Ernst & Young and related Ernst & Young firms provided
tax, due diligence and other non-audit services to us. For the year ended December 31, 2004 and the
three months ended March 31, 2005, these non-audit services totalled A0.2 million and A0.7 million,
respectively.
176
PRINCIPAL SHAREHOLDERS
The Issuer
As of the date of this offering memorandum, the Issuer had issued and outstanding 28,000 shares,
99.99% of which were held by Codere, S.A.
Codere, S.A.
As of December 31, 2004, the authorized share capital of Codere, S.A. was A8,648,211, consisting
of 43,241,055 fully paid up ordinary shares, forming part of the same series, each with a par value of
A0.20. The following table sets forth information regarding the beneficial ownership of Codere, S.A.
shares as of February 1, 2005.
Number of Shares
Beneficially Owned
Name of Beneficial Owner
Jesús Franco(1) . . . . . . . . . . . . . . . . . .
José Antonio Martı́nez Sampedro(2) . . .
Joaquı́n Franco(1) . . . . . . . . . . . . . . . .
Treasury shares . . . . . . . . . . . . . . . . . .
Bowling Holdings Inc.(3) . . . . . . . . . . .
Estate of José Martı́nez Hidalgo(4) . . . .
Luis Javier Martı́nez Sampedro(5) . . . .
Encarnación Martı́nez Sampedro(6) . . .
Carmen Martı́nez Sampedro(7) . . . . . . .
Intermediate Capital Investment, Ltd.(8)
Others(9) . . . . . . . . . . . . . . . . . . . . . .
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Percentage of Shares
Beneficially Owned
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10,120,486
7,912,789
7,858,716
3,694,599
1,500,000
1,500,000
1,500,000
1,500,000
1,300,679
1,104,362
5,249,424
23.41%
18.30%
18.17%
8.54%
3.47%
3.47%
3.47%
3.47%
3.01%
2.55%
12.14%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43,241,055
100.00%
(1) Jesús Franco and Joaquı́n Franco are brothers and members of our Board of Directors. They also
own Recreativos Franco, our sole supplier of rental AWP machines in Spain and a supplier of
AWP machines in other jurisdictions, and several businesses that have entered into agreements
with us or compete with us. See ‘‘Related Party Transactions’’.
(2) José Antonio Martı́nez Sampedro is the Chairman of our Board of Directors, our Chief Executive
Officer, and the brother of Luis Javier Martı́nez Sampedro and Encarnación Martı́nez Sampedro,
each of whom are members of our Board of Directors.
(3) Bowling Holdings Inc. is owned by Luis Javier Martı́nez Sampedro.
(4) Shares are held by the estate of José Martı́nez Hidalgo, to be distributed among his wife and five
children including José Antonio Martı́nez Sampedro, Luis Javier Martı́nez Sampedro and
Encarnación Martı́nez Sampedro, each of whom are members of our Board of Directors.
(5) Luis Javier Martı́nez Sampedro is the Executive Director of Codere América Latina, a member of
our Board of Directors and the brother of José Antonio Martı́nez Sampedro and Encarnación
Martı́nez Sampedro, each of whom are members of our Board of Directors.
(6) Encarnación Martı́nez Sampedro is the Executive Director of Codere, a member of our Board of
Directors and the sister of José Antonio Martı́nez Sampedro and Luis Javier Martı́nez Sampedro,
each of whom are members of our Board of Directors.
(7) Carmen Martı́nez Sampedro is the sister of José Antonio Martı́nez Sampedro, Luis Javier
Martı́nez Sampedro and Encarnación Martı́nez Sampedro, each of whom are members of our
Board of Directors.
177
(8) On June 19, 2003, the date on which ICIL, a private equity firm, purchased 1,104,362 of
Codere, S.A. shares from Jesús Franco for A10 million, we granted ICIL a put option over all, but
not part, of such shares pursuant to which ICIL may require Codere, S.A. to purchase such shares
at a purchase price such that ICIL obtains at least an annual return of 15% on its initial
investment of A10.0 million (i) at any time between June 30, 2008 and June 30, 2009, (ii) upon the
redemption by MCP of the MCP Instrument or (iii) upon the occurrence of certain other events,
including (A) in the event that the combined interest of Jesús Franco, Joaquı́n Franco and the
Martı́nez Sampedro family and their affiliates equals or falls below 50% of the outstanding share
capital of Codere, S.A. or (B) the liquidation of Codere, S.A. The option expires upon the earlier
of June 30, 2009 and the listing of Codere, S.A. shares on any authorized secondary trading
market in the United States or a member state of the European Union.
(9) Others includes 161,584 Codere, S.A. shares held by Monitor Company Group L.P. (‘‘Monitor’’)
See ‘‘—MCP Instrument’’.
MCP Instrument
In September 2002, MCP purchased a A40 million investment instrument issued by Codere, S.A.,
which, under certain circumstances, is convertible into Codere, S.A. shares or redeemable at MCP’s
request by Codere, S.A. for shares or cash (‘‘the MCP Instrument’’). The MCP Instrument may be
converted into 5,073,000 shares of Codere, S.A. (the ‘‘Conversion Amount’’). The Conversion Amount
may be increased by a variable component of up to 2,768,000 shares, which could result in the
conversion of the MCP Instrument into up to an aggregate of 7,841,000 Codere, S.A. shares as set
forth in the MCP Instrument. See ‘‘Description of Other Indebtedness and Instruments—MCP
Instrument’’. MCP is a U.S. private equity firm associated with the consulting firm Monitor. MCP
specializes in middle market transactions including leveraged transactions and development capital
deals. If we fail to provide the Codere, S.A. shares we are obligated to provide upon conversion of the
MCP Instrument, the amount of shares due upon conversion will be increased by 20% and the holder
of the MCP Instrument may pursue any remedies it may have at law and claim damages and losses
suffered as a result of our failure to deliver shares of Codere, S.A. in accordance with the terms of the
MCP Instrument.
Codere, S.A. used the proceeds from the MCP Instrument (i) to purchase approximately 3,225,805
of its own shares from Joaquı́n Franco and certain minority shareholders for an aggregate consideration
of A25.0 million and (ii) for working capital purposes.
Monitor, an affiliate of MCP, also has received 161,584 Codere, S.A. shares and rights to an
additional 79,514 Codere, S.A. shares, in addition to cash payments of A2.1 million, between June 2002
and March 2005, excluding VAT and reimbursed expenses, in consideration for consulting and other
services they have provided to us since June 2002. 121,827 Codere, S.A. shares were transferred to
Monitor at an effective price of A7.88 per share and the remainder were transferred at an effective
price of A9.055 per share. In addition, if MCP requests that we redeem the MCP Instrument, Monitor
may require us to purchase 161,584 shares at the higher of (i) the sum of A7.88 per share for 121,827
shares and A9.055 per share for 39,757 shares, increased by 15% per annum from January 1, 2004 for
121,827 shares and from July 1, 2004 for 39,757 shares and (ii) (only in the event that MCP requests
that we redeem its investment on any date between January 1, 2007 and up to but excluding
December 31, 2007 or as a result of the voluntary or compulsory winding up and liquidation of
Codere, S.A.) the fair market value of such shares (calculated by dividing the equity value of
Codere, S.A. at the date of exercise of the Monitor’s right to require us to purchase such shares by the
total number of shares of Codere, S.A. then outstanding). The 79,514 shares we expect to transfer to
Monitor during 2005 in exchange for consulting services provided or to be provided to us from
July 2004 to June 2005 will be granted similar put option rights.
178
RELATED PARTY TRANSACTIONS
In the past, we have entered into, and expect to enter into in the future, contractual arrangements
with our principal shareholders or companies controlled by them. We believe that our prior and existing
transactions and arrangements have been negotiated on an arm’s-length basis and contain market
terms. However, there is the possibility that we could have obtained better terms from third parties and
that our future transactions with related parties will not be entered into on an arm’s-length basis.
Acquisition of Grupo Royal
Royal companies. If we acquire Recreativos Francos’ interest in Grupo Royal, we will also assume
March 31, 2005. Following our exercise of the purchase option we will own over 90% of Grupo Royal,
between us.
See ‘‘Business—Argentina’’ for a more detailed description of the transactions involving Grupo
Royal.
Framework Rental Agreement with Recreativos Franco
At December 31, 2004, we rented approximately 90% of our AWP machines in Spain from
Recreativos Franco, which is one of the principal suppliers of rental AWP machines in the Spanish
market, pursuant to a framework renting agreement that expires in June 2006, except for the Valencia
region, which expires in 2009. Recreativos Franco is owned by two of our significant shareholders and
members of our Board of Directors, Jesús Franco and Joaquı́n Franco. We believe our commercial
relationship with Recreativos Franco has been conducted on an arm’s-length basis and on market terms
but cannot assure you that we would have been able to obtain similar terms from a non-related party
supplier. See ‘‘Risk Factors—We currently source substantially all of our AWP machines from a single
supplier’’.
The individual rental agreements entered into pursuant to the framework renting agreement
generally provide for a one-year term with the option for us to terminate the agreement any time after
one year. We also have the right to market-test new machines before making our initial rental decision.
Although we choose to rent most of our machines from Recreativos Franco, we are not obliged to do
so and are not subject to contractual restrictions on the use of other manufacturer’s machines. Under
our individual agreements with Recreativos Franco, we pay a monthly rental fee which decreases after
each six-month period. The fees are renewed on a yearly basis and can be changed by Recreativos
Franco, but they have not changed in the past four years and we retain our right to terminate the
agreement with respect to any particular machine or machines after the initial one-year rental period in
any event.
During 2002, 2003 and 2004, we incurred expenses of A10.1 million, A7.7 million and A9.7 million,
respectively, relating to our rental of AWP machines pursuant to the rental agreements.
179
See ‘‘Business—Spain AWP Machines—AWP Machine Rental’’ for a description of the reasons we
choose to rent AWP machines in Spain.
Agreements with Affiliates of Recreativos Franco
For our AWP machine operations in Argentina and our AWP machine operations in Colombia, we
purchase some of our AWP machines from Argentine and Colombian affiliates of Recreativos Franco.
In September 2000, we assumed from Hispano Chilenos, S.A., a company owned by Jesús Franco,
one of our significant shareholders, its rights and obligations under a share and purchase agreement
with Ballesteros, at a total cost of A15.5 million, to buy 50% of the shares in the Ballesteros Group, a
Spanish bingo operator with twelve bingo halls in the region of Castilla-Leon, one in Venezuela and
additional bingo licenses in Venezuela. We are currently invovled in a legal proceeding with the
Ballesteros Group. See ‘‘Business—Litigation’’.
Recreativos Franco has provided certain loans to us to finance, in part, certain of our operations in
Latin America, including our initial investment in our operations in Uruguay. In December 2004, these
loans were restructured into a single loan, which accrues interest at a rate of 10% per annum and
matures in December 2007. As of March 31, 2005, the amount outstanding under this loan, including
principal and accrued interest, was A2.0 million.
Recreativos Franco also provided a loan to us when we purchased Francomar’s Peruvian
operations on December 31, 2002. This loan was also restructured in December 2004 and accrues
interest at a rate of 5.0% per annum and matures in December 2005. As of March 31, 2005, the
amount outstanding under this loan, including principal and accrued interest, was A1.6 million.
Agreements with Francomar
Memorandum of Understanding—Operbingo Purchase
In 2002 we decided to enter the Italian bingo market with local Italian partners, Mr. Leonardo
Ceoldo and Mr. Vittorio Casale. At that time, however, Italian regulation limited ownership in bingo
halls to individuals or listed companies, which prevented us from participating directly in the Italian
bingo market. Several of our shareholders elected to participate in the Italian bingo market through the
ownership of bingo halls by individual nominees of Francomar, together with such Italian partners. We,
together with such Italian partners, in turn, formed Codere Italia, in which we held a 50.0% interest
and such Italian partners held the other 50.0%, to provide bingo management services to such bingo
halls. We currently hold a 56.5% interest in Codere Italia and our Italian partners hold the other
43.5%. These arrangements were entered into with the understanding that we would acquire direct
interests in the bingo halls after a change in Italian law permitted us to do so. When Italian regulations
changed to permit non-listed companies to own bingo halls, however, we did not believe it was the
appropriate moment to acquire the Italian bingo halls and, instead, Francomar and such Italian
partners established Operbingo to hold the bingo halls they owned. From time to time we have
evaluated the possibility of acquiring Operbingo and on May 18, 2005, we entered into a memorandum
of understanding with Francomar and our Italian partners to purchase 100% of Operbingo. See
‘‘Business—Recent Developments—Italy’’ and ‘‘Business—Italy’’. Jesús Franco and Joaquı́n Franco, two
of our significant shareholders and members of our Board of Directors, own 50% of Francomar and
José Antonio Martı́nez Sampedro, our Chief Executive Officer and also one of our significant
shareholders and a member of our Board of Directors, and certain Martı́nez Sampedro family members
own the other 50%.
We believe that the memorandum of understanding has been negotiated on an arms’-length basis
and is on market terms but cannot assure you that we would not have been able to obtain better terms
from a third party. We cannot assure you that the conditions to the proposed acquisition will be
180
satisfied or that we will enter into the proposed acquisition on the terms set forth in the memorandum
of understanding or at all.
Codere Italia Guarantees
Given the close relationship between Codere Italia and Francomar and our Italian partners, in
2002 and 2003, Codere Italia was requested to provide guarantees of the obligations of certain of the
Operbingo companies indirectly owned by Francomar and our Italian partners and Codere Italia agreed
to issue an aggregate of A36.7 million of such guarantees. Though properly approved by its board of
directors, Codere Italia did not include in the management reports submitted to us that it had issued
these guarantees and such guarantees were therefore not reflected in the notes to our consolidated
financial statements for the years ended December 31, 2002 and 2003. The guarantees are properly
reflected in the notes to the Consolidated Financial Statements included elsewhere in this offering
memorandum. In addition, Operbingo has issued a guarantee in favor of a bank in the amount of
A7.5 million in connection with a loan to Codere Italia.
The companies whose loans were supported by the Codere Italia guarantees are the subject of the
possible Operbingo transaction contemplated in the memorandum of understanding we entered into
with Francomar and our Italian partners on May 18, 2005.
Opergiochi
On December 2, 2004 we acquired Opergiochi for A7.0 million, an operator of AWP machines in
the north of Italy. Opergiochi was indirectly owned by Francomar and our Italian partners.
Real Estate
Our principal executive offices are located at Rufino González 25, Madrid, Spain and are leased
from a company that is owned by two of our principal shareholders and members of our Board of
Directors, Jesús Franco and Joaquı́n Franco. We paid A190 thousand for the lease of the building at
Rufino González 25 in 2004 and will pay A410 thousand in 2005. Thereafter, the annual lease payment
is reviewed and adjusted in light of increases or decreases in the consumer price index in Spain.
In the Madrid region, our technical, service, maintenance and collection personnel work in
facilities in Getafe and Coslada which are leased from Francomar. In addition, our regional
headquarters offices in Barcelona are leased from Francomar. In 2004, the total lease payments to
Francomar relating to the foregoing leases was A0.2 million.
Own Shares Transactions and Put/Call Options
During the course of 2002 and 2003 Codere, S.A. entered into a series of transactions involving its
own shares. Such transactions included (i) the cash purchase and sale of its own shares, (ii) the
undertaking to purchase certain amounts of its own shares at a pre-agreed price, subject to certain
conditions, from Jesús Franco and Joaquı́n Franco and (iii) the undertaking to sell shares at a
pre-agreed price to José Antonio Martı́nez Sampedro and two other investors.
The sequence of transactions was as follows:
• On September 25, 2002, using the proceeds from the MCP Instrument, Codere, S.A. purchased
an aggregate of 3,225,805 of its own shares from Joaquı́n Franco, Jesús Martı́nez Quero, Angel
Manzano Alonso, Juan Rabasco Espino, Antonia Pérez Caballero, Araceli Rabasco Pérez, Clara
Rabasco Pérez, Maria Jesús Borjas Córdoba, Antonio Martı́nez Borgas, David Martı́nez Bolgas,
Esther Fernández Orgaz, Esther Martı́nez Fernandez, Rafael Martı́nez Fernández, Alejandro
Martı́nez Fernández, Asociación Económica Industrial KM, S.L., Joaquı́n Gomis Estada and
Jose Marqués Palanca for total consideration of A25.0 million (A7.75 per share). In connection
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with such purchases, we also agreed, subject to certain conditions, to purchase from Jesús
Franco up to 2,253,758 additional Codere, S.A. shares at a purchase price of A9.055 per share
(which price increased 5.0% per annum from July 18, 2003). On March 21, 2005, Jesús Franco
agreed to waive his right to require us to purchase such shares.
• In March 2003, Codere, S.A. sold an aggregate of 473,983 of its own shares from its treasury
stock to Masampe, S.L. (a company controlled by José Antonio Martı́nez Sampedro), Arturo
Alemany, a consultant to our Board of Directors, and Joseph Zappala, a member of our Board
of Directors, for total consideration of A3.7 million (A7.75 per share). In connection with this
sale, Codere, S.A. granted Messrs. Martı́nez, Alemany and Zappala a call option on 1,421,949
additional shares at a purchase price of A7.88 per share over a period of 30 months.
• In connection with entering into the mezzanine loan facility in 2003, Codere, S.A. (i) purchased
an aggregate of 1,104,362 of its own shares from Jesús Franco and Joaquı́n Franco and certain
minority shareholders for total consideration of A10.0 million (A9.055 per share) and (ii) granted
ICIL a put option over all, but not part, of 1,104,362 Codere, S.A. shares ICIL purchased from
Jesús Franco pursuant to which ICIL may require Codere, S.A. to purchase such shares at a
purchase price such that ICIL obtains at least an annual return of 15% on its initial investment
of A10.0 million (i) at any time between June 30, 2008 and June 30, 2009, (ii) upon the
redemption by MCP of the MCP Instrument or (iii) upon the occurrence of certain other events,
including (A) in the event that the combined interest of Jesús Franco, Joaquı́n Franco and the
Martı́nez Sampedro family and their affiliates equals or falls below 50% of the outstanding share
capital of Codere, S.A. or (B) the liquidation of Codere, S.A. The option expires upon the
earlier of June 30, 2009 and the listing of Codere, S.A. shares on any authorized secondary
trading market in the United States or a member state of the European Union.
• In consideration for consulting and other services they have provided to us since June 2002,
Codere, S.A. has granted 161,584 Codere, S.A. shares and rights to an additional 79,514
Codere, S.A. shares to Monitor. 121,827 Codere, S.A. shares were transferred to Monitor at an
effective price of A7.88 per share and the remainder were transferred at an effective price of
A9.055 per share. In addition, if MCP requests that we redeem the MCP Instrument, Monitor
may require us to purchase the 161,584 Codere, S.A. shares it holds at the higher of (i) the sum
of A7.88 per share for 121,827 shares and A9.055 per share for 39,757 shares, increased by 15%
per annum from January 1, 2004 for 121,827 shares and from July 1, 2004 for 39,757 shares and
(ii) (only in the event that MCP requests that we redeem its investment on any date between
January 1, 2007 and up to but excluding December 31, 2007 or as a result of the voluntary or
compulsory winding up and liquidation of Codere, S.A.) the fair market value of such shares
(calculated by dividing the equity value of Codere, S.A. at the date of exercise of Monitor’s right
to require us to purchase such shares by the total number of shares of Codere, S.A. then
outstanding). The 79,514 shares we expect to transfer to Monitor during 2005 in exchange for
consulting services provided or to be provided to us from July 2004 to June 2005 will be granted
similar put option rights.
Following these transactions, and including the treasury shares held by Codere, S.A. prior to 2002,
Codere, S.A. owned 3,694,598 of its own shares at March 31, 2005. We spent an aggregate amount, net
of disposals, of A30.1 million. Spanish GAAP requires that we provision for the excess between the cost
of our treasury stock and its underlying book value. We have provisioned A27.2 million against our
treasury stock at March 31, 2005. The net carrying value of our treasury stock as at March 31, 2005 was
A2.9 million.
The above described transactions have resulted in significant charges to our income statements for
the years ended December 31, 2002, 2003 and 2004 and the three months ended March 31, 2005 that
included not only allowances against the value of our treasury stock (A16.3 million, A10.9 million and
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A1.7 million in 2002, 2003 and 2004, respectively) but also provisions for the obligations incurred in
connection with the commitments to purchase shares from Jesús Franco and the put option granted to
ICIL. The pre-tax losses incurred in connection with such transactions were A16.3 million, A14.3 million
and A8.1 million in the years ended December 31, 2002, 2003 and 2004, respectively. In the three
months ended March 31, 2005 as a result of Jesus Franco’s waiver of his right to require us to purchase
2,253,758 Codere, S.A. shares from him, we reversed the provision that had been recorded in respect of
such obligation, which resulted in an extraordinary profit of A6.5 million.
Other
One of the members of our Board of Directors, José Ramón Romero Rodrı́guez, has been our
outside legal counsel since July 2002. In 2004, we paid Loyra Abogados, Mr. Romero’s law firm,
A0.4 million in legal fees.
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DESCRIPTION OF OTHER INDEBTEDNESS AND INSTRUMENTS
The following contains an overview of our significant indebtedness as of March 31, 2005 including a
summary of the material provisions of the senior credit facilities, the senior guarantee facility, the
performance bond facilities, the mezzanine loan facility, the intercreditor agreement and the MCP
Instrument. As described below, certain of these facilities will be repaid in full with the net proceeds from
this offering and we intend to enter into a new senior credit facilities agreement and a new intercreditor
agreement in connection with this offering. Some of the terms used herein are defined in these agreements
and we have not included all of such definitions herein.
Overview
In 2003 and 2004, Codere, S.A. and certain of its subsidiaries entered into the following series of
transactions to refinance our indebtedness:
• A senior credit facilities agreement dated June 19, 2003 consisting of:
• a A30 million term loan facility maturing 66 months after the date of the senior credit
facilities agreement and bearing interest at a rate of EURIBOR plus 2% per annum; and
• a A15 million revolving credit facility maturing three years after the date of the senior credit
facilities agreement and bearing interest at a rate of EURIBOR plus a margin of 1.75%.
• A mezzanine loan facility agreement dated June 19, 2003 consisting of a A135 million term loan
facility maturing on June 30, 2013 with:
• a A30.5 million fixed rate loan bearing interest at a rate of 7.5% plus a PIK margin of 6.5%;
and
• a A104.5 million floating rate loan bearing interest at a rate of EURIBOR plus a cash
margin of 5% and a PIK margin of 6.5%.
• A senior guarantee facility agreement dated October 30, 2003 consisting of a A15 million
revolving credit facility that must be fully cash collateralized on October 30, 2006 and utilized by
way of open-ended bank guarantees.
• A performance bond facilities agreement dated January 16, 2004 consisting of a A5 million
revolving credit facility and an additional performance bond facility agreement dated March 1,
2004 consisting of an A8 million revolving credit facility, each of which are utilized by way of
performance bonds.
Codere, S.A. and certain of its subsidiaries and all of the lenders under the senior credit facilities
agreement, the senior guarantee facility agreement, the performance bond facilities agreement and the
mezzanine loan facility agreement, are parties to or have acceded to an intercreditor agreement dated
June 19, 2003.
At March 31, 2005, we had total debt of A203.3 million (including principal amount and accrued
interest, but excluding the MCP Instrument). This amount included A18.1 million of indebtedness under
our senior credit facilities and A151.4 million under our mezzanine loan facility. As described in ‘‘Use
of Proceeds’’, approximately A169.5 million of the net proceeds from this offering will be applied to
repay in full the senior credit facilities and the mezzanine loan facility (including principal, accrued
interest, bank charges and other costs) and approximately A19.2 million will be used to repay other
indebtedness and other payables, at our subsidiaries. Following these payments, the senior credit
facilities and the mezzanine loan facility will be discharged.
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In connection with this offering, we expect to enter into the following agreements:
• a senior credit facilities agreement consisting of:
• a A45 million senior credit facility; and
• a A30 million senior performance bond facility;
• an intercreditor agreement; and
• a subordination agreement.
Existing Facilities
Senior Credit Facilities
We are party to a senior credit facilities agreement dated June 19, 2003 with Bank of Scotland,
Spanish Branch, Banco Bilbao Vizcaya Argentaria, S.A., and Banco Urquijo, S.A. The senior credit
facilities are secured by a first ranking pledge over the issued share capital of certain of our
subsidiaries. The senior credit facilities agreement contains financial maintenance and certain restrictive
covenants. A portion of the net proceeds of this offering will be used to repay in full these facilities
whereupon they will be discharged.
Mezzanine Loan Facility
We are party to a mezzanine loan facility agreement dated June 19, 2003 with, among others,
Credit Suisse First Boston (Europe) Limited, Intermediate Capital Group PLC and Bank of Scotland,
Spanish Branch secured by a first ranking pledge over the issued share capital of certain of our
subsidiaries. The mezzanine facility agreement contains financial maintenance and certain restrictive
covenants. A portion of the net proceeds of this offering will be used to repay this facility in full
whereupon it will be discharged.
In connection with our entry into the mezzanine loan facility, we entered into an interest rate
hedging agreement with Credit Suisse First Boston International under which agreement Credit Suisse
First Boston International pays us the EURIBOR six-month rate on the semi-annual interest payment
dates under the mezzanine loan facility and we pay Credit Suisse First Boston International the
EURIBOR 12-month rate, subject to certain adjustments, once per year, in each case calculated on a
notional amount of A52.5 million. This interest rate hedging agreement expires on December 25, 2006.
Senior Guarantee Facility
We are party to a senior guarantee facility agreement dated October 23, 2003 with Bank of
Scotland, Spanish Branch. The senior guarantee facility is utilized by way of open-ended bank
guarantees issued in favor of Spanish tax authorities in respect of certain of our obligations to pay
gaming taxes incurred in the ordinary course of business. The senior guarantee facility agreement
contains financial maintenance and certain restrictive covenants.
Five business days prior to the Cash Collateralization Date, the borrower must replace and cancel
all outstanding bank guarantees issued under the senior guarantee facility with equivalent bank
guarantees or provide cash cover to the issuing bank in an amount equal to the outstanding amounts of
the bank guarantees that are required to be replaced. In connection with this offering, this facility will
be replaced by the new senior performance bond facility with Bank of Scotland, Spanish Branch
described below.
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Performance Bond Facilities
We are party to performance bond facilities agreements, by which we obtain performance bonds
issued in favor of Spanish regulatory or local authorities in order to comply with regulations relating to
our Spanish businesses. As of March 31, 2005, the current amount outstanding under our performance
bond facilities was approximately A13 million. These performance bond facilities will be replaced by
performance bonds guaranteed by the Bank of Scotland, Spanish Branch under the new senior
performance bond facility.
New Facilities
Senior Credit Facilities
In connection with this offering, Codere, S.A. and certain of its subsidiaries expect to enter into a
senior credit facility and a senior performance bond facility under a senior credit facilities agreement
with Bank of Scotland, Spanish Branch, as mandated lead arranger, senior agent and payment agent
and Deutsche Trustee Company Limited, as security agent, for which final credit approval has been
received. Codere, S.A. will be the borrower under, and certain of its subsidiaries will provide senior
guarantees in respect of, the senior credit facilities. The senior credit facilities will be secured by a first
ranking pledge over the issued share capital of Codere España, S.L.U. and Codere Internacional,
S.L.U. It is expected that definitive documentation will be entered into prior to or simultaneous with
the closing of this offering.
The senior credit facility will be a revolving term facility with a scheduled final maturity date of
three years after the date we enter into the senior credit facilities agreement. The senior credit facility
will be renewable for a maximum of two additional one-year periods. Interest rate periods will be one,
three or six months duration as selected by Codere, S.A. The interest rate will EURIBOR plus a
margin of 1.75% per annum plus certain mandatory costs. In addition, there will be a commitment fee
payable to the senior agent on the unutilized portions of the senior credit facility at 0.75% per annum,
calculated on a quarterly basis.
The senior performance bond facility will be a revolving credit facility to be utilized by way of
open-ended performance bonds issued in favor of Spanish gaming authorities in the ordinary course of
business. The senior performance bond facility will have a scheduled final maturity date of three years
after the date we enter into the senior credit facilities agreement, renewable for a maximum of two
additional one-year periods.
Voluntary Prepayments. Codere, S.A. will have the option to voluntarily prepay all or part of the
senior credit facilities in tranches of at least A3 million with five days notice, except where such
voluntary prepayment is in connection with a third party refinancing within 12 months of the date of
the senior credit facilities agreement, in which case a cancellation premium of 1% will apply. If a third
party refinancing occurs within the following 12 months, a cancellation premium of 0.5% will apply.
Mandatory Prepayments. Mandatory prepayment and cancellation of the senior credit facilities will
occur upon (i) certain change of control events, (ii) a voluntary or mandatory redemption of the Notes,
except for a redemption of up to 35% of the Notes with the proceeds of a public equity offering or
(iii) a sale of substantially all of the assets of the Codere Group. In the case of any mandatory
prepayment pursuant to (iii) above, Codere, S.A. would be required to pay a prepayment fee equal to a
percentage of the principal amount of the senior credit facilities not drawn down, which would be
(x) 1% if such asset sale occurs within 12 months after the date of senior credit facilities agreement
and (y) 0.5% if such asset sale occurs within the following 12 months.
In addition, certain amounts received by Codere, S.A. resulting from (i) certain asset sales, (ii) the
receipt of proceeds of certain insurance claims and (iii) certain capital increases must be paid into a
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pledged prepayment account and no such amounts may be withdrawn from such prepayment account
except to make certain authorized prepayments or reinvestments.
Covenants
The senior credit facilities agreement contains certain customary representations and warranties. It
also contains certain customary positive and financial covenants including covenants to ensure that the
Codere Group maintains a minimum interest coverage ratio, a maximum ratio of total net debt and
total net senior debt to EBITDA and a minimum cash flow to total funding costs ratio. In addition,
certain negative covenants restrict the ability of Codere, S.A. and certain of its subsidiatires, subject to
certain exceptions, to (among other things):
• make certain acquisitions that would exceed 5% of our consolidated EBITDA, assets or
revenues;
• engage in any corporate restructuring, which would result in the transfer of assets or shares of
either the borrower or the guarantors outside the Codere Group;
• provide any form of credit to any other person or give or issue any guarantee to or for the
benefit of any other person or voluntarily assume any liability (whether actual or contingent) of
any other person;
• incur more than A100 million of senior indebtedness (including the senior credit facilities);
• engage in certain speculative derivative transactions;
• do anything which might prejudice the validity, enforceability or priority of any of the security
interests or guarantees granted under the senior credit facilities agreement;
• sell, transfer or otherwise dispose of any of its assets, except for dispositions:
• in the ordinary course of business at market prices;
• of marketable securities;
• of up to an aggregate of 15% of the total assets of the Codere Group over the term of the
senior credit facilities agreement;
• declare, pay or make any dividend or other payment or distribution of any kind on or in respect
of any of its shares, or to reduce, return, purchase, repay, cancel or redeem any of its shares in
an amount that would exceed 50% of consolidated net income for each fiscal year;
• modify their respective articles of association (estatutos sociales) in such a way that may affect
the security interests or guarantees granted under the senior credit facilities; or
• issue any conditional or unconditional options, warrants or other rights to call for the issue or
allotment of, any shares (including any right of pre-emption, conversion or exchange), or alter
any existing rights attaching to their respective shares.
Events of Default
The senior credit facilities agreement will also contain certain events of default, including, among
other things, and subject to certain exceptions and grace periods:
• non-payment of any amount due under the senior credit facilities;
• breach of obligations or undertakings by any obligor under the senior credit facilities agreement
or the Indenture, including the financial covenants and the obligation to provide financial
information;
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• any representation or statement made by any person in the senior credit facilities agreement is
or proves to have been incorrect or misleading when made;
• non-payment of any financial indebtedness of by any obligor under the senior credit facilities
agreement when due nor within any originally applicable grace period or otherwise becomes
accelerated and payable prior to its specified maturity as a result of an event of default (however
described) unless such amount is less than A5,000,000 or its equivalent; and
• certain events of insolvency.
Intercreditor Agreement
To establish the relative rights of certain of their creditors under the new financing arrangements,
the Issuer and the Guarantors will enter into an Intercreditor Agreement with the lenders under the
Senior Credit Facility and Deutsche Trustee Company Limited, the security trustee under the
Intercreditor Agreement (the ‘‘security trustee’’), and Deutsche Trustee Company Limited, as the
trustee under the Indenture.
The Intercreditor Agreement restricts, among other things, the ability of the holders of the Notes
and the Trustee to enforce any Subsidiary Guarantees or Security in favor of the Notes and the Parent
Guarantee. In addition, the Intercreditor Agreement requires that the Guarantees and the Security in
favor of the Notes be released in certain circumstances, and that certain proceeds received by the
trustee be turned over to the security trustee for application in accordance with the Intercreditor
Agreement. The Intercreditor Agreement also subordinates certain intercompany liabilities (not
including the initial Funding Loan).
For more information on the Intercreditor Agreement, see ‘‘Description of the Notes—
Subordination of the Subsidiary Guarantees’’; ‘‘Description of the Notes—Security’’; and ‘‘Description
of the Notes—Intercreditor Agreement’’. The definitions of certain terms used in this section are set
forth in ‘‘Description of the Notes—Certain Definitions’’.
MCP Instrument
In September 2002, Codere, S.A. entered into an investment agreement with certain investor
nominees of MCP whereby Codere, S.A. issued a convertible investment instrument (the ‘‘MCP
Instrument’’) to MCP for a subscription price of A40 million.
The holder of the MCP Instrument may elect to convert the MCP Instrument into 5,073,000 shares
of Codere, S.A. (the ‘‘Conversion Amount’’), which may be increased by a variable amount (the
‘‘Variable Amount’’) of up to an additional 2,768,000 Codere, S.A. shares in accordance with the terms
of the MCP Instrument. See ‘‘—Conversion into Shares of Codere, S.A.’’. Alternatively, the holder may
request that we redeem the MCP Instrument (i) on any date between January 1, 2007 and up to but
excluding December 31, 2007, (ii) upon a change of control of Codere, S.A., (iii) upon breach of
certain warranties made by Codere, S.A. and certain of its shareholders, the MCP Instrument
subscription agreement and (iv) upon bankruptcy or voluntary or compulsory winding up and
liquidation of Codere, S.A. If the holder requests that we redeem the MCP Instrument, the redemption
amount payable by Codere shall be the principal amount of A40 million plus accrued and capitalized
interest up to the ‘‘Payment Date,’’ as defined in the MCP Instrument, payable, if the holder elects to
require us redeem the MCP Instrument pursuant to (i) above, in cash, in Codere, S.A. shares or in a
combination of cash and Codere, S.A. shares, in each case, at our option. If the holder requests that we
redeem the MCP Instrument pursuant to (ii), (iii) or (iv) above, then the redemption amount must be
paid in cash. See ‘‘—Interest’’ and ‘‘—Redemption’’.
In the event that we do not pay in full any amount due upon redemption, the MCP Instrument
will remain outstanding until it is paid in full (whether in cash or Codere, S.A. shares) and any amount
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due shall continue to accrue interest as provided below. After any failure by us to pay amounts owing
upon redemption of the MCP Instrument, the holder of the MCP Instrument may compel us to apply
any available cash (other than that required for certain capital expenditures) to unpaid amounts due
under the MCP Instrument as provided below under ‘‘—Remedies’’, and no holder of the MCP
Instrument may otherwise seek enforcement, specifically or otherwise, of payment due under the MCP
Instrument or seek damages unless Codere, S.A. is in liquidation or bankruptcy.
If the holder elects to convert the MCP Instrument in full into Codere, S.A. shares, such holder
has no right to receive the principal amount of the MCP Instrument or accrued and capitalized interest
in cash. If the holder elects to convert the MCP Instrument in part, the holder may choose to convert
the MCP Instrument in part into Codere, S.A. shares and to request that we redeem the remaining
portion for cash, Codere, S.A. shares or a combination of cash and Codere, S.A. shares, in each case,
at our option. In such a case, the holder would receive (i) a number of shares corresponding to the
percentage of the Conversion Amount equal to the percentage of the MCP Instrument converted and
(ii) cash, Codere, S.A. shares or a combination of cash and Codere, S.A. shares for the remaining
percentage of the MCP Instrument, in each case, at our option, which would include unpaid principal
and accrued and capitalized interest.
If we fail to provide the Codere, S.A. shares we are obligated to provide upon conversion of the
MCP Instrument, the amount of shares due upon conversion will be increased by 20% and the holder
of the MCP Instrument may pursue any remedies it may have at law and claim damages and losses
suffered as a result of our failure to deliver shares of Codere, S.A. in accordance with the terms of the
MCP Instrument.
Conversion into Shares of Codere, S.A.
The holder may elect to convert the MCP Instrument into Codere, S.A. shares upon delivery of a
notice of conversion prior to December 31, 2007, subject to the following:
• until December 31, 2006, the MCP Instrument may be converted only in full; and
• between January 1, 2007 and up to but excluding December 31, 2007, the MCP Instrument may
be converted in full or in part.
The Conversion Amount of 5,073,000 Codere, S.A. shares may be increased by the Variable
Amount of up to a maximum of an additional 2,768,000 Codere, S.A. shares in accordance with the
following terms:
• If the holder elects to convert the MCP instrument in the context of a public offering of
Codere, S.A. shares, the holder is entitled to receive additional Codere, S.A. shares such that
the product of (i) the sum of such additional Codere, S.A. shares and the Conversion Amount
multiplied by (ii) the per share public offering price equals a ‘‘total valuation amount’’ set forth
in the MCP Instrument, which is initially set at A52 million and increases over time up to:
• A114 million if the public offering occurs between July 1, 2005 and June 30, 2006;
• A125 million if the public offering occurs between July 1, 2006 and December 31, 2006; and
• A102 million if the public offering occurs between January 1, 2007 and December 31, 2007.
• If the holder elects to convert the MCP instrument in order to transfer Codere, S.A. shares to
an unaffiliated third party (and at least one principal shareholder also transfers shares), the
holder and Codere, S.A. shall appoint an independent expert to determine the equity value of
Codere, S.A. as of the conversion date and the Conversion Amount shall be increased, if
appropriate, by a Variable Amount based on such equity value.
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If no notice of conversion or redemption of the MCP Instrument has been delivered to
Codere, S.A. prior to December 31, 2007, on such date the holder shall automatically be deemed to
have given irrevocable notice that the MCP Instrument is to be converted in full into Codere, S.A.
shares, and the holder shall receive a number of Codere, S.A. shares equal to the Conversion Amount
and the Variable Amount, calculated on the basis of the equity value of Codere, S.A. as of
December 31, 2007, as determined by an independent expert.
Under the MCP Instrument, the Conversion Amount (after the addition of the Variable Amount)
can be no greater than 7,841,000 shares nor less than 5,073,000 shares, except that if we fail to provide
the Codere, S.A. shares we are obligated to provide upon conversion of the MCP Instrument, the
amount of shares due upon conversion will be increased by 20%.
Interest
The MCP Instrument accrues and capitalizes interest from September 20, 2002 at 15.0% per
annum up to but excluding the Payment Date. As of December 31, 2004, the amount of principal and
accrued and capitalized interest outstanding under the MCP Instrument was A55.0 million. If any part
or all of the MCP Instrument remains unpaid following the Payment Date, then any unpaid amounts
due shall accrue interest at the following rates:
• 15% compound yield per annum for six months calculated from the Payment Date;
• 22.5% compound yield per annum for the immediately succeeding six month period; and
• 30% compound yield per annum onwards up to but excluding the date of final and complete
payment of any unpaid amounts on the MCP Instrument.
Redemption
The holder may request that we redeem the MCP Instrument, subject to certain conditions, upon
the occurrence of any of the following:
(a) on any date between January 1, 2007 and up to but excluding December 31, 2007;
(b) in the event that the combined participation of Joaquı́n Franco, Jesús Franco and the
Martı́nez Sampedro family in the shares of Codere, S.A. is equal to or below 50% of
Codere, S.A.’s total shares;
(c) upon the breach of certain warranties made by Codere, S.A. in the MCP Instrument
subscription agreement;
(d) on voluntary or compulsory winding up and liquidation of Codere, S.A.; or
(e) upon the bankruptcy of Codere, S.A.
If the holder exercises the option to request that we redeem the MCP Instrument pursuant to (b),
(c), (d), or (e) above, then the MCP Instrument must be redeemed in full and principal and all accrued
and capitalized interest shall be paid in cash, provided that the holder has no right to seek enforcement
of such redemption except as described below under ‘‘—Remedies’’.
If the holder exercises the option to request that we redeem the MCP Instrument pursuant to
(a) above, then it may request that we redeem the MCP Instrument in full or in part and, in either
case, Codere, S.A. may pay the redemption price owed to the holder either in cash, in Codere, S.A.
shares or in a combination of cash and Codere, S.A. shares, in each case, at our option. Any
Codere, S.A. shares used to redeem the MCP Instrument shall be delivered in addition to any
Codere, S.A. shares delivered upon conversion of any remaining portion of the MCP Instrument that is
not redeemed. See ‘‘—Conversion into Shares of Codere, S.A.’’. If Codere, S.A. elects to pay the
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redemption price owed to the holder using its shares, each such share shall be valued at the lesser of
the following:
• 50% of its fair market value (as of the date of notification of the request for redemption)
determined as set forth in the MCP Instrument and
• A3.94 (as adjusted to account any share splits and share consolidations effected in respect of
Codere, S.A.’s shares).
If the holder exercises the option to request that we redeem the MCP Instrument pursuant to (b),
(c) or (e) above, then Codere, S.A. must pay on the Payment Date an amount equal to A40 million plus
accrued and capitalized interest, including any interest relating to any late payments on the MCP
Instrument. If the holder exercises the option to request that we redeem the MCP Instrument pursuant
to (a) or (d) above, then the redemption amount shall be the greater of:
• A40 million plus accrued and capitalized interest, including any interest relating to any late
payments on the MCP Instrument; and
• the aggregate value of the Codere, S.A. shares the holder would have received if it had elected
to convert the MCP Instrument into Codere, S.A. shares. The aggregate value of such shares
shall be calculated by determining the value per share according to the following terms:
• the holder and Codere, S.A. shall appoint an independent expert to determine the equity
value of Codere, S.A. as of date such holder elected to request that we redeem the MCP
Instrument;
• the number of Codere, S.A. shares that the holder would have received if it had elected to
convert the MCP Instrument in order to transfer Codere, S.A. shares to an unaffiliated
third party shall be calculated based on such equity value as described above under
‘‘Conversion into Shares of Codere, S.A.’’; and
• the equity value of Codere, S.A. shall be divided by the number of Codere, S.A. shares that
the holder would have received if it had elected to convert the MCP Instrument to
determine the value per Codere, S.A. share.
If the holder requests the redemption of the MCP Instrument and it has not been paid in full, the
holder shall have the right to require us to settle its remaining payment obligation by delivering
Codere, S.A. shares. The following shall apply in such an event:
• Within 30 business days of our receipt of such notice, Codere, S.A. shall have the option to
satisfy in cash our outstanding payment obligations to the holder.
• After 30 business days, Codere, S.A. shall be required to deliver a number of Codere, S.A.
shares to the holder equal to the Conversion Amount and the Variable Amount, calculated on
the basis of the equity value of Codere, S.A. as of December 31, 2007, as determined by an
independent expert.
Remedies
In the event Codere, S.A. does not pay in full any cash due upon redemption of the MCP
Instrument, such Instrument shall remain outstanding and accrue interest as described above until it is
paid in full. If the MCP Instrument is not paid in full, any holder of the MCP Instrument may compel
us to apply any cash available in Codere, S.A. to the payment of any unpaid principal amounts together
with any accrued interest. For this purpose, we are required to (i) use all cash, except for cash needed
to finance maintenance capital expenditures, to comply with our payment obligations under the MCP
Instrument provided that no imperative legal provision or financial arrangement to which we are a
party would impede such use; (ii) refrain from entering into agreements that may prevent or otherwise
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make difficult our payment obligations under the MCP Instrument and (iii) use our best efforts to fully
pay back any credit and financing facilities that may make difficult compliance with our payment
obligations under the MCP Instrument, but the holder of the MCP Instrument may not otherwise seek
enforcement of the payment obligation or seek damages if such payment obligation is not paid in full,
unless Codere, S.A. is in liquidation or bankruptcy. Also, after any failure to pay in full any cash due
upon redemption of the MCP Instrument and until the MCP Instrument is paid in full, we would need
prior written authorization from the holder of the MCP Instrument to approve capital expenditures or
any investment not included in the annual budget approved by our Board of Directors.
In the event any holder of the MCP Instrument converts the instrument into Codere, S.A. shares
and Codere, S.A. does not comply with the obligations set forth under ‘‘Conversion into Shares of
Codere, S.A.’’, the Conversion Amount shall be increased by 20% if Codere, S.A. has not delivered all
shares due upon conversion within 30 calendar days since the date on which the holder delivered notice
of the conversion. This 20% increase would be in addition to any remedies at law that the holder may
have to enforce its rights and to claim for indemnification of any damages and losses suffered as a
result of such nonpayment.
Priority
The MCP Instrument provides that in the event of dissolution, liquidation or bankruptcy of
Codere, S.A. the redemption rights attaching to the MCP Instrument shall rank ahead of the rights of
Codere, S.A. shareholders, but after all creditors of Codere, including its common unsecured creditors.
We expect that MCP will enter into a subordination agreement under which it will agree that all
present and future moneys, debts and liabilities due, owing or incurred by Codere, S.A. in connection
with the MCP Instrument would be subordinated to future moneys, debts and liabilities due, owing or
incurred by Codere, S.A. in connection with the senior credit facilities agreement and the Notes.
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DESCRIPTION OF THE NOTES
The definitions of certain terms used in this description are set forth under the subheading
‘‘—Certain Definitions.’’ In this description, the term ‘‘Issuer’’ refers only to Codere Finance
(Luxembourg) S.A., the term ‘‘Parent Guarantor’’ refers only to Codere S.A., and the term ‘‘Subsidiary
Guarantors’’ refers initially to Operibérica, S.A.U., Codere Madrid, S.A.U., Codere Barcelona, S.A.U.,
Misuri, S.A.U., Codere Valencia, S.A., Codere Lleida, S.A.U., Complejo Turı́stico Huatulco, S.A. de
C.V., Compañı́a de Inversiones Mexicanas, S.A. de C.V., Codere Mexico, S.A. de C.V., Promociones
Recreativos Mexicanas, S.A. de C.V., Bingos Platenses, S.A., Intermar Bingos, S.A., Bingos del Oeste,
S.A., Interjuegos, S.A., Codere Argentina, S.A., Franfe, S.A., Mexico City, S.A., Nanos, S.A., Iberargen,
S.A., Loarsa, S.A., Punto 3, S.A., Rajoy Palace, S.A., Pacı́fico, S.A., Codere Colombia, S.A., Turismo y
Recreación, S.A., Intersare, S.A., Colonder, S.A.U., and Codere Uruguay, S.A. The term ‘‘Notes’’ refers
also to ‘‘book-entry interests’’ in the Notes, as defined herein.
The Issuer will issue and the Guarantors will guarantee the notes offered hereby (the ‘‘Notes’’)
under an indenture (the ‘‘Indenture’’) among the Issuer, the Guarantors and Deutsche Trustee
Company Limited, as trustee, in a transaction that is not subject to the registration requirements of the
Securities Act. See ‘‘Notice to Investors’’. The terms of the Notes include those set forth in the
Indenture. The Indenture in turn includes certain provisions of the U.S. Trust Indenture Act of 1939
(the ‘‘Trust Indenture Act’’) that are incorporated by reference in the Indenture. The Indenture is not,
however, required to be nor will it be qualified under the Trust Indenture Act.
The following description is a summary of the material provisions of the Indenture. It does not
however, restate the Indenture in its entirety, and where reference is made to particular provisions of
the Indenture, such provisions, including the definitions of certain terms, are qualified in their entirety
by reference to all of the provisions of the Notes and the Indenture. You should read the Indenture
because it contains additional information and because it and not this description defines your rights as
a holder of the Notes. A copy of the form of the Indenture may be obtained from the Issuer upon
request or, if and so long as the Notes are listed on the Irish Stock Exchange, and the rules of the Irish
Stock Exchange so require, from the specified office of the Irish Paying Agent in Dublin.
Brief Description of the Notes and the Guarantees
The Notes
The Notes will be general obligations of the Issuer and will:
• be guaranteed by the Parent Guarantor and the Subsidiary Guarantors;
• be secured by first priority Liens over the Funding Loan Agreement and by second priority
Liens over the shares of Codere España, S.L.U. and Codere Internacional, S.L.U.;
• rank equally in right of payment with any existing and future Debt of the Issuer that is not
subordinated in right of payment to the Notes;
• rank senior in right of payment to any existing and future Debt of the Issuer that is
subordinated in right of payment to the Notes; and
• be effectively subordinated in right of payment to any existing and future Debt of the Issuer that
is secured by liens senior to the liens securing the Notes or secured by liens on assets not
securing the Notes, to the extent of the value of the assets securing such Debt.
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The Parent Guarantee
The Parent Guarantee of the Notes will be a general obligation of the Parent Guarantor and will:
• rank equally in right of payment with any existing and future Debt of the Parent Guarantor that
is not subordinated in right of payment to the Parent Guarantee including the Parent
Guarantor’s guarantee of the Senior Credit Facility;
• rank senior in right of payment to any existing and future Debt of the Parent Guarantor that is
subordinated in right of payment to the Parent Guarantee;
• be effectively subordinated in right of payment to any existing and future Debt of the Parent
Guarantor that is secured by liens senior to the liens securing the Parent Guarantee (including
Debt incurred under the Senior Credit Facility) or secured by liens on assets not securing the
Parent Guarantee, to the extent of the value of the assets securing such Debt; and
• be secured by second priority Liens over the shares of Codere España, S.L.U. and Codere
Internacional, S.L.U.
The Subsidiary Guarantees
Each Subsidiary Guarantee of the Notes will be a general obligation of the relevant Subsidiary
Guarantor that will rank behind and be subordinated (on a senior subordinated basis) pursuant to the
Intercreditor Agreement to all obligations of such Subsidiary Guarantor under Credit Facilities,
including the Senior Credit Facility and certain hedging obligations of the relevant Subsidiary
Guarantor. In addition, the Subsidiary Guarantees will, pursuant to the terms of the Intercreditor
Agreement:
• rank equally in right of payment with any existing and future Debt of the relevant Subsidiary
Guarantor that is not subordinated in right of payment to such Subsidiary Guarantee;
• rank senior in right of payment to any existing and future Debt of the relevant Subsidiary
Guarantor that is subordinated in right of payment to such Subsidiary Guarantee;
• be effectively subordinated in right of payment to any existing and future Debt of the relevant
Subsidiary Guarantor that is secured by liens, to the extent of the value of the assets securing
such Debt; and
• be subject to the restrictions on enforcement described below.
Not all of our subsidiaries will guarantee the Notes. In the event of the insolvency, bankruptcy,
liquidation or reorganization of any of our non-guarantor subsidiaries, the non-guarantor subsidiaries
will pay the holders of their debt and their trade creditors before they will be able to distribute any of
their assets to us. On a pro forma consolidated basis for the year ended December 31, 2004 and the
three months ended March 31, 2005, the Guarantors together represented 70.4% and 73.9%,
respectively, of our EBITDA.
As of December 31, 2004, assuming the Issuer had completed this offering and the Parent
Guarantor would have applied the proceeds received pursuant to the Initial Funding Loan as discussed
under ‘‘Use of Proceeds,’’ we would have had total debt of A356.3 million (excluding the MCP
Instrument), of which A335.0 million would have been represented by the Notes.
The Issuer is a newly formed finance subsidiary of the Parent Guarantor, owned 99.9% directly by
the Parent Guarantor and 0.01% indirectly through Codere España, S.L.U. The Parent Guarantor is a
holding company, and all of our operations are conducted through subsidiaries other than the Issuer.
Upon completion of the offering, the Issuer’s only material asset will be the obligation of the Parent
Guarantor to make payments on the Initial Funding Loan. Therefore, the Issuer’s ability to service its
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debt, including the Notes, is entirely dependent upon payments it receives from the Parent Guarantor
under the Initial Funding Loan, and the Parent Guarantor’s ability to service the Initial Funding Loan
is entirely dependent upon payments and distributions of funds from its operating subsidiaries.
As of the date of the Indenture, all of our Subsidiaries and ERSA will be ‘‘Restricted Group
Members.’’ However, under the circumstances described below under the subheading ‘‘—Certain
Covenants—Designation of Restricted and Unrestricted Group Members,’’ we will be permitted to
designate certain of our Subsidiaries and Affiliates as ‘‘Unrestricted Group Members.’’ The
Unrestricted Group Members will not be subject to the restrictive covenants in the Indenture and will
not guarantee the Notes.
Principal, Maturity and Interest
The Issuer will issue Notes in the aggregate principal amount of A335.0 million on the Issue Date.
Subject to the covenant described under ‘‘—Certain Covenants—Limitation on Debt,’’ the Issuer may
issue additional Notes (‘‘Additional Notes’’) under the Indenture from time to time after this offering.
Except for the date of issuance, any Additional Notes will be identical in all respects to the Notes
initially issued on the Issue Date. The Notes and the Additional Notes that are actually issued will be
treated as a single class for all purposes of the Indenture, including waivers, amendments, redemptions
and offers to purchase. Unless the context otherwise requires, the term ‘‘Notes’’ is used herein to refer
to both the Notes and the Additional Notes. The Notes will mature on June 15, 2015.
Interest on the Notes will accrue at the rate of 8.25% per annum and will be payable
semi-annually in arrears on June 15 and December 15, commencing on December 15, 2005. The Issuer
will make each interest payment to the holders of record on the immediately preceding June 1 and
December 1.
Interest on the Notes will accrue from the Issue Date 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 comprising
twelve 30-day months.
Form of Notes
The Notes will be issued on the date of the Indenture only in fully registered form without
coupons and only in denominations of A50,000 or any integral multiple of A1,000 in excess thereof.
The Notes will be initially represented by one or more global notes (the ‘‘Global Notes’’). The
Global Notes will be deposited with a common depositary for Euroclear and Clearstream Banking and
registered in the name of a nominee of such common depositary. Ownership of interests in the Global
Notes, referred to as ‘‘book-entry interests,’’ will be limited to persons that have accounts with
Euroclear or Clearstream Banking or their respective participants. Book-entry interests will be shown
on, and transfers thereof will be effected only through, records maintained in book-entry form by
Euroclear and Clearstream Banking and their participants. The terms of the Indenture will provide for
the issuance of certificated registered Notes in certain circumstances. See ‘‘Book-Entry; Delivery and
Form’’.
Transfer
The Global Notes may be transferred in accordance with the Indenture. All transfers of book-entry
interests between participants in Euroclear or Clearstream Banking will be effected by Euroclear or
Clearstream Banking pursuant to customary procedures and subject to applicable rules and procedures
established by Euroclear or Clearstream Banking and their respective participants. See ‘‘Book-Entry;
Delivery and Form’’.
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The Notes will be subject to certain restrictions on transfer, as described under ‘‘Transfer
Restrictions’’.
Payments on the Notes; Paying Agent
The Issuer will make all payments, including principal of, premium, if any, and interest on the
Notes, at its office or through an agent in London, England that it will maintain for these purposes.
Initially that agent will be Deutsche Bank AG, London Branch. The Issuer may change the paying
agent without prior notice to the holders of the Notes. In addition, the Parent Guarantor or any of its
Subsidiaries may act as paying agent in connection with the Notes other than for the purposes of
effecting a redemption described under ‘‘—Optional Redemption’’ or an offer to purchase the Notes
described under either ‘‘—Repurchase at the Option of Holders—Change of Control’’ or
‘‘—Repurchase at the Option of Holders—Sales of Certain Assets’’. The Issuer will make payments on
the Global Notes to or to the order of the common depositary as the registered holder of the Global
Notes. The Issuer will make all payments in same-day funds.
The Issuer undertakes that it will maintain a paying agent in an EU Member State that is not
obliged to withhold or deduct tax pursuant to the European Council Directive 2003/48/EC or any other
Directive implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 or
any law implementing or complying with, or introduced in order to conform to, such Directive.
No service charge will be made for any registration of transfer, exchange or redemption of the
Notes, but the Issuer may require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection with any such registration of transfer or exchange.
Subordination of the Subsidiary Guarantees
General
Each of the Subsidiary Guarantees is a general obligation of the relevant Subsidiary Guarantor
that ranks behind and is subordinated (on a senior subordinated basis) pursuant to the Intercreditor
Agreement to all obligations of such Subsidiary Guarantor under Credit Facilities, including the Senior
Credit Facility.
Enforcement Standstills
The Intercreditor Agreement will provide that for as long as any amounts under any Credit Facility
are outstanding, neither the holders of the Notes nor the trustee may take any Enforcement Action
against a Subsidiary Guarantor without the prior consent of the Senior Agent, unless:
(1) certain insolvency or reorganization events have occurred in relation to the Parent Guarantor
or any of its Subsidiaries;
(2) the lenders under any Credit Facility have taken Enforcement Action in relation to the
liabilities under such Credit Facility, in which event the trustee may take the same
Enforcement Action; or
(3) a Default has occurred under the Notes or the Funding Loan Agreement and is continuing;
and
(a) the holders of the Notes or the trustee has notified the Senior Agent;
(b) a period of not less than 90 days (in the case of a payment Default) or 179 days (in the
case of a Default other than a payment Default, or any default under the Funding Loan
Agreement) has passed from the date the Senior Agent was notified of the Default (a
‘‘Standstill Period’’); and
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(c) at the end of the Standstill Period, the Default is continuing and has not been cured or
waived by the holders of the Notes;
in which case the holders of more than 25% in aggregate principal amount of Notes then outstanding
may direct the trustee to take Enforcement Action in respect of the Subsidiary Guarantees.
Release of the Subsidiary Guarantees
Subject to the following paragraphs, each Subsidiary Guarantee of the relevant Subsidiary
Guarantor is a continuing guarantee and shall (a) remain in full force and effect until payment in full
of all of such Subsidiary Guarantor’s obligations under the Subsidiary Guarantee, (b) be binding upon
each Subsidiary Guarantor and its successors and (c) inure to the benefit of, and be enforceable by, the
trustee and its successors and assigns.
Concurrently with any sale or disposition of the shares of Codere España S.L.U. or Codere
International S.L.U. pursuant to any Enforcement Action by the lenders under any Credit Facility, each
Subsidiary Guarantor that is a Subsidiary of the relevant company whose shares are being sold will
automatically and unconditionally be released from all obligations under its Subsidiary Guarantee and
such Subsidiary Guarantee will thereupon terminate and be discharged and be of no further force or
effect so long as:
(1) the trustee, acting on the instructions of the holders of more than 66 2/3% in aggregate
principal amount of Notes then outstanding, has approved the release; or
(2) except in the case of any bid by the holders of the Notes, the proceeds of such sale are in
cash (or substantially all in cash) and are applied in the manner provided for in the
Intercreditor Agreement; and
(3) the sale or disposition is made pursuant to a public auction or competitive bid process (in
which the holders of the Notes have a right to participate) at an initial price (which price may
decline if the auction is unsuccessful) established by an independent internationally recognized
investment bank selected by the Senior Agent on behalf of the lenders under the applicable
Credit Facility and an opinion is delivered to the trustee by such investment bank certifying
that such price is fair from a financial point of view taking into account all relevant
circumstances, including the method of enforcement; and
(4) concurrently with the completion of such sale, the claims and security interests of the lenders
under the applicable Credit Facility against the relevant Subsidiary Guarantor and all other
Debt of such Subsidiary Guarantor and its Subsidiaries incurred after the Issue Date that is
expressly subordinated to the applicable Credit Facility or the relevant Subsidiary Guarantee
are irrevocably and unconditionally released (and not assumed by the relevant purchaser or
any affiliate thereof).
The Intercreditor Agreement will provide that the lenders under any Credit Facility secured by a
first priority lien over the Share Collateral will participate in any Enforcement Action with respect to
the shares together with the trustee or a nominee of the holders of the Notes (the ‘‘Notes Purchaser’’)
in order to enable the Notes Purchaser to use by way of set-off the face value of the Notes and the
Debt under such Credit Facilities as consideration for the purchase of the shares; provided that the
holders of the Notes purchase the Debt under such Credit Facilities for cash on the date the Notes
Purchaser completes the purchase of the shares. The holders of the Notes will purchase the Debt under
any Credit Facility in the manner set out below under ‘‘—Option to Purchase Debt under any Credit
Facility’’.
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Upon the presentation of an Officer’s Certificate with respect to the occurrence of an event
specified in the preceding paragraph, the trustee will execute any documents reasonably required in
order to evidence such release, discharge and termination in respect of the Subsidiary Guarantee.
In addition, the Subsidiary Guarantee of a Subsidiary Guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially all of the assets of that
Subsidiary Guarantor (including by way of merger or consolidation) to a Person that is not
(either before or after giving effect to such transaction) the Parent Guarantor or a Restricted
Group Member, if the sale or other disposition does not violate the covenant set forth under
the heading ‘‘—Repurchase at the Option of Holders—Sales of Certain Assets’’;
(2) in connection with any sale or other disposition of all of the Capital Stock of that Subsidiary
Guarantor, including any holding company thereof, to a Person that is not (either before or
after giving effect to such transaction) the Parent Guarantor or a Restricted Group Member,
if the sale or other disposition does not violate the covenant set forth under the heading
‘‘—Repurchase at the Option of Holders—Sales of Certain Assets’’;
(3) if the Parent Guarantor designates any Subsidiary Guarantor to be an Unrestricted Group
Member in accordance with the applicable provisions of the Indenture; or
(4) upon legal defeasance or satisfaction and discharge of the Indenture as provided below under
the captions ‘‘—Legal Defeasance and Covenant Defeasance’’ and ‘‘—Satisfaction and
Discharge’’.
Payment Blockage Provisions
The Intercreditor Agreement also will provide that, for as long as amounts are outstanding under
any Credit Facility, a Subsidiary Guarantor may not, without the consent of the Senior Lenders, make
any payment in respect of its Subsidiary Guarantee (although this would not restrict payments in
Permitted Junior Securities or from the trust (if any) described under ‘‘—Legal Defeasance and
Covenant Defeasance’’) if:
(a) a payment default has occurred in respect of any Credit Facility and is continuing beyond any
applicable grace period; or
(b) any other default occurs in respect of any Credit Facility and is continuing that permits the
lenders under a Credit Facility to accelerate its maturity, and the trustee receives a written
notice of such default (a ‘‘Payment Blockage Notice’’) from the Senior Agent on behalf of the
lenders under such Credit Facility.
Payments on any such Subsidiary Guarantee may and will be resumed:
(1) in the case of a payment default, when such default is cured or waived;
(2) in the case of a default other than a payment default, upon the earlier of the date on which
such non-payment default is cured or waived and 179 days after the date on which the
applicable Payment Blockage Notice is received;
(3) if the lenders under the applicable Credit Facility consent to such payment or withdraw the
Payment Blockage Notice;
(4) the obligations under the applicable Credit Facility have been repaid in full and the lenders’
commitments thereunder cancelled; or
(5) if applicable, if no payment default is continuing in respect of any Credit Facility, any
Standstill Period in effect at the time the Payment Blockage Notice was issued has expired and
the relevant Event of Default under the Indenture to which the Standstill Period relates is still
continuing and has not been waived or cured.
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No new Payment Blockage Notice may be delivered unless and until (x) 360 days have elapsed
since the delivery of the immediately prior Payment Blockage Notice and (y) all scheduled payments of
principal, premium, if any, and interest on the Notes that have come due have been paid in full in
cash.
No default (other than a payment default) that existed or was continuing on the date of delivery of
a Payment Blockage Notice to the trustee will be, or be made, the basis for a subsequent Payment
Blockage Notice.
Subordination on Insolvency
The Intercreditor Agreement will provide that in the event of an Insolvency Event in relation to a
Subsidiary Guarantor, the person responsible for the distribution of the assets of such Subsidiary
Guarantor will be directed to pay any distributions in respect of any Subsidiary Guarantee to the
security trustee under the Intercreditor Agreement until the liabilities under each Credit Facility and
certain hedging liabilities have been paid in full.
To the extent that any of the Subsidiary Guarantees is discharged by way of set-off (mandatory or
otherwise) after the occurrence of an Insolvency Event, then if the trustee benefited from that set-off,
the trustee will be required to pay, subject to its having actual knowledge and having received funds in
relation thereto and not having distributed the same to the holders of the Notes, an amount equal to
the amount of its liabilities discharged by that set-off to the security trustee for application in
accordance with the provisions described under ‘‘—Turnover’’ and ‘‘—Application of Proceeds’’.
After the occurrence of an Insolvency Event in relation to any Subsidiary Guarantor, the holders
of the Notes and the trustee each irrevocably authorizes the security trustee to: (i) take any
Enforcement Action in accordance with the terms of the Intercreditor Agreement; (ii) demand, sue,
prove and give receipt for any or all of the relevant liabilities; (iii) collect and receive all distributions
on, or on account of, any or all of the relevant liabilities; and (iv) file claims, take proceedings and do
all other things the security trustee considers reasonably necessary to recover such liabilities.
Option to Purchase Debt under any Credit Facility
The Intercreditor Agreement will provide that, if the lenders under any Credit Facility are entitled
to take Enforcement Action, the trustee for the Notes may, at the direction of the holders of the
Notes, on giving not less than five Business Days’ notice, purchase the entire Debt under such Credit
Facility (and certain hedging liabilities) for cash at a price equal to the principal amount of such Debt
and accrued and unpaid interest and fees and expenses. Upon such purchase, the purchasers will
assume the rights and obligations of the lenders under such Credit Facility.
Security
The obligations of the Issuer under the Notes and the Indenture will be secured by first-priority
Liens over the Funding Loan Agreement and by second-priority Liens over the shares of Codere
España, S.L.U. and Codere Internacional, S.L.U. (the ‘‘Share Collateral’’). The obligations of the
Parent Guarantor under the Parent Guarantee and the Indenture will also be secured by secondpriority Liens over the Share Collateral.
Because of uncertainty under Spanish law as to the enforceability of second priority Liens, the
Intercreditor Agreement and any security agreements entered into relating to the Share Collateral will
provide, among other things, that the holders of the Notes and other creditors secured by a Lien on
such shares will have pari passu security interests as a matter of Spanish law; however, the right to
receive distributions upon any foreclosure or other disposition of such assets will be structured so as to
give effect to the subordination of the Liens securing the Notes as described in this section.
The Issuer and the Parent Guarantor will do or cause to be done all acts and things required, or
which the security trustee from time to time may reasonably request, to assure and confirm that the
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security trustee holds, for the benefit of the holders of Notes and the trustee, duly created, enforceable
and perfected Liens as contemplated by the Indenture and the Bond Security Documents, so as to
render the same available for the security and benefit of the Indenture, the Notes and the Parent
Guarantee, according to the intent and purposes herein and therein expressed.
Security Trustee
The Collateral has been or will be pledged to Deutsche Trustee Company Limited, as security
trustee (together with any additional or successor security trustee, the ‘‘security trustee’’), for the
benefit of the lenders and facility agent under the Senior Credit Facility as holders of the first-priority
Liens over the Share Collateral (the ‘‘Bank Security’’) and for the benefit of the trustee for itself and
on behalf of the holders of the Notes, as holders of the first-priority Lien over the Funding Loan
Agreement and the second-priority Liens over the Share Collateral (the ‘‘Notes Security’’), in each case
in accordance with the terms of the Senior Credit Facility, the Indenture, and the Security Documents.
Funding Loan Agreement Security
Pursuant to the Funding Loan Agreement, the Issuer will make the Initial Funding Loan to the
Parent Guarantor on the Issue Date. The proceeds from this loan will be used by the Parent Guarantor
as described under ‘‘Use of Proceeds’’. The obligations of the Parent Guarantor under the Funding
Loan Agreement will be unsecured general obligations of the Parent Guarantor.
Interest will accrue on the Initial Funding Loan at a rate equal to the interest rate payable on the
Notes, plus a margin, and with such adjustments as may be necessary to match any additional amounts
due with respect to the Notes. The Initial Funding Loan is repayable by the Parent Guarantor upon the
repayment in full or in part of the Notes, whether at maturity, on early redemption or upon
acceleration.
The obligations of the Issuer under the Notes and the Indenture will be secured by a first-priority
security interest pursuant to an assignment by way of security of the Funding Loan Agreement. This
assignment by way of security (the ‘‘Security Assignment’’) will be granted in favor of the security
trustee. The Funding Loan Agreement and the Security Assignment will be governed by Spanish law.
The Security Assignment will not be released in the event of the consummation of a sale or other
disposal of all of the share capital of the Parent Guarantor.
Share Security
The obligations of the Issuer and the Parent Guarantor under the Notes and the Parent
Guarantee, respectively, and the Indenture, will also be secured by a second-priority security interest
pursuant to pledges of the shares of Codere España, S.L.U. and Codere Internacional, S.L.U., which
are holding companies that together hold, directly or indirectly, all of our current operating
subsidiaries. Upon our acquisition of Grupo Royal, Grupo Royal will be held directly by Codere, S.A.
These pledges will be granted in favor of the security trustee, will be governed by Spanish law, and will
be released under certain circumstances, including, in the event of the consummation of a sale or other
disposal of all of the share capital of Codere España, S.L.U. or Codere Internacional, S.L.U.
Enforcement of Security
The affirmative vote of the holders of more than 50% in aggregate principal amount of the Notes
then outstanding will be required in order to enforce the second priority Liens over the Share
Collateral, provided that the lenders under any Credit Facility will be entitled to instruct the security
trustee with respect to the sale or enforcement of the Collateral if such sale or enforcement is being
implemented or pursued diligently and certain other conditions are satisfied as set out in the
Intercreditor Agreement. Any such enforcement will be subject to the restrictions on enforcement
applicable to the Subsidiary Guarantees. The trustee may direct the security trustee to commence
enforcement of the first-priority Lien over the funding loan at any time after an Event of Default.
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Enforcement after Occurrence of an Insolvency Event
After the occurrence of an Insolvency Event in relation to a Subsidiary Guarantor, the holders of
the Notes will be entitled (if they have not already done so) to exercise any right they may otherwise
have in respect of the Subsidiary Guarantee of such Subsidiary Guarantor to: (i) accelerate such
Subsidiary Guarantee or declare it prematurely due and payable or payable on demand; (ii) make a
demand under any guarantee, indemnity or other assurance against loss in respect of such Subsidiary
Guarantee; (iii) exercise any right of set off or take or receive any payment in respect of such
Subsidiary Guarantee; or (iv) claim and prove in the liquidation of that Subsidiary Guarantor for the
Subsidiary Guarantee; or (v) take any other Enforcement Action in relation to that Subsidiary
Guarantor.
However, the Subsidiary Guarantees will remain subject to subordination in favor of obligations
under Credit Facilities, including the Senior Credit Facility, as described above under ‘‘—Subordination
of the Subsidiary Guarantees—Subordination on Insolvency’’.
Intercreditor Agreement
General
The Indenture will provide that the Issuer, each Guarantor and the trustee will be authorized
(without any further consent of the holders of the Notes) to enter into the Intercreditor Agreement
and any other intercreditor agreement or deed in favor of the lenders under the Senior Credit Facility
and under any other Credit Facilities to give effect to the provisions described above under
‘‘—Subordination of the Subsidiary Guarantees’’ and ‘‘—Security’’ and in this ‘‘Intercreditor
Agreement’’ section.
The Indenture will also provide that, at the direction of the Parent Guarantor and without the
consent of the holders of the Notes, the trustee will upon direction of the Parent Guarantor from time
to time enter into one or more amendments to the Intercreditor Agreement or any additional
intercreditor agreement or deed to: (i) cure any ambiguity, omission, defect or inconsistency therein,
(ii) increase the amount of Debt or the types covered thereby that may be incurred by the Parent
Guarantor or a Restricted Group Member that is subject thereto, (iii) add Subsidiary Guarantors
thereto, (iv) permit payments to be made to the Parent Guarantor or the Issuer that would not
otherwise have been permitted pursuant to the terms thereof or (v) make any other such change
thereto that does not adversely affect the rights of the holders of the Notes in any material respect as
determined in good faith by the Parent Guarantor. The Parent Guarantor will not otherwise direct the
trustee to enter into any amendment to the Intercreditor Agreement or, if applicable, any additional
intercreditor agreement or deed, without the consent of the holders of a majority in principal amount
of the outstanding Notes.
The Indenture will also provide that each holder of a Note, by accepting such Note, will be
deemed to have:
(a) appointed and authorized the trustee to give effect to such provisions;
(b) authorized the trustee to become a party to any future intercreditor arrangements described
above;
(c) agreed to be bound by such provisions and the provisions of any future intercreditor
arrangements described above; and
(d) irrevocably appointed the trustee to act on its behalf to enter into and comply with such
provisions and the provisions of any future intercreditor arrangements described above.
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The Intercreditor Agreement will be executed in connection with the issuance of the Notes at the
closing of this offering.
Turnover
If the trustee receives a payment in respect of the Subsidiary Guarantees or the proceeds of any
enforcement of the second-priority Liens over the Share Collateral, in each case, when the payment is
prohibited by the subordination provisions of the Intercreditor Agreement described in
‘‘—Subordination of the Subsidiary Guarantees’’ or ‘‘—Security’’, and except, in each case, in Permitted
Junior Securities or from the trust (if any) described under ‘‘—Legal Defeasance and Covenant’’, then
the trustee will hold the payment in trust for the security trustee and promptly pay that amount to the
security trustee (or, in certain circumstances, pay an amount equal to that receipt or recovery to the
security trustee), provided that the trustee will only be required to turn over any amount if (i) it has
actual knowledge that such receipt or recovery is required to be turned over and (ii) it has not prior to
having such actual knowledge distributed to the holders of the Notes in accordance with the Indenture
any amounts so received or recovered, in each case to be held on trust by the security trustee for
application in accordance with the order of priority described below under ‘‘—Application of
Proceeds’’.
Application of Proceeds
All amounts from time to time received pursuant to the provisions described under ‘‘—Turnover’’
or otherwise or recovered by the security trustee pursuant to the terms of any Credit Facility or
otherwise or in connection with the realization or enforcement of all or any part of the liens securing
such Credit Facility and the Notes or paid to the security trustee pursuant to the provisions described
under ‘‘—Turnover’’ or ‘‘—Subordination of the Subsidiary Guarantees—Release of the Subsidiary
Guarantees’’ will be held by the security trustee on trust to apply them at any time the security trustee
sees fit, to the extent permitted by applicable law (and subject to these provisions), in the following
order of priority:
(i) in discharging any sums owing to the security trustee (in its capacity as such) or any receiver
or similar officer or any amounts in respect of fees, expenses, and other amounts payable to
the trustee (in its capacity as such) (‘‘Notes Trustee Amounts’’);
(ii) in payment of all costs and expenses reasonably incurred by the Senior Agent or the lenders
under Credit Facilities, and certain hedging creditors, in connection with any realization or
enforcement of the security in favor of any Credit Facility taken in accordance with the terms
of the Intercreditor Agreement or certain additional actions taken at the request of the
security trustee;
(iii) in payment to the Senior Agent on behalf of the lenders under any Credit Facility and certain
hedging counterparties for application (in accordance with the terms of such Credit Facility
and the relevant hedging agreements) towards the discharge of liabilities under such Credit
Facility and the hedging agreements;
(iv) in payment of all costs and expenses reasonably incurred by the holders of the Notes in
connection with any realization of enforcement of the security in favor of the Notes taken in
accordance with the terms of the Intercreditor Agreement or certain additional actions taken
at the request of the security trustee;
(v) in payment to the trustee on behalf of the holders of the Notes for application (in accordance
with the terms of the Indenture) towards the discharge of the liabilities of the Issuer under
the Notes;
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(vi) if none of the Issuer or the Guarantors is under any further actual or contingent liability
under any Credit Facility, any hedging agreements or the Indenture, in payment to any person
to whom the security trustee is obliged to pay in priority to any Subsidiary Guarantor; and
(vii) the balance, if any, in payment to the relevant Subsidiary Guarantor.
Subordination of Intercompany Liabilities
Pursuant to the Intercreditor Agreement, the Parent Guarantor and certain of its subsidiaries have
agreed, prior to the discharge of all liabilities and commitments under the Senior Facility Agreement,
to subordinate certain intercompany liabilities to the Senior Credit Facility and also to the claims of
other creditors, including the holders of the Notes and the trustee. Pursuant to such provisions, no
payments may be made under such intercompany liabilities if an Enforcement Action of the types
referred to in paragraphs (a), (b) or (h) of the definition of ‘‘Enforcement Action’’ has occurred and is
continuing in relation to any of the senior financing documents (as defined in the Senior Credit
Facility), unless the recognized consent has been obtained under the Senior Credit Facility. The Initial
Funding Loan will not be subject to such limitations under any circumstances).
Pursuant to the Indenture, the trustee has agreed on behalf of itself and the holders of the Notes
that it will permit the payment, prepayment, redemption, acquisition or defeasance of any such
intercompany liabilities by giving consent to such under the Intercreditor Agreement, if such payment,
prepayment, redemption, acquisition or defeasance would be in accordance with the terms of the
Indenture, including the covenant described under ‘‘Description of the Notes—Certain Covenants—
Limitation on Restricted Payments’’.
Additional Amounts
All payments made by the Issuer on the Notes, by a Guarantor on its Guarantee, and by any
successor person to the Parent Guarantor or any additional Guarantor (a ‘‘Successor Person’’) (each a
‘‘Payer’’), will be made free and clear without withholding or deduction for, or on account of, any
present or future taxes, duties, levies, imposts, assessments or other governmental charges (including,
without limitation, penalties, interest and other similar liabilities related thereto) of whatever nature,
(collectively, ‘‘Taxes’’) imposed or levied by or on behalf of any jurisdiction or any political subdivision
or governmental authority thereof or therein having the power to tax where such Payer is incorporated,
organized or otherwise resident for tax purposes or from or through which the Payer makes a payment
on the Notes or its Guarantee (each, a ‘‘Relevant Taxing Jurisdiction’’), unless the withholding or
deduction of such taxes is then required by law. If the Payer is required to withhold or deduct any
amount for, or on account of, Taxes imposed or levied on behalf of a Relevant Taxing Jurisdiction from
any payment made under or with respect to the Notes, the Payer will pay additional amounts
(‘‘Additional Amounts’’) as may be necessary to ensure that the net amount received by each holder of
the Notes (including Additional Amounts) after such withholding or deduction will be not less than the
amount the holder would have received if such Taxes had not been required to be withheld or
deducted.
The Payer will not be required to make any payment of Additional Amounts for or on account of:
(1) any Taxes that are imposed or levied by a Relevant Taxing Jurisdiction by reason of (a) the
holder’s or a beneficial owner’s connection with such Relevant Taxing Jurisdiction (other than
the mere receipt or holding of Notes or by reason of the receipt of payments in respect
thereunder or the exercise or enforcement of any rights under the Notes, Indenture, or any
Guarantee), or (b) the presentation of a Note (where presentation is required) for payment
on a date more than 30 days after the date on which such payment became due and payable
or the date on which payment thereof is duly provided for, whichever occurs later, except to
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the extent that the beneficial owner or holder thereof would have been entitled to Additional
Amounts had the Notes been presented for payment on any day during such 30 day period;
(2) any estate, inheritance, gift, sales, excise, transfer, personal property or similar Tax;
(3) any Tax which is payable otherwise than by withholding or deduction from payments made
under or with respect to the Notes;
(4) any Taxes that are imposed or withheld by reason of the failure by the holder or the beneficial
owner of the Notes, following the Issuer’s written request addressed to the holder or
otherwise provided to the holder or beneficial owner (and made at a time that would enable
the holder or beneficial owner acting reasonably to comply with that request) to provide
certification, information, documents or other evidence concerning the nationality, residence
or identity of the holder or such beneficial owner or to make any valid or timely declaration
or similar claim or satisfy any other reporting requirements relating to such matters, whether
required or imposed by statute, treaty, regulation or administrative practice of the Relevant
Taxing Jurisdiction, as a precondition to exemption from, or reduction in the rate of
withholding or deduction of, Taxes imposed by the Relevant Taxing Jurisdiction; provided,
however, that the Payer will be required to make payment of Additional Amounts for or on
account of any such Taxes that are imposed or withheld as a result of the failure of the holder
or the beneficial owner of the Notes to provide information pursuant to Spanish Law 19/2003;
(5) any withholding or deduction in respect of any Taxes which is imposed on a payment to an
individual and is required to be made pursuant to European Council Directive 2003/48/EC or
any other Directive implementing the conclusions of the ECOFIN Council Meeting of
November 26-27, 2000, on the taxation of savings income or any law implementing or
complying with, or introduced in order to conform to, such Directive; or
(6) any Tax that is imposed on or with respect to a Note presented for payment on behalf of a
holder or beneficial owner who would have been able to avoid such withholding or deduction
by presenting the relevant Note to another Paying Agent in a member state of the European
Union.
Nor will Additional Amounts be paid with respect to any payment made under or with respect to
the Notes or any Guarantee in the case of a holder who is a fiduciary, a partnership, a limited liability
company or other than the sole beneficial owner of such payment, to the extent that such payment is
required by the laws of the Relevant Taxing Jurisdiction to be included in the income, for tax purposes,
of a beneficiary or settlor with respect to the fiduciary, a member of that partnership, an interest
holder in that limited liability company or a beneficial owner and such person would not have been
entitled to the Additional Amounts had it been the holder of the Note or Guarantee.
The Payer will (i) make such withholding or deduction required by applicable law and (ii) remit
the full amount withheld or deducted to the relevant taxing authority in accordance with applicable law.
At least 30 calendar days prior to each date on which any payment under or with respect to the
Notes is due and payable, if the Payer will be obligated to pay Additional Amounts with respect to such
payment (unless such obligation to pay Additional Amounts arises after the 30th day prior to the date
on which payment under or with respect to the Notes is due and payable, in which case it will be
promptly thereafter), the Issuer will deliver to the trustee an Officer’s Certificate stating that such
Additional Amounts will be payable and the amounts so payable and will set forth such other
information necessary to enable the Paying Agent to pay such Additional Amounts to holders on the
relevant payment date. The trustee will, without further enquiry, be entitled to rely absolutely on each
such Officer’s Certificate as conclusive proof that such payments are necessary. The Issuer will
promptly publish a notice in accordance with the provisions set forth in ‘‘—Notices’’ stating that such
Additional Amounts will be payable and describing the obligation to pay such amounts.
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Upon request, within a reasonable time the Payer will provide the trustee, to provide to the
holders, certified copies of tax receipts evidencing the payment by the Payer of any Taxes imposed or
levied by a Relevant Taxing Jurisdiction in such form as provided in the normal course by the taxing
authority imposing such Taxes and as is reasonably available to the Payer. If, notwithstanding the efforts
of the Payer to obtain such receipts, the same are not obtainable, the Payer will provide the trustee
with other evidence reasonably satisfactory to the trustee of such payments by the Payer.
In addition, the Issuer will pay (i) any present or future stamp, issue, registration, court
documentation, excise, or property taxes, or other similar taxes, charges and duties, including interest
and penalties with respect thereto, imposed by or in any Relevant Taxing Jurisdiction in respect of the
execution, issue, delivery or registration of the Notes, Indentures, or Guarantees, or any other
document or instrument referred to thereunder and any such taxes, charges or similar levies imposed
by any jurisdiction as a result of, or in connection with, the enforcement of the Notes, the Guarantees,
or any other such document or instrument following the occurrence of any Event of Default with
respect to the Notes, or (ii) any stamp, court, or documentary taxes (or similar charges or levies)
imposed with respect to the receipt of any payments with respect to the Notes or Guarantees.
The preceding provisions will survive any termination, defeasance, or discharge of the Indenture.
Whenever the Indenture or this ‘‘Description of Notes’’ refers to, in any context, the payment of
principal, premium, if any, interest or any other amount payable under or with respect to any Note
(including payments thereof made pursuant to any Guarantee), such reference includes the payment of
Additional Amounts, if applicable.
Optional Redemption
Optional Redemption prior to June 15, 2008 upon Public Equity Offering
At any time prior to June 15, 2008, the Issuer may on any one or more occasions redeem up to
35% of the aggregate principal amount of Notes, upon not less than 30 nor more than 60 days’ prior
notice, mailed by first-class mail to each holder’s registered address, at a redemption price of 108.25%
of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest and Additional
Amounts, if any, to the redemption date, with the net cash proceeds of one or more Public Equity
Offerings of the Parent Guarantor; provided that:
(1) at least 65% of the aggregate principal amount of Notes issued under the Indenture remains
outstanding immediately after the occurrence of such redemption (excluding Notes held by the
Parent Guarantor and its Subsidiaries); and
(2) the redemption occurs within 45 days of the date of the closing of such Public Equity
Offering.
Optional Redemption prior to June 15, 2010
At any time prior to June 15, 2010, the Issuer may redeem all or a part of the Notes, upon not
less than 30 nor more than 60 days’ prior notice, mailed by first-class mail to each holder’s registered
address, at a redemption price equal to 100% of the principal amount of Notes to be redeemed plus
the Applicable Premium as of, and accrued and unpaid interest and Additional Amounts, if any, to, the
date of redemption (subject to the right of holders of record on the relevant record date to receive
interest due on any interest payment date occurring on or prior to the redemption date).
Optional Redemption on or after June 15, 2010
On or after June 15, 2010, the Issuer 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 their principal
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amount at maturity) set forth below plus accrued and unpaid interest and Additional Amounts, if any,
on the Notes redeemed, to the applicable redemption date, if redeemed during the twelve-month
period beginning on June 15 of the years indicated below:
Year
2010
2011
2012
2013
Percentage
...........
...........
...........
and thereafter
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104.125%
102.750%
101.375%
100.000%
Redemption Upon Changes in Withholding Tax
The Issuer may, at its option, redeem the Notes, as a whole but not in part, at any time upon
giving not less than 30 nor more than 60 days’ notice to the holders (which notice will be irrevocable
and given in accordance with the procedures described in ‘‘—Notices,’’) at a redemption price equal to
100% of the principal amount thereof, together with accrued and unpaid interest thereon, if any, to the
redemption date, premium, if any, and Additional Amounts, if any, then due and which will become
due on the date of redemption as a result of the redemption or otherwise, if the Issuer determines in
good faith that (i) the Payer is, or on the next date on which any amount would be payable in respect
of the Notes, would be, obligated to pay Additional Amounts (as defined above under ‘‘—Additional
Amounts’’) in respect of the Notes or a Guarantee pursuant to the terms and conditions thereof, which
the Payer cannot avoid by the use of reasonable measures available to it (including making payment
through a paying agent located in another jurisdiction), or (ii) the Parent Guarantor is, or on the next
date on which an amount would be payable in respect of the Funding Loan Agreement, would be,
obligated to withhold or deduct any amount in respect of Taxes from such payment which the Parent
Guarantor cannot avoid by the use of reasonable measures available to it, and which amount the
Parent Guarantor is required to pay to a Relevant Taxing Jurisdiction and is not entitled to have
refunded, credited, or offset against another tax that is required to be paid by the Parent Guarantor or
a related person, in each case, as a result of:
(a) any change in, or amendment to, the laws (or in the case of amounts described in (ii) above,
treaties) or any regulations or rulings promulgated thereunder of any Relevant Taxing
Jurisdiction (as defined above under ‘‘—Additional Amounts’’) affecting taxation which
becomes effective on or after the date of the Indenture or, if a Relevant Taxing Jurisdiction
has changed since the date of the Indenture, the date on which the then current Relevant
Taxing Jurisdiction became a Relevant Taxing Jurisdiction under the Indenture (or, in the case
of a Successor Person, after the date of assumption by the Successor Person of the Parent
Guarantor’s obligations or after the date it delivers a Supplemental Indenture, as the case may
be); or
(b) any change in the official application, administration, or interpretation of the laws (or in the
case of amounts described in (ii) above, treaties), regulations or rulings of any Relevant Taxing
Jurisdiction, (including a holding, judgment, or order by a court of competent jurisdiction), on
or after the date of the Indenture or, if a Relevant Taxing Jurisdiction has changed since the
date of the Indenture, the date on which the then current Relevant Taxing Jurisdiction became
a Relevant Taxing Jurisdiction under the Indenture (or, in the case of a Successor Person,
after the date of assumption by the Successor Person of the Parent Guarantor’s obligations or
after the date it delivers a Supplemental Indenture, as the case may be) (each of the foregoing
clauses (a) and (b), a ‘‘Change in Tax Law’’).
Notwithstanding the foregoing, the Issuer may not redeem the Notes under this provision if (i) a
Relevant Taxing Jurisdiction changes under the Indenture, and (ii) the Payer is obligated to pay
Additional Amounts as a result of a Change in Tax Law of the then current Relevant Taxing
206
Jurisdiction which change, at the time the latter became a Relevant Taxing Jurisdiction under the
Indenture, was officially announced.
Notwithstanding the foregoing, no such notice of redemption will be given (a) earlier than 90 days
prior to the earliest date on which the Payer would be obliged to make such payment of Additional
Amounts or withholding if a payment in respect of the Notes or Guarantee, as the case may be, were
then due and (b) unless at the time such notice is given, the obligation to pay Additional Amounts
remains in effect.
Prior to the publication or where relevant, mailing of any notice of redemption pursuant to the
foregoing, the Issuer will deliver to the trustee:
(a) an Officer’s Certificate stating that the Issuer is entitled to effect such redemption and setting
forth a statement of facts showing the conditions precedent to the right of the Issuer so to
redeem have occurred (including that such obligation to pay such Additional Amounts cannot
be avoided by the Payer taking reasonable measures available to it); and
(b) an opinion of independent tax advisers of recognized standing qualified under the laws of the
Relevant Taxing Jurisdiction and reasonably satisfactory to the trustee to the effect that the
Payer is or would be obligated to pay such Additional Amounts as a result of a Change in Tax
Law.
The trustee will, without further investigation, be entitled to rely on such Officer’s Certificate and
opinion of counsel as conclusive proof that the conditions precedent to the right of the Issuer so to
redeem have occurred.
Mandatory Redemption; Offers to Purchase; Open Market Purchases
The Issuer is not required to make any mandatory redemption or sinking fund payments with
respect to the Notes. However, under certain circumstances, the Issuer may be required to offer to
purchase the Notes as described under the captions ‘‘—Purchase of Notes upon a Change of Control’’
and ‘‘—Repurchase at the Option of Holders—Sales of Certain Assets.’’ We may, at any time and from
time to time, purchase Notes in the open market or otherwise.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of Notes will have the right to require the Issuer (or
the Parent Guarantor, if the Parent Guarantor makes the purchase offer referred to below) to
repurchase all or any part (equal to A50,000 or any integral multiple of A1,000 in excess thereof) of that
holder’s Notes pursuant to an offer (a ‘‘Change of Control Offer’’) on the terms set forth in the
Indenture. In the Change of Control Offer, the Issuer or the Parent Guarantor will offer a payment in
cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid
interest and Additional Amounts, if any, on the Notes repurchased, to the date of purchase (a ‘‘Change
of Control Payment’’). Within ten days following any Change of Control, the Issuer or the Parent
Guarantor will (i) cause the Change of Control Offer to be published through (A) the newswire service
of Bloomberg, or if Bloomberg does not then operate, any similar agency; and (B) if at the time of
such notice the Notes are listed on the Irish Stock Exchange and the rules of the Irish Stock Exchange
so require, in the Irish Times (or another leading newspaper of general circulation in Ireland); and
(ii) mail a the Change of Control Offer to each registered holder. The Change of Control Offer will
describe the transaction or transactions that constitute the Change of Control and will offer to
repurchase Notes on the date (the ‘‘Change of Control Payment Date’’) specified therein, 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. The Issuer and the Parent
207
Guarantor will comply with the requirements of any securities laws and the regulations thereunder
(including Rule 14e-1 under the Exchange Act) to the extent those laws and regulations are applicable
in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with the Change of Control provisions of the
Indenture, the Issuer and the Parent Guarantor will comply with the applicable securities laws and
regulations and will not be deemed to have breached their obligations under the Change of Control
provisions of the Indenture by virtue of such conflict.
On or prior to the Change of Control Payment Date, the Parent Guarantor will prepay the
Funding Loan to the extent necessary to finance any repurchase by the Issuer of the Notes tendered
pursuant to the Change of Control Offer.
On the Change of Control Payment Date, the Issuer or the Parent Guarantor will, to the extent
lawful:
(1) accept for payment all Notes or portions of Notes 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 of Notes properly tendered; and
(3) deliver or cause to be delivered to the registrar the Notes properly accepted together with an
Officers’ Certificate (on which the trustee will rely absolutely) stating the aggregate principal
amount of Notes or portions of Notes being purchased by the Issuer.
The Paying Agent will promptly mail to each holder of Notes properly tendered the Change of
Control Payment for such Notes, and the registrar 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 new Note will be in a principal amount of
A50,000 or any integral multiple of A1,000 in excess thereof.
The provisions described above that require the Issuer or the Parent Guarantor to make a Change
of Control Offer following a Change of Control will be applicable whether or not any other provisions
of the Indenture are applicable. Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Notes to require that the Issuer or
the Parent Guarantor repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The Issuer and the Parent Guarantor 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 Issuer or the Parent Guarantor and purchases all Notes properly
tendered and not withdrawn under the Change of Control Offer. The Issuer and the Parent Guarantor
also will not be required to make a Change of Control Offer following a Change of Control if the
Issuer has theretofore issued a redemption notice in respect of all of the Notes in the manner and in
accordance with the provisions described under ‘‘—Optional Redemption’’ and thereafter redeems all
of the Notes pursuant to such notice.
The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease,
transfer, conveyance or other disposition of ‘‘all or substantially all’’ of the properties or assets of the
Parent Guarantor and the Restricted Group Members taken as a whole. Although there is a limited
body of case law interpreting the phrase ‘‘substantially all,’’ there is no precise established definition of
the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the Issuer or
the Parent Guarantor to repurchase its Notes as a result of a sale, lease, transfer, conveyance or other
208
disposition of less than all of the assets of the Parent Guarantor and its Restricted Group Members
taken as a whole to another person or group may be uncertain.
Sales of Certain Assets
The Parent Guarantor will not, and will not permit any Restricted Group Member to, consummate
an Asset Sale unless:
(1) the Parent Guarantor (or the Restricted Group Member, as the case may be) receives
consideration at the time of the Asset Sale at least equal to the Fair Market Value of the
assets or Equity Interests issued or sold or otherwise disposed of;
(2) the Fair Market Value is evidenced by a resolution of the Board of Directors set forth in an
Officers’ Certificate delivered to the trustee (on which the trustee will rely absolutely); and
(3) at least 75% of the consideration received in the Asset Sale by the Parent Guarantor or such
Restricted Group Member is in the form of (i) cash, (ii) Cash Equivalents, (iii) long-term
assets, including Capital Stock of a Person engaged in a Permitted Business, that are used or
useful in the business of the Parent Guarantor or (iv) any combination thereof. For purposes
of this provision, each of the following will be deemed to be cash:
(a) any liabilities, as shown on the Parent Guarantor’s most recent consolidated balance
sheet, of the Parent Guarantor or any Restricted Group Member (other than contingent
liabilities and liabilities that are by their terms subordinated to the Notes or to any
Guarantee of the Notes) that are assumed by the transferee of any such assets pursuant
to a customary novation or similar agreement that releases the Parent Guarantor or such
Restricted Group Member from further liability; and
(b) any securities, notes or other obligations received by the Parent Guarantor or any such
Restricted Group Member from such transferee that are contemporaneously, subject to
ordinary settlement periods, converted by the Parent Guarantor or such Restricted Group
Member into cash, to the extent of the cash received in that conversion.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Parent Guarantor
may apply those Net Proceeds at its option:
(1) to permanently repay term Debt incurred under a Credit Facility or to repay revolving credit
Debt under a Credit Facility and to effect a corresponding commitment reduction thereunder;
or
(2) to acquire other long-term assets, including Capital Stock of a Person engaged in a Permitted
Business, that are used or useful in the business of the Parent Guarantor.
Pending the final application of any Net Proceeds, the Parent Guarantor may temporarily reduce
revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited
by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding
paragraph will constitute ‘‘Excess Proceeds.’’ When the aggregate amount of Excess Proceeds exceeds
A10 million, the Parent Guarantor or the Issuer will make an offer to purchase (an ‘‘Asset Sale Offer’’)
from all holders of Notes and from the holders of other Pari Passu Debt that contains similar asset sale
provisions, to the extent required by the terms thereof, the maximum principal amount of Notes and
such other Pari Passu Debt that may be purchased out of the Excess Proceeds, and the Parent
Guarantor will prepay the Initial Funding Loan to the extent necessary to finance any such repurchase
of the Notes by the Issuer. The offer price in any Asset Sale Offer will be equal to 100% of the
principal amount of the Notes to be purchased plus accrued and unpaid interest and Additional
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Amounts, 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 Parent Guarantor may use those Excess Proceeds for
any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and
other Pari Passu Debt tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the
trustee will select the Notes and such other Pari Passu Debt 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 Issuer and the Parent Guarantor will comply with the requirements of any securities laws and
the regulations thereunder (including Rule 14e-1 under the Exchange Act) 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 Issuer and the Parent Guarantor 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.
The exercise by the holders of Notes of their right to require the Parent Guarantor or the Issuer
to repurchase the Notes upon a Change of Control or an Asset Sale could cause a default under
agreements governing the Parent Guarantor’s other Debt, due to the financial effect of such
repurchases on the Parent Guarantor. The Parent Guarantor’s or Issuer’s ability to pay cash to the
holders of Notes upon a repurchase may also be limited by the Parent Guarantor’s then existing
financial resources. See ‘‘Risk Factors—We may not have the ability to raise the funds necessary to
finance a change of control offer required by the Indenture’’.
If a Change of Control or Asset Sale occurs at a time when we are prohibited from purchasing
Notes, we could seek the consent of our senior lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If we do not obtain such a consent or repay
such borrowings, we will remain prohibited from purchasing Notes. In such case, our failure to
purchase tendered Notes would constitute an Event of Default under the Indenture, and the
subordination provisions in the Indenture would likely restrict payments by the Subsidiary Guarantors
to the holders of Notes.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, the trustee will select Notes for
redemption as follows:
(1) if the Notes are listed on any securities exchange, in compliance with the requirements of the
principal securities exchange on which the Notes are listed; or
(2) if the Notes are not listed on any securities exchange, on a pro rata basis, by lot or by such
method as the trustee deems fair and appropriate.
No Notes of A50,000 or less can 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 date if the notice is issued in connection with a defeasance of the Notes or a
satisfaction and discharge of the Indenture. Notices of redemption may not be conditional.
In addition, so long as the Notes are listed on the Irish Stock Exchange and its rules so require,
the Issuer will publish notices (including with respect to optional redemptions or repurchases at the
option of the holders) in a leading newspaper having general circulation in Ireland (currently expected
to be the Irish Times) and will inform the Irish Stock Exchange of the outstanding principal amount of
the Notes then in issue.
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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 of that Note that is 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
of Notes upon cancellation of the original Note and will be collectible at the office of the Paying
Agent. 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
Limitation on Restricted Payments
The Parent Guarantor will not, and will not permit any Restricted Group Member to, directly or
indirectly:
(1) declare or pay any dividend or make any other payment or distribution (whether made in
cash, securities or other property) on account of the Parent Guarantor’s or any Restricted
Group Member’s Equity Interests (including, without limitation, any payment in connection
with any merger or consolidation involving the Parent Guarantor or any Restricted Group
Member) or to the direct or indirect holders of the Parent Guarantor’s or any Restricted
Group Member’s Equity Interests in their capacity as such (other than dividends or
distributions payable (i) solely in Equity Interests (other than Disqualified Stock) of the
Parent Guarantor or (ii) in the case of a Restricted Group Member, to all holders of Equity
Interests of such Restricted Group Member on a pro rata basis or on a basis that results in
the receipt by the Parent Guarantor or a Restricted Group Member of dividends or
distributions of greater value than the Parent Guarantor or such Restricted Group Member
would receive on a pro rata basis);
(2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in
connection with any merger or consolidation involving the Parent Guarantor) any Equity
Interests of the Parent Guarantor or any Equity Interests of any Affiliate of the Parent
Guarantor held by persons other than the Parent Guarantor or a Restricted Group Member
(other than Equity Interests of any Restricted Group Member or any entity that becomes a
Restricted Group Member as a result thereof) or any options, warrants or other rights to
acquire such Equity Interests;
(3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire
or retire for value, any Subordinated Debt, except a payment of interest or principal at the
Stated Maturity thereof (including, for the avoidance of doubt, payments on the Monitor
Clipper Instrument at the Stated Maturity thereof, provided, however, that the Parent
Guarantor will not make any payment in cash on the Monitor Clipper Instrument unless, at
the time of making such cash payment, no Default or Event of Default has occurred and is
continuing); or
(4) make any Restricted Investment.
(all such payments and other actions set forth in these clauses (1) through (4) above being collectively
referred to as ‘‘Restricted Payments’’), unless, at the time of and after giving pro forma effect to such
Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or would occur as a
consequence of such Restricted Payment;
(2) the Parent Guarantor would have been permitted to incur at least A1.00 of additional Debt
pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described below under the caption ‘‘—Limitation on Debt’’; and
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(3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments
made by the Parent Guarantor and the Restricted Group Members after the date of the
Indenture (excluding Restricted Payments permitted by clauses (3), (4), (5) and (6) of the next
succeeding paragraph), is less than the sum of:
(a) 50% of the Consolidated Net Income of the Parent Guarantor for the period (taken as
one accounting period) from the beginning of the first fiscal quarter commencing after
the date of the Indenture to the end of the Parent Guarantor’s most recently ended fiscal
quarter for which internal financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus
(b) 100% of the aggregate net cash proceeds received by the Parent Guarantor since the date
of the Indenture (i) as a contribution to its common equity capital, (ii) from the issue or
sale of Equity Interests (other than Disqualified Stock) of the Parent Guarantor, or
(iii) from the issue or sale of convertible or exchangeable Disqualified Stock or
convertible or exchangeable debt securities of the Parent Guarantor that have been
converted into or exchanged for Equity Interests (other than Disqualified Stock) of the
Parent Guarantor (other than, in the case of (ii) or (iii), above, Equity Interests (or
Disqualified Stock or debt securities) (A) sold to a Subsidiary of the Parent Guarantor or
(B) acquired using funds borrowed from the Parent Guarantor or any Subsidiary until and
to the extent such borrowing is repaid), plus
(c) to the extent that any Unrestricted Group Member is redesignated as a Restricted Group
Member after the date of the Indenture, the lesser of (i) the Fair Market Value of the
Parent Guarantor’s Investment in such Restricted Group Member as of the date of such
redesignation or (ii) the Fair Market Value of such Restricted Group Member as of the
date on which such Restricted Group Member was originally designated as an
Unrestricted Group Member, plus
(d) to the extent that any Restricted Investment that was made after the date of the
Indenture is sold for cash or otherwise liquidated or repaid for cash or Cash Equivalents,
the lesser of (i) the cash return of capital with respect to such Restricted Investment (less
the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment.
So long as no Default or Event of Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at
the date of declaration the dividend payment would have been permitted by the Indenture;
(2) cash payments in lieu of issuing fractional shares pursuant to the exchange or conversion of
any exchangeable or convertible securities or in connection with any stock dividend,
distribution, stock split, reverse stock split, merger, consolidation, amalgamation or other
business combination;
(3) the redemption, repurchase, retirement, defeasance or other acquisition of any Subordinated
Debt, or of any Equity Interests of the Parent Guarantor, in either case in exchange for, or
out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of
the Parent Guarantor) of, Equity Interests of the Parent Guarantor (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition will be excluded from
clause (3) (b) of the preceding paragraph;
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(4) the defeasance, redemption, repurchase, repayment or other acquisition of Subordinated Debt
with the net cash proceeds from an incurrence of Permitted Refinancing Debt;
(5) the repurchase of Capital Stock deemed to occur upon the exercise of stock options with
respect to which payment of the cash exercise price has been forgiven if the cumulative
aggregate value of such repurchases does not exceed the cumulative aggregate amount of the
exercise price of such options received;
(6) payments in connection with the possible acquisition of Operbingo, S.p.A. as described in this
offering memorandum and payments made in connection with the acquisition of Grupo Royal
(including payments made by way of a dividend paid by a Grupo Royal entity in connection
with or related to such acquisition);
(7) payments of distributions to dissenting shareholders pursuant to applicable law in connection
with or in contemplation of a merger, consolidation or transfer of assets that complies with
the covenant described under ‘‘—Certain Covenants—Merger, Consolidation or Sale of
Assets’’; or
(8) any other Restricted Payment, provided that the total aggregate amount of Restricted
Payments made under this clause (8) does not exceed A15 million.
The amount of a proposed Restricted Payment if not made in 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
by the Parent Guarantor or Restricted Group Member, as the case may be, pursuant to the Restricted
Payment. The Fair Market Value of any assets or securities that are required to be valued by this
covenant will be determined by the Board of Directors whose resolution with respect thereto will be
delivered to the trustee and on which the trustee will rely absolutely. The Board of Directors’
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 A10 million. Not later
than the date of making any Restricted Payment, the Parent Guarantor will deliver to the trustee an
Officers’ Certificate on which the trustee will rely absolutely 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 opinion or appraisal required by the
Indenture.
Limitation on Debt
indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, ‘‘incur’’) any Debt (including Acquired Debt);
provided, however, that the Parent Guarantor may incur Debt, and any Subsidiary Guarantor may incur
Acquired Debt or Non-Public Debt, and the Issuer may incur Public Debt, if (i) at the time of such
incurrence, the Fixed Charge Coverage Ratio for the Parent Guarantor’s most recently ended four full
fiscal quarters for which internal financial statements are available immediately preceding the
incurrence of such Debt, taken as one period, would be greater than 3.00 to 1.00, determined on a pro
forma basis after giving effect to the incurrence of such Debt and the application of the net proceeds
therefrom, and (ii) after giving effect to the incurrence of such Debt and the application of the net
proceeds therefrom, on a pro forma basis, no Default or Event of Default would occur or be
continuing.
The first paragraph of this covenant will not prohibit the incurrence of any of the following items
of Debt (collectively, ‘‘Permitted Debt’’):
(1) the incurrence by the Parent Guarantor or any Restricted Group Member (other than the
Issuer) of Debt under Credit Facilities in an aggregate principal amount at any one time
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outstanding under this clause (1) not to exceed A100 million less the aggregate amount of all
Net Proceeds of Asset Sales applied by the Parent Guarantor or any Restricted Group
Member since the date of the Indenture to permanently repay any term Debt under a Credit
Facility or to repay any revolving credit Debt under a Credit Facility and effect a
corresponding commitment reduction thereunder pursuant to the covenant described above
under the caption ‘‘—Repurchase at the Option of Holders—Sales of Certain Assets’’;
(2) the incurrence by the Parent Guarantor or any Restricted Group Member of Existing Debt;
(3) the incurrence by (x) the Issuer of Debt represented by the Notes (other than Additional
Notes), (y) the Parent Guarantor of Debt represented by the Initial Funding Loan, and (z) the
Guarantors of Debt represented by the Guarantees;
(4) the incurrence by the Parent Guarantor or any Restricted Group Member of Permitted
Refinancing Debt in exchange for, or the net proceeds of which are used to refund, refinance
or replace Debt (other than intercompany Debt between the Parent Guarantor and any
Restricted Group Member or between any Restricted Group Members) that was permitted to
be incurred under the first paragraph above under the caption ‘‘—Limitation on Debt’’ or
clauses (2), (3) or (4) of this paragraph;
(5) the incurrence by the Parent Guarantor or any Restricted Group Member of intercompany
Debt between the Parent Guarantor and any Restricted Group Member or between any
Restricted Group Members; provided, however, that:
(a) if the Parent Guarantor is the obligor on such Debt, such Debt must be unsecured and
expressly subordinated to the prior payment in full in cash of all of its Obligations with
respect to the Initial Funding Loan and the Parent Guarantee;
(b) if a Subsidiary Guarantor is the obligor on such Debt, such Debt must be unsecured and
expressly subordinated to the prior payment in full in cash of all of its Obligations with
respect to its Subsidiary Guarantee;
(c) if the Issuer is the obligor on such Debt, such Debt must be unsecured and expressly
subordinated to the prior payment in full in cash of all Obligations with respect to the
Notes; and
(d) (i) any subsequent issuance or transfer of Equity Interests that results in any such Debt
being held by a Person other than the Parent Guarantor or a Restricted Group Member
and (ii) any sale or other transfer of any such Debt to a Person that is not either the
Parent Guarantor or a Restricted Group Member will be deemed, in each case, to
constitute an incurrence of such Debt by the Parent Guarantor or such Restricted Group
Member, as the case may be, that was not permitted by this clause (5);
Issuer) of Hedging Obligations entered into in the ordinary course of business and not for
speculative purposes;
(7) the guarantee by the Parent Guarantor of Debt of a Restricted Group Member that was
permitted to be incurred by another provision of this covenant;
(8) the incurrence of Debt by the Parent Guarantor or any Restricted Group Member (other than
the Issuer) arising from (i) the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn
against insufficient funds in the ordinary course of business; provided that such Debt is
extinguished within 5 Business Days of incurrence, (ii) performance, surety, judgment, appeal
or similar bonds, instruments or obligations in the ordinary course of business and, in each
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case, not in connection with the borrowing of or obtaining of advances of credit, or
(iii) completion guarantees provided or letters of credit obtained by the Parent Guarantor or
any Restricted Group Member in the ordinary course of business and, in each case, not in
connection with the borrowing of or obtaining of advances of credit;
Issuer) of Debt arising from guarantees to suppliers, lessors, licensees, government authorities,
contractors, franchisees or customers who are not, in each case, Affiliates, and incurred in the
ordinary course of business;
Issuer) of Debt in respect of workers’ compensation and claims arising under similar
legislation, or pursuant to self-insurance obligations and not in connection with the borrowing
of money or the obtaining of advances or credit;
Issuer) of Debt under Capital Lease Obligations in an aggregate principal amount at any time
outstanding not to exceed A15 million;
(12) The incurrence by any Restricted Group Member (other than the Issuer or a Subsidiary
Guarantor) of Debt in an aggregate principal amount (or accreted value, as appropriate) at
any time outstanding, and any Permitted Refinancing Debt incurred to refund, refinance or
replace any Debt incurred by them pursuant to this clause (12), not to exceed A10 million; and
(13) the incurrence by any Guarantor of additional Debt, or by the Issuer of additional Public
Debt, in an aggregate principal amount (or accreted value, as applicable) at any time
outstanding, and any Permitted Refinancing Debt incurred to refund, refinance or replace any
Debt incurred by them pursuant to this clause (13), not to exceed A25 million;
provided that, except to the extent specifically set forth above in this paragraph, a Restricted Group
Member will not be entitled to incur Debt other than Non-Public Debt.
Neither the Parent Guarantor nor any Restricted Group Member will incur (i) debt or other
obligations under Credit Facilities that benefits from the subordination provisions described herein or
that is secured by Liens on the Colleteral or (ii) debt in the form of Additional Notes that are secured
by Liens on the Collateral, unless (in the case of (i), above) the person from whom such Debt is
incurred or (in the case of (ii), above) the trustee under the Indenture for such Additional Notes
accedes to, or enters into an agreement on substantially the same terms as, the Intercreditor
Agreement.
To the extent any Restricted Group Member that is not a Guarantor is a joint obligor with respect
to any Debt, the entire amount of such Debt will be considered Debt of a Restricted Group Member
that is not a Guarantor for purposes of this covenant.
The accrual of interest, the accretion or amortization of original issue discount, the payment of
interest on any Debt in the form of additional Debt with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not
be deemed to be an incurrence of Debt or an issuance of Disqualified Stock for purposes of this
covenant; provided, in each such case, that the amount thereof is included in Fixed Charges of the
Parent Guarantor as accrued or paid.
For purposes of determining compliance with this ‘‘Limitation on Debt’’ covenant, the outstanding
principal amount of any particular Debt, including any obligations arising under any related guarantee,
Lien, letter of credit or similar instrument, will be counted only once, and in the event that an item of
proposed Debt meets the criteria of more than one of the categories of Permitted Debt described in
clauses (1) through (13) above, or is entitled to be incurred pursuant to the first paragraph of this
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covenant, the Parent Guarantor will be permitted to classify such item of Debt on the date of its
incurrence, or later reclassify all or a portion of such item of Debt, in any manner that complies with
this covenant, and will only be required to include the amount and type of such Debt in one of such
clauses and will be entitled to divide and classify an item of Debt in more than one of the types of
Debt described above under the caption ‘‘—Limitation on Debt’’; provided, however, that Debt under
Credit Facilities outstanding on the Issue Date will be deemed to have been incurred on such date in
reliance on the exception provided by clause (1) of the definition of Permitted Debt.
Limitation on Liens
indirectly, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of
any kind securing Debt or trade payables upon any of its property or assets, now owned or hereafter
acquired, or any income, profits or proceeds therefrom, except (a) in the case of any property that does
not constitute Collateral, Permitted Liens, provided that:
(i) in the case of any Lien securing Subordinated Debt, the Issuer’s obligations in respect of the
Notes, the obligations of the Guarantors under the Guarantees and all other amounts due
under the Indenture are directly secured by a Lien on such property, assets or proceeds that is
senior in priority to the Lien securing the Subordinated Debt until such time as the
Subordinated Debt is no longer secured by a Lien; and
(ii) in the case of any other Lien, the Issuer’s obligations in respect of the Notes, the obligations
of the Guarantors under the Guarantees and all other amounts due under the Indenture are
equally and ratably secured with the obligation or liability secured by such Lien until such
time as such obligations are no longer secured by a Lien; and
(b) in the case of any property that constitutes Collateral, Permitted Collateral Liens.
Limitation on Layered Debt
No Subsidiary Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for
any Debt that is subordinate or junior in any respect in right of payment to any other Debt and senior
in right of payment to its Subsidiary Guarantee or any other Pari Passu Debt of such Subsidiary
Guarantor, provided that the foregoing limitation will not apply to distinctions between categories of
Debt that exist by reason of any Liens (including Liens with different priorities) or guarantees arising
or created in respect of some but not all of such Debt.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted Group Members
indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on
the ability of any Restricted Group Member to:
(a) pay dividends, in cash or otherwise, or make any other distributions on its Capital Stock, or
with respect to any other interest or participation in, or measured by, its profits, to the Parent
Guarantor or any Restricted Group Member, or pay any Debt owed to the Parent Guarantor
or any Restricted Group Member;
(b) make loans or advances to the Parent Guarantor or any Restricted Group Member; or
(c) transfer any of its properties or assets to the Parent Guarantor or any Restricted Group
Member.
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However, the preceding restrictions will not apply to encumbrances or restrictions existing under or
by reason of:
(1) agreements in effect on the Issue Date in the form existing on the Issue Date;
(2) applicable law or regulation or by governmental licenses, concessions, franchises or permits;
(3) the Notes, the Indenture, any Guarantees, the Senior Credit Facility, the Intercreditor
Agreement and the security documents related thereto or by other agreements governing Debt
that the Issuer or any Restricted Group Member incurs, provided that the encumbrances or
restrictions imposed by such other agreements are not materially more restrictive, taken as a
whole, than the restrictions imposed by the Indenture, the Senior Credit Facility, the
Intercreditor Agreement and such security documents as of the Issue Date;
(4) any customary encumbrances or restrictions created under any agreements with respect to
Debt (other than Subordinated Debt) of the Parent Guarantor or any Restricted Group
Member permitted to be incurred subsequent to the Issue Date pursuant to the provisions of
‘‘—Limitation on Debt’’, including encumbrances or restrictions imposed by Debt permitted to
be incurred under Credit Facilities or any guarantees thereof in accordance with such
covenant; provided that such encumbrances or restrictions are not materially more restrictive,
taken as a whole, than those imposed by the Senior Credit Facility as of the date of the
Indenture, and provided further that such agreements do not prohibit the payment of interest
with respect to the Notes or the Guarantors’ Guarantees absent a default or event of default
under such agreement;
(5) any instrument governing Debt or Capital Stock of a Person acquired by the Parent Guarantor
or any Restricted Group Member as in effect at the time of such acquisition (except to the
extent such Debt or Capital Stock was incurred in connection with or in contemplation of
such acquisition), which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property or assets of the
Person, so acquired;
(6) customary non-assignment provisions in leases entered into in the ordinary course of business
and consistent with past practice;
(7) purchase money obligations for property acquired in the ordinary course of business that
impose restrictions on that property, provided that such encumbrances or restrictions are of
the nature described in clause (c) of the preceding paragraph;
(8) any agreement for the sale or other disposition of a Restricted Group Member that restricts
distributions by that Restricted Group Member pending its sale or other disposition;
(9) Permitted Refinancing Debt, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Debt are not materially more restrictive, taken as a
whole, than those contained in the agreements governing the Debt being refinanced;
(10) Liens securing Debt otherwise permitted to be incurred under the provisions of the covenant
described above under the caption ‘‘—Limitation on Liens’’ that limit the right of the debtor
to dispose of the assets subject to such Liens; and
(11) provisions providing for customary limitations on the disposition or distribution of assets or
property in joint venture agreements, asset sale agreements, stock sale agreements and other
similar agreements entered into by the Parent Guarantor or a Restricted Group Member in
the ordinary course of business and in good faith; provided that such encumbrance or
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restriction is applicable only to the Parent Guarantor or such Restricted Group Member, as
the case may be, and provided that:
(i) the encumbrance or restriction is not materially more disadvantageous to the holders of
the Notes than is customary in comparable agreements (as determined by the Parent
Guarantor); and
(ii) the Parent Guarantor determines that any such encumbrance or restriction will not
materially affect the ability of the Issuer to make any anticipated principal or interest
payments on the Notes.
Merger, Consolidation or Sale of Assets
The Parent Guarantor may not, directly or indirectly: (1) consolidate or merge with or into
another Person (whether or not the Parent Guarantor is the surviving corporation); or (2) sell, assign,
transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Parent
Guarantor and its Restricted Group Members taken as a whole, in one or more related transactions, to
another Person; unless:
(1) either: (a) the Parent Guarantor is the surviving corporation; or (b) the Person formed by or
surviving any such consolidation or merger (if other than the Parent Guarantor) or to which
such sale, assignment, transfer, conveyance or other disposition has been made:
(A) is a corporation organized or existing under the laws of (i) Spain, (ii) any other member
of the European Union that has adopted the euro as its national currency, (iii) the
United Kingdom or (iv) the United States, any state of the United States or the District
of Columbia; and
(B) assumes all the obligations of the Parent Guarantor under the Parent Guarantee, the
Initial Funding Loan, and the Indenture pursuant to agreements reasonably satisfactory to
the trustee;
(2) immediately after giving effect to such transaction, no Default or Event of Default exists or
would exist; and
(3) the Parent Guarantor or the Person formed by or surviving any such consolidation or merger
(if other than the Parent Guarantor) or to which such sale, assignment, transfer, conveyance
or other disposition has been made, as the case may be, will:
(a) on the date of such transaction after giving pro forma effect thereto and any related
financing transactions as if the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least A1.00 of additional Debt pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption ‘‘—Limitation on Debt’’; and
(b) have delivered to the trustee, in form and substance satisfactory to the trustee, an
Officers’ Certificate (attaching the computations to demonstrate compliance with
clause (a) above) and an opinion of independent counsel (on each of which the trustee
will rely absolutely), each stating that such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition, and if a supplemental indenture is
required in connection with such transaction, such supplemental indenture, complies with
the requirements of the Indenture and that all conditions precedent in the Indenture
relating to such transaction have been satisfied and that the Indenture and the Parent
Guarantee constitute legal, valid and binding obligations of the continuing person,
enforceable in accordance with their terms, subject to customary qualifications.
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In addition, the Parent Guarantor may not, directly or indirectly, lease all or substantially all of its
properties or assets, in one or more related transactions, to any other Person.
The Issuer may not merge, consolidate or amalgamate with or into any other Person or sell,
transfer, assign, lease, convey or otherwise dispose of all or substantially all of its property in any one
transaction or series of related transactions; provided, however, that the Issuer may consolidate or merge
with or into another Person if:
(1) the Person formed by or surviving any such consolidation or merger:
(A) is a corporation organized or existing under the laws of Spain; and
(B) assumes all the obligations of the Issuer under the Notes and the Indenture pursuant to
agreements reasonably satisfactory to the trustee;
(2) immediately after giving effect to such transaction, no Default or Event of Default exists or
would exist;
(3) the Person formed by or surviving any such consolidation or merger will:
(a) on the date of such transaction after giving pro forma effect thereto and any related
financing transactions as if the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least A1.00 of additional Debt pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption ‘‘—Limitation on Debt’’; and
(b) have delivered to the trustee, in form and substance satisfactory to the trustee, an
Officers’ Certificate (attaching the computations to demonstrate compliance with
clause (a) above) and an opinion of independent counsel (on each of which the trustee
will rely absolutely), each stating that such consolidation or merger, and if a supplemental
indenture is required in connection with such transaction, such supplemental indenture,
complies with the requirements of the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied and that the Indenture and the
Notes constitute legal, valid and binding obligations of the continuing person, enforceable
in accordance with their terms, subject to customary qualifications; and
(4) if such consolidation or merger results in the imposition of any Tax on a holder or beneficial
owner of any Notes, the Issuer will indemnify each such holder and beneficial owner on an
after-tax basis for the full amount of any and all such taxes imposed.
Designation of Restricted and Unrestricted Group Members
The Board of Directors of the Parent Guarantor may designate any Restricted Group Member
(other than the Issuer) to be an Unrestricted Group Member (a ‘‘Designation’’) if that Designation
would not cause a Default. If a Restricted Group Member is designated as an Unrestricted Group
Member, the Fair Market Value of the Parent Guarantor’s interest in the Subsidiary or Non-Subsidiary
Affiliate so designated will be deemed to be an Investment made as of the time of the Designation and
will reduce either the amount available for Restricted Payments under the first paragraph of the
covenant described above under the caption ‘‘—Limitation on Restricted Payments’’ or the amount
available for Permitted Investments, as determined by the Parent Guarantor. That Designation will only
be permitted if the Investment would be permitted at that time and if the Restricted Group Member
otherwise meets the definition of an Unrestricted Group Member. The Board of Directors may
redesignate any Unrestricted Group Member to be a Restricted Group Member (a ‘‘Redesignation’’) if
the Redesignation would not cause a Default and if all Liens and Debt of such Unrestricted Group
Member outstanding immediately following such Redesignation would, if incurred at that time, have
been permitted to be incurred for all purposes of the Indenture.
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Notwithstanding the foregoing paragraph, the Board of Directors of the Parent Guarantor may
designate any Non-Subsidiary Affiliate of the Parent Guarantor that is a Restricted Group Member to
be an Unrestricted Group Member, and such Designation will not be deemed to be an Investment or
reduce the amount available for Restricted Payments or for Permitted Investments, if:
(i) such Restricted Group Member is not in compliance with one or more covenants under the
Indenture that it is required to comply with;
(ii) the Parent Guarantor has used its diligent best efforts to procure compliance by such
Restricted Group Member with the covenants of the Indenture that such Restricted Group
Member is required to comply with;
(iii) the Parent Guarantor has used its diligent best efforts to cure such noncompliance; and
(iv) the aggregate sum of the Fair Market Value of the Parent Guarantor’s and the Restricted
Group Members’ Investments since the Issue Date in all Restricted Group Members which
have been the subject of a Designation pursuant to this paragraph since the Issue Date, which
Designation has not been the subject of a Redesignation, does not exceed A10 million.
The Parent Guarantor will ensure that no Unrestricted Group Member:
(1) has any Debt other than Non-Recourse Debt;
(2) is party to any agreement, contract, arrangement or understanding with the Parent Guarantor
or any Restricted Group Member unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Parent Guarantor or such
Restricted Group Member than those that might be obtained at the time from Persons who
are not Affiliates of the Parent Guarantor;
(3) is a Person with respect to which either the Parent Guarantor or any Restricted Group
Member has any direct or indirect obligation (a) to subscribe for additional Equity Interests or
(b) to maintain or preserve such Person’s financial condition or to cause such Person to
achieve any specified levels of operating results; and
(4) has guaranteed or otherwise directly or indirectly provided credit support for any Debt of the
Parent Guarantor or any Restricted Group Member.
As of the Issue Date, the only Existing Joint Ventures that will be Restricted Group Members are
Codere Gandia, S.A., Gistra, S.L., Operoeste, S.A., Recreativos Ruan, S.A., Rospay, S.L.,
Entretenimiento Recreativos, S.A. de C.V. and Hı́pica Rioplatense Uruguay, S.A.
Any Designation will be evidenced to the trustee by filing with the trustee a certified copy of the
Board Resolution giving effect to such Designation and an Officers’ Certificate (on which the trustee
will rely absolutely) certifying that such Designation complied with the preceding conditions and was
permitted by the covenant described above under the caption ‘‘—Certain Covenants—Limitation on
Restricted Payments’’. If, at any time, any Unrestricted Group Member would fail to meet the
preceding requirements as an Unrestricted Group Member, it will thereafter cease to be an
Unrestricted Group Member for purposes of the Indenture, and any Debt of such Person will be
deemed to be incurred by a Restricted Group Member as of such date and, if such Debt is not
permitted to be incurred as of such date under the covenant described under the caption ‘‘—Certain
Covenants—Limitation on Debt’’, the Parent Guarantor will be in default of such covenant.
Limitation on Transactions with Affiliates
indirectly, 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,
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contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate
of the Parent Guarantor or such Restricted Group Member (each, an ‘‘Affiliate Transaction’’), unless:
(1) the Affiliate Transaction is on terms that are no less favorable to the Parent Guarantor or the
relevant Restricted Group Member, as the case may be, than those that would have been
obtained in a comparable arm’s length transaction by the Parent Guarantor or such Restricted
Group Member, as the case may be, with an unrelated Person; and
(2) the Parent Guarantor delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of A5 million, a resolution of the Board of
Directors of the Parent Guarantor set forth in an Officers’ Certificate (on which the
trustee will rely absolutely) certifying that such Affiliate Transaction complies with this
covenant and that such Affiliate Transaction has been approved by a majority of the
members of the Board of Directors of the Parent Guarantor disinterested in such
Affiliate Transaction; and
(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of A10 million, an opinion issued by an
accounting, appraisal or investment banking firm of international standing stating that
such Affiliate Transaction is fair to the Parent Guarantor or Restricted Group Member,
as the case may be, from a financial point of view.
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) any employment agreement entered into by the Parent Guarantor or any Restricted Group
Member in the ordinary course of business and consistent with the past practice of the Parent
Guarantor or such Restricted Group Member;
(2) payment of reasonable directors’ fees;
(3) transactions between or among the Parent Guarantor and/or Restricted Group Members;
(4) any Restricted Payments not prohibited by the ‘‘—Limitation on Restricted Payments’’
covenant (but not, for the avoidance of doubt, the making of an Investment that is a
Permitted Investment), and in any event only to the extent included in the calculation of the
amount of Restricted Payments made pursuant to such covenant; and
(5) any agreement or arrangement of the Parent Guarantor and/or its Restricted Subsidiaries as in
effect on the Issue Date, to the extent described in this offering memorandum, or any
amendment thereto after the Issue Date (so long as any such amendment is not, as
determined in good faith by the Parent Guarantor, disadvantageous in any material respect to
the holders of the Notes) or any transaction contemplated thereby or similar in nature
thereto.
Limitation on Sale and Leaseback Transactions
The Parent Guarantor will not, and will not permit any Restricted Group Member to, enter into
any sale and leaseback transaction; provided that the Parent Guarantor or any Restricted Group
Member (other than the Issuer) may enter into a sale and leaseback transaction if:
(1) the Parent Guarantor or such Restricted Group Member, as applicable, could have
(a) incurred Debt 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 ‘‘—Limitation on Debt’’ and (b) incurred a
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Lien to secure such Debt pursuant to the covenant described above under the caption
‘‘—Limitation on Liens’’;
(2) the gross cash proceeds of that sale and leaseback transaction are at least equal to the Fair
Market Value, as set forth in an Officers’ Certificate delivered to the trustee, of the property
that is the subject of that sale and leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is permitted by, and the Parent
Guarantor applies the proceeds of such transaction in compliance with, the covenant described
above under the caption ‘‘—Repurchase at the Option of Holders—Sales of Certain Assets’’.
Limitation on Issuances and Sales of Equity Interests in Restricted Group Members
The Parent Guarantor:
(1) will not, and will not permit any Restricted Group Member to, sell, lease, transfer or
otherwise dispose of any Equity Interests of any Restricted Group Member to any person
(other than to the Parent Guarantor or a Wholly Owned Restricted Subsidiary) except as
permitted under ‘‘—Limitation on Liens’’; and
(2) will not permit any Restricted Group Member to issue any of its Equity Interests to any
Person (other than to the Parent Guarantor or a Wholly Owned Restricted Subsidiary);
in each case, unless such issuance, sale or disposition is effected in compliance with the covenant
described under ‘‘—Repurchase at the Option of Holders—Sales of Certain Assets’’ and:
(a) immediately after giving effect to such issuance, sale or other disposition, such Restricted
Group Member remains a Restricted Group Member; or
(b) immediately after giving effect to such issuance, sale or other disposition, such Restricted
Group Member would no longer constitute a Restricted Group Member and any Investment
in such Person remaining after giving effect thereto is treated as a new Investment by the
Parent Guarantor and such Investment would be permitted to be made under the covenant
described under ‘‘—Limitation on Restricted Payments’’ if made on the date of such issuance,
sale or other disposition;
provided, however, that the Parent Guarantor and Codere España, S.L.U will not transfer or otherwise
dispose of any of their respective Equity Interests in the Issuer.
Additional Guarantors
The Parent Guarantor will cause any Restricted Group Member that after the Issue Date is or
becomes a Material Subsidiary (except for any Restricted Group Member that was a Material
Subsidiary at the Issue Date but was not an initial Subsidiary Guarantor, any Restricted Group
Member that is already a Subsidiary Guarantor, or any Restricted Group Member as to which the
Parent Guarantor and its Restricted Group Members do not own, directly or indirectly, greater than
90% of the Capital Stock) to execute and deliver a supplemental indenture providing for the Guarantee
of the Notes by such Restricted Group Member on the same terms as the Guarantees granted by the
other Subsidiary Guarantors under the Indenture.
The Parent Guarantor will not permit any Restricted Group Member, directly or indirectly, to
guarantee or pledge any assets to secure the payment of any other Debt of the Issuer or any Guarantor
unless such Restricted Group Member simultaneously executes and delivers a supplemental indenture
providing for the Guarantee of the payment of the Notes by such Restricted Group Member, which
Guarantee will be senior to or pari passu with such Restricted Group Member’s guarantee of or pledge
to secure such other Debt.
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The Parent Guarantor will not be obligated to cause such Restricted Group Member to guarantee
the Notes pursuant to the preceding paragraph to the extent that such Guarantee could reasonably be
expected to give rise to or result in any violation of (a) applicable law or regulation that cannot be
avoided or otherwise prevented through measures reasonably available to the Parent Guarantor or such
Restricted Group Member or (b) in the case of a Person that becomes a Restricted Group Member
after the Issue Date, any contract or license to which such Person is a party at the time such Person
became a Restricted Group Member, provided that such contract or license was not entered into in
connection with, or in contemplation of, such Person becoming a Restricted Group Member.
The form of the Restricted Group Member Guarantee will be attached as an exhibit to the
Indenture.
Payments for Consent
The Parent Guarantor will not, and will not permit any of its Subsidiaries or Restricted Group
Members to, 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 or the Notes unless such consideration is offered to be paid and is paid
to all holders of the 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.
Impairment of Security Interest
The Parent Guarantor will not, and will not permit any Restricted Group Member to, take, or
knowingly or negligently omit to take, any action which action or omission might or would have the
result of materially impairing the security interest with respect to the Collateral for the benefit of the
trustee and the holders of the Notes. The Parent Guarantor will not, and will not permit any Restricted
Group Member to, grant a Lien on Collateral (other than Permitted Collateral Liens) to any Person
other than the security trustee, for the benefit of the trustee and the holders of the Notes and the
other beneficiaries described in the Bond Security Documents, but subject to the following paragraph,
the Parent Guarantor and its Restricted Group Members may incur Permitted Collateral Liens.
At the direction of the Parent Guarantor and without the consent of the holders of the Notes, the
security trustee may from time to time enter into one or more amendments to the Bond Security
Documents to: (i) cure any ambiguity, omission, defect or inconsistency therein, (ii) provide for
Permitted Collateral Liens, (iii) add to the Collateral or (iv) make any other change thereto that does
not adversely affect the holders of the Notes in any material respect; provided, however, that no Bond
Security Document may be amended, extended, renewed, restated, supplemented or otherwise modified
or replaced, unless contemporaneously with such amendment, extension, renewal, restatement,
supplement, modification or replacement, the Parent Guarantor delivers to the security trustee either:
(1) a solvency opinion, in form and substance satisfactory to the security trustee, from an
investment banking firm, appraisal firm or accounting firm of international standing
confirming the solvency of the Parent Guarantor and its Subsidiaries, taken as a whole, after
giving effect to any transactions related to such amendment, extension, renewal, restatement,
supplement, modification or replacement; or
(2) an opinion of counsel acceptable to the security trustee, in form and substance satisfactory to
the security trustee, confirming that, after giving effect to any transactions related to such
amendment, extension, renewal, restatement, supplement, modification or replacement, the
Lien or Liens securing the Notes created under the Bond Security Documents, as so amended,
extended, renewed, restated, supplemented, modified or replaced, are valid and perfected
Liens not otherwise subject to any limitation, imperfection or new hardening period, in equity
or at law, that such Lien or Liens were not otherwise subject to immediately prior to such
amendment, extension, renewal, restatement, supplement, modification or replacement, which
opinion will be substantially in the form attached to the Indenture.
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Limitation on Transfer, Prepayment or Modification of the Initial Funding Loan
The Issuer and the Parent Guarantor will not amend, modify, supplement or waive any rights of
the Issuer or the Parent Guarantor under the Initial Funding Loan.
Limitation on Business Activities
The Parent Guarantor will not, and will not permit any Restricted Group Member (other than any
Financing Subsidiary) to, engage in any business other than Permitted Businesses, except to such extent
as would not be material to the Parent Guarantor and its Restricted Group Members taken as a whole.
Limitation on Issuer Activities
The Issuer will not engage in any business activity or undertake any other activity, except any
activity (a) relating to the offering, sale or issuance of the Notes or the incurrence of Debt by the
Issuer represented by the Notes (including the lending of the proceeds of such sale of Notes to the
Parent Guarantor pursuant to the Initial Funding Loan or any Additional Funding Loan),
(b) undertaken with the purpose of, and directly related to, fulfilling its obligations under the Notes or
the Indenture or (c) directly related to the establishment and maintenance of the Issuer’s corporate
existence (including redomiciliation to Spain, provided, however, that if such redomiciliation results in
the imposition of any Tax on a holder or beneficial owner of any Notes, the Issuer will indemnify each
such holder and beneficial owner on an after-tax basis for the full amount of any and all such taxes
imposed). The Issuer will not (a) issue any Capital Stock (other than to the Parent Guarantor),
(b) consummate any Asset Sale or (c) take any action which would cause it no longer to satisfy the
requirements of its exemption from the provisions of the Investment Company Act of 1940, as
amended. Whenever the Issuer receives a payment or prepayment under the Initial Funding Loan or
any Additional Funding Loan, it will use the funds received solely to satisfy its obligations (to the
extent of the amount owing in respect of such obligations) under the Indenture. The Indenture
provides that the Issuer must at all times be a wholly owned direct (and, to the extent required by law,
through Codere España, S.L.U., indirect) subsidiary of the Parent Guarantor.
Reports
The Parent Guarantor will furnish to the trustee (who, at the expense of the Parent Guarantor,
will furnish by mail to the holders of the Notes):
(a) within 120 days following the end of the Parent Guarantor’s fiscal year ending December 31,
2005 and within 120 days following the end of each of the Parent Guarantor’s fiscal years
thereafter, information including ‘‘Selected Financial and Other Data’’, ‘‘Management’s
Discussion and Analysis of Operating Results and Financial Condition’’ and ‘‘Our Business’’
sections with scope and content substantially equivalent to the corresponding sections of this
offering memorandum (after taking into consideration any changes to the business and
operations of the Parent Guarantor after the Issue Date), information regarding the Parent
Guarantor’s share capital, constitutional documents and any material contracts to which the
Parent Guarantor or the Restricted Group Members are party other than contracts entered
into in the ordinary course of business, and audited consolidated income statements, balance
sheets and cash flow statements and the related notes thereto for the Parent Guarantor for
the two most recent fiscal years and, in each case in accordance with GAAP, which need not,
however, contain any reconciliation to U.S. GAAP or otherwise comply with Regulation S-X
under the Exchange Act (‘‘Regulation S-X’’), together with an audit report thereon;
(b) within 60 days following the end of the Parent Guarantor’s fiscal quarters ending June 30,
2005 and September 30, 2005 and within 60 days following the end of the first three fiscal
quarters in each of the Parent Guarantor’s fiscal years thereafter, quarterly reports containing
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unaudited balance sheets, statements of income, and statements of cash flows for the Parent
Guarantor on a consolidated basis, in each case for the quarterly period then ended and the
corresponding quarterly period in the preceding fiscal year, in each case prepared in
accordance with GAAP, which need not, however, contain any reconciliation to U.S. GAAP or
otherwise comply with Regulation S-X, together with a ‘‘Management’s Discussion and
Analysis of Operating Results and Financial Condition’’ section for such quarterly period and
condensed footnote disclosure; and
(c) promptly from time to time after the occurrence of a material acquisition, disposition or
restructuring, or any senior management change at the Parent Guarantor or any change in
auditors, a report containing a description of such event and, in the case of a material
acquisition or disposition that would constitute a Significant Subsidiary, financial statements of
the acquired business and a pro forma consolidated balance sheet and statement of operations
of the Parent Guarantor giving effect to the acquisition or disposition to the extent practicable
utilizing available information (which need not be required to contain any U.S. GAAP
information or otherwise comply with Regulation S-X).
If any of the Parent Guarantor’s Subsidiaries or Non-Subsidiary Affiliates are Unrestricted Group
Members, then the annual and quarterly financial information referred to above will include a
reasonably detailed presentation, either on its face or in the footnotes thereto, of the financial
condition and results of operations of the Parent Guarantor and its Restricted Group Members
separate from the financial condition and results of operations of the Parent Guarantor’s Unrestricted
Group Members.
In addition, the Parent Guarantor will furnish to the holders and to prospective investors, upon
their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act so long as the Notes are not freely transferable under the Securities Act by Persons who
are not ‘‘affiliates’’ under the Securities Act.
The Parent Guarantor will make available all reports referred to in this section at the offices of
the principal Paying Agent, through the newswire service of Bloomberg, or, if Bloomberg does not then
operate, any similar agency and on the Parent Guarantor’s website at www.codere.com. The Parent
Guarantor’s website does not form part of this offering memorandum.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or Additional Amounts with
respect to, the Notes;
(2) default in payment when due of the principal of, or premium, if any, on the Notes;
(3) failure by the Parent Guarantor or any Restricted Group Member to comply with the
provisions described under the captions ‘‘—Repurchase at the Option of Holders—Change of
Control,’’ or ‘‘—Certain Covenants—Merger, Consolidation or Sale of Assets’’;
(4) failure by the Parent Guarantor or any Restricted Group Member for 30 days after notice
from the trustee or the holders of at least 25% in aggregate principal amount of the Notes to
comply with any of the other agreements or obligations in the Indenture;
(5) default under any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Debt for money borrowed by the Parent
Guarantor or any Restricted Group Member (or the payment of which is guaranteed by the
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Parent Guarantor or any Restricted Group Member) whether such Debt or guarantee now
exists, or is created after the date of the Indenture, if that default:
(a) is caused by a failure to pay principal of, or interest or premium, if any, on such Debt
prior to the expiration of the grace period provided in such Debt on the date of such
default (a ‘‘Payment Default’’); or
(b) results in the acceleration of such Debt prior to its express maturity;
and, in each case, the principal amount of any such Debt, together with the principal amount
of any other such Debt under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates A10 million or more;
(6) failure by the Parent Guarantor or any Restricted Group Member to pay final judgments
aggregating in excess of A10 million (in excess of amounts which the Parent Guarantor’s or
such Restricted Group Member’s insurance carriers have agreed to pay under applicable
policies), which judgments are not paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the Indenture, the Notes, any Guarantee or the Initial Funding Loan
will be held in any judicial proceeding to be unenforceable or invalid or will cease for any
reason to be in full force and effect or any Guarantor, the Issuer, or any Person acting on
behalf of the Issuer or any Guarantor, will deny or disaffirm its obligations under the Notes,
its Guarantee or the Initial Funding Loan;
(8) certain events of bankruptcy or insolvency described in the Indenture with respect to the
Parent Guarantor or any Restricted Group Member; and
(9) the security interests under any of the Bond Security Documents do not constitute valid Liens
or, at any time, other than in accordance with their terms, cease to be in full force and effect
for any reason other than the satisfaction in full of all obligations under the Indenture,
discharge of the Indenture or the release of such security interests in accordance with the
terms of the Intercreditor Agreement, or any security interest created thereunder is declared
invalid or uneneforceable, or the Issuer or any Guarantor asserts that any such security
interest is invalid or unenforceable.
In the case of an Event of Default specified in clause (8), above, all outstanding Notes will become
due and payable immediately without further action or notice. If any other Event of Default occurs and
is continuing, the holders of at least 25% in principal amount of the then outstanding Notes may, and
the trustee, upon the request of such holders, will (provided it has been indemnified and/or secured to
its satisfaction), declare all the Notes to be due and payable immediately.
Holders of the 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.
At any time after a declaration of acceleration under the Indenture, but before a judgment or
decree for payment of the money due has been obtained by the trustee, the holders of a majority in
aggregate principal amount of the outstanding Notes, by written notice to the Parent Guarantor and
the trustee, may rescind such declaration and its consequences if:
(a) the Issuer has paid or deposited with the trustee a sum sufficient to pay:
(i) all overdue interest and Additional Amounts on all Notes then outstanding;
(ii) all unpaid principal of and premium, if any, on any outstanding Note that has become
due otherwise than by such declaration of acceleration and interest thereon at the rate
borne by the Notes;
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(iii) to the extent that payment of such interest is lawful, interest upon overdue interest and
overdue principal at the rate borne by the Notes; and
(iv) all sums paid or advanced by the trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the trustee, its agents and
counsel;
(b) the rescission would not conflict with any judgment or decree of a court of competent
jurisdiction; and
(c) all Events of Default, other than the non-payment of amounts of principal of, premium, if any,
and any Additional Amounts and interest on the Notes that have become due solely by such
declaration of acceleration, have been cured or waived.
No such rescission will affect any subsequent default or impair any right consequent thereon.
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 Additional Amounts on, or the principal of, the Notes.
No holder of any of the Notes has any right to institute any proceedings with respect to the
Indenture or any remedy thereunder, unless the holders of at least 25% in aggregate principal amount
of the outstanding Notes have made a written request, and offered indemnity or security satisfactory to
the trustee, to the trustee to institute such proceeding as trustee under the Notes and the Indenture,
the trustee has failed to institute such proceeding within 30 Business Days after receipt of such notice
and the trustee within such 30-Business Day period has not received directions inconsistent with such
written request by holders of a majority in aggregate principal amount of the outstanding Notes. Such
limitations do not, however, apply to a suit instituted by a holder of a Note for the enforcement of the
payment of the principal of, premium, if any, and Additional Amounts or interest on such Note on or
after the respective due dates expressed in such Note.
If a Default or an Event of Default occurs and is continuing and is known to the trustee, the
trustee will mail to each holder of the Notes notice of the Default or Event of Default within 30
Business Days after it occurs and is known to the trustee. Except in the case of a Default or an Event
of Default in payment of principal of, premium, if any, Additional Amounts or interest on any Notes,
the trustee may withhold the notice to the holders of such Notes if a committee of its trust officers in
good faith determines that withholding the notice is in the interests of the holders of the Notes.
The Indenture provides that, except during the continuance of an Event of Default, the trustee will
perform only such duties as are set forth specifically in the Indenture. During the existence of an Event
of Default, the trustee will exercise such of the rights and powers vested in it under the Indenture and
use the same degree of care that a prudent person would use in conducting its 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 has offered to the trustee security
and indemnity satisfactory to it against loss, liability or expense as provided in the Indenture.
The Indenture provides for the indemnification of the trustee in connection with its actions under
the Indenture. The Intercreditor Agreement provides that the trustee and the security trustee are
entitled to be paid amounts in respect of their fees, costs and expenses and claims under any indemnity
in priority to payments to other creditors, including holders of the Notes.
The trustee will not be responsible for monitoring any of the covenants or restrictions or
obligations contained in the Notes or in the Indenture. The Parent Guarantor and the Issuer are
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 Parent Guarantor and the Issuer are required
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to deliver to the trustee a statement specifying such Default or Event of Default. In all instances under
the Indenture, the trustee will be entitled to rely on any certificates, statements or opinions delivered
pursuant to the Indenture absolutely and will not be obliged to enquire further as regards the
circumstances then existing and will not be responsible to the holders of the Notes for so relying.
Notices
All notices to holders of the Notes will be validly given if mailed to them at their respective
addresses in the register of the holders of such Notes, if any, maintained by the registrar. In addition,
for so long as any of the Notes are listed on the Irish Stock Exchange and the rules of the Irish Stock
Exchange so require, notices with respect to the notes listed on the Irish Stock Exchange will be
published in a leading newspaper having general circulation in Ireland (which is expected to be the
Irish Times). In addition, for so long as any Notes are represented by Global Notes, all notices to
holders of the Notes will be validly given if delivered to Euroclear and Clearstream, each of which will
give such notices to the holders.
Each such notice shall be deemed to have been given on the date of such publication or, if
published more than once on different dates, on the first date on which publication is made; provided
that, if notices are mailed, such notice shall be deemed to have been given on the later of such
publication and the seventh day after being so mailed. Any notice or communication mailed to a holder
shall be mailed to such Person by first-class mail or other equivalent means and shall be sufficiently
given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a
holder or any defect in it shall not affect its sufficiency with respect to other holders. If a notice or
communication is mailed in the manner provided above, it is duly given, whether or not the addressee
receives it.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Issuer or any Guarantor, as
such, will have any personal liability for any obligations of the Issuer or such Guarantor under the
Notes, the Indenture, the Guarantees 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 U.S. federal securities laws or under Spanish law.
Legal Defeasance and Covenant Defeasance
The Issuer may, at its option or at the option of the Parent Guarantor, and at any time, elect to
have all of its obligations discharged with respect to the outstanding Notes and all obligations of the
Guarantors discharged with respect to the Guarantees (‘‘Legal Defeasance’’) except for:
(1) the rights of holders of outstanding Notes to receive payments in respect of the principal of,
interest, premium and Additional Amounts, if any, on such Notes when such payments are
due from the trust referred to below;
(2) the Issuer’s obligations concerning (i) issuing temporary Notes, (ii) registering Notes,
(iii) replacing mutilated, destroyed, lost or stolen Notes, (iv) maintaining an office or agency
for payment, and (v) segregating and holding such payments in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and the Issuer’s and the Parent
Guarantor’s obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Issuer may, at its option or at the option of the Parent Guarantor, and at any
time, elect to have the obligations of the Issuer and the Guarantors released with respect to certain
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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 non-payment,
bankruptcy and insolvency events) described under ‘‘—Events of Default and Remedies’’ will no longer
constitute Events of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Issuer or the Parent Guarantor must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the Notes, cash in euro, non-callable Government Securities, or a
combination of cash in euro and non-callable Government Securities, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, and interest, premium and Additional Amounts, if any, on the
outstanding Notes on the Stated Maturity or on the applicable redemption date, as the case
may be, and the Issuer or Parent Guarantor must specify whether the Notes are being
defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the Issuer or the Parent Guarantor must have delivered to
the trustee an opinion of counsel of recognized standing with respect to U.S. federal income
tax matters (reasonably acceptable to the trustee) confirming that (a) the Issuer has received
from, or there has been published by, the U.S. Internal Revenue Service a ruling or (b) since
the date of the Indenture, there has been a change in the applicable U.S. federal income tax
law, in either case to the effect that (and based thereon such opinion will confirm that) the
beneficial owners of the outstanding Notes will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such Legal Defeasance and will be subject to U.S.
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 Legal Defeasance, the Issuer or the Parent Guarantor must have delivered to
the trustee an opinion of counsel (reasonably acceptable to the trustee) in the Kingdom of
Spain to the effect that beneficial owners of the Notes will not recognize income, gain or loss
in the Kingdom of Spain as a result of such Legal Defeasance and will be subject to taxes in
the Kingdom of Spain (including withholding taxes) 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;
(4) in the case of Covenant Defeasance, the Issuer or the Parent Guarantor must have delivered
to the trustee an opinion of counsel of recognized standing with respect to U.S. federal
income tax matters (reasonably acceptable to the trustee) confirming that the beneficial
owners of the outstanding Notes will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such Covenant Defeasance and will be subject to U.S.
federal income tax on the same amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred;
(5) in the case of Covenant Defeasance, the Issuer or the Parent Guarantor must have delivered
to the trustee an opinion of counsel (reasonably acceptable to the trustee) in the Kingdom of
Spain to the effect that holders of the Notes will not recognize income, gain or loss in the
Kingdom of Spain as a result of such Covenant Defeasance and will be subject to taxes in the
Kingdom of Spain (including withholding taxes) on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance had not
occurred;
(6) no Default or Event of Default has occurred and is 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);
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(7) such Legal Defeasance or Covenant Defeasance will not result in the trust arising therefrom
constituting an ‘‘investment company’’ within the meaning of the U.S. Investment Company
Act of 1940, as amended, unless registered thereunder or exempt therefrom;
(8) such Legal Defeasance or Covenant Defeasance, including the deposit described in clause (1),
above, 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 Parent Guarantor or any of
its Subsidiaries is a party or by which the Parent Guarantor or any of its Subsidiaries is bound;
(9) the Issuer or the Parent Guarantor must deliver to the trustee an Officers’ Certificate stating
that the deposit was not made by the Issuer or the Parent Guarantor with the intent of
preferring the holders of Notes over the other creditors of the Issuer or the Parent Guarantor
with the intent of defeating, hindering, delaying or defrauding creditors of the Issuer or the
Parent Guarantor or others; and
(10) the Issuer or the Parent Guarantor must deliver to the trustee an Officers’ Certificate and an
opinion of counsel (and the trustee will rely on both absolutely), each stating that all
conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
With respect to either Legal Defeasance or Covenant Defeasance, the trustee will rely absolutely
on all certificates, opinions and other documents delivered to it.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture, the Notes or the
Guarantees may be amended or supplemented with the consent of the holders of at least a majority in
principal amount of the Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with the consent of the
holders of a majority in principal amount of the then outstanding Notes (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each holder affected, an amendment or waiver may not (with respect to
any Notes held by a non-consenting holder):
(1) reduce the principal amount of Notes whose holders must consent to an amendment,
supplement or waiver of provisions of the Indenture;
(2) reduce the principal (or Additional Amounts or premium, if any) of or change the Stated
Maturity of the principal of, or any installment of Additional Amounts or premium, if any, or
interest on, any Note or alter the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described above under the caption
‘‘—Repurchase at the Option of Holders’’);
(3) reduce the rate of or change the time for payment of interest on any note;
(4) waive a Default or Event of Default in the payment of principal of, or interest or premium, or
Additional Amounts, if any, on the Notes (except a rescission of acceleration of the Notes by
the holders of at least a majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration);
(5) impair the right to institute suit for the enforcement of any payment of any Note in
accordance with the provisions of such Note and the Indenture;
(6) amend, change or modify the obligation to make and consummate an Excess Proceeds Offer
with respect to any Asset Sale in accordance with the ‘‘Limitation on Sale of Certain Assets’’
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covenant or the obligation to make and consummate a Change of Control offer in the event
of a Change of Control in accordance with the ‘‘Purchase of Notes upon a Change of
Control’’ covenant, including, in each case, amending, changing or modifying any definition
relating thereto;
(7) except as otherwise permitted under ‘‘—Certain Covenants—Consolidation, Merger and Sale
of Assets’’, consent to the assignment or transfer by the Parent Guarantor of any of the Parent
Guarantor’s rights or obligations under the Indenture;
(8) make any Note payable in money other than that stated in the Notes;
(9) 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
Additional Amounts, if any, on the Notes;
(10) 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’’);
(11) release the Issuer or any Guarantor from any of its obligations under the Notes, the
Guarantees or the Indenture, except in accordance with the terms of the Indenture;
(12) amend or waive the covenant entitled ‘‘Limitation on Transfer, Prepayment or Modification of
the Initial Funding Loan’’; or
(13) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of Notes, the Guarantors, the
Issuer and the trustee may amend or supplement the Indenture or the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of certificated Notes;
(3) to provide for the assumption of the Parent Guarantor’s obligations to holders of Notes in the
case of a merger or consolidation or sale of all or substantially all of the Parent Guarantor’s
assets;
(4) to release any Subsidiary Guarantor in accordance with and if permitted by the terms and
limitations set forth in the Indenture and to add a Guarantor under the Indenture; or
(5) 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.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as to all Notes issued
thereunder, when:
(1) the Issuer or the Parent Guarantor has irrevocably deposited or caused to be deposited with
the trustee as trust funds in trust solely for the benefit of the holders, cash in euro,
non-callable Government Securities, or a combination of cash in euro and non-callable
Government Securities, in such amounts as will be sufficient, without consideration of any
reinvestment of interest, to pay and discharge the entire indebtedness on the Notes that have
not, prior to such time, been delivered to the trustee for cancellation, for principal of,
premium, if any, and any Additional Amounts, if any, and accrued and unpaid interest to the
date of maturity or redemption, as the case may be, and the Issuer has delivered irrevocable
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instructions to the trustee under the Indenture to apply the deposited money toward the
payment of Notes at Maturity or on the redemption date, as the case may be; and 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 been deposited in trust
and thereafter repaid to the Issuer or the Parent Guarantor, 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 mailing of a notice of redemption or otherwise or will
become due and payable within one year.
(2) no Default or Event of Default has occurred and is continuing on the date of the deposit or
will occur as a result of the deposit and the deposit will not result in a breach or violation of,
or constitute a default under, any other instrument to which the Issuer or any Guarantor is a
party or by which the Issuer or any Guarantor is bound;
(3) the Issuer or the Parent Guarantor has paid or caused to be paid all sums payable by the
Issuer under the Indenture; and
(4) the Issuer 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 Issuer must deliver an Officers’ Certificate and an opinion of counsel to the
trustee (and the trustee will rely on both absolutely) stating that all conditions precedent to satisfaction
and discharge have been satisfied and that such satisfaction and discharge will not result in a breach or
violation of, or constitute a default under, the Indenture or any other agreement or instrument to
which the Parent Guarantor or any Subsidiary is a party or by which the Parent Guarantor or any
Subsidiary is bound.
Judgment Currency
The Issuer and the Guarantors, jointly and severally, will agree to indemnify the holders against
any loss incurred, as incurred, as a result of any judgment or award in connection with the Indenture
being expressed in a currency (the ‘‘Judgment Currency’’) other than the euro and as a result of any
variation as between (i) the spot rate of exchange in London at which the Judgment Currency could
have been converted into euros as of the date such judgment or award is paid and (ii) the spot rate of
exchange at which the indemnified party converts such Judgment Currency. The foregoing will
constitute a separate and independent obligation of the Issuer and the Guarantors and will continue in
full force and effect notwithstanding any such judgment or order. The term ‘‘spot rate of exchange’’
includes any premiums and costs of exchange payable in connection with the purchase of, or conversion
into, the relevant currency.
Additional Information
Anyone who receives this offering memorandum may obtain a copy of the Indenture without
charge by writing to Codere S.A., c/ Rufino Gonzalez, No. 25, 28037 Madrid, Spain, Attention:
Robert A. Gray.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference is made to the
Indenture for full disclosure of all such terms.
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‘‘Acquired Debt’’ means, with respect to any specified Person:
(1) Debt of any other Person existing at the time such other Person is merged with or into or
became a Subsidiary of such specified Person, whether or not such Debt is incurred in
connection with, or in contemplation of, such other Person merging with or into, or becoming
a Subsidiary of, such specified Person; and
(2) Debt secured by a Lien encumbering any asset acquired by such specified Person.
‘‘Additional Funding Loan’’ means the loan of the proceeds of an offering of Additional Notes by
the Issuer to the Parent Guarantor.
‘‘Additional Funding Loan Agreement’’ means a loan agreement substantially in the form of the
Funding Loan Agreement and entered into after the Issue Date between the Issuer and the Parent
Guarantor pursuant to which the Issuer lends to the Parent Guarantor the proceeds from an offering of
Additional Notes.
‘‘Additional Funding Loan Agreement Assignment’’ means a security assignment substantially in the
form of the Security Assignment and entered into after the Issue Date over an Additional Funding
Loan Agreement in favor of the security trustee.
‘‘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, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial
ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes
of this definition, the terms ‘‘controlling,’’ ‘‘controlled by’’ and ‘‘under common control with’’ have
correlative meanings.
‘‘Applicable Premium’’ means, with respect to a Note on any Redemption Date, the greater of:
(1) 1.0% of the principal amount of the Note; and
(2) the excess of:
(a) the present value at such Redemption Date of (i) the redemption price of the note at
June 15, 2010 (such redemption price being set forth in the table appearing above under
the caption ‘‘—Optional Redemption’’) plus (ii) all required interest payments due on the
note through June 15, 2010 (excluding accrued but unpaid interest to the Redemption
Date), computed using a discount rate equal to the Bund Rate as of such Redemption
Date plus 50 basis points; over
(b) the principal amount of the Note.
‘‘Asset Sale’’ means:
(1) the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale,
conveyance or other disposition of all or substantially all of the assets of the Parent Guarantor
and its Subsidiaries taken as a whole will be governed by the provisions of the Indenture
described above under the caption ‘‘—Repurchase at the Option of Holders—Change of
Control’’ and/or the provisions described above under the caption ‘‘—Certain Covenants—
Merger, Consolidation or Sale of Assets’’ and not by the provisions of the provisions of the
Indenture described above under ‘‘—Repurchase at the Option of Holders—Sales of Certain
Assets’’; and
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(2) the issuance of Equity Interests in any Restricted Group Member or the sale of Equity
Interests by the Parent Guarantor or any Restricted Group Member in any Restricted Group
Member.
Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(1) any single transaction or series of related transactions that involves assets having a Fair
Market Value of less than A1 million;
(2) a transfer of assets between or among the Issuer and the Guarantors or by a Restricted Group
Member that is not a Subsidiary Guarantor to the Parent Guarantor or to another Restricted
Group Member;
(3) an issuance of Equity Interests by a Restricted Group Member to the Parent Guarantor or to
another Restricted Group Member;
(4) the sale or lease of equipment, inventory or accounts receivable in the ordinary course of
business;
(5) the sale or other disposition of cash or Cash Equivalents; and
(6) a Restricted Payment or Permitted Investment that is permitted by the covenant described
above under the caption ‘‘—Certain Covenants—Restricted Payments’’.
‘‘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.
‘‘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.
‘‘Board of Directors’’ means:
(1) with respect to a corporation, the board of directors of the corporation;
(2) with respect to a partnership, the Board of Directors of the general partner of the
partnership; and
(3) with respect to any other Person, the board or committee of such Person serving a similar
function.
‘‘Bond Security Documents’’ means the Security Assignment and any other security document
entered into from time to time in favor of the holders of the Notes and the Parent Guarantee.
‘‘Bund Rate’’ means, with respect to any redemption date, the rate per annum equal to the
equivalent yield to maturity as of such redemption date of the Comparable German Bund issue,
assuming a price for the Comparable German Bund Issue (expressed as a percentage of its principal
amount) equal to the Comparable German Bund Price for such redemption date, where:
(a) ‘‘Comparable German Bund Issue’’ means the German Bundesanleihe security selected by any
Reference German Bund Dealer as having a fixed maturity most nearly equal to the period
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from such redemption date to June 15, 2010, and that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new issues of euro
denominated corporate debt securities in a principal amount approximately equal to the then
outstanding principal amount of the Notes and of a maturity most nearly equal to June 15,
2010; provided that if the period from such redemption date to June 15, 2010 is less than one
year, a fixed maturity of one year will be used;
(b) ‘‘Comparable German Bund Price’’ means, with respect to any redemption date, the average
of the Reference German Bund Dealer Quotations for such redemption date, after excluding
the highest and lowest such Reference German Bund Dealer Quotations, or if the Issuer
obtains fewer than four such Reference German Bund Dealer Quotations, the average of all
such quotations;
(c) ‘‘Reference German Bund Dealer’’ means any dealer of German Bundesanleihe securities
appointed by the Issuer; and
(d) ‘‘Reference German Bund Dealer Quotations’’ means, with respect to each Reference German
Bund Dealer and any redemption date, the average as determined by the Issuer of the bid and
offered prices for the Comparable German Bund issue (expressed in each case as a
percentage of its principal amount) quoted in writing to the Issuer by such Reference German
Bund Dealer at 3:30 p.m. Frankfurt, Germany time on the third business day preceding such
redemption date.
‘‘Business Day’’ means a day other than Saturday, Sunday or any other day on which banking
institutions in Spain, London, Dublin or a place of payment under the Indenture are authorized or
required by law to close.
‘‘Capital Lease Obligation’’ means, with respect to any Person, any obligation of such Person under
a lease of (or other agreement conveying the right to use) any property (whether real, personal or
mixed), which obligation is required to be classified and accounted for as a capital lease obligation
under GAAP, and, for purposes of the Indenture, the amount of such obligation at any date will be the
capitalized amount thereof at such date, determined in accordance with GAAP and the Stated Maturity
thereof will be the date of the last payment of rent or any other amount due under such lease prior to
the first date such lease may be terminated without penalty.
‘‘Capital Stock’’ means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership or membership interests
(whether general or limited); and
(4) any other interest or participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
‘‘Cash Equivalents’’ means:
(1) (a) euros or U.S. dollars, or (b) in respect of any Restricted Group Member, to the extent
held in the ordinary course of operating its business in its home country, its local currency;
(2) securities or marketable direct obligations issued by or directly and fully guaranteed or insured
by the government of (a) Spain, (b) the United States or (c) a member of the European
Union or any agency or instrumentality of such government (provided that the full faith and
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credit of such government is pledged in support of those securities) having maturities of not
more than twelve months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of twelve months or less
from the date of acquisition, bankers’ acceptances with maturities not exceeding twelve
months and overnight bank deposits, in each case, with any commercial bank having capital
and surplus in excess of A500 million and a Thomson Bank Watch Rating of ‘‘B’’ or better;
(4) repurchase obligations with a term of not more than seven days for underlying securities of
the types described in clauses (2) and (3) above entered into with any financial institution
meeting the qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody’s Investors Service, Inc. or
Standard & Poor’s Rating Services and in each case maturing within six months after the date
of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the
kinds described in clauses (1) through (5) of this definition.
‘‘Change of Control’’ means the occurrence of any of the following:
(1) prior to the consummation of an initial Public Equity Offering, any event, the result of which
is that the Permitted Holders cease to be the ‘‘beneficial owners’’ (as defined in Rules 13d-3
and 13d-5 under the Exchange Act), directly or indirectly, of shares representing more than
50% of the voting power of the Parent Guarantor’s outstanding Voting Stock; or
(2) on or after the consummation of any initial Public Equity Offering, (i) any ‘‘Person’’ or
‘‘group’’ (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than
the Permitted Holders, is or becomes the ‘‘beneficial owner’’ (as defined in clause (a) above),
directly or indirectly, of more than 35% of the voting power of the Parent Guarantor’s
outstanding Voting Stock and (ii) the Permitted Holders do not beneficially own a larger
percentage of such Voting Stock than such person or group; or
(3) (i) if the Parent Guarantor consummates any transaction (including, without limitation, any
merger, consolidation, amalgamation or other combination) pursuant to which the Parent
Guarantor’s outstanding Voting Stock is converted into or exchanged for cash, securities or
other property, or (ii) the Parent Guarantor conveys, transfers, leases or otherwise disposes of,
or any resolution is passed by the Parent Guarantor’s board of directors or shareholders
pursuant to which the Parent Guarantor would dispose of, all or substantially all of the Parent
Guarantor’s assets and those of the Restricted Group Members, considered as a whole (other
than a transfer of substantially all of such assets to one or more Wholly-Owned Restricted
Subsidiaries), in each case to any Person other than in a transaction where the Parent
Guarantor’s outstanding Voting Stock is not converted or exchanged at all (except to the
extent necessary to reflect a change in the jurisdiction of the Parent Guarantor’s
incorporation) or is converted into or exchanged for Voting Stock (other than Redeemable
Capital Stock) of the surviving or transferee corporation; and
(x) prior to the occurrence of an initial Public Equity Offering, any ‘‘person’’ or ‘‘group’’ (as
such terms are used in Section 13(d) and 14(d) of the Exchange Act), other than the
Permitted Holders, are the ‘‘beneficial owners’’ (as defined in Rule 13(d) and 14(d) of the
Exchange Act, directly or indirectly, of more than 50% of the total outstanding Voting
Stock of the surviving or transferee corporation; or
(y) on or after the consummation of an initial Public Equity Offering, no ‘‘person’’ or
‘‘group’’ (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other
than the Permitted Holders, is the ‘‘beneficial owner’’ (as defined in clause (a) above)
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directly or indirectly, of more than 35% of the total outstanding Voting Stock of the
surviving or transferee corporation and the Permitted Holders do not beneficially own a
larger percentage of such Voting Stock than such person or group; or
(4) the adoption of a plan relating to the liquidation or dissolution of the Parent Guarantor; or
(5) the first day on which a majority of the members of the Board of Directors of the Parent
Guarantor are not Continuing Directors.
‘‘Collateral’’ means all the collateral described in the Bond Security Documents.
‘‘Consolidated Cash Flow’’ of the Parent Guarantor means the Consolidated Net Income of the
Parent Guarantor for such period plus:
(1) an amount equal to any net loss realized by the Parent Guarantor or any Restricted Group
Member in connection with an Asset Sale, to the extent such losses were deducted in
computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of the Parent Guarantor and its Restricted
Group Members for such period, to the extent that such provision for taxes was deducted in
computing such Consolidated Net Income; plus
(3) the consolidated interest expense of the Parent Guarantor and its Restricted Group Members
for such period, whether paid or accrued (including, without limitation, amortization of debt
issuance costs and original issue discount, Additional Amounts, non-cash interest payments,
the interest component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers’ acceptance financings, and net of the effect of all payments made
or received pursuant to Hedging Obligations), to the extent that any such expense was
deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior period) and other
non-cash expenses (excluding any such non-cash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of the Parent Guarantor and its Restricted Group
Members for such period to the extent that such depreciation, amortization and other
non-cash expenses were deducted in computing such Consolidated Net Income and except to
the extent already counted in clause (1) hereof; minus
(5) non-cash items increasing such Consolidated Net Income for such period (excluding any such
non-cash item of income to the extent it represents the reversal of accruals or reserves for
cash charges taken in prior periods or will result in receipt of cash payments in any future
period),
in each case, on a consolidated basis and determined in accordance with GAAP.
‘‘Consolidated EBITDA’’ of a Person means the operating profit of such Person and its
consolidated subsidiaries plus depreciation and amortization plus variation in provisions for trade
transactions.
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‘‘Consolidated Net Income’’ of the Parent Guarantor means the aggregate of the Net Income of the
Parent Guarantor and its Restricted Group Members for such period, on a consolidated basis,
determined in accordance with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted Group Member or that is
accounted for by the equity method of accounting will be included only to the extent of the
amount of dividends or distributions paid in cash to the Parent Guarantor, a Wholly Owned
Restricted Subsidiary or a Restricted Group Member that is not a Wholly Owned Restricted
Subsidiary (but in the latter case, only a share of such dividend or distribution pro rated with
respect to the direct or indirect ownership of such Restricted Group Member held by the
Parent Guarantor);
(2) the Net Income of any Restricted Group Member will be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted Group Member
of that Net Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Group Member or its stockholders,
unless, in each case, such restriction has been legally waived;
(3) the Net Income of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition will be excluded;
(4) any gain (but not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale or (b) the disposition of any securities by
the Parent Guarantor or any Restricted Group Member or the extinguishment of any Debt of
the Parent Guarantor or any Restricted Group Member, will be excluded; and
(5) the cumulative effect of a change in accounting principles will be excluded.
‘‘Continuing Directors’’ means, as of any date of determination, any member of the Board of
Directors of the Parent Guarantor who:
(1) was a member of such Board of Directors on the date of the Indenture; or
(2) was nominated for election or elected to such Board of Directors with the approval of a
majority of the Continuing Directors who were members of such Board at the time of such
nomination or election.
‘‘Credit Facilities’’ means one or more debt facilities (including, without limitation, the Senior
Credit Facility) or commercial paper facilities, in each case with banks or other institutional lenders
providing for up to A100 million of revolving credit loans, term loans, receivables financing (including
through the sale of receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
‘‘Debt’’ means, with respect to any Person, without duplication:
(1) all liabilities of such Person for borrowed money (including overdrafts) or for the deferred
purchase price of property or services, excluding any trade payables and other accrued current
liabilities incurred in the ordinary course of business;
(2) all obligations of such Person evidenced by bonds, notes, debentures or other similar
instruments (including the Monitor Clipper Instrument);
(3) all obligations, contingent or otherwise, of such Person in connection with any letters of credit,
bankers’ acceptances, receivables facilities or other similar facilities;
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(4) all indebtedness of such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if the rights and
remedies of the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade payables arising in the ordinary
course of business;
(5) all Capital Lease Obligations of such Person;
(6) all Hedging Obligations of such Person;
(7) all Debt referred to in (but not excluded from) the preceding clauses (1) through (6) of other
Persons and all dividends of other Persons, the payment of which is secured by (or for which
the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any
Lien upon or with respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become liable for
the payment of such Debt (the amount of such obligation being deemed to be the lesser of
the Fair Market Value of such property or asset or the amount of the obligation so secured);
(8) all guarantees by such Person of Debt referred to in this definition of any other Person;
(9) all Disqualified Capital Stock of such Person valued at the greater of its voluntary maximum
fixed repurchase price or involuntary maximum fixed repurchase price plus accrued and
unpaid dividends; and
(10) Preferred Stock of any Restricted Group Member;
provided that the term ‘‘Debt’’ will not include (i) non-interest bearing instalment obligations and
accrued liabilities incurred in the ordinary course of business that are not more than 90 days past due;
(ii) Debt in respect of the incurrence by the Parent Guarantor or any Restricted Group Member of
Debt in respect of standby letters of credit, performance bonds or surety bonds provided by the Parent
Guarantor or any Restricted Group Member in the ordinary course of business to the extent that such
letters of credit or bonds are not drawn upon or, if and to the extent drawn upon are honored in
accordance with their terms and if, to be reimbursed, are reimbursed no later than the fifth business
day following receipt by such Person of a demand for reimbursement following payment on the letter
of credit or bond; (iii) anything accounted for as an operating lease in accordance with GAAP as at the
date of the Indenture; and (iv) Debt incurred by the Parent Guarantor or a Restricted Group Member
in connection with a transaction where (x) such Debt is borrowed from any commercial bank having
capital and surplus in excess of A500 million and a Thomson Bank Watch Rating of ‘‘B’’ or better and
(y) a substantially concurrent Investment is made by the Parent Guarantor or a Restricted Group
Member in the form of cash deposited with the lender of such debt, or a Subsidiary or affiliate thereof,
in an amount equal to such Debt.
For purposes of this definition, the ‘‘maximum fixed repurchase price’’ of any Disqualified Stock
that does not have a fixed redemption, repayment or repurchase price will be calculated in accordance
with the terms of such Disqualified Stock as if such Disqualified Stock were purchased on any date on
which Debt will be required to be determined pursuant to the Indenture, and if such price is based
upon, or measured by, the Fair Market Value of such Disqualified Stock, such fair market value will be
determined in good faith by the board of directors of the issuer of such Disqualified Capital Stock;
provided that if such Disqualified Capital Stock is not then permitted to be redeemed, repaid or
repurchased, the redemption, repayment or repurchase price will be the book value of such
Disqualified Stock as reflected in the most recent financial statements of such Person.
‘‘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.
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‘‘Disqualified Stock’’ means any Capital Stock that, by its terms (or by the terms of any security
into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of
the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the
Capital Stock, in whole or in part, on or prior to the date that is 365 days after the date on which the
Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders of the Capital Stock have the right to require the Parent
Guarantor to repurchase such Capital Stock upon the occurrence of a change of control or an asset
sale will not constitute Disqualified Stock if the terms of such Capital Stock provided that the Parent
Guarantor may not repurchase or redeem any such Capital Stock pursuant to such provisions unless
such repurchase or redemption complies with the covenant described above under the caption
‘‘—Certain Covenants—Limitation on Restricted Payments’’.
‘‘Enforcement Action’’ means:
(a) the acceleration of any liabilities or any declaration that any liabilities are prematurely due
and payable (subject to certain exceptions) or payable on demand or certain designations
under certain hedging documents or the making of certain demands for payment in
connection with certain hedging documents;
(b) the notification by the Senior Agent or the trustee to the security trustee of the occurrence of
an Event of Default under the Senior Credit Facility or the Indenture, as appropriate, and of
such Senior Agent’s or trustee’s intention to take steps to enforce or require the enforcement
of the relevant Transaction Security;
(c) the making of any demand against any member of the Codere group in relation to any
guarantee, indemnity or other assurance against loss in respect of any liabilities or exercising
any right to require any member of the Codere group to acquire any liability (including
exercising any put or call option against any member of the Codere group for the redemption
or purchase of any liability);
(d) the exercise of any right of set-off against any member of the Codere group in respect of any
liabilities due and payable but unpaid;
(e) the suing for, commencing or joining of any legal or arbitration proceedings against any
member of the Codere group to recover any liabilities;
(f) the entering into by the Issuer or any Guarantor or any material subsidiary of an assignment
of its assets for the benefit of its creditors generally (or any class thereof) or any composition
or arrangement with any of its creditors generally (or any class thereof);
(g) the petitioning, applying or voting for, or the taking of any steps (including the appointment
of any liquidator, receiver, administrator or similar officer) in relation to, the winding up,
dissolution, administration or reorganisation of the Issuer or any Guarantor or any material
subsidiary or any suspension of payments or moratorium of any indebtedness of the Issuer or
any Guarantor or any material subsidiary, or any analogous procedure or step in any
jurisdiction; or
(h) the taking of any steps (which the party taking those steps is entitled to take) to enforce or
require the enforcement of any Transaction Security (including the crystallization of any
floating charge forming part of the Transaction Security),
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provided that the following shall not constitute Enforcement Action:
(i) the taking of any action falling within paragraph (e) above necessary to preserve the validity
and existence of claims, including the registration of such claims before any court or
governmental authority;
(ii) to the extent entitled by law, the taking of any actions against any creditor (or any agent,
trustee or receiver acting on behalf of such creditor) to challenge the basis on which any sale
or disposal is to take place pursuant to powers granted to such persons under any security
documentation; or
(iii) certain creditors bringing legal proceedings against any person in connection with any
securities violation or common law fraud or to restrain any actual or putative breach of the
Indenture, the Notes and any other document entered into in connection with the issuance of
the Notes, or for specific performance with no claim for damages,
and provided further that none of the actions listed in paragraphs (i) to (iii) above shall result in an
Insolvency Event.
‘‘Equity Interests’’ means Capital Stock and all warrants, options or other rights to acquire Capital
Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
‘‘euro’’ or ‘‘B’’ means the single currency of participating member states of the European Monetary
Union.
‘‘European Union’’ means the European Union as constituted on April 30, 2004, specifically
comprising the countries of Austria, Belgium, Denmark, France, Finland, Germany, Greece, Ireland,
Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom, but not
including any country which become a member of the European Union after April 30, 2004.
‘‘Euro Equivalent’’ means, with respect to any monetary amount in a currency other than the euro,
at any time for the determination thereof, the amount of euro obtained by converting such foreign
currency involved in such computation into euro at the spot rate for the purchase of euros with the
applicable foreign currency as quoted by Reuters at approximately 11:00 (New York City time) on the
date not more than two business days prior to such determination. For purposes of determining
whether any Debt can be incurred (including Permitted Debt), any Investment can be made or any
transaction described in ‘‘—Certain Covenants—Limitation on Transactions with Affiliates’’ covenant
can be undertaken (a ‘‘Tested Transaction’’), the Euro Equivalent of such Debt, Investment or
transaction described in ‘‘—Certain Covenants—Limitation of Transactions with Affiliates’’ will be
determined on the date incurred, made or undertaken and, in each case, no subsequent change in the
Euro Equivalent will cause such Tested Transaction to have been incurred, made or undertaken in
violation of the Indenture.
‘‘Exchange Act’’ means the U.S. Securities Exchange Act of 1934, as amended;
‘‘Existing Debt’’ means Debt of the Parent Guarantor and the Restricted Group Members (other
than Debt under clause (1) of the definition of Permitted Debt) in existence on the date of the
Indenture, until such amounts are repaid.
‘‘Existing Joint Venture’’ means each of Codere Gandia, S.A., Gistra, S.L., Operadores Reunidos
Madrid, S.A., Operoeste, S.A., Recreativos Ruan, S.A., Rospay, S.L., Campos Del Norte-Invernor and
Entretenimiento Recreativos, S.A. de C.V., Hı́pica Rioplatense Uruguay, S.A. and their respective
successors.
‘‘Fair Market Value’’ means, with respect to any asset or property, the sale value that would be
obtained in an arm’s-length free-market transaction between an informed and willing seller under no
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compulsion to sell and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the board of directors of the Parent Guarantor, unless otherwise indicated.
‘‘Financing Subsidiary’’ means any Wholly Owned Restricted Subsidiary established solely for the
purpose and engaged exclusively in the business of issuing debt securities and loaning the proceeds
thereof to the Parent Guarantor or another Restricted Group Member.
‘‘Fixed Charge Coverage Ratio’’ of the Parent Guarantor for any period means the ratio of the
Consolidated Cash Flow of the Parent Guarantor for such period to the Fixed Charges of the Parent
Guarantor for such period. In the event that the Parent Guarantor or any Restricted Group Member
incurs, assumes, guarantees, repays, repurchases or redeems any Debt (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 or redemption of Debt, 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 Parent Guarantor or any Restricted Group Member,
including through mergers or consolidations, or by any Person or any Restricted Group
Member acquired by the Parent Guarantor or any Restricted Group Member, 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;
(2) the Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of 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 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 Parent Guarantor or any of Restricted Group Member following the
Calculation Date.
‘‘Fixed Charges’’ of the Parent Guarantor means the sum, without duplication, of:
(1) the consolidated interest expense of the Parent Guarantor and the Restricted Group Members
for such period, whether paid or accrued, including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of credit or bankers’
acceptance financings, and net of the effect of all payments made or received pursuant to
Hedging Obligations, but excluding any amounts accrued in respect of obligations on the
Monitor Clipper Instrument; plus
(2) the consolidated interest of the Parent Guarantor and the Restricted Group Members that
was capitalized during such period; plus
(3) any interest on Debt of another Person that is guaranteed by the Parent Guarantor or a
Restricted Group Member or secured by a Lien on assets of the Parent Guarantor or a
Restricted Group Member, whether or not such guarantee or Lien is called upon; plus
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(4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any
series of Preferred Stock of the Parent Guarantor or any Restricted Group Member, other
than dividends on Equity Interests payable solely in Equity Interests of the Parent Guarantor
(other than Disqualified Stock) or to the Parent Guarantor or a Restricted Group Member,
times (b) a fraction, the numerator of which is one and the denominator of which is one
minus the then current statutory tax rate of the Parent Guarantor, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
‘‘Funding Loan Agreement’’ means (a) the agreement between the Issuer and the Parent Guarantor
relating to the Initial Funding Loan, (b) all other loan agreements pursuant to which the Initial
Funding Loan is refinanced, in whole or in part and (c) any Additional Funding Loan Agreement.
‘‘GAAP’’ means generally accepted accounting principles in Spain as in effect from time to time.
At any time after the date of the Indenture, the Parent Guarantor may elect to apply IFRS for all
purposes of the Indenture, in lieu of GAAP, and, upon any such election, references herein to GAAP
will thereafter be construed to mean IFRS, as in effect from time to time; provided that (a) any such
election once made will be irrevocable, (b) all financial statements and reports required to be provided,
after such election, pursuant to the Indenture will be prepared on the basis of IFRS, as in effect from
time to time (including that, upon first reporting its fiscal year results under IFRS, the Parent
Guarantor will restate its financial statements on the basis of IFRS, for the fiscal year ending
immediately prior to the first fiscal year for which financial statements have been prepared on the basis
of IFRS, as applicable) and (c) after such election, all ratios, computations and other determinations
based on GAAP contained in the Indenture will be computed in conformity with IFRS.
‘‘Government Securities’’ means direct obligations (or certificates representing an ownership interest
in such obligations) of a member state of the European Union (including any agency or instrumentality
thereof) for the payment of which the full faith and credit of such government is pledged.
‘‘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 Debt.
‘‘Guarantee’’ means any guarantee of the Issuer’s obligations under the Indenture and the Notes by
any Guarantor. When used as a verb, ‘‘Guarantee’’ will have a corresponding meaning.
‘‘Guarantor’’ means the Parent Guarantor and each of the Subsidiary Guarantors.
‘‘Hedging Obligations’’ means, with respect to any specified Person, the obligations of such Person
under:
(1) interest rate swap agreements, interest rate cap agreements and interest rate collar
agreements;
(2) other agreements or arrangements designed to manage interest rates or interest rate risk; and
(3) other agreements or arrangements designed to protect such Person against fluctuations in
currency exchange rates.
‘‘IFRS’’ means the international accounting standards promulgated from time to time by the
International Accounting Standards Board (or any successor board or agency).
‘‘Initial Funding Loan’’ means the loan of the proceeds of the offering of the Notes made by the
Issuer to the Parent Guarantor on the Issue Date.
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‘‘Insolvency Event’’ means, in relation to any Person:
(a) any resolution is passed or order made for the winding up, dissolution, administration or
reorganisation of that Person;
(b) any composition, assignment or arrangement is made with any of the creditors of that Person
or any suspension of payments;
(c) the appointment of any liquidator, receiver, preliminary administrator, administrator,
administrative receiver, compulsory manager or other similar officer in respect of that Person
or any of its assets;
(d) a petition for insolvency proceedings is filed in respect of that Person’s assets;
(e) the opening of insolvency proceedings in respect of that Person (including, without limitation,
‘‘solicitud de declaración de concurso’’); or
(f) any analogous procedure or step is taken in any jurisdiction,
provided that, in the case of the Issuer or any Guarantor, such event or circumstance is an event of
default under the Senior Credit Facility.
‘‘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 similar advances to officers and
employees made in the ordinary course of business), purchases or other acquisitions for consideration
of Debt, 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. If the Parent Guarantor or any
Restricted Group Member sells or otherwise disposes of any Equity Interests of any direct or indirect
Restricted Group Member such that, after giving effect to any such sale or disposition, such Person is
no longer a Subsidiary of the Parent Guarantor, the Parent Guarantor will be deemed to have made an
Investment on the date of any such sale or disposition equal to the Fair Market Value of the Parent
Guarantor’s Investments in such Subsidiary that were not sold or disposed of in an amount determined
as provided in the final paragraph of the covenant described above under the caption ‘‘—Certain
Covenants—Limitation on Restricted Payments.’’ The acquisition by the Parent Guarantor or any
Restricted Group Member of a Person that holds an Investment in a third Person will be deemed to be
an Investment by the Parent Guarantor or such Restricted Group Member in such third Person in an
amount equal to the Fair Market Value of the Investments held by the acquired Person in such third
Person in an amount determined as provided in the final paragraph of the covenant described above
under the caption ‘‘—Certain Covenants—Limitation on Restricted Payments’’.
‘‘Issue Date’’ means the date on which the Notes are originally issued.
‘‘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.
‘‘Material Subsidiary’’ means any Restricted Subsidiary that, for the most recently completed fiscal
year after the Issue Date, accounts for 5% or greater of the Consolidated EBITDA of the Parent
Guarantor.
‘‘Monitor Clipper Instrument’’ means the investment agreement dated 18 September 2002 among
Codere S.A., MCEP-COD (Lux), S.a.r.l. and MCEP-COD IA (Lux), S.a.r.l.
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‘‘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), together with any related provision for taxes on such gain (but not
loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by
such Person or any Restricted Group Member or the extinguishment of any Debt of such
Person or any Restricted Group Member; and
(2) any extraordinary gain (but not loss), together with any related provision for taxes on such
extraordinary gain (but not loss).
‘‘Net Proceeds’’ means the aggregate cash proceeds received by the Parent Guarantor or any
Restricted Group Member 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, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale,
taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available
tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the
repayment of Debt, 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.
‘‘Non-Public Debt’’ means:
(1) Debt represented by promissory notes or similar evidence of Debt under bank loans or similar
financing agreements, including private placements to insurance companies, mezzanine
lenders, strategic investors and private-equity sponsors; and
(2) any other Debt, provided that it (A) is not listed, quoted or tradeable on any exchange or
market, including any market for securities eligible for resale pursuant to Rule 144A under
the Securities Act, (B) does not clear or settle through the facilities of Euroclear, Clearstream
Banking or any similar facilities, (C) is not issued or sold by means of any prospectus, offering
memorandum (but not an information memorandum of the type used in a bank syndication)
or similar document typically used in connection with road show presentations, (D) is not
marketed in an underwritten securities offering and (E) if placed with or through an agent,
the agent does not place it with its high-yield bond accounts; but does not include
(3) Guarantees of Public Debt permitted to be incurred by the Issuer.
‘‘Non-Recourse Debt’’ means Debt:
(1) as to which neither the Parent Guarantor nor any Restricted Group Member (a) provides
credit support of any kind (including any undertaking, agreement or instrument that would
constitute Debt), (b) is directly or indirectly liable as a guarantor or otherwise, or
(c) constitutes the lender;
(2) no default with respect to which (including any rights that the holders of the Debt may have
to take enforcement action against an Unrestricted Group Member) would permit upon
notice, lapse of time or both any holder of any other Debt of the Parent Guarantor or any
Restricted Group Member to declare a default on such other Debt or cause the payment of
the Debt to be accelerated or payable prior to its Stated Maturity; and
(3) as to which the lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Parent Guarantor or any Restricted Group Member.
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‘‘Non-Subsidiary Affiliate’’ of any specified Person means any other Person in which an Investment
in the Equity Interests of such Person has been made by such specified Person, other than a direct or
indirect Subsidiary of such specified Person.
‘‘Obligations’’ means any principal, interest, penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any Debt.
‘‘Officer’s Certificate’’ means a certificate signed by the principal executive officer, principal
financial officer or general counsel of the Issuer or of a Guarantor, as the case may be, and delivered
to the trustee.
‘‘Parent Guarantee’’ means the Guarantee incurred by the Parent Guarantor.
‘‘Parent Guarantor’’ means Codere S.A. and its respective successors and assigns.
‘‘Pari Passu Debt’’ means (a) with respect to the Notes, any Debt of the Issuer that ranks equally in
right of payment with the Notes and (b) with respect to any Guarantee, any Debt that ranks equally in
right of payment to such Guarantee.
‘‘Permitted Business’’ of a Person means the gaming, including bingo, and gaming-related business
and other businesses necessary for and incident to, connected with, ancillary or complementary to,
arising out, or developed or operated to permit or facilitate the conduct of, the gaming and gamingrelated business, and the ownership and operation of restaurants and entertainment facilities that are
directly related to the operation of a gaming business.
‘‘Permitted Collateral Lien’’ means any Lien on the Collateral to secure (a) Debt and other
obligations under Credit Facilities that were permitted to be incurred either pursuant to clause (1) of
the definition of ‘‘Permitted Debt’’ or with respect to certain Hedging Obligations and (b) any
Additional Notes, provided that upon the completion of the offering of such Additional Notes:
(1) the Issuer will have loaned cash in an amount at least equal to the net proceeds of such
Additional Notes to the Parent Guarantor or a Restricted Group Member pursuant to an
Additional Funding Loan Agreement;
(2) such Additional Funding Loan Agreement will have been assigned by way of security to the
security trustee (i) on the same terms (including with respect to priority) as the assignment by
way of security of the Funding Loan Agreement and (ii) pursuant to an Additional Funding
Loan Agreement Assignment; and
(3) the Parent Guarantor will have delivered to the trustee an opinion of counsel (on which the
trustee will rely absolutely) with respect to such Additional Funding Loan Agreement and
Additional Funding Loan Assignment, in form and substance satisfactory to the trustee.
‘‘Permitted Holders’’ means, collectively, (i) Jesús Franco, Joaquı́n Franco, José A. Martı́nez
Sampedro, Luis Javier Martı́nez Sampedro, and (ii) any Related Person of any such Permitted Holder.
‘‘Permitted Investments’’ means:
(1) any Investment in (i) the form of loans or advances to the Parent Guarantor or (ii) a
Restricted Group Member;
(2) any Investment in cash or Cash Equivalents;
(3) any Investment by the Parent Guarantor or any Restricted Group Member in a Person, if as a
result of such Investment:
(a) such Person becomes a Restricted Group Member; or
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(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Parent Guarantor or a Restricted
Group Member;
(4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale
that was made pursuant to and in compliance with the covenant described above under the
caption ‘‘—Repurchase at the Option of Holders—Asset Sales’’;
(5) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Parent Guarantor;
(6) any Investments received in compromise of obligations of trade creditors or customers that
were incurred in the ordinary course of business, including pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor
or customer;
(7) Hedging Obligations permitted under clause (6) of the definition of ‘‘Permitted Debt’’; and
(8) other Investments in any Person having an aggregate Fair Market Value (measured on the
date each such Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to this clause (8) that
are at the time outstanding not to exceed A5 million.
‘‘Permitted Junior Securities’’ means, with respect to a Subsidiary Guarantor, (a) Capital Stock of
such Subsidiary Guarantor or (b) debt securities of such Subsidiary Guarantor that are subordinated to
all Senior Debt to substantially the same extent as, or a greater extent than, such Subsidiary
Guarantor’s Guarantee is subordinated to Senior Debt pursuant to the Indenture.
‘‘Permitted Liens’’ means:
(1) Liens securing Debt and other Obligations under Credit Facilities that were permitted to be
incurred pursuant to clause (1) of the definition of ‘‘Permitted Debt’’;
(2) Liens in favor of the Parent Guarantor;
(3) Liens on property of a Person existing at the time such Person is merged with or into or
consolidated with the Parent Guarantor or any Restricted Group Member; provided that such
Liens were in existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated with the
Parent Guarantor or the Restricted Group Member;
(4) Liens on property existing at the time of acquisition of the property by the Parent Guarantor
or any Restricted Group Member, provided that such Liens were in existence prior to the
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 (other
than obligations for the payment of money);
(6) Liens existing on the Issue Date;
(7) Liens securing the Notes and the Guarantees;
(8) Liens securing Hedging Obligations;
(9) Liens securing Capital Lease Obligations incurred pursuant to clause (11) of the definition of
‘‘Permitted Debt’’;
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(10) Liens for taxes, assessments or governmental charges or claims 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 is required in
conformity with GAAP has been made therefor;
(11) Liens securing Permitted Refinancing Debt of secured Debt incurred by the Parent Guarantor
or a Restricted Group Member provided, that any such Lien is limited to all or part of the
same property or asset (plus improvements, accessions, proceeds of dividends or distributions
in respect thereof) that secured the Debt being refinanced;
(12) Permitted Collateral Liens; and
(13) Liens incurred in the ordinary course of business of the Parent Guarantor or any Restricted
Group Member with respect to obligations that do not exceed A25 million at any one time
outstanding.
‘‘Permitted Refinancing Debt’’ means any Debt of the Parent Guarantor or any of its Restricted
Group Members issued in exchange for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund other Debt of such person (other than intercompany Debt); provided
that:
(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Debt
does not exceed the principal amount (or accreted value, if applicable) of the Debt extended,
refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Debt
and the amount of all expenses and premiums incurred in connection therewith);
(2) such Permitted Refinancing Debt has a final maturity date 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 Debt being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the Debt being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing Debt 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 Debt being extended, refinanced, renewed, replaced, defeased or
refunded; and
(4) such Debt is incurred either by the Parent Guarantor or by the Restricted Group Member
who is the obligor on the Debt being extended, refinanced, renewed, replaced, defeased or
refunded.
‘‘Person’’ means any individual, corporation, partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, limited liability company or government or other entity.
‘‘Preferred Stock’’ means, with respect to any Person, Capital Stock of any class or classes
(howsoever designated) of such Person which is preferred as to the payment of dividends or
distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over the Capital Stock of any other class of such Person whether now
outstanding, or issued after the date of the Indenture, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
‘‘Public Debt’’ means any Debt that is not Non-Public Debt.
‘‘Public Equity Offering’’ means an underwritten public offer and sale of Equity Interests (which are
not Disqualified Capital Stock) of the Parent Guarantor, or of any Person that directly or indirectly
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holds shares representing more than 50% of the voting power of the Parent Guarantor’s outstanding
Voting Stock.
‘‘Related Person’’ with respect to any Permitted Holder means: (i) in the case of an individual, any
spouse, family member or relative of such individual, any trust or partnership for the benefit of one or
more of such individual and any such spouse, family member or relative, or the estate, executor,
administrator, committee or beneficiaries of any thereof; or (ii) any trust, corporation, partnership or
other Person for which one or more of the Permitted Holders and other Related Persons or any
thereof constitute the beneficiaries, stockholders, partners or owners thereof; or Persons beneficially
holding in the aggregate a majority (or more) controlling interest therein.
‘‘Restricted Affiliate’’ means any Non-Subsidiary Affiliate of the Parent Guarantor or of a Restricted
Subsidiary, or any direct or indirect Subsidiary of a Non-Subsidiary Affiliate of the Parent Guarantor or
of a Restricted Subsidiary, in each case that has been designated by the Board of Directors of the
Parent Guarantor as a Restricted Affiliate based on a determination by the Board of Directors that the
Parent Guarantor has, directly or indirectly, the requisite control over such Non-Subsidiary Affiliate to
prevent it from incurring Debt or taking any other action at any time, in contravention of any of the
provisions of the Indenture that are applicable to Restricted Affiliates; provided, however, that
immediately after giving effect to such designation (i) the Liens and Debt of such Non-Subsidiary
Affiliate outstanding immediately after such designation would, if incurred at such time, have been
permitted to be incurred for all purposes of the Indenture; and (ii) no Default or Event of Default will
have occurred and be continuing. The Parent Guarantor will deliver an Officers’ Certificate to the
trustee (on which the trustee will rely absolutely) upon designating any Non-Subsidiary Affiliate as a
Restricted Affiliate.
‘‘Restricted Group Members’’ means, collectively, each Restricted Subsidiary and each Restricted
Affiliate.
‘‘Restricted Investment’’ means an Investment other than a Permitted Investment.
‘‘Restricted Subsidiary’’ means any Subsidiary of the Parent Guarantor that is not an Unrestricted
Subsidiary.
‘‘Securities Act’’ means the U.S. Securities Act of 1933, as amended;
‘‘Senior Agent’’ means any agent or successor agent appointed under any Credit Facility to which
the Issuer or any Guarantor is a party or designated as ‘‘Senior Agent’’ in any instrument or document
relating to such Credit Facility.
‘‘Senior Credit Facility’’ means that certain credit agreement, dated on or about June 24, 2005 by
and among the Parent Guarantor, Bank of Scotland, Spanish branch, and the other lenders parties
thereto, providing for revolving credit borrowings, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in each case as
amended, modified, renewed, refunded, replaced or refinanced from time to time.
‘‘Significant Subsidiary’’ means any Subsidiary that would be a ‘‘significant subsidiary’’ at the 20%
level, as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act,
as such Regulation is in effect on the date hereof.
‘‘Stated Maturity’’ means, with respect to any installment of interest or principal on any series of
Debt, the date on which the payment of interest or principal was scheduled to be paid in the original
documentation governing such Debt, 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; and, with respect to the Monitor Clipper Instrument, the Stated Maturity means any date on
which the Monitor Clipper Instrument is redeemed in whole or in part at the option of the holders
thereof.
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‘‘Subordinated Debt’’ means Debt of the Issuer or any Guarantor that is subordinated in right of
payment to the Notes, the Initial Funding Loan or the Guarantee of such Guarantor, as the case may
be.
‘‘Subsidiary’’ means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees 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
(2) any partnership (a) the sole general partner or the managing general partner of which is such
Person or a Subsidiary of such Person or (b) the only general partners of which are that
Person or one or more Subsidiaries of that Person (or any combination thereof).
‘‘Subsidiary Guarantee’’ means a Guarantee incurred by a Subsidiary Guarantor.
‘‘Subsidiary Guarantor’’ means any Subsidiary of the Parent Guarantor that incurs a Guarantee.
‘‘Transaction Security’’ means any security agreement or other arrangement having the effect of
providing security under the pledges securing the Senior Credit Facility, each document or instrument
granting the guarantees and security in favor of the Notes and/or the Parent Guarantee and any
security granted under any covenant for further assurance of these documents.
‘‘Unrestricted Affiliate’’ means any Non-Subsidiary Affiliate of the Parent Guarantor that is
designated as such pursuant to ‘‘—Certain Covenants—Designation of Restricted and Unrestricted
Group Members.’’
‘‘Unrestricted Group Member’’ means, collectively, each Unrestricted Subsidiary and each
Unrestricted Affiliate.
‘‘Unrestricted Subsidiary’’ means any Subsidiary of the Parent Guarantor that is designated as such
pursuant to ‘‘—Certain Covenants—Designation of Restricted and Unrestricted Group Members’’.
‘‘Voting Stock’’ of any Person as of any date means the Capital Stock of such Person that is at the
time entitled to vote in the election of the Board of Directors of such Person.
‘‘Weighted Average Life to Maturity’’ means, when applied to any Debt 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 Debt, by (b) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of such payment;
by
(2) the then outstanding principal amount of such Debt.
‘‘Wholly Owned Restricted Subsidiary’’ means a Restricted Subsidiary all of the outstanding Equity
Interests or other ownership interests of which will at the time be owned by the Parent Guarantor or
by one or more Wholly Owned Restricted Subsidiaries.
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BOOK ENTRY; DELIVERY AND FORM
General
Notes sold within the United States to qualified institutional buyers in reliance on Rule 144A
under the Securities Act will be represented by a global note in registered form without interest
coupons attached (the ‘‘Rule 144A Global Note’’). Notes sold to non-U.S. persons in reliance on
Regulation S under the Securities Act will be represented by a global note in registered form without
interest coupons attached (the ‘‘Regulation S Global Note’’ and, together with the Rule 144A Global
Note, the ‘‘Global Notes’’). On the closing date, the Global Notes will be deposited with a common
depository and registered in the name of the common depository or its nominee for the accounts of
Euroclear and Clearstream.
Ownership of interests in the 144A Global Note (‘‘Rule 144A Book-Entry Interests’’) and
ownership of interests in the Regulation S Global Note (the ‘‘Regulation S Book-Entry Interests’’ and,
together with the Rule 144A Book-Entry Interests, the ‘‘Book-Entry Interests’’) will be limited to
persons that have accounts with Euroclear and/or Clearstream or persons that may hold interests
through such participants. Book-Entry Interests will be shown on, and transfers thereof will be effected
only through, records maintained in book-entry form by Euroclear and Clearstream and their
participants.
Except as set forth below under ‘‘—Issuance of Definitive Registered Notes’’, the Book-Entry
Interests will not be held in definitive form. Instead, Euroclear and/or Clearstream will credit on their
respective book-entry registration and transfer systems a participant’s account with the interest
beneficially owned by such participant. The laws of some jurisdictions, including certain states of the
United States, may require that certain purchasers of securities take physical delivery of such securities
in definitive form. The foregoing limitations may impair the ability to own, transfer or pledge
Book-Entry Interests.
So long as the Notes are held in global form, the common depository for Euroclear and/or
Clearstream (or its nominee) will be considered the sole holder of Global Notes for all purposes under
the Indenture and ‘‘holders’’ of Book-Entry Interests will not be considered the owners or ‘‘holders’’ of
Notes for any purpose. As such, participants must rely on the procedures of Euroclear and Clearstream
and indirect participants must rely on the procedures of the participants through which they own
Book-Entry Interests in order to transfer their interests in the Notes or to exercise any rights of holders
under the Indenture.
None of the Issuer, the Guarantors, the Trustee or any of their respective agents will have any
responsibility or be liable for any aspect of the records relating to the Book-Entry Interests.
Issuance of Definitive Registered Notes
Under the terms of the Indenture, to the extent permitted by Euroclear and/or Clearstream,
owners of Book-Entry Interests will receive definitive notes in registered form without coupons
(‘‘Definitive Registered Notes’’):
• if either Euroclear or Clearstream notifies the Issuer that it is unwilling or unable to continue to
act as depository and a successor depository is not appointed by the Issuer within 120 days;
• if Euroclear or Clearstream so requests following an Event of Default under the Indenture;
• in whole, but not in part, at any time if the Issuer in its sole discretion determines that the
Global Notes should be exchanged for Definitive Registered Notes; or
• the owner of a Book-Entry Interest requests such exchange in writing delivered through either
Euroclear or Clearstream following an Event of Default under the Indenture.
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Euroclear has advised the Issuer that upon request by an owner of a Book-Entry Interest described
in the immediately preceding fourth bullet, its correct procedure is to request that the Issuer issue or
cause to be issued Notes in definitive registered form to all owners of Book-Entry Interests.
In such an event, the Registrar will issue Definitive Registered Notes, registered in the name or
names and issued in any approved denominations, requested by or on behalf of Euroclear and/or
Clearstream, as applicable (in accordance with their respective customary procedures and based upon
directions received from participants reflecting the beneficial ownership of Book-Entry Interests), and
such Definitive Registered Notes will bear the restrictive legend referred to in ‘‘Transfer Restrictions’’,
unless that legend is not required by the Indenture or applicable law.
In the case of the issuance of Definitive Registered Notes, payment of principal of, and premium,
if any, and interest on the Notes shall be payable at the place of payment designated by the Issuer
pursuant to the Indenture; provided that, at the Issuer’s option, payment of interest on a Note may be
made by check mailed to the person entitled thereto at such address as shall appear on the Note
register. Payment of principal, any repurchase price, premium and interest on Definitive Registered
Notes will also be payable at the office of the Issuer’s paying agent in London, England so long as the
Notes are listed on the Irish Stock Exchange and the rules of such exchange so require.
If Definitive Registered Notes are issued and a holder thereof claims that such Definitive
Registered Note has been lost, destroyed or wrongfully taken, or if such Definitive Registered Note is
mutilated and is surrendered to the Registrar or at the office of a Transfer Agent, the Issuer will issue
and the Trustee will authenticate a replacement Definitive Registered Note if the Trustee’s and the
Issuer’s requirements are met. The Issuer or the Trustee may require a holder requesting replacement
of a Definitive Registered Note to furnish an indemnity bond sufficient in the judgment of both to
protect ourselves, the Trustee, the Registrar or the Paying Agent appointed pursuant to the Indenture
from any loss which any of them may suffer if a Definitive Registered Note is replaced. The Issuer may
charge for any expenses incurred by it in replacing a Definitive Registered Note.
In case any such mutilated, destroyed, lost or stolen Definitive Registered Note has become or is
about to become due and payable, or is about to be redeemed or purchased by the Issuer pursuant to
the provisions of the Indenture, the Issuer, in its discretion, may, instead of issuing a new Definitive
Registered Note, pay, redeem or purchase such Definitive Registered Note, as the case may be.
So long as the Notes are listed on the Irish Stock Exchange and the rules of such exchange so
require, we will publish a notice of any issuance of Definitive Registered Notes in a daily leading
newspaper having general circulation in Ireland (which we expect to be the Irish Times).
To the extent permitted by law, the Issuer, the Guarantors, the Trustee, the Paying Agents and the
Registrar shall be entitled to treat the registered holder as the absolute owner thereof.
Redemption of Global Notes
In the event any Global Note, or any portion thereof, is redeemed, the common depository will
distribute the amount received by it in respect of the Global Note so redeemed to Euroclear and/or
Clearstream, as applicable, who will distribute such amount to the holders of the Book-Entry Interests
in such Global Note. The redemption price payable in connection with the redemption of such
Book-Entry Interests will be equal to the amount received by the common depository, Euroclear or
Clearstream, as applicable, in connection with the redemption of such Global Note (or any portion
thereof). We understand that under existing practices of Euroclear and Clearstream, if fewer than all of
the Notes are to be redeemed at any time, Euroclear and Clearstream will credit their respective
participants’ accounts on a proportionate basis (with adjustments to prevent fractions) or by lot or on
such other basis as they deem fair and appropriate; provided, however, that no Book-Entry Interest of
A1,000 principal amount, or less, as the case may be, will be redeemed in part.
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Payments on Global Notes
Payments of any amounts owing in respect of the Global Notes (including principal, premium,
interest and additional amounts) will be made by the Issuer in euro to the Principal Paying Agent. The
Principal Paying Agent will, in turn, make such payments to the common depository for Euroclear and
Clearstream, which will distribute such payments to participants in accordance with their procedures.
We will make payments of all such amounts without deduction or withholding for, or on account of,
any present or future taxes, duties, assessments or governmental charges of whatever nature, except as
may be required by law and as described under ‘‘Description of the Notes—Additional Amounts’’.
Under the terms of the Indenture, the Issuer, the Guarantors and the Trustee will treat the
registered holder of the Global Notes (e.g., the common depository or its nominee) as the owner
thereof for the purpose of receiving payments and for all other purposes. Consequently, none of the
Issuer, the Guarantors, the Trustee or any of their respective agents has or will have any responsibility
or liability for:
• any aspect of the records of Euroclear, Clearstream or any participant or indirect participant
relating to or payments made on account of a Book-Entry Interest, for any such payments made
by Euroclear, Clearstream or any participant or indirect participants, or for maintaining,
supervising or reviewing any of the records of Euroclear, Clearstream or any participant or
indirect participant relating to or payments made on account of a Book-Entry Interest; or
• Euroclear, Clearstream or any participant or indirect participant.
Payments by participants to owners of Book-Entry Interests held through participants are the
responsibility of such participants, as is now the case with securities held for the accounts of customers
registered in ‘‘street name.’’
Action by Owners of Book-Entry Interests
Euroclear and Clearstream have advised the Issuer that they will take any action permitted to be
taken by a holder of Notes only at the direction of one or more participants to whose account the
Book-Entry Interests in the Global Notes are credited and only in respect of such portion of the
aggregate principal amount of Notes as to which such participant or participants has or have given such
direction. Euroclear and Clearstream will not exercise any discretion in the granting of consents,
waivers or the taking of any other action in respect of the Global Notes. If there is an Event of Default
under the Notes, however, each of Euroclear and Clearstream reserves the right to exchange the
Global Notes for Definitive Registered Notes in certificated form, and to distribute such Definitive
Registered Notes to their participants.
Transfers
Transfers between participants in Euroclear and Clearstream will be effected in accordance with
Euroclear and Clearstream’s rules and will be settled in immediately available funds. If a holder
requires physical delivery of Definitive Registered Notes for any reason, including to sell the Notes to
persons in jurisdictions which require physical delivery of such securities or to pledge such securities,
such holder must transfer its interest in the Global Notes in accordance with the normal procedures of
Euroclear and Clearstream and in accordance with the provisions of the Indenture.
The Global Notes will bear a legend to the effect set forth under ‘‘Transfer Restrictions’’. BookEntry Interests in the Global Notes will be subject to the restrictions on transfer discussed under
‘‘Notice to U.K. Investors’’, ‘‘Notice to Certain Other European Residents’’ and ‘‘Transfer Restrictions’’.
Book-Entry Interests in the 144A Global Note may be transferred to a person who takes delivery
in the form of Book-Entry Interests in the Regulation S Global Note only upon delivery by the
253
transferor of a written certification (in the form provided in the Indenture) to the effect that such
transfer is being made in accordance with Regulation S under the Securities Act. Prior to 40 days after
the date of initial issuance of the Notes, ownership of Regulation S Book-Entry Interests will be limited
to persons that have accounts with Euroclear or Clearstream or persons who hold interests through
Euroclear or Clearstream, and any sale or transfer of such interest to persons shall not be permitted
during such period unless such resale or transfer is made pursuant to Rule 144A.
Subject to the foregoing, Book-Entry Interests in the Regulation S Global Note may be transferred
to a person who takes delivery in the form of Book-Entry Interests in the 144A Global Note only upon
delivery by the transferor of a written certification (in the form provided in the Indenture) to the effect
that such transfer is being made to a person who the transferor reasonably believes is a ‘‘qualified
institutional buyer’’ within the meaning of Rule 144A in a transaction meeting the requirements of
Rule 144A or otherwise in accordance with the transfer restrictions described under ‘‘Transfer
Restrictions’’, and in accordance with any applicable securities laws of any state of the United States or
any other relevant jurisdiction.
Subject to the foregoing, and as set forth in ‘‘Transfer Restrictions’’, Book-Entry Interests may be
transferred and exchanged as described under ‘‘Description of the Notes—Transfer’’. Any Book-Entry
Interest in a Global Note that is transferred to a person who takes delivery in the form of a
Book-Entry Interest in another Global Note will, upon transfer, cease to be a Book-Entry Interest in
the first-mentioned Global Note and become a Book-Entry Interest in the other Global Note and,
accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable
to Book-Entry Interests in such other Global Note for as long as it retains such a Book-Entry Interest.
In the case of the issuance of Definitive Registered Notes, the holder of a Definitive Registered
Note may transfer such Note by surrendering it to the Registrar or a Transfer Agent. In the event of a
partial transfer or a partial redemption of a holding of Definitive Registered Notes represented by one
Definitive Registered Note, a Definitive Registered Note will be issued to the transferee in respect of
the part transferred and a new Definitive Registered Note in respect of the balance of the holding not
transferred or redeemed will be issued to the transferor or the holder, as applicable; provided that no
Definitive Registered Note in a denomination less than A1,000 will be issued. The Issuer will bear the
cost of preparing, printing, packaging and delivering the Definitive Registered Notes.
The Issuer will not be required to register the transfer or exchange of Definitive Registered Notes
for a period of 15 calendar days preceding (a) the record date for any payment of interest on the
Notes, (b) any date fixed for redemption of the Notes or (c) the date fixed for selection of the Notes to
be redeemed in part. Also, the Issuer is not required to register the transfer or exchange of any Notes
selected for redemption. In the event of the transfer of any Definitive Registered Note, the Trustee
may require a holder, among other things, to furnish appropriate endorsements and transfer documents
as described in the Indenture. In addition, Definitive Registered Notes may be transferred and
exchanged only after the transferor first delivers to the Trustee a written certification (in the form
provided in the Indenture) to the effect that such transfer will comply with the transfer restrictions
applicable to such Notes. See ‘‘Transfer Restrictions’’. The Issuer may require a holder to pay any taxes
and fees required by law and permitted by the Indenture and the Notes.
Global Clearance and Settlement Under the Book-Entry System
Initial Settlement
Initial settlement for the Notes will be made in euro. Book-Entry Interests owned through
Euroclear or Clearstream accounts will follow the settlement procedures applicable to conventional
eurobonds in registered form. Book-Entry Interests will be credited to the securities custody accounts
of Euroclear and Clearstream holders on the business day following the settlement date against
payment for value on the settlement date.
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Secondary Market Trading
The Book-Entry Interests will trade through participants of Euroclear or Clearstream, and will
settle in same-day funds. Since the purchaser determines the place of delivery, it is important to
establish at the time of trading of any Book-Entry Interests where both the purchaser’s and seller’s
accounts are located to ensure that settlement can be made on the desired value date.
Information Concerning Euroclear and Clearstream
We understand as follows with respect to Euroclear and Clearstream:
Euroclear and Clearstream hold securities for participating organizations and facilitate the
clearance and settlement of securities transactions between their respective participants through
electronic book-entry changes in accounts of such participants. Euroclear and Clearstream provide to
their participants, among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and borrowing. Euroclear and
Clearstream interface with domestic securities markets. Euroclear and Clearstream participants are
financial institutions, such as underwriters, securities brokers and dealers, banks and trust companies,
and certain other organizations. Indirect access to Euroclear or Clearstream is also available to others
such as banks, brokers, dealers and trust companies that clear through or maintain a custodian
relationship with a Euroclear or Clearstream participant, either directly or indirectly.
Although the foregoing sets out the procedures of Euroclear and Clearstream in order to facilitate
the original issue and subsequent transfers of interests in the Notes among participants of Euroclear
and Clearstream, neither Euroclear nor Clearstream is under any obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
None of the Issuer, the Guarantors or any of their respective agents will have responsibility for the
performance of Euroclear or Clearstream or their respective participants of their respective obligations
under the rules and procedures governing their operations, including, without limitation, rules and
procedures relating to book-entry interests.
The information in this section concerning Euroclear and Clearstream and their respective
book-entry systems has been obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy thereof.
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TAXATION
The information provided below does not purport to be a complete analysis of the tax law and
practice currently applicable in Luxembourg, Spain or the United States and does not purport to
address the tax consequences applicable to all categories of investors, some of which may be subject to
special rules.
Prospective purchasers of the Notes are advised to consult their own tax advisers as to the tax
consequences of a purchase of Notes including, without limitation, the consequences of receipt of
interest and premium paid (if any), and the sale or redemption of the Notes or any interest therein.
The summaries set out below are based upon Luxembourg, Spanish and U.S. law as in effect on
the date of this offering memorandum and are subject to any change in such law that may take effect
after such date. References in this section to Noteholders include the beneficial owners of the Notes.
The statements regarding the Luxembourg, Spanish and U.S. laws and practices set forth below assume
that the Notes will be issued, and transfers thereof will be made, in accordance with the Indenture.
Luxembourg Taxation
Under existing Luxembourg laws, payments under the Notes qualified as interest may currently be
made free of withholding tax or deduction for or on account of any taxes of whatsoever nature
imposed, levied, withheld or assessed by the Grand Duchy of Luxembourg or any political subdivision
or taxing authority thereof or therein, subject to the EU Savings Directive (see ‘‘—EU Directive on
Taxation of Savings Income’’ below) or any other EU Directive implementing the conclusions of the
ECOFIN Council meeting of 26-27 November 2000 on the taxation of savings income or any law
implementing or complying with, or introduced in order to conform to, such Directive.
Luxembourg withholding tax may in the future be introduced for interest payments made to
Luxembourg individual residents.
All payments qualified as interest received by a noteholder who is a resident of Luxembourg for
tax purposes or who has a permanent establishment or permanent representative in Luxembourg, to
which the Notes are attributable, are subject to Luxembourg income tax.
Gains realized by an individual holder of Notes, who is a resident of Luxembourg for tax purposes
and who acts in the course of the management of his/her private wealth, on the sale or disposal, in any
form whatsoever, of Notes are not subject to Luxembourg income tax, provided this sale or disposal
took place six months after the acquisition of the Notes, but has to include the portion of the gain
corresponding to accrued but unpaid interest in respect of the Notes in his/her taxable income, insofar
as the accrued but unpaid interest is indicated separately in the agreement governing the sale or
disposal of the Notes.
Gains realized by an individual holder of Notes acting in the course of the management of a
professional or business undertaking, or a corporate holder (société de capitaux) of Notes, who is a
resident of Luxembourg for tax purposes or who has a permanent establishment or permanent
representative in Luxembourg to which the Notes are attributable, is subject to Luxembourg income
taxes on the sale or disposal, in any form whatsoever, of Notes. Taxable gains are determined as being
the difference between the sale, repurchase or redemption price (including accrued but unpaid interest)
and the lower of the cost or book value of the Notes sold or redeemed.
A non-resident holder of Notes, not having a permanent establishment or permanent
representative in Luxembourg to which the Notes are attributable, is not subject to Luxembourg
income tax on interest received or accrued on the Notes. A gain realized by such non-resident holder,
on the sale or disposal, in any form whatsoever, of Notes is further not subject to Luxembourg income
tax.
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The issuance of the Notes by the Issuer will not be subject to a Luxembourg registration or stamp
duty.
There is no stamp duty, registration duty, transfer duty or other similar duty or tax levied in
Luxembourg in respect to the transfer, assignment, sale or disposal of the Notes.
Under present Luxembourg tax law, where a holder of Notes is a resident for tax purposes of
Luxembourg at the time of his/her death, the Notes are included in his or her taxable estate for
inheritance tax purposes. Gift tax may be due on a gift or donation of the Notes, if the gift is recorded
in a Luxembourg deed.
On April 12, 2005, the draft law which aims at implementing in Luxembourg the EU Savings
Directive was approved. As soon as this law is published in the Luxembourg Official Gazette, it will
enter into force in Luxembourg and should be effective as of July 1, 2005. Therefore, should the paying
agent be resident in Luxembourg, a withholding tax will be applied at a rate of 15% the first three
years of the transitional period, 20% for the subsequent three years and 35% thereafter on payments of
interest under the Notes made on or after July 1, 2005 to individual beneficial owners who are
residents of a European Union member state, unless such beneficial owners elect that the exchange of
information regime be applied.
EU Savings Directive
On June 3, 2003, the EU Council of Economics and Finance Ministers adopted a Directive on the
taxation of savings income. Under the Directive, Member States of the EU will (if certain conditions
are met and, specifically, if equivalent measures have been introduced by certain non-EU countries) be
required, from July 1, 2005, to provide to the tax authorities of another Member State details of
payments of interest (and other similar income) paid by a person within its jurisdiction to an individual
resident in such other Member State. However, for a transitional period, Belgium, Luxembourg and
Austria will instead be required (unless during such transitional period they elect otherwise) to operate
a withholding system in relation to such payments (with the ending of such transitional period
dependent upon the conclusion of certain other agreements relating to information exchange with
certain other countries).
Spanish Tax Considerations
1. Introduction
The treatment in Spain of interest and principal payments made pursuant to the Notes will depend
upon whether Codere, S.A. becomes subject to Law 19/2003 and Royal Decree 1778/2004 (discussed in
detail below). As a result of the entry into force of this law, certain reporting obligations must be
fulfilled with respect to investors who hold certain preferred shares or debt instruments. This regime is
only applicable if, among other requirements, the parent company of the issuing company is either a
credit institution or a company whose ordinary shares are admitted to trading on a stock exchange in
Spain (a ‘‘listed company’’).
As of the date of this offering memorandum Codere, S.A. is not a listed company, and the
aforementioned Law 19/2003 is not applicable to the Codere Group (or to the Notes). Therefore, the
discussion in section 2 below is currently applicable to the Codere Group (and to the Notes).
Notwithstanding the foregoing, should Codere, S.A. become a listed company and should the other
conditions precedent to the application of Law 19/2003 be satisfied, the discussion in section 3 below
would be applicable to the Codere Group (and to the Notes).
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2. Spanish taxation (applicable while Codere, S.A. is not a listed company)
Spanish Law 19/2003 does not currently apply to Codere, S.A. as it is not a listed company.
Accordingly, Codere S.A. should have no information reporting requirements to the Spanish tax
authorities.
In the event that any payments of principal or interest are made under the Guarantees by Spanish
resident Guarantors, these may be characterized by the Spanish tax authorities as an indemnity and,
accordingly, made free and clear of withholding or deduction of any taxes, duties, assessments or
governmental charges of any nature whatsoever which may be imposed, levied, collected, withheld or
assessed by the Kingdom of Spain or any political subdivision or authority thereof or therein having
power to tax.
However, although no clear precedent, statement of law or regulation exists in relation thereto, the
Spanish tax authorities may take the view that a Guarantor resident in Spain has validly, legally and
effectively assumed (whether contractually or by any other means) all of the obligations of the Issuer
under the Notes, subject to and in accordance with the Guarantee of such Guarantor. In such a case
the Spanish tax authorities may treat any payments made by such Guarantor to the Noteholders under
such Guarantee as Spanish source income and attempt to impose withholding tax at a current rate of
15% on the payments by such Guarantor on the Notes.
In the event that payments made by a Spanish Guarantor are treated by the Spanish tax
authorities as Spanish source income, no withholding would apply for the following types of
Noteholders: (i) Noteholders that are resident for tax purposes in a European Union Member State
other than Spain, and that are not acting through countries or territories considered as tax havens
pursuant to Royal Decree 1080/1991, of July 5, 1991, (ii) Noteholders that pay corporate income tax in
Spain and (iii) Noteholders that are non-residents of Spain acting through a permanent establishment
in Spain.
In the case of (i) above, for withholding to be avoided, the Noteholder must provide to the
applicable Spanish Guarantor a certificate of residence issued by the tax authorities of the jurisdiction
in which the Noteholder resides, prior to any payment, and such certificate must be valid for one year
from issuance. In the cases of (ii) and (iii) above, the Paying Agent must be provided with a list of
those investors who are, as the case may be, Spanish corporate income tax payers or non-residents of
Spain acting through a permanent establishment in Spain, together with their name, address, tax
identification number, ISIN code of the Notes, principal amount of Notes held at each Interest
Payment Date, gross income and amount withheld. All of the abovementioned information must be
provided in the form set out in Annex D.
Additionally, such withholding tax, if any, may be reduced or eliminated under an applicable
income tax treaty to which the Kingdom of Spain is a party. The applicability of a reduced tax rate or
exemption shall be evidenced by the appropriate document as set out in the order, if any, implementing
the applicable tax treaty.
3. Spanish taxation (applicable if Codere, S.A. becomes a listed company)
3.1 Disclosure of Noteholder Information
If Codere, S.A. becomes a listed company and provided that all other conditions precedent to the
application of Law 19/2003 are satisfied, such legislation and Royal Decree 1778/2004 will apply to the
Codere Group (and to the Notes) and the procedures discussed under ‘‘—Obligations under Law
19/2003 and Royal Decree 1778/2004’’ below will be implemented.
Euroclear and Clearstream (the ‘‘Clearing Systems’’) are currently in discussions to harmonize the
procedure for the provision of information required by Spanish laws and regulators. The following is a
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summary only and is subject to the Clearing Systems’ discussions as well as to further clarification from
the Spanish tax authorities regarding such laws and regulations. Holders of Notes must seek their own
advice to ensure that they comply with all procedures to ensure correct tax treatment of their Notes.
None of the Issuer, the Guarantors, the Managers, the Paying Agents or the Clearing Systems assume
any responsibility therefor.
Each Noteholder will be deemed to be aware of the (i) obligations set forth below regarding the
disclosure of Noteholder information and (ii) procedures by which it may satisfy such obligations,
which, in each case, will be required if Codere, S.A. becomes a listed company.
a) Obligations under Law 19/2003 and Royal Decree 1778/2004
Law 19/2003 and Royal Decree 1778/2004 established certain annual reporting obligations on a
listed parent company resident in Spain in respect of holders with no tax residence in Spain of
preferred shares and debt instruments issued by a company within such parent company’s consolidated
group. To comply with these obligations, the parent company must submit to the Spanish tax authorities
a completed Form 198, approved by the Order 3895/2004 of the Ministry of Finance and Taxes, on
November 23, 2004.
In accordance with Section 12 of Royal Decree 2281/1998, as set out in Royal Decree 1778/2004,
the following information must be included in the completed Form 198 in respect of the holders of
debt instruments and income derived therefrom:
a)
The identity and country of residence of the recipient of the income. When the income is
received on behalf of a third party, the identity and country of residence of such third party
must also be provided;
b)
The amount of income received; and
c)
Identification of the debt instrument, such as the Notes, involved.
In addition, at the time of each payment of interest on the debt instrument, the listed Spanish
parent company is required to obtain the supporting documentation (in Spanish) described below
evidencing the identity and residence of each holder of such debt instrument (including the beneficial
owners thereof):
1.
If a holder is not a resident of Spain and acts on its behalf and is a central bank, any other
public institution, an international organization, a bank or a credit or financial entity,
including collective investment institutions, pension funds and insurance entities, resident in an
OECD country or in a country or territory that has entered into a treaty for the avoidance of
double taxation with the Kingdom of Spain, subject to a specific administrative registration or
supervision scheme, the applicable entity should certify its name and tax residence as is
established by Annex I of the Ministerial Order of September 16, 1991 (see Annex B).
2.
In the case of transactions in which any of the entities referred to in (a) above acts as an
intermediary, the applicable entity must certify, according to its own records, the name and tax
residence of each holder as is established by Annex II of the Ministerial Order of
September 16, 1991 (see Annex C).
3.
In the case of transactions channeled through a securities clearing and deposit entity
recognized for these purposes by Spanish law or by that of an OECD country, the applicable
entity should, according to its own records, certify the name and tax residence of each holder
as is established by Annex II of the Ministerial Order of September 16, 1991 (see Annex C).
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4.
In all other cases, the tax residence should be evidenced by submission of the certificate of tax
residence issued by the tax authorities of the country of residence of the holder. These
certificates will be valid for one year from the date of issuance.
b) Procedure
The following preliminary procedure will apply to the Codere Group (and to the Notes) if
Codere, S.A. becomes a listed company, in order to permit Codere, S.A. to comply with its reporting
obligations under Law 19/2003 and Royal Decree 1778/2004 with regard to Noteholders that are not tax
resident in Spain.
1.
The Paying Agent will notify the Clearing Systems via the common depositary for the Clearing
Systems (the ‘‘Common Depositary’’) no later than 20 business days prior to each date on
which interest on the Notes is to be paid (an ‘‘Interest Payment Date’’) that, in relation to the
relevant interest payments, Law 19/2003 and Royal Decree 1778/2004 procedures apply and
the applicable certificates from the Clearing Systems and the entities holding accounts with
the Clearing Systems (‘‘Participants’’ and ‘‘Customers’’) are required.
This notice will specify the name and ISIN of the Notes, the Interest Payment Dates for which the
information is being requested and the date by which such information must be received.
2.
The notice referred to in paragraph 1 above will be sent to the Clearing Systems via e-mail,
SWIFT or any other authenticated and secure communication means.
3.
Immediately upon receipt of such notice from the Common Depositary, each Clearing System
will notify its Participants and Customers of the relevant interest payment, that the procedures
under Law 19/2003 and Royal Decree 1778/2004 apply in connection with such interest
payment and request their Participants and Customers to provide the following documentation
dated the relevant Interest Payment Date:
a.
If the Participant or Customer is resident in an OECD country or a country which has
entered into a treaty with Spain for the avoidance of double taxation and is itself the
beneficial owner of the Note, a Spanish language and English language certificate for its
own investment account in the form set out at Annex B below.
b.
If the Participant or Customer is resident in an OECD country or a country which has
entered into a treaty with Spain for the avoidance of double taxation and is not the
beneficial owner of the Note, a Spanish language and English language certificate for
third party investments in the form set out at Annex C below.
c.
If the Participant or Customer is not resident in an OECD country or a country which
has entered into a treaty with Spain for the avoidance of double taxation, an original tax
residence certificate issued by the beneficial owner’s local tax authorities (and such
certificate must be valid for one year from their issue date) together with a list of
beneficial owners, including the name, country of residence and amount payable to each
such beneficial owner.
4.
No later than the relevant Interest Payment Date, the Clearing Systems will send to the
Common Depositary such certificates received from their Participants and Customers.
5.
The Common Depositary will send the certificates and documents it has received from the
Clearing Systems to the Paying Agent who, in turn, will send such certificates and documents
to Codere, S.A., as the listed Spanish parent company.
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3.2 Guarantor payments
All payments of principal and interest made under the Guarantees will be treated for tax purposes
as explained in Section 2 above (Spanish taxation (applicable while Codere, S.A. is not a listed
company)).
In addition, if Law 19/2003 applies to the Codere Group (and to the Notes), payments under the
Guarantees to any Noteholder which is not a Spanish tax resident (except those acting through a
permanent establishment in Spain or through countries or territories considered as tax havens pursuant
to Royal Decree 1080/1991, of July 5, 1991) will be exempt from withholding tax when the specific
information described above under ‘‘Obligations under Law 19/2003 and Royal Decree 1778/2004’’ is
provided. In this case, the following procedure must also be followed:
• On each Interest Payment Date, the Guarantor (or the Paying Agent on its behalf) must transfer
the net amount (85 per cent of the entitled amount) to the entities referred to in paragraphs (1),
(2) and (3) under ‘‘—Procedures’’ above. If the supporting documentation identified in
paragraphs (1), (2) and (3) under ‘‘—Procedures’’ has been received by Codere, S.A. prior to an
Interest Payment Date, then the Guarantor (or the Paying Agent on its behalf) shall pay the
remaining 15 per cent.
• If a beneficial owner intends to benefit from a withholding tax exemption, the supporting
documentation described above should be provided to the Guarantor or the Paying Agent in
accordance with the procedures described above.
• If the Paying Agent does not receive complete supporting documentation in respect of a
Noteholder on or prior to an Interest Payment Date, such Noteholder may obtain a refund of
the full amount of withholding tax by ensuring the supporting documentation described above
has been received by the Paying Agent no later than 10:00 a.m. (Central European time) on the
10th calendar day of the month following the Interest Payment Date (or, if such date is not a
business day, the business day immediately preceding such date) (the ‘‘Refund Deadline’’).
• Noteholders entitled to a refund but in respect of whom relevant supporting documentation has
not been provided to the Paying Agent on or before the Refund Deadline may apply for a full
refund of the withholding tax directly to the Spanish tax authorities (by means of the standard
refund procedure).
Annexes B, C and D referred to herein are set out elsewhere in this offering memorandum.
Sections in English have been translated from the original Spanish for information purposes only. In
the event of any discrepancy, the Spanish version shall prevail.
United States Federal Income Tax Considerations
The following is a discussion of certain U.S. federal income tax consequences of purchasing,
owning and disposing of Notes, but it does not purport to be a comprehensive description of all of the
tax considerations that may be relevant to a particular person’s decision to acquire such securities. This
discussion only applies to U.S. Holders (as defined below) who hold their Notes as capital assets for
U.S. federal income tax purposes and acquire such Notes pursuant to this offering at the ‘‘issue price,’’
which will equal the first price to the public, not including bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement agents or wholesalers, at which a
substantial amount of the Notes is sold for money. This discussion does not describe all of the U.S.
federal income tax consequences that may be relevant to a holder in light of the holder’s particular
circumstances or to holders subject to special rules, such as:
• certain financial institutions;
• insurance companies;
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• dealers and traders in securities or foreign currencies;
• persons holding Notes as part of a hedge, straddle or conversion transaction;
• persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
• partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
• persons liable for the alternative minimum tax; or
• tax-exempt organizations.
This discussion is based on the Internal Revenue Code of 1986, as amended, administrative
pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, all as currently
in effect. These laws are subject to change, possibly on a retroactive basis. Prospective purchasers
should consult their own tax advisers concerning the U.S. federal, state, local and non-U.S. tax
consequences of purchasing, owning and disposing of Notes in their particular circumstances.
As used herein, the term ‘‘U.S. Holder’’ means a beneficial owner of a Note that is, for U.S.
federal income tax purposes: (i) a citizen or resident of the United States; (ii) a corporation, or other
entity taxable as a corporation, created or organized in or under the laws of the United States or any
political subdivision thereof; or (iii) an estate or trust the income of which is subject to U.S. federal
income taxation regardless of its source.
Characterization of the Notes
The discussion below assumes that the Notes will constitute debt for U.S. federal income tax
purposes. However, because the Issuer will not have any substantial equity, it is possible that the
Internal Revenue Service or a court could conclude that the Notes should be treated as equity for
U.S. federal income tax purposes. If the Notes were treated as equity for U.S. federal income tax
purposes, different U.S. federal income tax consequences than those described below may apply,
including the time at which an accrual method U.S. Holder will include interest payments in income,
the exchange rate an accrual method U.S. Holder would use to convert euro interest payments into
U.S. dollars and the possible application of the passive foreign investment company rules.
Payments of Interest
It is expected that the Notes will be issued without original issue discount for U.S. federal income
tax purposes. Accordingly, interest paid on a Note (including any Additional Amounts) will be taxable
to a U.S. Holder as ordinary interest income at the time it accrues or is received in accordance with
the holder’s method of accounting for U.S. federal income tax purposes. Interest income earned by a
U.S. Holder with respect to a Note will constitute foreign source income for U.S. federal income tax
purposes, which may be relevant to a holder in calculating the holder’s foreign tax credit limitation.
The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes
of income.
A U.S. Holder that uses the cash method of accounting will be required to include in income the
U.S. dollar value of the euro interest payment as determined based on the spot exchange rate on the
date the payment is received, regardless of whether the payment is in fact converted into U.S. dollars
at that time. A cash basis U.S. Holder will not realize foreign currency exchange gain or loss on the
receipt of interest income but may recognize exchange gain or loss attributable to the actual disposition
of the euros received. A U.S. Holder that is an accrual method taxpayer will accrue interest income on
the Notes in euros and translate that amount into U.S. dollars at the average spot exchange rate in
effect during the interest accrual period (or with respect to an accrual period that spans two taxable
years, at the average rate for the partial period within the holder’s taxable year). Alternatively, an
accrual method U.S. Holder may make an election (which must be applied consistently to all debt
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instruments from year to year and cannot be changed without the consent of the Internal Revenue
Service) to translate accrued interest income at the spot exchange rate on the last day of the accrual
period (or the last day of the taxable year in the case of a partial accrual period), or at the spot
exchange rate on the date of receipt, if that date is within five business days of the last day of the
accrual period. A U.S. Holder of Notes that uses the accrual method of accounting will recognize
foreign currency exchange gain or loss if the exchange rate in effect on the date the payment is
received differs from the rate applicable to a previous accrual of that interest. This foreign currency
exchange gain or loss will generally be treated as U.S. source ordinary income or loss.
Sale, Exchange or Other Disposition of the Notes
Upon the sale, exchange or other disposition of a Note, a U.S. Holder will recognize taxable gain
or loss equal to the difference between the amount realized (determined in U.S. dollars) on the sale,
exchange or other disposition and the holder’s adjusted tax basis in the Note. Gain or loss, if any, will
generally be U.S. source income for purposes of computing a U.S. Holder’s foreign tax credit
limitation. For these purposes, the amount realized does not include any amount attributable to
accrued interest. Amounts attributable to accrued interest are treated as interest as described under
‘‘Payments of Interest’’ above.
Except as described below with respect to exchange gains or losses, gain or loss realized on the
sale, exchange or other disposition of a Note will generally be capital gain or loss and will be long-term
capital gain or loss if at the time of sale, exchange or other disposition the Note has been held for
more than one year.
A U.S. Holder’s adjusted tax basis in a Note will generally equal the cost of the Note to such
holder. The cost of a Note will be the U.S. dollar value of the purchase price in euros on the date of
purchase, calculated at the spot exchange rate in effect on that date. If the Notes are traded on an
established securities market, a cash method U.S. Holder (and, if it elects, an accrual method U.S.
Holder) will determine the U.S. dollar value of the cost of the Note at the spot exchange rate on the
settlement date of the purchase. If the Notes are traded on an established securities market, a cash
method U.S. Holder (and, if it elects, an accrual method U.S. Holder) will determine the U.S. dollar
equivalent of the amount realized by translating that amount at the spot exchange rate on the
settlement date of the sale, exchange or other disposition. If an accrual method U.S. Holder makes
such an election, the election must be applied consistently to all debt instruments from year to year and
cannot be changed without the consent of the Internal Revenue Service. If an accrual method U.S.
Holder does not make such an election, such holder will determine the U.S. dollar equivalent of the
amount realized by translating that amount at the spot exchange rate on the date of the sale, exchange
or other disposition.
Upon the sale, exchange or other disposition of a Note (including the maturity or redemption of
the Note), a U.S. Holder of a Note will recognize foreign currency exchange gain or loss, which will
generally constitute U.S. source ordinary income or loss, on the principal amount of the Note equal to
the difference between (i) the U.S. dollar value of the holder’s purchase price for the Note in euros
determined at the spot rate on the date of sale, exchange or other disposition and (ii) the U.S. dollar
value of the holder’s purchase price for the Note in euros determined at the spot rate on the date the
holder acquired the Note. However, a U.S. Holder will recognize foreign currency exchange gain or
loss only to the extent of the total gain or loss realized on the sale, exchange or other disposition.
Receipt of Euros
A U.S. Holder may receive euros in payment of interest or principal. The tax basis of any euros
received by a U.S. Holder generally will equal the U.S. dollar equivalent of such euros at the spot rate
on the date the euros are received. Upon any subsequent conversion or other disposition of the euros
263
for U.S. dollars, a U.S. Holder generally will recognize exchange gain or loss equal to the difference
between the amount of U.S. dollars received and the holder’s tax basis in the euros. In addition, upon
any subsequent exchange of euros for property (including non-U.S. currency), a U.S. Holder generally
will recognize exchange gain or loss equal to the difference between the U.S. dollar value of the euros
exchanged for such property (including non-U.S. currency) based on the U.S. dollar spot rate for euros
on the date of the exchange and the holder’s tax basis in the euros so exchanged. Exchange gain or loss
generally will be treated as U.S. source ordinary income or loss.
Tax Return Disclosure Requirements
A U.S. Holder may be required to file a reportable transaction disclosure statement with the
holder’s U.S. federal income tax return, if such holder realizes a loss on the sale, exchange or other
disposition of a Note and such loss is greater than applicable threshold limits, which differ depending
on the status of the holder. A U.S. Holder that claims a loss deduction with respect to a Note should
consult its own tax adviser regarding the need to file a reportable transaction disclosure statement.
Information Reporting and Backup Withholding
Payment of interest and proceeds from the sale of a Note that are made within the United States
or through certain U.S.-related financial intermediaries may be subject to information reporting and to
backup withholding unless the U.S. Holder is a corporation or other exempt recipient or, in the case of
backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies
that no loss of exemption from backup withholding has occurred. The amount of any backup
withholding from a payment to a U.S. Holder will be allowed as a credit against such holder’s U.S.
federal income tax liability and may entitle such holder to a refund, provided that the required
information is timely furnished to the Internal Revenue Service.
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PLAN OF DISTRIBUTION
Under the terms and conditions contained in a purchase agreement dated the date of this offering
memorandum, the Issuer has agreed to sell the Notes to the initial purchasers, Credit Suisse First
Boston (Europe) Limited and Morgan Stanley & Co. International Limited, and, subject to certain
conditions contained therein, the initial purchasers have agreed to purchase the Notes from the Issuer.
The obligations of the initial purchasers under the purchase agreement, including their agreement
to purchase the Notes from the Issuer, are several and not joint. The purchase agreement provides that
the initial purchasers are obligated to purchase all of the Notes, if any of them are purchased. The
purchase agreement also provides that, if an initial purchaser defaults, the purchase commitments of
the non-defaulting initial purchaser may be increased or the offering may be terminated.
The initial purchasers propose to offer the Notes initially at the offering price on the cover page of
this offering memorandum. After the initial offering, the offering price may be changed.
The Issuer and several of the Guarantors have, jointly and severally, agreed to indemnify the initial
purchasers against liabilities or to contribute to payments, which they may be required to make in that
respect.
The Notes and the Guarantees have not been and will not be registered under the Securities Act
and may be offered or sold within the United States only to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and to certain persons in offshore transactions in reliance on
Regulation S under the Securities Act. Terms used in this paragraph have the meanings given to them
by Regulation S under the Securities Act. Resales of the Notes are restricted as described under
‘‘Transfer Restrictions’’.
In addition, until 40 days after the commencement of the offering, an offer or sale of the Notes
within the United States by a dealer (whether or not it is participating in the offering) may violate the
registration requirements of the Securities Act if such offer or sale is made otherwise than in
accordance with Rule 144A.
Each initial purchaser has represented, warranted and agreed that:
• it has not offered or sold and, prior to the expiry of a period of six months from the closing
date, will not offer or sell any Notes to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995;
• it has only communicated or caused to be communicated and will only communicate or cause to
be communicated any invitation or inducement to engage in investment activity (within the
meaning of section 21 of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’)) received
by it in connection with the issuer or sale of any Notes in circumstances in which section 21(1)
of the FSMA does not apply to the Issuer or a Guarantor; and
• it has complied and will comply with all applicable provisions of the FSMA with respect to
anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.
Persons who purchase Notes from the initial purchasers may be required to pay stamp duty, taxes
and other charges in accordance with the laws and practice of the country of purchase in addition to
the offering price set forth on the cover page of this offering memorandum.
No action has been taken in any jurisdiction, including the United States and the United Kingdom,
by us or the initial purchasers that would permit a public offering of the Notes or the possession,
circulation or distribution of this offering memorandum or any other material relating to us or the
265
Notes in any jurisdiction where action for this purpose is required. Accordingly, the Notes may not be
offered or sold, directly or indirectly, and neither this offering memorandum nor any other offering
material or advertisements in connection with the Notes may be distributed or published, in or from
any country or jurisdiction, except in compliance with any applicable rules and regulations of any such
country or jurisdiction. This offering memorandum does not constitute an offer to sell or a solicitation
of an offer to purchase in any jurisdiction where such offer or solicitation would be unlawful. Persons
into whose possession this offering memorandum comes are advised to inform themselves about and to
observe any restrictions relating to the offering of the Notes, the distribution of this offering
memorandum and resale of the Notes. See ‘‘Transfer Restrictions’’.
The Notes are a new issue of securities for which there currently is no market. The Issuer has
applied to list the Notes on the Irish Stock Exchange, however, the Issuer cannot assure you that the
Notes will be approved for listing or that such listing will be maintained. The initial purchasers have
advised the Issuer that they intend to make a market in the Notes as permitted by applicable law. The
initial purchasers are not obligated, however, to make a market in the Notes, and any market-making
may be discontinued at any time at their sole discretion without notice. In addition, any such marketmaking activity will be subject to the limits imposed by the Securities Act and the U.S. Securities
Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). Accordingly, the Issuer cannot assure you
that any market for the Notes will develop, or that it will be liquid if it does develop.
In connection with this offering, the Stabilizing Manager or any person acting for it may over-allot
or effect transactions with a view to supporting the market price of the Notes at a level higher than
that which might otherwise prevail for a limited period after the issue date. However, there may be no
obligation on the Stabilizing Manager or its agent to do this. Such stabilizing, if commenced, may be
discontinued at any time, and must be brought to an end after a limited period.
In connection with this offering, the Stabilizing Manager or any person acting for it may engage in
over-allotment, stabilizing, transactions, covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act.
The initial purchasers may engage in over-allotment, stabilizing transactions, covering transactions
and penalty bids in accordance with Regulation M under the Exchange Act.
• Over-allotment involves sales in excess of the offering size, which creates a short position for the
initial purchasers.
• Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing
bids do not exceed a specified maximum.
• Covering transactions involve purchases of the Notes in the open market after the distribution
has been completed in order to cover short positions.
• Penalty bids permit the initial purchasers to reclaim a selling concession from a broker/dealer
when the Notes originally sold by that broker/dealer are purchased in a stabilizing or covering
transaction to cover short positions.
These stabilizing transactions, covering transactions and penalty bids may cause the price of the
Notes to be higher than it would otherwise be in the absence of these transactions. These transactions,
if commenced, may be discontinued at any time.
Credit Suisse First Boston (Europe) Limited and their affiliates have provided investment and
commercial banking, financial advisory and other services to the Parent Guarantor and its affiliates, for
which they have received customary compensation. In addition, the initial purchasers in the future may
provide investment and commercial banking, financial advisory and other services to the Parent
Guarantor and its affiliates.
266
Credit Suisse First Boston (Europe) Limited was the lead arranger of our mezzanine loan facility.
We also entered into an interest rate hedging agreement with Credit Suisse First Boston International
in connection with the mezzanine loan facility. See ‘‘Description of Other Indebtedness and
Instruments’’ for a description of the mezzanine loan facility and the interest rate hedging agreement.
In addition, Credit Suisse First Boston is a limited partner in certain investment funds of MCP,
including the fund that has made investments in us.
267
TRANSFER RESTRICTIONS
United States
The Notes and the Guarantees have not been registered under the Securities Act, or any state
securities laws, and, unless so registered, may not be offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the Securities Act and
applicable state securities laws. Accordingly, the Notes offered hereby are being offered and sold only
to qualified institutional buyers (as defined in Rule 144A under the Securities Act) in reliance on
Rule 144A under the Securities Act and in offshore transactions in reliance on Regulation S under the
Securities Act.
The Notes are subject to restrictions on transfer as summarized below. By purchasing Notes, you
will be deemed to have made the following acknowledgements, representations to and agreements with
the Issuer and the initial purchasers:
(1) You acknowledge that:
• the Notes and the Guarantees have not been registered under the Securities Act or any
other securities laws and are being offered for resale in transactions that do not require
registration under the Securities Act or any other securities laws; and
• unless so registered, the Notes and the Guarantees may not be offered, sold or otherwise
transferred except under an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act or any other applicable securities laws, and
in each case in compliance with the conditions for transfer set forth in paragraph (4) below.
(2) You represent that you are not an affiliate (as defined in Rule 144 under the Securities Act)
of the Issuer, that you are not acting on the Issuer’s behalf and that either:
• you are a qualified institutional buyer (as defined in Rule 144A under the Securities Act)
and are purchasing Notes for your own account or for the account of another qualified
institutional buyer, and you are aware that the initial purchasers are selling the Notes to you
in reliance on Rule 144A; or
• you are not a U.S. person (as defined in Regulation S under the Securities Act) or
purchasing for the account or benefit of a U.S. person, other than a distributor, and you are
purchasing Notes in an offshore transaction in accordance with Regulation S.
(3) You acknowledge that none of the Issuer, the Guarantors or the initial purchasers or any
person representing the Issuer, the Guarantors or the initial purchasers has made any
representation to you with respect to the Issuer, the Guarantors or the offering of the Notes,
other than the information contained in this offering memorandum. You represent that you
are relying only on this offering memorandum in making your investment decision with
respect to the Notes. You agree that you have had access to such financial and other
information concerning the Issuer and the Notes as you have deemed necessary in connection
with your decision to purchase Notes, including an opportunity to ask questions of and request
information from the Issuer.
(4) You represent that you are purchasing Notes for your own account, or for one or more
investor accounts for which you are acting as a fiduciary or agent, in each case not with a view
to, or for offer or sale in connection with, any distribution of the Notes in violation of the
Securities Act, subject to any requirement of law that the disposition of your property or the
property of that investor account or accounts be at all times within your or their control and
subject to your or their ability to resell the Notes pursuant to Rule 144A or any other
available exemption from registration under the Securities Act. You agree on your own behalf
268
and on behalf of any investor account for which you are purchasing Notes, and each
subsequent holder of the Notes by its acceptance of the Notes will agree, that until the end of
the Resale Restriction Period (as defined below), the Notes may be offered, sold or otherwise
transferred only:
(a) to the Issuer;
(b) pursuant to a registration statement that has been declared effective under the Securities
Act;
(c) for so long as the Notes are eligible for resale under Rule 144A, to a person the seller
reasonably believes is a qualified institutional buyer that is purchasing for its own account
or for the account of another qualified institutional buyer and to whom notice is given
that the transfer is being made in reliance on Rule 144A;
(d) pursuant to offers and sales that occur outside the United States within the meaning of
Regulation S under the Securities Act; or
(e) pursuant to any other available exemption from the registration requirements of the
Securities Act;
subject in each of the above cases to any requirement of law that the disposition of the seller’s
property or the property of an investor account or accounts be at all times within the seller or
account’s control, to compliance with any applicable state securities laws, and any applicable
local laws and regulations.
You also acknowledge that:
• the above restrictions on resale will apply from the closing date until the date that is two
years (in the case of Rule 144A Notes) or 40 days (in the case of Regulation S Notes) after
the later of the closing date and the last date that the Issuer or any of its affiliates was the
owner of the Notes or any predecessor of the Notes (the ‘‘Resale Restriction Period’’), and
will not apply after the applicable Resale Restriction Period ends;
• the Issuer and the Trustee reserve the right to require in connection with any offer, sale or
other transfer of Notes under clauses (d) and (e) above the delivery of an opinion of
counsel, certifications and/or other information satisfactory to the Issuer and the Trustee;
and
• each Note will contain a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘SECURITIES ACT’’), OR THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
SUCH REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS
ACCEPTANCE HEREOF, AGREES ON ITS OWN BEHALF AND ON BEHALF OF
ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SUCH
SECURITY, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
PRIOR TO THE DATE (THE ‘‘RESALE RESTRICTION TERMINATION DATE’’)
THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE
OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY
269
PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE ISSUER,
(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS
A ‘‘QUALIFIED INSTITUTIONAL BUYER’’ AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE
THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER
THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE ISSUER’S AND THE TRUSTEE’S RIGHT
PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY
TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST
OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
(5) You agree to give to each person to whom you transfer the Notes notice of any restrictions on
the transfer of such Notes.
(6) You acknowledge that the Trustee will not be required to accept for registration of transfer
any Notes except upon presentation of evidence satisfactory to us and the Trustee that the
restrictions set forth therein have been complied with.
(7) You acknowledge that the Issuer, the initial purchasers and others will rely upon the truth and
accuracy of the above acknowledgments, representations and agreements. You agree that if
any of the acknowledgments, representations or agreements you are deemed to have made by
your purchase of Notes is no longer accurate, you will promptly notify the Issuer and the
initial purchasers. If you are purchasing any Notes as a fiduciary or agent for one or more
investor accounts, you represent that you have sole investment discretion with respect to each
of those accounts and that you have full power to make the above acknowledgments,
representations and agreements on behalf of each account.
The United Kingdom
In the United Kingdom, the Notes will only be available for purchase pursuant to the offering to a
person who represents and agrees that:
• it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of its business and it has not offered or
sold, and prior to expiry of a six-month period from the closing date of the offering, will not
offer or sell any Notes to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of investments (as principal
or as agent) for the purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom within the meaning of the Public Offers
of Securities Regulations 1995;
• it has only communicated or caused to be communicated and will only communicate or cause to
be communicated any invitation or inducement to engage in investment activity (within the
meaning of section 21 of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’)) received
by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of
the FSMA does not apply to the Issuer or any Guarantor; and
• it has complied with and will comply with all applicable provisions of the FSMA with respect to
anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.
270
WHERE YOU CAN FIND MORE INFORMATION
We are not, and are not expected to be, required to file reports with the SEC or to deliver an
annual report to holders of the Notes pursuant to the Exchange Act. However, we will be subject to
the disclosure obligations described in ‘‘Description of the Notes—Reports’’. Under these obligations,
so long as the Notes are outstanding, we will furnish you with certain annual and interim financial
information and, for so long as the Notes are ‘‘restricted securities’’ within the meaning of
Rule 144(a)(3) under the Securities Act, we will furnish you, or any prospective purchaser of the Notes
you designate, with the information required to be delivered by Rule 144A(d)(4) under the Securities
Act when we receive a written request to do so from you. Written requests for the information should
be addressed to Investor Relations Department, Codere, S.A., C/ Rufino González 25, 28037 Madrid,
Spain. Our telephone number is +34 91 440 2800.
For so long as the Notes are listed on the Irish Stock Exchange and the rules of such stock
exchange require, copies of the Indenture and the articles of association of the Issuer may be inspected
and obtained during the normal business hours on any business day at the office of the Irish Paying
Agent in Dublin. See ‘‘Listing and General Information’’.
LEGAL MATTERS
The validity of the Notes offered hereby and certain other legal matters will be passed upon for us
by Davis Polk & Wardwell with respect to U.S. and New York law. Certain legal matters will be passed
upon for us by Garrigues Abogados with respect to Spanish law. Certain legal matters will be passed
upon for the initial purchasers by Shearman & Sterling LLP with respect to U.S., New York and
English law and Allen & Overy with respect to Spanish law.
INDEPENDENT ACCOUNTANTS
Our audited consolidated financial statements as of and for the years ended December 31, 2002,
2003 and 2004 and the audited combined financial statements of Grupo Royal as of and for the year
ended December 31, 2004 included in this offering memorandum have been audited by Ernst &
Young, S.L., independent accountants, as stated in their reports appearing herein.
271
LISTING AND GENERAL INFORMATION
(1) Listing
Application has been made for the Notes to be admitted to the Official List of the Irish Stock
Exchange in accordance with the rules of such exchange.
Irish Listing Information
Copies of the following documents may be inspected during usual business hours at our principal
executive offices, as well as at the registered offices of the Irish Paying Agent in Dublin for 14 days
from the date of this offering memorandum:
• the articles of association of the Issuer;
• the Indenture (including the Guarantees therein);
• the audited consolidated financial statements included in this offering memorandum;
• any interim financial statements or accounts of the Issuer and the Subsidiary Guarantors, to the
extent available; and
• any other material contracts directly concerning the Offering to which we are a party.
A copy of this offering memorandum will be delivered to the Registrar of Companies in Ireland as
required by Regulation 13 of the Irish European Communities (Stock Exchange) Regulations (as
amended).
We have appointed Deutsche International Corporate Services (Ireland) Limited as Irish Paying
Agent and Deutsche Bank AG acting through its London branch as Principal Paying Agent to make
payments on, and transfers of, the Notes. We reserve the right to vary such appointment.
(2) Except as disclosed in this offering memorandum, there has been no material adverse change
in our financial position or prospects since December 31, 2004.
(3) Except as disclosed in this offering memorandum, we are not involved in, and we have no
knowledge of any threatened litigation, administrative proceedings or arbitration which would have a
material adverse impact on our results of operations or financial condition.
(4) Ernst & Young, S.L. has agreed to the inclusion in this offering memorandum of its report,
references to its report and references to its name in the form and context in which they are included
and has authorized for the purposes of Section 363(i)(a) of the Companies Act 1963 of Ireland (as
amended) the contents of those parts of the offering memorandum.
(5) Guarantors
The following table sets forth a list of the Guarantors, their respective name, date of
incorporation, address of registered office and primary activities:
Name
Date of
Incorporation
Address of Registered Office
Company
Number
Primary Activities
Codere, S.A. . . . . . . . . . .
28/07/1998
Rufino González, 25
Madrid, Spain
A82110453
Holding Company
Operibérica, S.A.U. . . . . . .
16/10/1981
Madrid, Spain
A28721066
Operation of AWP
Machines
Codere Madrid, S.A.U. . . .
29/11/1991
Madrid, Spain
A80173776
Operation of AWP
Machines
272
Name
Date of
Incorporation
Company
Number
Primary Activities
Codere Barcelona, S.A. . . .
21/03/1983
Mercaders, 1.Pol.Ind. Riera
de Caldes,
Palau - Solita i Plegamans
Barcelona, Spain
A08810046
Operation of AWP
Machines
Misuri, S.A.U. . . . . . . . . .
21/12/1983
Madrid, Spain
A28890515
Operation of Bingo Hall
Codere Valencia, S.A. . . . .
31/05/1983
Avda de Alquerı́a de Moret,
19-21 Picaña
Valencia, Spain
A46203667
Operation of AWP
Machines
Codere Lleida, S.A.U. . . . .
10/07/1985
Mercaders, 1
Palau - Solita i Plegamans
Barcelona, Spain
A25041328
Operation of AWP
Machines
Complejo Turı́stico
Huatulco, S.A. de C.V. . .
20/03/1986
Col. Lomas de Chapultepec
CP 11000 México D.F.
860320539
Operation of Bingo Halls
Compañı́a de Inversiones
Mexicanas, S.A. de C.V. .
28/11/1996
Po de la Reforma, 905
IME961129153
Operation of Bingo
Halls
Codere Mexico, S.A. de
C.V. . . . . . . . . . . . . . .
25/11/2003
CME031125
QS8
Holding Company
Promociones Recreativas
Mexicanas, S.A. de C.V. .
14/05/1997
PPRM97051
4JE1
Bingos Platenses, S.A. . . . .
26/04/1991
Av. del Libertador, 1068-9o
Buenos Aires, Argentina
30-64407133-9
Intermar Bingos, S.A. . . . .
13/02/1997
30-64186700-0
Bingos del Oeste, S.A. . . . .
26/11/1990
30-64250805-5
Interjuegos, S.A. . . . . . . .
29/03/1999
30-70051788-4
Codere Argentina, S.A. . . .
23/11/1990
Av. del Libertador, 1068-9
30-64188307-7
Holding Company
Franfe, S.A. . . . . . . . . . .
20/11/1998
Combate de los Pozos, 639
30-69640470-0
Operation of Slot Machines
Mexico City, S.A. . . . . . . .
04/12/1998
33-70213883-9
Nanos, S.A. . . . . . . . . . . .
06/01/1999
30-69641510-9
Iberargen, S.A . . . . . . . . .
26/04/1991
Combale de los Pozos 639,
30-64407126-6
Loarsa, S.A. . . . . . . . . . .
11/03/1991
30-64586579-7
Pacifico, S.A. . . . . . . . . . .
08/05/1998
30-69333095-1
Punto 3, S.A. . . . . . . . . . .
13/12/1996
30-68782249-4
273
Date of
Incorporation
Name
Rajoy Palace, S.A. . . . . . .
17/03/1998
Codere Colombia, S.A. . . .
06/07/1984
Turismo y Recreación, S.A. .
10/071997
Intersare, S.A. . . . . . . . . .
30/11/1998
Colonder, S.A.U. . . . . . . .
16/06/2004
Codere Uruguay, S.A. . . . .
01/08/2003
C/13, No. 65-A-83
Bogotá, Colombia
Avda. de la Estación, 5N-60
Santiago de Cali, Colombia
C/13, No. 65-A-83
Bogotá, Colombia
28037 Madrid
Juncal, 1327 - Apto. 2201
Montevideo, Uruguay
Company
Number
Primary Activities
30-69333118-4
860520306-1
Holding Company
0805008125-9
Operation of AWP
Machines
Operation of AWP
Machines
Holding Company
830052352
A84044833
6098
Installation and Operation
of Bingo Halls and related
services
(6) The Trustee, Deutsche Trustee Company Limited, is a subsidiary of Deutsche Bank AG.
Deutsche Bank AG and its subsidiaries and affiliates provide trust, agency, depositary and custody
related services on over U.S.$3 trillion in debt and equity securities worldwide.
(7) The Notes have been accepted for clearance through the facilities of Euroclear and
Clearstream. The Rule 144A Global Note has a Common Code of 022215922 and an ISIN of
XS0222159229, and the Regulation S Global Note has a Common Code of 022215876 and an ISIN of
XS0222158767.
(8) Board of Directors of the Issuer
The Codere Finance (Luxembourg) S.A. board of directors is composed of the following
individuals:
Name(1)
Age
Position
Olivier Dorier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stewart Kam-Cheong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Angèle Grotz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
42
41
Director
Director
Director
(1) The professional address of each of the directors is the registered office of Codere Finance
(Luxembourg) S.A.
The following is biographical information for each of the members of the Issuer’s Board of
Directors:
Olivier Dorier is a partner of Management & Accounting Services S.à.r.l. (‘‘MAS’’), which he
founded in 2003. MAS is an independent firm in Luxembourg providing services to businesses including
incorporation, management, accounting and other administrative services. Mr. Dorier is also a director
of other Luxembourg companies. Before founding MAS, Mr. Dorier was the Chief Accountant in the
corporate department of TMF Management Luxembourg from 1999 to 2003 and worked as an
accountant for Fiduciaire Continentale from 1996 to 1999 and Discount Bank from 1993 to 1996.
Mr. Dorier holds a degree in Accounting from ENOES, Paris.
Stewart Kam-Cheong has been the Managing Director of MAS since 2004. Mr. Kam-Cheong is also
a director of other Luxembourg companies. Before joining MAS, Mr. Kam-Cheong worked for Deloitte
Luxembourg from 1995 to 2003 in various positions including Senior Manager of international taxation,
Managing Director of cosourcing & resourcing and Senior Manager in the audit department.
Mr. Kam-Cheong is a chartered accountant in England and Wales and a Réviseur d’Entreprises and
Expert-Comptable in Luxembourg.
Angèle Grotz has worked as a Companies Director for MAS since 2004 and is a director responsible
for the administration of other Luxembourg companies. Prior to joining MAS, Ms. Grotz worked for
Ardenia Reinsurance as Assistant to the President responsible for day-to-day administration. Ms. Grotz
holds a degree in Economics.
274
ANNEX A—SUMMARY OF CERTAIN SIGNIFICANT DIFFERENCES
BETWEEN SPANISH GAAP, U.S. GAAP AND IFRS
The consolidated financial statements of the Company have been prepared in accordance with the
accounting principles described in Notes 2 and 3 to the consolidated annual accounts which comply
with generally accepted accounting principles in Spain (Spanish GAAP). These principles differ in
certain respects from International Financial Reporting Standards (IFRS) and from generally accepted
accounting principles in the United States (U.S. GAAP).
The following paragraphs summarize the areas in which differences between Spanish GAAP and
IFRS/U.S. GAAP could be significant to the Company’s results of operations and financial position.
The Company has not prepared consolidated financial statements in accordance with U.S. GAAP and,
accordingly, cannot offer any assurances that all existing differences have been identified and that the
differences described below would, in fact, be the largest differences between financial statements of
the Company prepared under U.S. GAAP and under Spanish GAAP. In addition, the Company cannot
estimate the net effect that applying U.S. GAAP would have on its result of operations or financial
position or any component thereof, in any of the presentations of financial information in the
Memorandum. However, the effect of such differences may be, individually or in aggregate, material,
and in particular, it may be that the total shareholders’ equity, prepared on the basis of U.S. GAAP
would be materially different due to these differences from the shareholders’ equity under Spanish
GAAP. In the context of the publication of its 2005 consolidated financial statements in compliance
with IFRS, the Company has prepared preliminary IFRS consolidated financial statements at
December 31, 2004 that will be used as comparative in the 2005 publication. See these financial
statements for the quantification of the differences between Spanish GAAP/IFRS.
The following differences have been identified based on accounting principles applicable in Spain
as of December 31, 2004; similarly reference to IFRS/U.S. GAAP is based on such accounting
principles as applicable at that date.
1.
Provisions for equity instruments
The Spanish accounting regulations are based on the principle of prudence, which requires loss
contingencies to be provided for when known, valued at the amount to be given up when upon
cancellation of the liability. In the case of obligations to repurchase shares outstanding, Spanish GAAP
requires only the difference between the purchase obligation and the underlying book value of the
shares to be provided for as a liability.
Under IFRS, IAS 32.23 establishes that a contract which includes the obligation to purchase equity
instruments for cash or another financial asset requires a liability to be recorded for the present value
of the redemption value. Subsequent changes in the redemption value would be recorded in earnings.
U.S. GAAP accounting treatment will depend on the nature of the put option, if the put option is
determined to be a freestanding derivative financial instrument, it would be measured at fair value and
classified as an asset or liability; future changes in its fair value would be recorded in earnings in
accordance with the provisions of EITF.00-19. If however, it is determined not to be a freestanding
derivative financial instrument, it would be accounted for similarly to Spanish GAAP, whereby the
amount that would be provided for in the accounting records would be the future estimated loss due to
any difference between the future purchase obligation amount and the current underlying book value of
the shares.
A-1
2.
Amortization of Goodwill
Under Spanish GAAP goodwill, as an intangible asset, is subject to amortization, with a maximum
amortization period of 20 years. Pursuant to U.S. GAAP and IFRS, goodwill is not amortized but is
subject to an annual impairment test.
3.
Capitalization of expenses
Under Spanish GAAP certain start-up expenses are capitalized, such as initial costs incurred in
connection with the establishment (start up) of a company. These costs are amortized over a maximum
period of five years. Under both U.S. GAAP and IFRS such costs are expensed as incurred.
4.
Property, plant and equipment—Revaluations
Under Spanish GAAP, property, plant and equipment are recorded under the historical cost
convention. Nonetheless, certain non-periodic revaluations may be accounted for when established by
law, although were not adopted by us for our Spanish accounts.
Our IFRS account show land and buildings recorded at their fair value, as allowed under option in
IAS 16.
Neither the revaluations nor the recording at fair value are acceptable under U.S. GAAP.
5.
Foreign exchange translation and Inflation accounting
5.1 Translation of financial statements in the context of a non-hyperinflationary economy
In accordance with Spanish GAAP, the results of foreign enterprises are translated into euro at the
weighted average exchange rate while their assets and liabilities are translated at year-end rates. The
resulting exchange differences are included under shareholders’ equity in the consolidated balance
sheet.
When translating the results of a foreign subsidiary into the reporting currency of the group, IFRS
requires the closing rate/net investment method to be used. In this method, the balance sheet is
translated at the exchange rate in effect as of the reporting date, and income and expenses are
translated at the weighted average exchange rate for the period reported.
The treatment under U.S. GAAP is in all practicality, the same as that in IFRS. The financial
position of foreign operations are translated into euro at the exchange rate in effect as of each
reporting date while the results of operations are translated at the weighted average exchange rate for
each period presented. Adjustments resulting from translating foreign operations functional currency
into euro are reported, net of any related tax, as a component of other comprehensive income, a
component of shareholder’s equity.
5.2 Translation of financial statements in the context of hyperinflationary economies
In the case of subsidiaries operating in hyperinflationary economies, under Spanish GAAP inflation
accounting rules are followed and the resulting increase or decrease in value of the subsidiaries assets
and liabilities is recorded on the income statement for the current year.
IFRS, under IAS 29 requires non-monetary balance sheet items and all items in the income
statement to be expressed in the measuring unit current at the balance sheet date by applying a general
price index. Any gain or loss on the net monetary position should be included in net income. Once this
translation has taken place, the restated financial statements will then be translated from the
hyperinflationary currency into the group reporting currency, in our case, the euro. However, IFRS has
strict rules as to whether an economy may be considered hyperinflationary and is where the main
difference with Spanish GAAP lies.
A-2
Inflation accounting is not permitted under U.S. GAAP and the financial statements of a foreign
subsidiary in a highly inflationary economy are to be re-measured as if the functional currency were the
reporting currency.
6.
Treasury Shares
Under Spanish GAAP if treasury shares acquired are not redeemed, they are recorded as an asset
and valued at the consolidated net book value. Any profit or loss made on treasury share transactions,
including allowances, is recorded in net income for the year.
Under IAS 32 and U.S. GAAP, treasury shares reduce equity by the amount paid upon their
acquisition and no subsequent adjustment is made for the value of the shares. No transactions with
treasury shares affect net income.
7.
Unrealized exchange differences
In accordance with Spanish GAAP, unrealized exchange losses resulting from the translation using
year-end exchange rate of accounts expressed in foreign currencies are charged to expense, while
unrealized exchange gains are presented as deferred revenue in the balance sheet, and credited to
income only when realized. Under U.S. GAAP and IFRS, unrealized exchange gains and losses at
year-end are recorded in the income statement.
8.
Long-term receivables
Spanish GAAP requires that long-term receivables are recorded at the amount expected to be
collected. No implicit interest is recognized.
IFRS 39 requires that long-term accounts receivable be valued using the amortized cost method.
Amortized cost is the amount at which the asset was measured at initial recognition minus principal
repayments, plus or minus the cumulative amortization using the effective interest method of any
difference between that initial amount and the maturity amount, and minus any write-down for
impairment or uncollectibility.
U.S. GAAP is very similar to IFRS on this issue. Long-term receivables should be measured using
the amortized cost method.
9.
Deferred borrowing expenses
According to Spanish GAAP, fees and other costs incurred to set up long-term debt are shown in
the assets side of the balance sheet, as deferred expenses, and are amortized by debiting the caption
other financial expenses in the income statement over the term of the borrowing.
In accordance with IAS 32 and 39 these capitalized costs are reclassified as a reduction of the net
value of the liability.
Under U.S. GAAP, these costs are also reported as a deduction from debt and considered in the
calculation of the effective interest rate.
10. Impairment of assets
Although Spanish GAAP does not specifically discuss requirements for the impairment of
intangible assets, it does provide that all known losses due to impairment, recoverable or
non-recoverable, must be recorded.
A-3
Both U.S. GAAP and IFRS require that specific and clearly detailed tests be carried out to adjust
the carrying value of assets when events triggering impairment appear (or annually for goodwill and
indefinite life intangible assets).
Under U.S. GAAP long-lived assets and certain identifiable intangibles held are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. In performing the review for recoverability, future cash flows from asset use
and its eventual disposition are estimated. If the sum of the expected cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an impairment loss is
recognized. Measurement of an impairment loss is based on the fair value of the asset. Following the
release of FAS No. 144 ‘‘Accounting for the Impairment or Disposal of Long-Lived Assets’’, long-lived
assets and certain identifiable intangibles to be disposed of are reported at the lower of carrying
amount or fair value less cost to sell.
IFRS also requires that an impairment review be carried out if events or changes in circumstance
indicate that an asset’s carrying value may not be recoverable. IAS 36 sets out a two-stage process that
involves comparing the carrying amount of the asset to its recoverable amount—which is defined as the
higher of an asset’s net selling price and its value in use. The value in use calculation involves
discounting to present value the expected cash flows from use of the asset.
11. Negative goodwill on consolidation
Under Spanish GAAP there are no formally approved guidelines for business combinations.
Generally, valuation of acquisitions is based on the net assets acquired. The difference between net
assets and consideration given is assigned, where appropriate, to those assets and liabilities whose fair
value differs from their book value. And remaining difference is then accounted for as goodwill.
Where the price paid for the acquisition is less than book value, the resulting negative goodwill on
consolidation is treated as a provision and credited to the profit and loss account as the results against
which the provision was made are realized.
Under U.S. GAAP, in June 2001, FASB issued FAS No. 141 ‘‘Business Combinations’’. FAS 141
requires a company, among other things, to apply the purchase method of accounting for all
acquisitions initiated after June 30, 2001, whereby valuation is based on fair value of net assets
acquired and liabilities assumed as of the time of the acquisition. The difference between the fair value
of the net assets and the consideration paid represents goodwill.
When negative goodwill exists and there is no contingent consideration, certain acquired assets are
then subject to pro rata reduction and any remaining negative goodwill is then recognized as income in
the profit and loss account.
IFRS 3, issued in March 2004, also requires companies to apply the purchase method of
accounting for all acquisitions, also based on the fair value of net assets at the time of acquisition. Any
excess of fair value over cost of the combination, ‘‘negative goodwill’’, is to be taken immediately to the
profit and loss account.
12. Income taxes
Under Spanish GAAP, income taxes are calculated on the basis of the profit reported for
accounting purposes, adjusted for permanent differences with fiscal criteria and taking into
consideration any applicable credits and deductions. Deferred tax assets and liabilities are recorded in
respect of timing differences that are expected to result in a taxation asset or liability in the foreseeable
future.
A-4
IFRS requires using the balance sheet-approach as set out in IAS 12. Deferred tax assets and
liabilities are recognized for tax loss carry-forwards and all temporary differences between the carrying
amounts of assets and liabilities reported for tax purposes, except for non-taxable goodwill, and those
amounts reported under IFRS. Deferred tax assets are only recorded to the extent to which they can
be subsequently utilized. Deferred taxes are calculated using enacted tax rates.
Under U.S. GAAP, income tax expense is comprised of two components: current tax payable or
refundable and deferred tax expenses or benefits. Deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws that are expected to be in effect when the differences are
anticipated to reverse. A valuation allowance is recorded against deferred tax assets when it is more
likely than not that the future tax benefit will not be realized.
13. Consolidation methods
The Company applies the full consolidation method when unilateral control exists over
subsidiaries, on the basis of majority of voting rights in all cases, which is consistent with U.S. GAAP
and IFRS.
When unilateral control does not exist, but the participation in the affiliate is high (usually slightly
below 50%) and a strong and permanent influence is exercised on its operations, such entity is
consolidated using the proportional method. This method is also acceptable under IFRS, but only in
the case of joint control.
In accordance with U.S. GAAP, the equity method of accounting should be applied to these
entities, thereby recording a minority interest on the balance sheet.
14. Balance sheet classifications
14.1 Capital lease agreements
Under Spanish GAAP, assets acquired through capital lease agreements are capitalized and
recorded as intangible assets; the related net book value is reclassified to property, plant and
equipment once the purchase option is executed. The global amount payable to the lessor (capital plus
future interest) is recorded as a liability; the interest pending to be accrued is recorded as deferred
expenses.
Both under U.S. GAAP and IFRS, assets under capital lease agreements are shown as property,
plant and equipment, while the amount recorded as a liability exclusively represents the principal to be
repaid.
14.2 Financial assets
Under Spanish GAAP, financial assets, such as the amount of cash deposited in slot machines
(hoppers) are classified as current assets due to their short-term liquidity.
IFRS, in accordance with IAS 32 and 39, these hoppers are classified as ‘‘Investments’’ since they
are assets maintained on a long term necessary for the Company’s business.
U.S. GAAP would be similar to IFRS and that the classification of the hoppers would be
considered a long-term asset.
A-5
15. Income statement classifications
15.1 Expenses
The Spanish GAAP income statement classifies expenses according to their nature, such as
materials, personnel and depreciation.
While this presentation is acceptable under IFRS (optional) it is not in agreement with U.S.
GAAP, which requires classifying costs and expenses following their function, such as cost of sales,
selling expenses etc.
15.2 Extraordinary items
Under Spanish GAAP certain gains and losses, such as disposal of fixed assets, income from
subsidies, indemnities paid or received, restructuring charges, are classified as extraordinary items, after
the operating and the financial income, even though they may have a recurring character.
IFRS does not allow any expenses to be classified as extraordinary, having to be classified within
operating income.
Under U.S. GAAP, although extraordinary items are allowed to be shown separate from operating
results, these items must be both unusual in nature and infrequent in occurrence. Extraordinary items
recognized for Spanish purposes would generally not be classified as such for U.S. GAAP purposes.
A-6
ANNEX B
Modelo de certificación en inversiones por cuenta propia
Form of Certificate for Own Account Investments
(nombre) (name) ___________________________________________________________________________
(domicilio) (address) ________________________________________________________________________
(NIF) (fiscal ID number) ____________________________________________________________________
(en calidad de), en nombre y representación de la Entidad abajo señalada a los efectos previstos en el
artı́culo 12.3.a) del Real Decreto 2281/1998,
(function) ________________________, in the name and on behalf of the Entity indicated below, for the
purposes of article 12.3.a) of Royal Decree 2281/1998,
CERTIFICO:
I CERTIFY:
1.
Que el nombre o razón social de la Entidad que represento es:
that the name of the Entity I represent is: ________________________________________________
2.
Que su residencia fiscal es la siguiente:
that its residence for tax purposes is: _____________________________________________________
3.
Que la Entidad que represento está inscrita en el Registro de
that the institution I represent is recorded in the ______________ Register of __________________
(pais, estado, ciudad), co

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