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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-06489
THE MAJESTIC STAR CASINO, LLC
(Exact name of registrant as specified in its charter)
INDIANA 43-1664986
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE BUFFINGTON HARBOR DRIVE
GARY, INDIANA 46406-3000
(219) 977-7823
(Registrant's address and telephone number, including area code)
Securities registered pursuant to section 12(b) of the act: None
Securities registered pursuant to section 12(g) of the act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days: Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant: Not Applicable. The Company has no publicly traded equity
securities.
The number of shares of Common Stock issued and outstanding: Not Applicable.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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THE MAJESTIC STAR CASINO, LLC
1997 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I
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Item 1. Business.................................................................1
Item 2. Properties...............................................................6
Item 3. Legal Proceedings........................................................6
Item 4. Submission of Matters to a Vote of Security Holders......................7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....8
Item 6. Selected Financial Data..................................................8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................9
Item 8. Financial Statements and Supplementary Data.............................17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...............................................17
PART III
Item 10. Directors and Executive Officers of Registrant.........................18
Item 11. Executive Compensation.................................................19
Item 12. Security Ownership of Certain Beneficial Owners and Management.........20
Item 13. Certain Relationships and Related Transactions.........................21
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......22
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PART I
ITEM 1. BUSINESS
GENERAL
The Majestic Star Casino, LLC (the "Company" or the "Registrant")
operates the Majestic Star Casino, a riverboat gaming facility located at
Buffington Harbor in Gary, Indiana, pursuant to a five year riverboat owner's
license granted to it by the Indiana Gaming Commission (the "IGC") on June 3,
1996.
The Majestic Star Casino commenced operations on June 7, 1996. On
October 27, 1997, the Company replaced a leased vessel (the "Chartered Vessel")
with a new vessel owned by the Company (the "Permanent Vessel"). The Company
expended approximately $50 million, excluding capitalized interest, on the
Permanent Vessel. The Permanent Vessel contains approximately 43,000 square feet
of casino space, 1,550 slot machines and 69 table games including 8 poker tables
on three decks. The Majestic Star Casino is part of a gaming complex (the
"Gaming Complex") which has been developed at Buffington Harbor, and is owned by
Buffington Harbor Riverboats, L.L.C. (the "BHR Joint Venture"), a joint venture
which is owned equally by the Company and its joint venture partner. The Company
and its joint venture partner each operate its own riverboat casino at the
Gaming Complex on a staggered cruise schedule which reduces waiting times to
board a riverboat casino.
The Company was formed in December 1993 as an Indiana limited
liability company. The executive offices of the Company are located at One
Buffington Harbor Drive, Gary, Indiana 46406-3000, and the Company's telephone
number is (219) 977-7823.
OPERATING STRATEGY
The Company's operating strategy is characterized by several principal
elements including those described below.
TARGETED CUSTOMER BASE
The Company focuses primarily on middle income customers which it
believes constitutes the largest segment of potential gaming customers. The
Company utilizes high-volume marketing techniques to attract middle income
customers, to whom it is then able to qualify and target for direct marketing
activities. To assist the Company with its direct marketing activities, the
Company has established the Club M-Star Slot Club (the "Club M-Star").
Club M-Star enables the Company to maintain a comprehensive database
of information about its customers, including their gaming levels, duration of
play and preferences, and to utilize such information to tailor marketing
programs to encourage frequent visits by these customers. The Company also has
an established strategy for recruiting and retaining higher activity casino
customers through the reward of certain promotional allowances, such as
complimentary food, beverage and entertainment when gaming play warrants.
Promotional allowances granted are a relatively small percentage of the
potential casino revenue obtainable from these tracked high limit customers.
Management believes that its continued marketing efforts combined with the
amenities offered by the Permanent Vessel and the extension of credit to
customers will allow the Company to increase its share of the middle and higher
income market in the greater Chicago metropolitan area.
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EMPHASIS ON SLOT PLAY
The Company emphasizes slot machine wagering, which it believes is the
fastest growing and most profitable segment of the casino entertainment
business. With the introduction of the Permanent Vessel, the Company increased
the number of slot machines offered to approximately 1,550 from 932. The Company
believes that it is advantageous to maintain a variety of slot machines to meet
the demand of its customers. Minimum payout percentages for slot machines in
Indiana are set by the IGC. The Company attempts to maintain payout percentages
that are competitive to attract and retain customers.
CUSTOMER SERVICE
As part of its commitment to providing a quality casino entertainment
experience for its patrons, the Company is dedicated to ensuring a high level of
customer satisfaction and loyalty by providing attentive customer service in a
friendly atmosphere. Management recognizes that consistent quality and a
comfortable atmosphere stem from the collective care and friendliness of each
team member. Toward this end, management takes a hands-on approach through
active and direct involvement with team members at all levels. In particular,
management conducts ongoing orientation and training sessions with all team
members at which it stresses the importance of customer contact and encourages
team members to look at, smile at, and wish each customer good luck with whom
they interact. The Company offers attractive team member benefit programs to
recruit and retain friendly, professional team members.
EMPHASIS ON ATTRIBUTES OF BUFFINGTON HARBOR
The Company emphasizes the attributes of the Buffington Harbor Gaming
Complex, including the ability to park once and play twice (at two casinos),
direct highway access and abundant surface parking.
GROWTH STRATEGY
The Company's expansion strategy has focused on increasing the overall
size of its riverboat gaming facility located at Buffington Harbor in Gary,
Indiana. On October 27, 1997, the Company placed into service the Permanent
Vessel which replaced the Chartered Vessel. The Permanent Vessel contains
approximately 43,000 square feet of casino space, which represents an increase
of approximately 65.4% compared to the Chartered Vessel. The floor configuration
contains approximately 1,550 slot machines and 69 table games including 8 poker
tables. The Permanent Vessel also substantially increased the Company's capacity
from 1,700 to 3,000 passengers per cruise.
COMPETITION
The Majestic Star Casino is dependent primarily on adults residing
within 150 miles of the Buffington Harbor Gaming Complex, which includes the
Chicago metropolitan area. The Chicago metropolitan area contains over 6 million
adults. In addition, according to the 1990 Bureau of Census estimates, the per
capita income for the Chicago metropolitan area is high by comparison to other
Midwestern gaming jurisdictions. Illinois and Indiana state laws limit the total
number of licenses issuable in the Chicago metropolitan area to nine. All
licenses are currently in operation and the number of licenses cannot be
increased without legislative action. The Company also expects to compete to a
lesser extent, with
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six additional riverboats authorized to operate in southern Indiana.
There can be no assurance that Indiana or Illinois will not authorize
additional gaming licenses in the future. Legislation has been introduced on
numerous occasions in recent years in Illinois to provide for land-based casinos
in Chicago and to expand riverboat gaming in Illinois, including authorization
of additional operators or the authorization of existing operators to move to
new sites or otherwise to modify existing regulations to decrease or eliminate
certain restrictions including limitations on the number of gaming positions, to
remain dockside or the elimination of credit play. To date, no such legislation
has been enacted. The Company is unable to predict whether any such legislation,
in Illinois, Indiana or elsewhere, will be enacted or whether, if passed, it
would have a material adverse impact on the results of operations or financial
condition of the Company.
The Company also expects future competition from the Pokagon Band of
Potawattomi Indians, a federally recognized Indian tribe which is negotiating
with the State of Michigan and the City of New Buffalo in southwestern Michigan
to develop a land-based casino as well as three land-based casinos to be
developed in Detroit, Michigan, pursuant to a November 1996 voter initiative.
Many of the Company's competitors have greater gaming industry
management experience, financial resources and, in the case of Showboat Marina
and Empress Hammond, enclosed parking garages. The Company's joint venture
partner is also developing a 300-room hotel for their own use located at the
Gaming Complex which is expected to open in mid to late 1998. The Company
believes that its ability to compete successfully in the riverboat gaming
industry will be primarily based on the quality and location of its gaming
facilities, the effectiveness of its marketing efforts, and overall levels of
customer service and satisfaction. Although management believes that the
location and amenities of the Majestic Star Casino will enable the Company to
compete effectively with other casinos in the immediate area, the Company
expects intense competition to continue in its market area.
EMPLOYEES
At December 31, 1997, the Company employed approximately 1,105 persons
and the BHR Joint Venture employed approximately 340 persons. The Company and
the BHR Joint Venture have collective bargaining agreements with Local 1 of the
Hotel Employees and Restaurant Employees International Union, covering
approximately 92 employees of the Company and 82 employees of the BHR Joint
Venture in food and beverage service positions. The agreements expire in 2001.
The Company also has a collective bargaining agreement with the Seafarers
International Union which covers approximately 44 employees in the marine
operations department. The agreement expires in 2003.
In recruiting personnel, the Company is obligated, under the terms of
an agreement with the City of Gary, to use its best efforts to have an employee
base which is comprised of fifty-two percent from racially ethnic minority
groups, sixty-seven percent residents of the City of Gary and ninety percent
residents of Lake County, Indiana.
SEASONALITY
Because of the climate in the Chicago metropolitan area, the Company's
operations are expected to be seasonal with stronger results expected during the
period from May through September. Accordingly, the Company's results of
operations are expected to fluctuate from quarter to quarter and the results for
any
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fiscal quarter may not be indicative of results for future fiscal quarters.
GOVERNMENTAL REGULATION
The ownership and operation of the Majestic Star Casino is subject to
regulation by the State of Indiana. The following is a summary of the applicable
provisions of the Riverboat Gambling Act of the State of Indiana and certain
other laws and regulations. It does not purport to be a full description thereof
and is qualified in its entirety by reference to the Riverboat Gambling Act and
such other laws and regulations.
In 1993, the State of Indiana passed the Riverboat Gambling Act which
created the Indiana Gaming Commission (the "IGC"). The IGC is given extensive
powers and duties for the purposes of administering, regulating and enforcing
riverboat gaming in Indiana and was authorized to award up to eleven gaming
licenses to operate riverboat casinos in the State of Indiana, including five to
counties contiguous to Lake Michigan in northern Indiana, five to counties
contiguous to the Ohio River in southern Indiana and one to a county contiguous
to Patoka Lake in southern Indiana.
Referenda required by the Riverboat Gambling Act to authorize the five
licenses to be issued for counties contiguous to Lake Michigan have been
conducted and gaming has been authorized for the cities of Hammond, East
Chicago, and Gary in Lake County, Indiana, and for Michigan City in LaPorte
County, to the east of Lake County.
The IGC has jurisdiction and supervision over all riverboat gaming
operations in Indiana and all persons on riverboats where gaming operations are
conducted. These powers and duties include authority to (i) investigate all
applicants for riverboat gaming licenses, (ii) select licensees from competing
applicants, (iii) establish fees for licensees and (iv) prescribe all forms used
by applicants. The IGC is authorized to adopt rules for administering the gaming
statute and the conditions under which riverboat gaming in Indiana may be
conducted. The IGC may suspend or revoke the license of a licensee or impose
civil penalties, in some cases without notice or hearing, for any act in
violation of the Riverboat Gambling Act or for any other fraudulent act.
The Riverboat Gambling Act requires an extensive disclosure of records
and other information concerning an applicant, including disclosure of all
directors, officers and persons holding a five percent or more direct or
indirect beneficial interest in an applicant.
In determining whether to grant an owner's license to an applicant,
the IGC considers a number of factors, including (i) the character, reputation,
experience and financial integrity of the applicant, (ii) the facilities or
proposed facilities for the conduct of riverboat gaming, (iii) the prospective
revenue to be collected by the state from the conduct of riverboat gaming, (iv)
the good faith affirmative action plan to recruit, train and upgrade minorities
in all employment classifications, (v) the financial ability of the applicant to
purchase and maintain adequate liability and casualty insurance, (vi) whether
the applicant has adequate capitalization to provide and maintain the riverboat
for the duration of the license and (vii) the extent to which the applicant
meets or exceeds other standards adopted by the IGC. The IGC may also give
favorable consideration to applicants for economically depressed areas and
applicants who provide for significant development of a large geographic area. A
person or entity holding an owner's gaming license issued by the IGC may not own
more than a ten percent interest in another such license. An owner's license
expires five years after the effective date of the license (unless earlier
terminated or revoked) and may be renewed for one year periods by the IGC upon
satisfaction of certain statutory and regulatory requirements.
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A gaming license is a revocable privilege and is not a property right pursuant
to the Riverboat Gambling Act. On June 3, 1996, the Majestic Star Casino
obtained a gaming license from the IGC.
Under IGC regulations, minimum and maximum wagers on games are left to
the discretion of the licensee. Wagering is required to be conducted with
tokens, chips or electronic cards instead of cash or coins. Each riverboat
gaming excursion is limited to a maximum duration of four hours unless a longer
excursion is expressly approved by the IGC.
Effective November 1996, riverboat casinos operating on Lake Michigan
were granted an exemption to the Johnson Act, a federal statute, which prohibits
casino gambling on federal waterways. Prior to this time the riverboat casinos
operating on Lake Michigan, including the Majestic Star Casino, remained
dockside and simulated cruising. No gaming may be conducted while the boat is
docked except (i) for 30-minute time periods at the beginning and end of a
cruise while the passengers are embarking and disembarking, (ii) if the master
of the riverboat reasonably determines that specific weather or water conditions
present a danger to the riverboat, its passengers or crew, or other vessels on
the water, (iii) if either the vessel or the docking facility is undergoing
mechanical or structural repair, (iv) if water traffic conditions present a
danger to the riverboat, its passengers or crew, or other vessels on the water,
or (v) if the master has been notified that a condition exists that would cause
a violation of federal law if the riverboat were to cruise.
An Indiana admission tax of $3.00 for each person admitted to each
gaming excursion is imposed upon the license owner. Legislation has previously
been introduced that would increase the admission tax from $3.00 for each person
admitted to $4.00 per person. To date, no such legislation has been enacted. The
Company is unable to predict if this legislation will be reintroduced or any
other legislation introduced in Indiana relative to riverboat casinos will be
enacted. If legislation is enacted to increase the admission tax, the effect of
such an increase could have a material impact on the results of operations or
financial condition of the Company. A twenty percent tax is imposed on the
"adjusted gross receipts" received from gaming operations, which is defined
under the Riverboat Gambling Act as the total of all cash and property
(including checks received by the licensee whether or not collected) received,
less the total of all cash paid out as winnings to patrons and uncollected
gaming receivables (not to exceed two percent). The gaming license owner must
remit the admission and wagering taxes before the close of business on the day
following the day on which the taxes were incurred. Indiana laws also permit the
imposition of real property taxes on Indiana riverboats at rates to be
determined by local taxing authorities of the jurisdiction in which a riverboat
operates.
The IGC is authorized to license suppliers and certain occupations
related to riverboat gaming. Gaming equipment and supplies customarily used in
conducting riverboat gaming may be purchased or leased only from licensed
suppliers.
The Riverboat Gambling Act places special emphasis upon minority and
women business enterprise participation in the riverboat industry. Any person
issued an owner's gaming license must establish goals of expending at least ten
percent of the total dollar value of the licensee's contracts for goods and
services with minority business enterprises and five percent of the total dollar
value of the licensee's contracts for goods and services with women's business
enterprises. The IGC may suspend, limit or revoke an owner's gaming license or
impose a fine for failure to comply with these statutory requirements.
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ITEM 2. PROPERTIES
The Company operates the Majestic Star Casino, a riverboat gaming
facility located at Buffington Harbor in Gary, Indiana, approximately 23 miles
southeast of downtown Chicago. Buffington Harbor is located at the interchange
of U.S. 12 and Indiana State Highway 912, a divided freeway which connects
Interstate Highways 90 and 80/94.
The Majestic Star Casino operates from the Gaming Complex, which was
developed, and is owned and operated, by the BHR Joint Venture. The Gaming
Complex is situated on an approximately one-hundred acre site containing
approximately 2,800 surface parking spaces and includes a 90,000 square foot
land based pavilion which contains, in its common areas, a 352 seat buffet, a
110 seat steakhouse, one cocktail lounge, a gift shop, ticketing area for each
casino and administrative offices. The Company's joint venture partner is
constructing a 300-room hotel facility at the Gaming Complex for their use. The
hotel is anticipated to be completed by mid to late 1998.
The Company through October 19, 1997 conducted all gaming on the
Chartered Vessel. The Chartered Vessel contained approximately 26,000 square
feet of gaming space on four levels, with approximately 932 slot machines and 50
table games. The Chartered Vessel accommodated 1,700 passengers and 200
employees and also contained food, beverage and bar facilities.
In September 1996, the Company entered into various agreements for the
design, engineering and construction of a vessel (the "Permanent Vessel") to
replace the Chartered Vessel. The Permanent Vessel is owned by the Company and
was placed into service on October 27, 1997. The Permanent Vessel contains
approximately 43,000 square feet of casino space on three decks, 1,550 slot
machines and 69 table games including 8 poker tables. The Permanent Vessel has
an atrium and escalators in addition to elevators and stair towers to move
passengers more freely between the various levels. The Company expended
approximately $50 million, excluding capitalized interest, on the Permanent
Vessel. With the Permanent Vessel now in service, the Company believes that its
facility should meet its operating needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Various legal proceedings are pending against the Company. Management
considers all such pending proceedings, primarily personal injury claims, to be
ordinary litigation incidental to the character of the Company's business.
Management believes that the resolution of these proceedings will not,
individually or in the aggregate, have a material effect on the Company's
financial condition or results of operations.
During 1997, two lawsuits seeking substantial damages against the
Company involving allegations associated with the initial casino licensing
process and/or potential investments in the Company were, upon motions of the
Company, dismissed by the court with prejudice. Neither dismissal was appealed.
From time to time, the Company may be involved in routine
administrative proceedings involving alleged violations of certain provisions of
the Riverboat Gambling Act. Management believes that the outcome of any such
proceedings will not, either individually or in the aggregate, have a material
adverse effect on the Company or its ability to retain and/or renew any license
required under the Riverboat Gambling Act for the Company's operations. In March
1998, the Company agreed to settle two such
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proceedings with the payment of $120,000 to the IGC. No such proceedings are
pending at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company is a privately owned Indiana limited liability company and,
as such, there is no public market for the registrant's equity securities.
The Company has not paid any cash dividends to its members. The ability
of the Company to pay dividends is restricted by the Indenture (the "Indenture")
dated May 22, 1996 by and between the Company and IBJ Schroder, as Trustee,
which governs the Company's 12.75% Senior Secured Notes due 2003, with
contingent interest (the "Senior Secured Notes").
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
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<CAPTION>
(DOLLARS IN THOUSANDS)
December 8, 1993
Year Ended Year Ended (Date of Inception) to
December 31, December 31, December 31,
1997 1996 1995
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STATEMENT OF OPERATIONS DATA:
Net Operating Revenues (1)................... $ 94,543 $ 54,221 $ --
Pre-opening Costs............................ 1,254 4,587 --
Operating Income (Loss)...................... 607 (48) --
Interest Expense, Net........................ 11,046 6,399 $ 249
Net Income (Loss)............................ (13,887) (8,887) 249
Ratio of Earnings to Fixed Charges (2)....... -- -- --
OTHER DATA
Adjusted EBITDA: (3)......................... 12,701 10,738 --
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At December 31,
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BALANCE SHEET DATA: 1997 1996 1995
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Cash and Cash Equivalents.................... $ 8,084 $ 8,936 $ 8,446
Restricted Cash.............................. 11,905 51,689 --
Investment in BHR, Net....................... 43,542 44,947 21,823
Total Assets................................. 134,762 142,384 35,128
Current Liabilities.......................... 11,699 8,141 120
Long-Term Debt............................... 110,829 108,121 --
Total Liabilities............................ 133,286 127,021 120
Members' Equity.............................. 1,476 15,363 35,009
</TABLE>
NOTES:
(1) The Majestic Star Casino commenced operations June 7, 1996.
(2) The ratio is less than one-to-one coverage. The Company's earnings are
inadequate to cover fixed charges and the amount of coverage deficiency is
$16,204,192 and $9,099,604 in 1997 and 1996, respectively.
(3) Adjusted EBITDA, or "earnings before interest, income taxes, depreciation,
amortization and chartered vessel lease payments", is a supplemental financial
measurement used by the Company in the evaluation of its gaming business and by
many gaming industry analysts. Adjusted EBITDA should only be read in
conjunction with all of the Company's financial data summarized above and its
financial statements prepared in accordance with generally accepted accounting
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principles ("GAAP") appearing elsewhere herein, and should not be
construed as an alternative either to income from operations (as determined in
accordance with GAAP) as an indication of the Company's operating performance or
to cash flows from operating activities (as determined in accordance with GAAP)
as a measure of liquidity. Adjusted EBITDA excludes pre-opening expenses
associated with the start-up of the Permanent Vessel and the Chartered Vessel of
$1,253,758 and $4,586,879 in 1997 and 1996, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATEMENT ON FORWARD-LOOKING INFORMATION
The discussions regarding proposed developments and operations of the
Company included in Management's Discussion and Analysis of Financial Condition
and Results of Operations contain "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which represent the
Company's expectations or beliefs concerning future events. Statements
containing expressions such as "believes", "anticipates" or "expects" used in
the Company's press releases and reports filed with the Securities and Exchange
Commission (including periodic reports on Form 10-K and Form 10-Q) are intended
to identify forward-looking statements. All forward-looking statements involve
risks and uncertainties. Although the Company believes its expectations are
based upon reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurances that actual results will not
materially differ from expected results. The Company cautions that these and
similar statements included in this report and in previously filed periodic
reports are further qualified by important factors that could cause actual
results to differ materially from those in the forward-looking statements. Such
factors include, without limitation, the following: the purchase of real estate
for, and the design and construction of, a covered parking facility located at
the Company's gaming complex; the ability to fund planned development needs and
to service debt from existing operations and from new financing; increased
competition in existing markets or the opening of new gaming jurisdictions; a
decline in the public acceptance of gaming; the limitation, conditioning or
suspension of the Company's gaming license; increases in or new taxes imposed on
gaming revenues or gaming devices; a finding of unsuitability by regulatory
authorities with respect to the Company's officers or key employees; loss and/or
retirement of key executives; significant increase in fuel or transportation
prices; adverse economic conditions in the Company's markets; severe and unusual
weather in the Company's markets.
Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date thereof. The Company undertakes no
obligation to publicly release any revisions to such forward-looking statements
to reflect events or circumstances after the date hereof.
The following discussions should be read in conjunction with, and is
qualified in its entirety by, the Company's financial statements, including the
notes thereto, appearing elsewhere herein.
OVERVIEW
The Company was formed in December 1993 as an Indiana limited liability
company, to develop a riverboat casino in the City, as its sole operation. The
Company's efforts resulted in the IGC granting the Company a five year riverboat
owner's license on June 3, 1996. The Company's operations began on June 7, 1996.
During the year ended December 31, 1996, the Company operated 205 days.
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The Company's operations through October 19, 1997 were conducted on the
Chartered Vessel. The Chartered Vessel is chartered pursuant to a five year
lease, which began in May 1996, and contained approximately 26,000 square feet
of gaming space, 932 slot machines and 50 table games. The federal law that
prohibited cruising on federal waterways was amended during the fourth quarter
of 1996 to allow cruises and, as a result, the IGC advised the Company that
cruising could commence November 15, 1996, subject to winter weather conditions.
However, due to winter conditions during the first quarter of 1997, the Company
conducted virtually all of its gaming operations with the Chartered Vessel
docked. Effective April 1, 1997, the Company resumed a regular cruising
schedule.
In 1996, the Company entered into various agreements for the design,
engineering and construction of the Permanent Vessel to replace the Chartered
Vessel. The Chartered Vessel was replaced with the Permanent Vessel on October
27, 1997. The Permanent Vessel owned by the Company, contains approximately
43,000 square feet of casino space on three decks, approximately 1,550 slot
machines, 69 table games including 8 poker tables. The Permanent Vessel has an
atrium, escalators and elevators. The Company expended approximately $50
million, excluding capitalized interest, on the Permanent Vessel.
In order to transfer its operations from the Chartered Vessel to the
Permanent Vessel the Company temporarily ceased all gaming operations for seven
(7) days beginning October 20, 1997. The temporary shutdown of operations
allowed the Company to transfer all 932 slot machines and other gaming related
equipment operating on the Chartered Vessel to the Permanent Vessel. Effective
October 26, 1997, the Company completed the outfitting of the Permanent Vessel
and pursuant to IGC regulations conducted a thirteen (13) hour live test of the
Company's gaming operations on October 27, 1997. Also in accordance with various
IGC Regulations, the Company again temporarily ceased operations for two (2)
days at the conclusion of the thirteen (13) hours of testing to allow the IGC to
review the Company's accounting systems and internal controls. On Thursday,
October 30, 1997, at 8:00am, the IGC officially approved the Permanent Vessel
for gaming operations and the Permanent Vessel was opened to the public. The
Company had committed under the terms of its Senior Exchange Secured Notes due
2003 (the "Senior Secured Notes") to replace the Chartered Vessel with the
Permanent Vessel no later than June 30, 1998. The Company is in the process of
returning the Chartered Vessel to the lessor, President Casinos, Inc.
The Company and the Joint Venture Partner, the holder of a second
gaming license to operate from the City, formed the BHR Joint Venture to own and
operate certain common facilities of the Gaming Complex such as the guest
pavilion, vessel berths, parking lots and other infrastructure. The Company and
the Joint Venture Partner each have a fifty-percent ownership interest in the
BHR Joint Venture.
RESULTS OF OPERATIONS - 1997 COMPARED TO 1996
Due to the fact that the Company commenced operations on June 7, 1996,
the company has limited operating history and lacks a comparable period for
prior years with respect to the twelve month period ended December 31, 1997.
Nonetheless, the discussion of results of operations contained herein provides a
comparison of the full twelve month period ended December 31, 1997 with the 205
days of operations in 1996. Gross revenues were approximately $94,712,000 and
$54,233,000 for the year ended December 31, 1997 and the 205 days ended December
31,1996, respectively.
The following table contains, for the periods indicated, the following
information: (i) summary information from the Company's statements of income, as
well as information relative to EBITDA (as defined below) derived therefrom; and
(ii) the Company's statements of income, as well as information
10
<PAGE> 13
relative to EBITDA, expressed as a percentage of gross revenues.
Statements of Income - - Summary Information
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996
------------------ ------------------
<S> <C> <C>
Gross Revenues (1)...................... $ 94,712,000 $ 54,233,000
Operating Income (Loss)................. $ 607,000 $ (48,000)
EBITDA (2)............................. $ 12,701,000 $ 10,714,000
</TABLE>
Statements of Income - - Percentage of Gross Revenues
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Revenues:
Casino................................. 97.5% 97.4%
Food and beverage...................... 1.6 1.5
Other.................................. 0.9 1.1
Gross Revenues..................... 100.0 100.0
Less promotional allowances............ (0.2) 0.0
Net Revenues....................... 99.8 100.0
Costs and Expenses:
Casino................................. 17.7 17.1
Gaming and admission taxes............. 28.5 28.7
Food and beverage...................... 2.0 2.1
Advertising and promotion.............. 13.4 8.4
General and administrative............. 23.5 22.7
Economic incentive-City of Gary........ 2.9 2.9
Depreciation and amortization.......... 8.1 9.8
Loss on disposition of assets.......... 1.7 0.0
Pre-opening costs (3).................. 1.3 8.5
------ ------
Total.............................. 99.1 100.1
Operating Income (Loss):.................... 0.6 (0.1)
Other Income (Expense):
Loss on investment in BHR.............. (3.6) (4.5)
Interest income........................ 1.9 4.1
Interest expense....................... (12.9) (15.2)
Interest expense to affiliate.......... (0.7) (0.6)
Total.............................. (15.3) (16.3)
------ ------
Net Income (Loss):.......................... (14.7) (16.4)
------ ------
EBITDA: (2)................................ 13.4 18.6
------ ------
</TABLE>
NOTES:
(1) The Company commenced operations on June 7, 1996.
(2) EBITDA (defined as earnings before interest, income taxes,
depreciation and amortization and, for purposes hereof, does not
include Chartered Vessel lease payments) is presented solely as a
supplemental disclosure to assist in the evaluation of the Company's
ability to generate cash flow.
11
<PAGE> 14
In particular, the Company believes that an analysis of EBITDA enhances
the understanding of the financial performance of companies with
substantial depreciation and amortization. EBITDA also excludes
approximately $1.3 million and $4.6 million of pre-opening costs for
the year ended December 31, 1997 and the year ended December 31, 1996,
respectively.
(3) Includes approximately $1.3 million and $4.6 million
of pre-opening expenses associated with the start-up of the Permanent
Vessel and Chartered Vessel, for the year ended December 31, 1997 and
the year ended December 31, 1996, respectively.
Future operating results will be subject to significant business,
economic, regulatory and competitive uncertainties and contingencies, including
future and existing casino operations, many of which are beyond the control of
the Company. While the Company believes that the Majestic Star Casino will be
able to attract a sufficient number of customers and generate a sufficient
amount of revenue to meet its debt obligations as they become due, there can be
no assurance with respect thereto.
Gross revenues for the year ended December 31, 1997 amounted to
approximately $94,712,000, an increase of approximately $40,480,000 from gross
revenues recorded in the year ended December 31, 1996. The increase was
attributable to the Company operating the entire twelve months ended December
31, 1997 compared to 205 days of operations in the year ended December 31, 1996.
Casino revenues during the year ended December 31, 1997 totaled
approximately $92,305,000, of which slot machines accounted for approximately
$69,081,000 (74.8%) and table games accounted for approximately $23,224,000
(25.2%). The average number of slot machines in operation increased to 1,038
during the year ended December 31, 1997 from 924 during the year ended December
31, 1996. The average win per slot machine per day decreased to $187 for the
year ended December 31, 1997 from approximately $198 during the year ended
December 31, 1996. The average number of table games in operation during the
year ended December 31, 1997 increased to 52 from 50 during the year ended
December 31, 1996. The average win per table game per day during the year ended
December 31, 1997 declined to approximately $1,247 versus $1,496 in the year
ended December 31, 1996, due primarily to a 1.7% decrease in the table game hold
percentage. The average daily win per state passenger count was $33 and the
average daily win per patron was $56 during the year ended December 31, 1997, an
increase of 3% and 5%, respectively, compared to the year ended December 31,
1996.
Food and beverage revenue for the year ended December 31, 1997 totaled
approximately $1,559,000 or 1.6% of gross revenues, versus approximately
$809,000 or 1.5% of gross revenues for the year ended December 31, 1996. Other
revenue, consisting primarily of commission income, totaled approximately
$848,000 or 0.9% of gross revenues, versus approximately $636,000 or 1.1% of
gross revenues for the year ended December 31, 1996. The dollar increase in food
and beverage revenue as well as other revenue is the result of the Company
operating the entire twelve months ended December 31, 1997 compared to 205 days
of operations in the year ended December 31, 1996.
Promotional allowances (complimentaries) included in the Company's 1997
and 1996 gross food revenues were approximately $169,000 and $12,000,
respectively. The increase in promotional allowances is the result of the
Company operating the entire twelve months ended December 31, 1997 compared to
205 days of operations in the year ended December 31, 1996. Promotional
allowances provided to the Company's gaming patrons at facilities located in,
and/or owned by the BHR Joint Venture, totaled approximately $646,000 and
$288,000 in 1997 and 1996, respectively, and are characterized in the financial
statements as an expense to the casino. The BHR Joint Venture invoices the
Company monthly for these promotional
12
<PAGE> 15
allowances at cost, which approximates the retail value of these promotional
allowances.
Casino operating expenses for the year ended December 31, 1997 totaled
approximately $16,758,000, or 17.7% and 18.2% of gross revenues and casino
revenues, respectively, versus approximately $9,257,000, or 17.1% and 17.5%
gross revenues and casino revenues, respectively, for the year ended December
31, 1996. These expenses were primarily comprised of salaries, wages and
benefits, and operating and promotional expenses of the casino. Both the dollar
increase in casino operating expenses of $7,501,000 and the slight increase of
0.6% as a percentage of gross revenues and casino revenues were primarily the
result of an increase in payroll expenses combined with the Company operating
the entire twelve months ended December 31, 1997 compared to 205 days of
operations in the year ended December 31, 1996.
Gaming and admissions taxes totaled approximately $26,956,000 for the
year ended December 31, 1997 compared to approximately $15,538,000 in the year
ended December 31, 1996. These taxes are levied on adjusted gross receipts, as
defined by Indiana Gaming laws, at the rate of 20%, plus $3 per passenger per
the state passenger count. An additional $2,789,000 was paid during the year
ended December 31, 1997 compared to approximately $1,586,000 in the year ended
December 31, 1996 to the City under an agreement whereby the Company pays 3% of
the adjusted gross receipts directly to the City.
Advertising and promotion expenses for the year ended December 31, 1997
totaled approximately $12,709,000, or 13.4% of gross revenues, versus
approximately $4,563,000, or 8.4% of gross revenues, during the year ended
December 31, 1996. Advertising and promotion expenses included salaries, wages
and benefits of the marketing and casino service departments as well as
promotions, advertising and special events. The 5.0% increase in advertising and
promotion expenses as a percentage of gross revenues during the year ended
December 31, 1997 compared to the 205 days of operation in the year ended
December 31, 1996 was primarily the result of increased expenditures associated
with direct mail (i.e., promotions and rebates offered to customers using the
slot machines) bus subsidies (i.e., promotions and discounts for customers
traveling by bus to the Company's gaming complex), and an increase in general
media including billboards, print and radio to heighten the Company's overall
presence within the marketplace in light of additional competition as well as
increased advertising associated with the opening of the Permanent Vessel on
October 27, 1997.
General and administrative expenses for the year ended December 31,
1997 were approximately $22,230,000, or 23.5% of gross revenues, versus
$12,289,000, or 22.7% of gross revenues for the year ended December 31, 1996.
These expenses included approximately $6,415,000 for berthing fees paid to the
BHR Joint Venture, $6,811,000 for marine operations and $1,852,000 for security
and surveillance operations. The dollar increase in these expenses is primarily
attributed to operating a full twelve months for the year ended December 31,
1997 compared to the 205 days for the year ended December 31, 1996.
Depreciation and amortization for the year ended December 31, 1997 was
approximately $7,700,000, or 8.1% of gross revenues, compared with approximately
$5,320,000, or 9.8% of gross revenues, during the year ended December 31, 1996.
The dollar increase in these expenses is attributed to operating a full twelve
months for the year ended December 31, 1997 compared to the 205 days for the
year ended December 31,1996. The amount of depreciation and amortization, in
terms of dollars is anticipated to slightly increase now that the Permanent
Vessel is completed and has been placed into service as the site for the
Company's gaming operations.
On October 27, 1997, the Chartered Vessel was replaced with the
Permanent Vessel. The Company
13
<PAGE> 16
wrote-off approximately $1,603,000 of unamortized leasehold improvements made to
the Chartered Vessel. Assets used on the Chartered Vessel with a net book value
of approximately $713,000 at December 31, 1997 are in the process of being
disposed of. It cannot be determined at this time whether these costs will be
fully recouped through the sale of these assets.
Operating income for the year ended December 31, 1997 approximated
$607,000, or 0.6% of gross revenues, compared with an operating loss in the year
ended December 31, 1996 of $48,000, or (0.1%) of gross revenues. The results for
the years ended 1997 and 1996, included pre-opening costs associated with the
start-up of the Permanent Vessel and the Chartered Vessel, were approximately
$1,254,000 and $4,587,000, respectively.
Net interest expense for the year ended December 31, 1997 was
approximately $11,046,000, or 11.7% of gross revenues, versus approximately
$6,399,000, or 11.7% of gross revenues, for the year ended December 31, 1996.
The dollar increase is attributed to operating a full twelve months for the
period ended December 31, 1997 compared to the 205 days for the year ended
December 31, 1996. $2,317,000 and $213,000 of interest were capitalized in 1997
and 1996, respectively. The Senior Secured Notes carry a coupon interest rate of
12.75%, plus contingent interest equal to 5% of the Company's Consolidated Cash
Flow, as defined, (not to exceed $3 million annually), both payable
semi-annually. The payment of contingent interest can be deferred under certain
conditions. The contingent interest ordinarily payable on May 15, 1997 and
November 15, 1997 was deferred, as allowed under the terms of the Indenture. As
of December 31, 1997 and 1996, the Company had accrued contingent interest of
approximately $1,253,000 and $603,000, respectively. To date, no contingent
interest has been paid.
The Company's loss in its investment in the BHR Joint Venture for the
year ended December 31, 1997 was approximately $3,448,000. The loss represents
the Company's 50% share of BHR's non-cash net loss.
As a result of the foregoing, the Company experienced net losses of
approximately $13,887,000 and $8,887,000 during the years ended December 31,
1997 and 1996, respectively.
Earnings Before Interest, Income Taxes, Depreciation and Amortization ("EBITDA")
EBITDA is presented solely as a supplemental disclosure and is used by
the Company to assist in the evaluation of the cash generating ability of its
gaming business.
EBITDA (excluding Chartered Vessel lease payments of approximately
$1,537,000) in 1997 was approximately $12,701,000 or 13.4% of gross revenues,
during the year ended December 31, 1997 compared to approximately $10,714,000,
or 18.6% of gross revenues, during the year ended December 1996. The percentage
decrease in EBITDA is primarily due to a 5.0% increase in Advertising and
Promotion costs.
EBITDA should be viewed only in conjunction with all of the Company's
financial data and statements, and should not be construed as an alternative
either to income from operations (as an indicator of the Company's operating
performance) or to cash flows from operating activities as a measure of
liquidity.
LIQUIDITY AND CAPITAL RESOURCES
14
<PAGE> 17
At December 31, 1997, the Company had cash and cash equivalents of
approximately $8.1 million and restricted cash of approximately $11.9 million.
The company committed to spend approximately $50 million, excluding capitalized
interest, on the Permanent Vessel, including gaming-related equipment. To date,
the Company has expended approximately $52.6 million for the construction,
design, engineering, and equipping of the Permanent Vessel, which includes
approximately $2.5 million of capitalized interest. The Company has also
contributed in 1997 approximately $2 million from working capital to BHR for
general enhancements.
The Company, to date, has met its capital requirements through net cash
from operations, capital contributions and loans. For the year ended December
31, 1997, net cash provided from operations totaled approximately $2.2 million.
Consolidated cash flow as defined in the Indenture governing the Company's
Senior Secured Notes was approximately $11.7 million during 1997 with $8.8
million in the first semi-annual period and $2.9 million in the second
semi-annual period.
The Company has purchased additional slot machines for use on the
Permanent Vessel for an approximate aggregate cost of $4.3 million, with the
financing for such purchase provided by a third party. The Company also has
refinanced its current equipment financing arrangements for the 932 slot
machines and related equipment transferred to the Permanent Vessel from the
Chartered Vessel in an effort to take advantage of more favorable market
conditions. Specifically, the refinancing of the Company's current equipment
provided for various fixed rates of interest as opposed to a variable rate and
the term of the financing was extended by an average of approximately twenty
months.
As of December 31, 1997, loans included: (i) $105 million 12.75% Senior
Secured Notes due 2003, with additional contingent interest equal to 5% of the
Company's consolidated cash flow (as defined in the underlying Indenture); (ii)
approximately $10.8 million borrowed from BDI; and (iii) approximately $7.5
million of equipment financing.
At December 31, 1997, approximately $11.9 million of the proceeds from
the Senior Secured Notes, together with interest earned thereon, were held in
escrow designated as a completion reserve for the construction of the Permanent
Vessel. During January 1998, approximately $11.9 million was reclassified from
restricted cash to operating cash as the proceeds were not required to complete
the Permanent Vessel.
The Senior Secured Notes mature on May 15, 2003. The Senior Secured
Notes are redeemable at the option of the Company, in whole or part, at any time
on or after May 15, 2000, at various premiums. Holders of the Senior Secured
Notes have the right to require that the Company repurchase the notes at a
premium under certain conditions including a change in control of the Company.
The Senior Secured Notes carry a coupon interest rate of 12.75%, plus
contingent interest equal to 5% of the Company's Consolidated Cash Flow, as
defined, (not to exceed $3 million annually), both payable semi-annually. The
payment of contingent interest can be deferred under certain conditions. The
contingent interest ordinarily payable on November 15, 1996, May 15, 1997 and
November 15, 1997 was deferred, as allowed under the terms of the Indenture. The
years ended December 31, 1997 and 1996, the Company had accrued contingent
interest payable of approximately $1,253,000 and $603,000, respectively. The
Senior Secured Notes are collateralized by essentially all the assets of the
Company.
The Indenture contains financial and other covenants, which, among
other things, limits the Company's ability to (1) issue indebtedness, (2) make
investments, (3) make distributions and equity
15
<PAGE> 18
repurchases, (4) enter into merger, consolidation and asset sale transactions,
(5) create liens and (6) enter into transactions with affiliates. These
restrictions are subject to a number of qualifications and exceptions as
described in the Indenture.
If the Company is determined to be in default under the Indenture, the
Senior Secured Notes may be accelerated, which would materially adversely affect
the Company.
Under the terms of its development agreement with the City, the Company
committed, among other things, to make development expenditures of $116 million
for its casino and associated infrastructure in the City over the next five
years. The Company has met or accrued a significant portion of these
commitments. The two principal components of the remaining portion of these
commitments are as follows: (1) $10 million for off-site development in the City
by 1998/1999 with the particular project(s) to be agreed to by the City; and (2)
$12 million (a substantial portion of which has been expended through December
31, 1997, with the exact amount to be agreed upon by the City and the Company)
to be expended over the five years following the June 1996 opening of the casino
for enhancements to the Company's operations at Buffington Harbor and/or BHR's
facilities.
The Company anticipates that additional capital contributions to BHR,
currently estimated not to exceed $1,000,000, may be required for the BHR
facilities. The Company and the Joint Venture Partner are continuing to review
the feasibility of purchasing additional property for the construction of a
covered parking facility at the Gaming Complex. The timing and cost of
purchasing the additional property and of constructing a covered parking
facility at the Gaming Complex is undetermined at this time. The Company expects
to fund such further investments from operations and/or from the funds
designated for the repayment of the note due to BDI, provided that the proceeds
from the note due to BDI have not been utilized and are available. There can be
no assurance that such facility will be constructed or that sufficient funds
will be available for such construction.
Under a lease agreement assumed by the BHR Joint Venture, from the
Joint Venture Partner with Lehigh Portland Cement Company ("Lehigh Cement"), BHR
has leased certain property which is integral to the gaming operations of the
Company and its Joint Venture Partner. The lease places certain restrictions on
the use of the harbor by the Company and its Joint Venture Partner and requires
the reimbursement of certain costs which may be incurred by Lehigh Cement. The
lease was rent free through December 29, 1997 and, subject to certain
conditions, such as progress towards permits for a new harbor, the lease can be
extended to the earlier of December 21, 2005 or to such time as BHR has obtained
requisite regulatory permits and completed construction of its permanent harbor
with a monthly payment of $125,000.
BHR anticipates filing the requisite regulatory permits during 1998.
If the regulatory permits are obtained, the BHR Joint Venture may be required to
construct a new harbor, berthing and guest facilities. The level of expenditures
required for such new facilities cannot be accurately estimated at this time.
The Company through October 19, 1997 conducted its gaming operations on
the Chartered Vessel which, upon the expiration of the underlying lease
agreement, must be redelivered afloat at the Company's cost and expense to the
owner of the Chartered Vessel in accordance with the terms of such lease
agreements. The Company is currently in the process of returning the Chartered
Vessel to the owner. The total amount of rent expense included in the Company's
Statements of Income was approximately $1,537,000 and $879,000 for 1997 and
1996, respectively. The Company must pay the cost of any repairs which are
necessary to bring the Chartered Vessel into the condition required on
redelivery under the lease
16
<PAGE> 19
agreement. The cost of those additional expenditures is undetermined at this
time. As required by the Agreement, the Company in 1995 placed a security
deposit in escrow with a financial institution. As of December 31, 1997 and
1996, the amount in escrow including accrued interest was approximately $609,000
and $1,700,000, respectively. The security deposit is refundable pursuant to the
terms of the escrow agreement. Approximately $114,000 was released in the first
quarter of 1998.
Although BDI to date has contributed approximately $24 million to the
Company, the Members' Equity Account is expected to become negative during the
first quarter of 1998. The decline in the Members' Equity Account is primarily
attributed to operating losses and start-up costs incurred during 1997 and 1996
as previously discussed.
Based upon the Company's anticipated future operations on board the
Permanent Vessel and capital expenditures, the management believes that the
available cash flow from the casino's future operations and certain equipment
financing, together with the proceeds from the Senior Secured Notes and the note
due to BDI, will be adequate to meet the Company's anticipated future
requirements for working capital, the remaining development obligations to the
City, capital expenditures and scheduled payments of interest and principal on
the Senior Secured Notes and other permitted indebtedness for 1998. No assurance
can be given, however, that operating cash flow from the Permanent Vessel in
light of increased competition within the marketplace and such other proceeds
will be sufficient for such purposes. Also there is no guaranty that the Note
due to BDI will not be repaid in 1998. The Company will seek, if necessary and
to the extent permitted under the Indenture, additional financing through
borrowings and debt or equity financing. There can be no assurance that
additional financing, if needed, will be available to the Company, or that, if
available, the financing will be on terms favorable to the Company. In addition,
there is no assurance that the Company's estimate of its reasonably anticipated
liquidity needs is accurate or that unforeseen events will not occur, resulting
in the need to raise additional funds.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is listed under Item 14 of Part
IV of this Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
17
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information with respect to the
executive officers of the Company as of December 31, 1997. The Company does not
have directors since it is a limited liability company.
Executive Officers
<TABLE>
<S> <C> <C>
Name and Age Position(s) Held
------------ ----------------
Don H. Barden, 54 Chairman, President, and Chief Executive Officer
Paul W. Sykes, 46 Vice President and Chief Operating Officer
Michael E. Kelly, 36 Vice President and Chief Financial Officer
</TABLE>
DON H. BARDEN is the Chairman, President, and Chief Executive Officer
of the Company and is employed by the Company, with responsibility for key
policy making functions. Since 1981, Mr. Barden has also been the President and
Chief Executive Officer of a group of companies which are wholly-owned by Mr.
Barden and which operate in the real estate development, broadcast, and
entertainment industries. Over the past 25 years, Mr. Barden has successfully
established and developed a number of enterprises in the real estate, cable
television and media industries.
PAUL W. SYKES is the Vice President of the Manager, General Manager and
Chief Operating Officer of the Company since December 1995 and is employed by
the Company. Mr. Sykes has responsibility for management of gaming operations
and related activities of the Company. From February 1995 to December 1995, Mr.
Sykes was Vice President-Operations of Showboat Indiana, Inc. with primary
responsibility for pre-opening activities relating to casino gambling, credit,
food and beverage, and property and security operations. From December 1993 to
January 1995, Mr. Sykes was Vice President - Project Development where he was
responsible for identification and evaluation of new markets and related
legislative matters. From November 1991 to November 1993, Mr. Sykes was Vice
President of Casino Marketing of Showboat Atlantic City, where he was
responsible for the direct mail, player development, special events and
complimentary services. Prior to 1991, Mr. Sykes served as Vice President of
Customer Development for Trump's Taj Mahal.
MICHAEL E. KELLY is the Vice President and Chief Financial Officer of
the Manager since April 1996, with overall responsibility for the Company's
financial reporting and investor relations functions. Mr. Kelly is also employed
by the Company. From June 1994 to April 1996, Mr. Kelly held various positions
with Fitzgeralds Gaming Corporation including Vice President of Finance. Mr.
Kelly also was the Senior Director of Operations and Chief Financial Officer of
Fitzgeralds Tunica where he was responsible for operations, finance, regulatory
affairs, legal and strategic planning and involved in the design and development
of a new dockside gaming facility in Robinsonville, Mississippi. From September
1991 to June 1994, Mr. Kelly was Vice President and Chief Financial Officer of
Empress River Casino Corporation and its affiliates, with responsibility for
finance, legal, regulatory affairs, investor relations and administration. Mr.
Kelly also participated in the design and development of riverboat casino
operations at both Joliet, Illinois, and Hammond, Indiana, while employed by the
Empress River Casino Corporation. From 1982 to 1991, Mr. Kelly was employed in
various senior finance and administrative functions by Harrah's Hotel & Casino
in New Jersey and Nevada, and the Fitzgeralds Group in Reno and Las Vegas,
Nevada.
18
<PAGE> 21
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation earned for services
performed for the Company during the three fiscal years in the period ended
December 31, 1997 by the Company's Chief Executive Officer and each of its other
executive officers (collectively, the "named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation (1)
--------------------------
Fiscal All Other
Name and Position Year Salary Bonus Compensation
- ----------------- ------ -------- -------- ------------
<S> <C> <C> <C> <C>
Don H. Barden (3) 1997 $275,000 $ -- $ --
President and Chief Executive Officer 1996 180,865 -- --
1995 -- -- --
Thomas C. Bonner (4) 1997 $198,500 $169,500 $31,149
Executive Vice President 1996 198,086 169,500 12,919
1995 7,635 -- --
Paul W. Sykes (5) 1997 $175,000 $ 72,000 $12,216
Vice President and Chief Operating Officer 1996 174,580 99,500 6,859
1995 6,731 -- --
Michael E. Kelly (6) 1997 $180,000 $ 45,000 $41,522
Vice President and Chief Financial Officer 1996 117,586 -- 42,341
1995 -- -- --
</TABLE>
- ---------
1. The incremental cost to the Company of providing perquisites and other
personal benefits during the past three fiscal years did not exceed, as to any
"Named Executive Officer", the lesser of $50,000 or 10% of the total salary and
bonus paid to such executive officer for any such year and, accordingly, is
omitted from the table.
2. Amounts represent contractual payments under individual employment
agreements. In fiscal 1997, the Company contributed 401K match of $11,040,
$7,410, and $6,750, respectively, to Messrs. Bonner, Sykes, and Kelly. Messrs.
Bonner, Sykes, and Kelly were also reimbursed $5,109, $4,806, and $1,417 for
non-deductible medical plan expenditures. Mr. Kelly also received $1,740 in lieu
of not having established a 401(K) plan in 1996, $7,615 for unused vacation
time, and $24,000 for non-vested stock options from a previous employer. Mr.
Bonner also received $15,000 for reimbursable relocation expenses. In fiscal
1996, the Company paid $8,050 and $5,403, respectively, to Messrs. Bonner, and
Sykes in lieu of not having established a 401(K) Plan. Messrs Bonner and Sykes
also were reimbursed $4,869 and $1,456 respectively, for non-deductible medical
plan expenditures. Mr. Kelly received $18,341 for reimbursable relocation
expenses and $24,000 for non-vested stock options from a previous employer.
3. Mr. Barden became a paid employee of the Company in April 1996.
4. Mr. Bonner joined the Company as Executive Vice President in December 1995.
In April 1997, Mr. Bonner was transferred to Executive Vice President of Special
Projects. Mr. Bonner's 1997 and 1996 contractual bonuses and other payments
aggregating $169,500 each year were voluntarily deferred until calendar year
1997 and 1998, respectively.
5. Mr. Sykes joined the Company as Vice President and COO in December 1995.
6. Mr. Kelly joined the Company as Vice President and CFO in April 1996.
19
<PAGE> 22
EMPLOYMENT AGREEMENTS
Mr. Barden serves as Chairman and President of the Manager and will
receive annual compensation of $275,000 as an employee of the Company, pursuant
to a letter agreement dated as of April 25, 1996.
Mr. Bonner serves as Executive Vice President pursuant to an employment
agreement with the Company, effective as of December 4, 1995. Under the terms of
his employment agreement, Mr. Bonner will receive base compensation of $348,700
per year and housing, car and meal allowances aggregating $19,300 per year. Mr.
Bonner can also earn incentive compensation based on his performance and the
performance of the Company. The employment agreement is for a term of three
years unless earlier terminated because of Mr. Bonner's death, permanent
disability, inability to obtain or maintain the licenses required for the
performance of his duties, or "for cause" (as defined therein). The employment
agreement also includes a non-competition provision which generally provides
that during the term of the employment agreement and for 18 months thereafter,
Mr. Bonner cannot directly or indirectly recruit or solicit the Company's
employees to work for another company or to compete with the Company in
specified portions of Illinois and Indiana (the "Non-Competition Provision").
Mr. Sykes has entered into an employment agreement with the Company,
effective as of December 4, 1995, pursuant to which he has agreed to serve as
Vice President and General Manager of Operations for a three year term. Mr.
Sykes will receive base compensation of $247,000 per year and can also earn
incentive compensation based upon his performance and the performance of the
Company. Mr. Sykes' employment agreement contains terms substantially similar to
that of Mr. Bonner's, including the Non-Competition Provision.
Mr. Kelly serves as Vice President and Chief Financial Officer pursuant
to a two-year employment agreement with the Company, effective as of April 22,
1996. Mr. Kelly will receive base compensation of $225,000 per year and can also
earn annual incentive compensation based on his performance and the performance
of the Company. Mr. Kelly also receives $24,000 per year for unvested stock
options associated with a previous employer. Mr. Kelly's employment agreement
contains other terms substantially similar to that of Mr. Bonner's, including a
Non-Competition Provision with a duration of 12 months.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information, as of March 15,
1998, with regard to the beneficial ownership of the membership interests in the
Company.
Name and Address of Beneficial Owner % Ownership
------------------------------------ -----------
Don H. Barden 100.0% (1)
400 Renaissance Center, Suite 2400
Detroit, Michigan 48243
NOTE:
(1) Includes the membership interests in the Company beneficially owned
directly by BDI and indirectly by BDI and Barden Management, Inc.
("BMI") through Gary Riverboat Gaming, LLC ("GRG"). Mr. Barden is the
beneficial owner of 100% of BDI, BMI and GRG.
20
<PAGE> 23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NOTE TO AND ADVANCES FROM PRINCIPAL MEMBER
By December 31, 1995, the Company had been capitalized by its members
with $35.0 million, including interest earned thereon, of capital contributions.
Effective March 31, 1996, $10.8 million of the contributions of BDI was
reclassified as indebtedness payable to BDI, evidenced by the Note to Principal
Member. The Note to Principal Member is a demand note which bears interest at a
rate equal to the applicable short-term federal rate, as set forth in Section
1274(d) of the Internal Revenue Code, adjusted on the first day of each month
that the Note to Principal Member is outstanding.
The net proceeds from the Senior Note Offering that have been
designated to repay the Note to Principal Member had been deposited in a
completion reserve escrow account for the completion of the Permanent Vessel and
Gaming Complex. During January 1998, the proceeds designated to repay the Note
were released from the completion reserve escrow account because the funds were
not required to complete the Permanent Vessel. The Company does not know whether
or not BDI will request repayment of the Note in 1998.
BDI loaned the Company additional amounts required to fund the ongoing
costs of completing the Majestic Star Casino and the Gaming Complex pursuant to
an additional promissory note. Such note aggregating $18,097,299 in principal
amount, was repaid with interest at 5% per annum at the Closing from the
proceeds of the offering of the Senior Secured Notes on May 22, 1996.
IGC BOND
As a condition of its license, on May 20 1996, the IGC accepted a $12.5
million surety bond (the "Bond") issued by United States Fidelity and Guaranty
Company ("USF&G") primarily to guarantee fulfillment of the Company's
development obligations to the City. To support the Company's obligations to
USF&G should there be a draft against the Bond, the Company obtained on May 15,
1996 and subsequently renewed in May 1997, a $3.5 million letter of credit from
a bank to benefit USF&G. Don H. Barden guaranteed the Company's obligations to
USF&G under the Bond and to the bank under the $3.5 million letter of credit. To
secure the guaranty to the bank, Mr. Barden pledged $3.6 million of cash. Mr.
Barden is a director of an affiliate of the bank.
REIMBURSEMENT OF EXPENSES TO BDI, THE MANAGER
Pursuant to the terms of the Operating Agreement, the BDI receives no
compensation for its management of the Company, but is reimbursed for all
reasonable out-of-pocket expenses related therewith.
21
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
<TABLE>
(a) The following documents are filed as a part of this report:
1. Financial Statements of the Company:
<S> <C>
Report of Independent Accountants.........................................................F-1
Balance Sheets as of December 31, 1997 and 1996...........................................F-2
Statements of Income for the years ended December 31, 1997 and
1996, and for the Period December 8, 1993 (Date of Inception)
to December 31, 1995..................................................................F-3
Statements of Changes in Members' Equity for the years ended December 31,
1997 and 1996, and for the Period December 8, 1993 (Date of Inception)
to December 31, 1995..................................................................F-4
Statements of Cash Flows for the years ended December 31, 1997 and 1996,
and for the Period December 8, 1993 (Date of Inception) to December 31, 1995..........F-5
Notes to Financial Statements.............................................................F-6
Financial Statements of Buffington Harbor Riverboats, L.L.C.:
Report of Independent Public Accountants.................................................F-14
Balance Sheets as of December 31, 1997 and 1996..........................................F-15
Statement of Operations for the years ended December 31, 1997 and 1996...................F-16
Statements of Members' Capital for the years ended December 31, 1997 and 1996............F-17
Statements of Cash Flows for the years ended December 31, 1997 and 1996..................F-18
Notes to Financial Statements............................................................F-19
2. Financial Statement Schedule for the Company:
Report of Independent Accountants........................................................F-22
Schedule II - Valuation and Qualifying Accounts..........................................F-23
3. Exhibits
</TABLE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Amended and Restated Articles of Organization of The Majestic Star Casino,
LLC, filed as Exhibit 3.1 to the Company's Registration Statement, No.
333-06489, is incorporated herein by reference.
3.2 Third Amended and Restated Operating Agreement of The Majestic Star Casino,
LLC dated as of March 29, 1996, filed as Exhibit 3.2 to the Company's
Registration Statement, No.333-06489, is incorporated herein by
reference.
4.1 Purchase Agreement, dated as of May 22, 1996, by and between The Majestic Star
Casino, LLC and Wasserstein Perella Securities, Inc., filed as Exhibit 4.1
to the Company's Registration Statement, No. 333-06489, is incorporated herein
by reference.
4.2 Indenture, dated as of May 22, 1996, by and between The Majestic Star Casino,
LLC, IBJ Schroder Bank & Trust Company, as Trustee, with respect to the
Senior
</TABLE>
22
<PAGE> 25
<TABLE>
<S> <C>
Secured Notes due 2003 with Contingent Interest (the
"Senior Notes") and the holder of Senior Exchange
Secured Notes due May 15, 2003 with Contingent
Interest (the "Senior Exchange Notes"), filed as
Exhibit 4.2 to the Company's Registration Statement,
No. 333-06489, is incorporated herein by reference.
4.3 Form of Senior Note and Senior Exchange Note
(included in Exhibit 4.2), filed as Exhibit 4.3 to
the Company's Registration Statement, No. 333-06489,
is incorporated herein by reference.
4.4 Security Agreement, dated as of May 22, 1996, from
The Majestic Star Casino, LLC, in favor of the
holders of Senior Notes and the Senior Exchange
Notes, filed as Exhibit 4.4 to the Company's
Registration Statement, No. 333-06489, is
incorporated herein by reference.
4.5 Pledge Agreement, dated as of May 22, 1996, from
Barden Development,Inc. In favor of the holders of
Senior Notes and the Senior Exchange Notes, filed as
Exhibit 4.5 to the Company's Registration Statement,
No. 333-06489, is incorporated herein by reference.
4.6 Pledge Agreement, dated as of May 22, 1996, from the
Company in favor of the holders of Senior Notes and
the Senior Exchange Notes, filed as Exhibit 4.6 to
the Company's Registration Statement, No. 333-06489,
is incorporated herein by reference.
4.7 Trademark Security Agreement, dated as of May 22,
1996, from the Company in favor of the holders of the
Senior Notes and the Senior Exchange Notes, filed as
Exhibit 4.7 to the Company's Registration Statement,
No. 333-06489, is incorporated herein by reference.
4.8 Cash Collateral Agreement, dated as of May 22, 1996,
by and among the Company, the Trustee and N.B.D.
Bank, is incorporated herein by reference.
10.1 * Employment Letter Agreement dated as of April 25,
1996 by and between the Company and Don H. Barden,
filed as Exhibit 10.1 to the Company's Registration
Statement, No. 333-06489, is incorporated herein by
reference.
10.2 * Employment Letter Agreement effective as of December
4, 1995 by and between the Company, and Thomas C.
Bonner, filed as Exhibit 10.2 to the Company's
Registration Statement, No. 333-06489, is
incorporated herein by reference.
10.3 * Employment Letter Agreement effective as of December
4, 1995 by and between the Company, and Paul W.
Sykes, filed as Exhibit 10.3 to the Company's
Registration Statement, No. 333-06489, is
incorporated herein by reference.
10.4 * Employment Letter Agreement effective as of April 22,
1996 by and between the Company and Michael E. Kelly,
filed as Exhibit 10.4 to the Company's Registration
Statement, No. 333-06489, is incorporated herein by
reference.
10.5 Berthing Agreement, dated as of April 23, 1996,
between the Company and Buffington Harbor Riverboats,
LLC, filed as Exhibit 10.5 to the Company's
Registration Statement, No. 333-06489, is
incorporated herein by reference.
10.6 First Amended and Restated Operating Agreement of
Buffington Harbor Riverboats, LLC, made as of October
31, 1995, by and between Trump Indiana, Inc. and the
Company, as amended to date, filed as Exhibit 10.6 to
the Company's Registration Statement, No. 333-06489,
is incorporated herein by reference.
10.7 Charter Agreement, dated August 17, 1995, by and
among New Yorker Acquisition Corporation, the Company
and President Casinos, Inc., as amended to date,
filed as Exhibit 10.7 to the Company's Registration
Statement, No. 333-06489, is
</TABLE>
23
<PAGE> 26
incorporated herein by reference.
10.8 Development Agreement, dated March 26, 1996, by and
between the Company and the City of Gary, Indiana,
filed as Exhibit 10.8 to the Company's Registration
Statement, No. 333-06489, is incorporated herein by
reference.
10.9 Harbor Lease Agreement, dated June 29, 1995, by and
between Trump Indiana, Inc. and Lehigh Portland
Cement Company, as assigned by Trump Indiana, Inc. to
Buffington Harbor Riverboats, LLC pursuant to the
Assignment Agreement dated as of October 31, 1995, by
and between Trump Indiana, Inc. and Buffington Harbor
Riverboats, L.L.C., filed as Exhibit 10.9 to the
Company' s Registration Statement, No. 333-06489, is
incorporated herein by reference.
10.10 Equipment Financing Agreement dated April 5, 1996 by
and between the Company and International Gaming
Technology, filed as Exhibit 10.10 to the Company's
Registration Statement, No. 333-06489, is
incorporated herein by reference.
10.10 Equipment Financing Agreement dated May 5, 1996 by
and between the Company and International Gaming
Technology, filed as Exhibit 10.10 to the Company's
Registration Statement, No. 333-06489, and
incorporated herein by reference.
10.11 Master Surety Agreement by and between the Company
and United States Fidelity and Guaranty Company,
filed as Exhibit 10.11 to the Company's Registration
Statement, No. 333-06489, is incorporated herein by
reference.
10.12 Standby Letter of Credit Application and
Reimbursement and Security Agreement, filed as
Exhibit 10.12 to the Company's Registration
Statement, No. 333-06489, is incorporated herein by
reference.
10.13 Promissory Note dated March 31, 1996 from the Company
to Barden Development, Inc., filed as Exhibit 10.13
to the Company's Registration Statement, No. 333-
06489, is incorporated herein by reference.
10.14 Vessel Construction Contract between Majestic Star
and Atlantic Marine, Inc. dated as of September 27,
1996, filed as Exhibit 10.14 to the Company's Report
on Form 10-Q for the period ended September 30, 1996,
is incorporated herein by reference.
10.15 Indiana Master Capital Lease Agreement dated
September 15, 1997 by and between the Company and PDS
Financial Corporation, filed herewith.
10.16 Equipment Financing Agreement dated October 27, 1997
by and between the Company and PDS Financial
Corporation, filed herewith.
11 Computation of Ratio of Earnings to Fixed Charges for
the years ended December 31, 1997 and 1996, filed
herewith.
27 Financial Data Schedule (EDGAR Version Only), filed
herewith.
---------
* Denotes a management compensation arrangement.
(b) Reports on Form 8-K
None
24
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
The Majestic Star Casino, LLC:
We have audited the accompanying balance sheets of The Majestic Star Casino, LLC
(the "Company") as of December 31, 1997, 1996 and the related statements of
income, changes in members' equity, and cash flows for the years ended December
31, 1997 and 1996 and for the period December 8, 1993 (date of inception) to
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1997 and 1996 and the results of its operations, members' equity and cash flows
for the years ended December 31, 1997 and 1996 and for the period December 8,
1993 (date of inception) to December 31, 1995 in conformity with generally
accepted accounting principles.
/S/ COOPERS &LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Chicago, Illinois
February 12, 1998
F-1
<PAGE> 28
THE MAJESTIC STAR CASINO, LLC
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................... $ 8,083,594 $ 8,935,999
Accounts receivable, less allowance for doubtful accounts
of $370,000 and $190,000, respectively ............. 879,887 557,816
Inventories ............................................. 33,717 24,651
Prepaid expenses ........................................ 995,887 1,169,868
------------- -------------
Total current assets ................................ 9,993,085 10,688,334
------------- -------------
Property, equipment, and vessel improvements, net ............ 61,206,890 24,124,802
Other Assets:
Organizational costs, less accumulated amortization
of $44,021 and $15,772, respectively .............. 97,220 125,469
Deferred financing costs, less accumulated amortization
of $947,941 and $357,640, respectively ............. 3,150,149 3,757,667
Deferred costs, less accumulated amortization
of $1,758,662 and $2,131,166, respectively .......... 3,893,367 5,023,767
Investment in Buffington Harbor Riverboats, L.L.C ....... 43,541,985 44,946,852
Other assets and deposits ............................... 974,551 2,028,260
Restricted cash ......................................... 11,904,716 51,688,854
------------- -------------
Total other assets .................................. 63,561,988 107,570,869
------------- -------------
Total Assets ........................................ $ 134,761,963 $ 142,384,005
============= =============
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt .................... $ 1,889,427 $ 2,211,599
Short-term debt ......................................... 100,696 --
Accounts payable ........................................ 1,519,235 544,154
Other accrued liabilities:
Payroll and related ................................. 1,453,789 593,492
Interest ............................................ 3,076,512 2,468,698
Other accrued liabilities ........................... 2,939,877 1,496,758
Due to Buffington Harbor Riverboats, L.L.C. ......... 719,058 826,512
------------- -------------
Total current liabilities ........................... 11,698,594 8,141,213
Long-term debt, net of current maturities .................... 110,828,515 108,120,746
Note to member ............................................... 10,759,355 10,759,355
Commitments and contingencies
Total long-term liabilities ......................... 121,587,870 118,880,101
------------- -------------
Total Liabilities ................................... 133,286,464 127,021,314
------------- -------------
Members' Equity:
Members' contributions ................................. 24,000,000 24,000,000
Retained earnings (Accumulated deficit) ................. (22,524,501) (8,637,309)
------------- -------------
Total members' equity ............................... 1,475,499 15,362,691
------------- -------------
Total Liabilities and Members' Equity ............... $ 134,761,963 $ 142,384,005
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 29
THE MAJESTIC STAR CASINO, LLC
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, AND DECEMBER 31, 1996, AND
FOR THE PERIOD DECEMBER 8, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 8, 1993
FOR THE YEAR ENDED FOR THE YEAR ENDED (DATE OF INCEPTION) TO
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES:
Casino ................................. $ 92,304,580 $ 52,788,009 $ --
Food and beverage ...................... 1,559,071 808,567 --
Other .................................. 848,604 636,071 --
------------ ------------ ------------
Gross Revenues ..................... 94,712,255 54,232,647 --
------------ ------------ ------------
less promotional allowances ........ (169,306) (12,088) --
Net Revenues ....................... 94,542,949 54,220,559 --
------------ ------------ ------------
COSTS AND EXPENSES:
Casino ................................. 16,758,049 9,256,597 --
Gaming and admission taxes ............. 26,956,027 15,537,905 --
Food and beverage ...................... 1,937,290 1,128,868 --
Advertising and promotion .............. 12,708,722 4,563,096 --
General and administrative ............. 22,229,511 12,289,291 --
Economic incentive - City of Gary ...... 2,789,461 1,586,351 --
Depreciation and amortization .......... 7,700,345 5,319,682 --
Loss on disposition of assets .......... 1,602,815 -- --
Pre-opening costs ...................... 1,253,758 4,586,879 --
------------ ------------ ------------
Total costs and expenses ........... 93,935,978 54,268,669 --
------------ ------------ ------------
Operating income (loss) ............ 606,971 (48,110) --
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Loss on investment in Buffington
Harbor Riverboats, L.L.C ........... (3,447,944) (2,439,581)
Interest income ........................ 1,831,187 2,198,929 $ 249,295
Interest expense ....................... (12,260,715) (8,246,565) --
Interest expense to affiliate .......... (616,691) (351,277) --
------------ ------------ ------------
Total other income (expense) ....... (14,494,163) (8,838,494) 249,295
------------ ------------ ------------
Net Income (Loss) .................. $(13,887,192) $ (8,886,604) $ 249,295
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 30
THE MAJESTIC STAR CASINO, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, AND DECEMBER 31, 1996, AND FOR THE PERIOD
DECEMBER 8, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Retained Total
Capital Earnings Members'
Contributions (Accumulated Deficit) Equity
------------- --------------------- ------------
<S> <C> <C> <C>
Balance, December 8, 1993
Members' contributions ........................ $ 32,547,090 -- $ 32,547,090
Non-cash contributions ........................ 2,212,265 -- 2,212,265
Net income .................................... -- $ 249,295 249,295
------------ ------------ ------------
Balance, December 31, 1995 ....................... 34,759,355 249,295 35,008,650
Conversion of capital contribution to debt .... (10,759,355) -- (10,759,355)
Net loss ...................................... -- (8,886,604) (8,886,604)
------------ ------------ ------------
Balance, December 31, 1996 ....................... 24,000,000 (8,637,309) 15,362,691
Net loss ...................................... -- (13,887,192) (13,887,192)
------------ ------------ ------------
Balance, December 31, 1997 ....................... $ 24,000,000 $(22,524,501) $ 1,475,499
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 31
THE MAJESTIC STAR CASINO, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, AND DECEMBER 31, 1996,
AND FOR THE PERIOD DECEMBER 8, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION
FOR THE PERIOD
FOR THE YEAR ENDED DECEMBER 31, DECEMBER 8, 1993
------------------------------- (DATE OF INCEPTION) TO
1997 1996 DECEMBER 31, 1995
---- ---- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................................ $ (13,887,192) $ (8,886,604) $ 249,295
Adjustment to reconcile net loss to net cash provided
by operating activities--
Depreciation ....................................................... 5,764,612 2,815,104 --
Amortization ....................................................... 1,935,733 2,504,578 --
Deferred expenses .................................................. -- 234,796 (2,585,863)
Loss on investment in Buffington Harbor Riverboats, LLC ............ 3,447,944 2,439,581 --
Loss on disposal of chartered vessel improvements .................. 1,602,815 -- --
Organizational costs .............................................. -- -- (141,241)
Increase in accounts receivable, net ............................... (322,071) (557,816) --
Increase in inventories ............................................ (9,066) (24,651) --
(Increase) decrease in prepaid expenses ............................ 173,981 (1,169,868) --
Increase in other assets ........................................... (224,128) (310,722) (250,000)
Increase in accounts payable ....................................... 975,081 424,581 119,573
Increase in accrued payroll and other expenses ..................... 860,297 593,492 --
Increase in accrued interest ....................................... 607,814 2,468,698 --
Increase in other accrued liabilities .............................. 1,270,264 2,323,270 --
------------- ------------- -------------
Net cash provided (used) by operating activities ........................ 2,196,084 2,854,439 (2,608,236)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, equipment and vessel improvements............... (39,641,158) (20,241,855) (74,846)
Licensing and local initiative expenditures ............................. -- (2,747,000) --
(Increase) decrease in Chartered Vessel deposit ......................... 1,108,264 (1,717,538) --
Investment in Buffington Harbor Riverboats, LLC ......................... (2,043,076) (25,563,415) (21,417,619)
(Increase) decrease in restricted cash .................................. 39,784,138 (51,688,854) --
------------- ------------- -------------
Net cash used by investment activities .................................. (791,832) (101,958,662) (21,492,465)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of loan from Member ............................................ -- 18,097,299 32,547,090
Proceeds from issuance of 12.75% Senior Secured Notes .................. -- 105,000,000 --
Cash paid to reduce short-term debt ..................................... (108,336) (18,097,299) --
Cash paid to reduce long-term debt ...................................... (2,148,321) (1,290,860) --
Payment of Senior Secured Notes issuance costs .......................... -- (4,115,307) --
------------- ------------- -------------
Net cash (used) provided by financing activities ....................... (2,256,657) 99,593,833 32,547,090
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents .................... (852,405) 489,610 8,446,389
Cash and cash equivalents, beginning of period .......................... 8,935,999 8,446,389 --
------------- ------------- -------------
Cash and cash equivalents, end of period ................................ $ 8,083,594 $ 8,935,999 $ 8,446,389
============= ============= =============
INTEREST PAID:
Principal Member ................................................... $ 616,691 $ 351,277 $ --
Equipment Debt ..................................................... $ 577,386 $ 382,231 $ --
Senior Secured Notes ............................................... $ 13,387,506 $ 6,433,438 $ --
</TABLE>
SUPPLEMENTAL NONCASH OPERATING AND FINANCING ACTIVITIES OF THE COMPANY INCLUDE
THE FOLLOWING:
During 1997, the Company refinanced existing equipment debt of $3,805,070,
and obtained additional financing of $4,275,750 for additional equipment. On
March 31, 1996, contributions totaling $10,759,355 were converted from Members'
Equity to long-term debt. During 1996 the Company obtained financing of
$6,623,205. During 1995, deferred expenses of $918,286 were paid by a former
member on behalf of the Company and $888,580 were contributed to the Company by
a current member. In 1995 the investment in Buffington Harbor Riverboats, L.L.C.
of $87,167 was paid by a former member on behalf of the Company and $318,232 was
contributed to the Company by a current member.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 32
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, AND DECEMBER 31, 1996,
AND FOR THE PERIOD DECEMBER 8, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
1. BASIS OF PRESENTATION:
The Majestic Star Casino, LLC (the "Company") was formed on December 8,
1993, as an Indiana limited liability company ("LLC"), to provide gaming and
related entertainment to the public. The Company commenced gaming operations in
the City of Gary (the "City") at Buffington Harbor, located in Lake County, in
the State of Indiana on June 7, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers cash equivalents to include short-term
investments with original maturities of ninety days or less. At December 31,
1997 and 1996, the Company had bank deposits in excess of federally insured
limits by approximately $3,076,000 and $4,907,000, respectively.
INVENTORIES
Inventories, which consist of food, beverage, and promotional items are
recorded at the lower of cost or market, cost being determined principally on a
first in, first out basis. The estimated cost of normal operating quantities
(base stock) of uniforms has been recorded as an asset and is not being
depreciated. Costs of base stock replacements are expensed as incurred. Other
assets in the accompanying balance sheets include $365,281 and $310,722 of base
stock inventories at December 31, 1997 and 1996, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization are computed utilizing the straight line method over the estimated
useful lives of the assets. Costs of major improvements are capitalized; costs
of normal repairs and maintenance are charged to expense as incurred. Gains or
losses on disposal are recognized when incurred.
On October 27, 1997 the Chartered Vessel was replaced with the
Permanent Vessel. The Company wrote-off approximately $1,600,000 of unamortized
leasehold improvements made to the Chartered Vessel. Assets used on the
Chartered Vessel with a net book value of approximately $713,000 at December 31,
1997 are in the process of being disposed of. It cannot be determined at this
time whether these costs will be fully recouped through the sale of these
assets.
CAPITALIZED INTEREST
The Company capitalizes interest costs associated with debt incurred in
connection with major construction projects. When no debt is specifically
identified as being incurred in connection with such construction projects, the
Company capitalizes interest on amounts expended on the project at the Company's
average cost of borrowed money.
Interest expense capitalized for the construction of the new riverboat
casino (the "Permanent Vessel") was $2,530,000, of this amount, $213,000 was
capitalized during 1996.
F-6
<PAGE> 33
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ORGANIZATIONAL COSTS
Costs incurred in connection with the formation of the limited
liability company have been capitalized and are being amortized over a period of
five years.
DEFERRED FINANCING COSTS
Deferred financing costs represent agent's commission, closing costs
and professional fees incurred in connection with the Senior Secured Notes. Such
costs are being amortized over the seven year term of the notes.
DEFERRED COSTS AND PREOPENING COSTS
Development obligation payments to the City and licensing costs
represent direct costs associated with the development of the riverboat casino,
and were deferred until operations commenced on June 7, 1996. These costs are
currently being amortized over five years, the life of the gaming license. Costs
of approximately $1,254,000 associated with the transition from the Chartered
Vessel to the Permanent Vessel in October 1997 and pre-opening costs of
approximately $4,587,000 in 1996 were charged to operations in the years ended
1997 and 1996, respectively.
INVESTMENT IN BUFFINGTON HARBOR RIVERBOATS, L.L.C.
The Company accounts for its 50 percent interest in Buffington Harbor
Riverboats, L.L.C. ("BHR") under the equity method, whereby the initial
investments are recorded at cost and then adjusted for the Company's share of
BHR's net income or loss on distributions.
RESTRICTED CASH
Cash and investments of approximately $11,905,000 and $51,689,000 at
December 31, 1997 and 1996, respectively, represent amounts to fund future cash
requirements associated with the construction of the Permanent Vessel in 1996 as
well as funds designated as a completion reserve in 1997 and 1996 for the
construction of the Permanent Vessel. The funds are invested primarily in
securities of the U. S. Government and its agencies, with original maturities
less than 180 days and are held in collateral accounts pursuant to disbursement
agreements of the Senior Secured Notes.
CASINO REVENUE
Casino revenue is the net win from gaming activities, which is the
difference between gaming wins and losses.
PROMOTIONAL ALLOWANCES
Operating revenues include the retail value of food and other services,
which were provided to customers without charge. The corresponding charges have
been deducted from revenue in the accompanying statements of income as
promotional allowances in the determination of net operating revenues. The
estimated costs of providing the complimentary services are charged to the
casino department and are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Food................... $ 160,293 $ 13,026
Retail................. $ 9,013 $ 0
</TABLE>
F-7
<PAGE> 34
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEDERAL INCOME TAXES
The Company has elected status as a partnership under the Internal
Revenue Code. Under this election, income of the Company is taxed directly to
the members and, accordingly, there is no provision for federal income taxes.
LONG-LIVED ASSETS
The Company, in 1995, adopted the provisions of Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets" ("SFAS No. 121"). SFAS No. 121 requires, among other things, that an
entity review its long-lived and certain related intangibles for impairment
whenever changes in circumstances indicate that the carrying amount of an asset
may not be fully recoverable. Impairment of long-lived assets exists, if, at a
minimum the future expected cash flows (undiscounted and without interest
charges) from an entity's operation are less than the carrying value of these
assets. As a result of its review, the Company does not believe that any
impairment exists in the recoverability of its long-lived assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes, based upon current information, that the carrying
value of the Company's cash and cash equivalents, restricted cash, accounts
receivable and accounts payable approximates fair value because of the short
term maturity of those instruments. The Company estimates the fair value of its
long-term debt and notes payable approximates their carrying value based on
quotations received from investment bankers or because interest rates on the
debt approximate market rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
3. CERTIFICATE OF SUITABILITY
On December 9, 1994, the Indiana Gaming Commission (the "Commission")
awarded the Company one of two certificates (the "Certificate") for a riverboat
owner's license for a riverboat casino to be docked in the City. Having complied
with certain statutory and regulatory requirements and other conditions of the
Commission, the Company received a five year riverboat owner's license on June
3, 1996.
The second certificate was issued to Trump Indiana, Inc. ("Trump"). The
Company and Trump jointly developed and operate a docking location from which
the entities are conducting their respective riverboat gaming operations in the
City.
4. CITY OF GARY, INDIANA DEVELOPMENT OBLIGATION
On September 7, 1995, the Company and the City entered into an
agreement for the purpose of summarizing procedures regarding the acquisition of
a certain parcel of land in accordance with the Certificate. The Company paid
the city $250,000 under the terms of this agreement.
F-8
<PAGE> 35
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
On September 29, 1995, the Company, Trump and the City entered into an
agreement. In accordance with this agreement, the Company paid the City
$5,000,000. As of December 31, 1996, $5,250,000 of deferred costs represents the
Company's development obligation to the City, which is being amortized over 5
years, the life of the gaming license.
As of March 26, 1996, the City and the Company entered into a
development agreement which supersedes the September 7, 1995 agreement between
the City and the Company. The development agreement ("Development Agreement")
requires the Company, among other things, (1) to invest $116 million in various
on-site improvements over the next five years, (2) pay the City an economic
incentive equal to 3% of the Company's adjusted gross receipts, as defined by
the Riverboat Gambling Act and (3) pay a default payment in the amount of
damages for failure to complete certain on-site developments, which amount is
capped at $12 million.
The Company has met or accrued a significant portion of these
commitments. The two principal components of the remaining portion of the
Company's commitment are as follows: (1) $10 million for off-site development in
the City by 1998/1999 with the particular project(s) to be agreed to by the
City; and (2) $12 million (a substantial portion of which has been expended
through December 31, 1997, with the exact amount to be agreed upon by the City
and the Company) to be expended over the five years following the June 1996
opening of the casino for enhancements to the Company's operations at Buffington
Harbor and/or BHR's facilities.
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
Estimated
Service Life
1997 1996 (Years)
---- ---- -------
<S> <C> <C> <C>
Vessel..................................... $43,409,051 $ -- 30
Buildings and improvements................. 49,507 28,789 5
Vessel improvements........................ -- 5,051,258 2
Furniture, fixtures and equipment.......... 22,691,072 13,211,824 5
---------- ----------
Total Property and equipment........... 66,149,630 18,291,871
Less accumulated depreciation
and amortization....................... (4,942,740) (2,815,104)
----------- -----------
Total Property and equipment, net...... 61,206,890 15,476,767
Construction in progress................... -- 8,648,035
----------- -----------
Total Property, equipment, and
construction in progress, net.... $61,206,890 $24,124,802
=========== ===========
</TABLE>
Substantially all property and equipment are pledged as collateral on
long-term debt. See Note 8.
6. INVESTMENT IN BUFFINGTON HARBOR RIVERBOATS, L.L.C.
On October 31, 1995, the Company and Trump entered into the First
Amended and Restated Operating Agreement of BHR for the purpose of acquiring and
developing certain facilities for the gaming operations in the City ("BHR
Property"). BHR is responsible for the management, development and operation of
the BHR Property. The Company and Trump have each entered into an agreement with
BHR (the "Berthing Agreement") to use BHR Property for their respective gaming
operations and have committed to pay cash operating losses of BHR as additional
berthing fees. The Company and BHR share equally in the operating expenses
relating to the BHR Property, except for costs associated with food and
beverage, and valet operations, which are allocated on a percentage of use by
the casino
F-9
<PAGE> 36
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
customers of the Company and the joint venture partner.
The following represents selected financial information of BHR:
<TABLE>
<CAPTION>
December 31, 1997 December 31,1996
----------------- ----------------
<S> <C> <C>
BALANCE SHEET
Cash and cash equivalents...................... $ 129,509 $ 68,380
Current assets................................. 2,246,364 2,457,562
Property, equipment, and construction
in progress, net........................... 89,946,185 90,854,327
Other assets................................... 509,279 255,381
Total assets............................... 92,701,828 93,567,270
Current liabilities............................ 2,760,693 1,941,459
Total liabilities.......................... 5,617,858 3,655,768
Member's equity
The Majestic Star Casino, LLC.................. 43,541,985 44,946,852
Total members' equity...................... 87,083,970 89,911,502
STATEMENTS OF INCOME
Gross revenue.................................. 19,685,841 12,764,460
Operating income (loss)........................ (6,931,944) (5,138,192)
Net income (loss).............................. $(6,913,682) $4,935,145)
</TABLE>
Promotional allowances provided to the Company's gaming patrons at BHR
facilities totaled approximately $646,000 in 1997, and $288,000 in 1996, and are
characterized in the Company's financial statements as an expense of the casino.
BHR invoices the Company monthly for these promotional allowances at cost which
approximates the retail value of the promotional allowances.
At December 31, 1997 and 1996, the Company's income statements reflect
approximately $8,753,000 and $4,314,000 in vessel berthing fee's and promotional
allowances payable to BHR of which $8,860,000 and $3,487,000 was paid in 1997
and 1996, respectively.
7. CHARTER AGREEMENT
On August 17, 1995, the Company entered into a Charter Agreement
("Agreement") with New Yorker Acquisition Corporation ("Owner") and President
Casino, Inc. for the purpose of leasing the Owner's casino gaming vessel
together, with all improvements, furniture, fixtures and equipment.
The Agreement became effective on May 3, 1996 and expires on May 10,
1998. Under the terms of the Agreement, the Company will pay the Owner $125,000
plus 5% use tax monthly for the first 24 months. The total amount of rent
expense included in the Company's Statements of Income was approximately
$1,537,000 and $879,000 for 1997 and 1996, respectively. The Company must pay
the cost of any repairs which are necessary to bring the Chartered Vessel into
the condition required on redelivery under the lease agreement. The cost of
those additional expenditures is undetermined at this time.
As required by the Agreement, the Company in 1995 placed a security
deposit in escrow with a financial institution. The amount in escrow including
accrued interest was approximately $609,000 and $1,700,000 as of December 31,
1997 and 1996, respectively. The security deposit is refundable pursuant to the
terms of the escrow
F-10
<PAGE> 37
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
agreement.
8. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C> <C>
Senior secured notes payable; collateralized by a first priority lien
on substantially all of the assets of the Company, due in semi-annual
installments of interest at 12.75% together with contingent interest
payable on May 15 and November 15; with a final payment of
principal and interest due on May 15, 2003 (See Note 10).................. $105,000,000 $105,000,000
Contracts payable collateralized by gaming equipment; due in aggregate
monthly installments of approximately $184,300 in 1996 plus interest,
with varying maturity dates through
April 1999. These contracts were refinanced in 1997...................... -- 5,332,345
Contracts payable including related use taxes; collateralized by gaming
equipment; due in aggregate monthly installments (principal and
interest) of approximately $220,000, with varying
maturity dates through September 2001 (1)................................. 7,717,942 --
------------ ------------
Total long-term debt............................................. 112,717,942 110,332,345
Less current portion (1).................................................. (1,889,427) (2,211,599)
------------ ------------
Long-term portion......................................................... $110,828,515 $108,120,746
============ ============
</TABLE>
The scheduled maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending December 31, Maturities
<S> <C> <C>
1998 $ 1,889,427
1999 2,169,706
2000 2,417,550
2001 1,241,259
2002 --
Thereafter 105,000,000
-----------
Total $112,717,942
</TABLE>
------------
(1) At December 31, 1997 deferred long term and current portion of
equipment debt includes accrued use taxes payable of $175,492 and
$65,408, respectively.
Equipment Financing
At December 31, 1997, approximately $7.5 million of equipment
financing, excluding accrued use taxes of approximately $241,000, was
outstanding of which $1.9 million represents current maturities of long-term
debt. $3.6 million of this debt carries an interest rate of 11.5%, $3.1 million
carries an interest rate of 10.75%, and $787,000 carries an interest rate of
10.93%. The debt is collateralized by certain gaming equipment and the remaining
balance will be repaid in varying monthly principal and interest payments of
approximately $220,000.
F-11
<PAGE> 38
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. NOTE TO MEMBER
At December 31, 1997 and 1996, approximately $10.8 million was owed to
a member of the Company. This note carries a floating interest rate equal to the
applicable federal short term note, as set forth in Section 1274(d) of the
Internal Revenue Code of 1986 (5.5% and 5.6%, at December 31, 1997 and 1996,
respectively) and could not be repaid, under the Indenture, until the completion
of the Permanent Vessel, which is complete. This note resulted from the
conversion of members' contributions into debt on March 31, 1996. The note is a
demand note and there is no guaranty that the note due to BDI will not be repaid
in 1998. During January 1998, the proceeds from the Senior Secured Notes
reserved to repay the note were reclassified from restricted cash to operating
cash as the funds held in escrow were not required to complete the Permanent
Vessel.
10. SENIOR SECURED NOTES
On May 22, 1996, the Company completed a private offering of
$105,000,000 of Senior Secured Notes due May 15, 2003. These notes were
exchanged in November, 1996 by the Senior Exchange Secured Notes, which are
registered under the Securities Exchange Act of 1933, but which notes are
otherwise substantially identical in all material respects to the privately
placed notes.
The Senior Secured Notes bear interest at a fixed rate of 12.75% per
annum payable May 15 and November 15 each year, commencing November 15, 1996.
Contingent interest is payable on the Senior Secured Notes, on each such
interest payment date, in an aggregate amount equal to 5.0% of the Company's
Consolidated Cash Flow, as defined in the Indenture between the Company and IBJ
Schroder Bank & Trust Company, as Trustee, dated May 22, 1996 (the "Indenture"),
for the six month period ending on March 31 or September 30 (each, a "Semiannual
Period") most recently completed prior to such interest payment date, based on
maximum of $60.0 million of the Company's Consolidated Cash Flow during any two
consecutive Semiannual Periods; provided that no contingent interest shall be
payable with respect to any period prior to the first day of the operation of
the Majestic Star Casino, as defined in the Indenture. Under certain
circumstances, the Company, at its option, may defer payment of all or any
installment of contingent interest. At December 31, 1997 and 1996, accrued
contingent interest payable was approximately $1,253,000 and $603,000,
respectively.
The Senior Secured Notes are collateralized by, among other things (i)
a pledge of the Company's 50% membership interest in BHR, (ii) a collateral
assignment of the Company's interest in the Berthing Agreement, (iii) a pledge
of all funds in the collateral accounts into which the proceeds from the Senior
Secured Notes were deposited pending their use and (iv) upon delivery of the
Permanent Vessel to the Company, a duly perfected first preferred ship mortgage
on such Permanent Vessel.
The Indenture contains covenants, which among other things, restrict
the Company's ability to (i) make certain distributions and payments, (ii) incur
additional indebtedness, (iii) enter into transactions with affiliates, (iv)
sell assets or stock, and (v) merge, consolidate or transfer substantially all
of its assets.
11. PROFIT SHARING PLAN
The Company contributes to a defined contribution plan which provides
for contributions in accordance with the plan document. The plan is available to
all employees with at least one year of service. The Company contributes a
matching contribution up to a maximum of 3% of an employee's salary limited to a
specified dollar amount as stated in the plan document. The Company's
contributions to the plan amounted to $288,000 during 1997.
F-12
<PAGE> 39
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES
Letter of Credit/Surety Bond
In May 1996, the Company arranged for a $12.5 million five year surety
bond (the "Bond") to be issued to the Commission. The Bond's primary purpose is
to provide collateral for completion of the Company's off-site development
obligations under the Development Agreement. In 1996 to support the Company's
obligations to the bonding company, the Company obtained a $3.5 million letter
of credit from a bank to benefit the bonding company. The beneficial owner of
the Company (the "Owner") guaranteed the Company's obligations to the bonding
company under the Bond and to the bank under the $3.5 million letter of credit.
If the Owner is required to make payments to the bank or the bonding
company as a result of the guaranty, the Company will be obligated to reimburse
the Owner for any such payments.
Legal Proceedings
On January 15, 1998, the Company filed a petition for "Correction of an
Error" and on January 20, 1998, filed an appeal to the March 1, 1997 property
tax assessment of the Chartered Vessel. The Company believes it was not given
proper notice of the 1997 property tax assessment in accordance with the general
assessment provisions of the property tax law and the Company further believes
the assessment of approximately $1.2 million was incorrectly calculated.
According to legal counsel, the probable 1998 property tax liability is
estimated not to exceed $641,000. The estimated property tax liability accrued
by the Company as of December 1997 was $434,000.
Harbor Lease
Under a lease agreement assumed by BHR, from the Joint Venture Partner
with Lehigh Portland Cement Company ("Lehigh Cement"), BHR has leased certain
property which is integral to the gaming operations of the Joint Venture Partner
and the Company. The lease places certain restrictions on the use of the harbor
by the joint venture partners, requires the reimbursement of certain costs which
may be incurred by Lehigh Cement and requires BHR to pursue permitting of and
building of a new harbor. The lease was rent free through December 29, 1997 and
subject to certain conditions, primarily continuing progress toward permitting
of and then building of a new harbor, the lease will extend beyond December 29,
1997 until the earlier of December 31, 2005 or the completion of a new harbor.
The BHR Joint Venture will be required to pay $125,000 per month beginning
January 1998. A new harbor may require new guest facilities. The level of
expenditures required for such new facilities cannot be accurately estimated at
this time.
Indiana Gaming Regulations
The ownership and operation of riverboat gaming operations in Indiana
are subject to strict state regulation under the Riverboat Gambling Act ("Act")
and the administrative rules promulgated thereunder. The Indiana Gaming
Commission ("IGC") is empowered to administer, regulate and enforce the system
of riverboat gaming established under the Act and has jurisdiction and
supervision over all riverboat gaming operations in Indiana, as well as all
persons on riverboats where gaming operations are conducted. The IGC is
empowered to regulate a wide variety of gaming and nongaming related activities,
including the licensing of supplies to, and employees at, riverboat gaming
operations and to approve the form of entity qualifiers and intermediary and
holding companies. Indiana is a new jurisdiction and the emerging regulatory
framework is not yet complete. The IGC has adopted certain final rules and has
published others in proposed or draft form which are proceeding through the
review and final adoption process. The IGC has broad rulemaking power, and it is
impossible to predict what effect, if any, the amendment of existing rules or
the finalization of currently new rules might have on the operations.
F-13
<PAGE> 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of Buffington Harbor Riverboats, L.L.C.:
We have audited the accompanying balance sheets of Buffington Harbor Riverboats,
L.L.C. (a Delaware limited liability company) as of December 31, 1997 and 1996,
and the related statements of operations, members' capital and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Buffington Harbor Riverboats,
L.L.C. as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/S/ ARTHUR ANDERSEN LP
ARTHUR ANDERSEN LP
Rossland, New Jersey
February 5, 1998
F-14
<PAGE> 41
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
ASSETS
CURRENT ASSETS:
[S] [C] [C]
Cash ..................................... $ 129,509 $ 68,380
Trade receivables ........................ 11,119 15,264
Due from members' (Note 2) ............... 1,666,509 1,928,390
Inventory ................................ 339,066 353,966
Prepaid expenses and other current assets 100,161 91,562
----------- -----------
Total current assets ................. 2,246,364 2,457,562
PROPERTY, PLANT AND EQUIPMENT, NET
(Notes 2 and 3) .......................... 89,946,185 90,854,327
OTHER ASSETS .................................. 509,279 255,381
----------- -----------
Total assets ........................ $92,701,828 $93,567,270
=========== ===========
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable ......................... $ 2,095,812 $ 1,081,317
Accrued expense .......................... 664,881 460,142
Deferred income .......................... -- 400,000
----------- -----------
Total current liabilities ............ 2,760,693 1,941,459
DEFERRED RENT (Note 4) ........................ 2,857,165 1,714,309
COMMITMENTS AND CONTINGENCIES (Note 4)
MEMBERS' CAPITAL .............................. 87,083,970 89,911,502
----------- -----------
Total liabilities and member's capital $92,701,828 $93,567,270
=========== ===========
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-15
<PAGE> 42
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
REVENUES
<S> <C> <C>
Food and beverage ............ $ 5,541,672 $ 3,576,492
Other(Note2).................. 14,144,169 9,187,968
------------ ------------
Net revenues ............. 19,685,841 12,764,460
------------ ------------
COSTS AND EXPENSES
Food and beverage ............ 4,553,964 2,894,437
General and administrative ... 15,776,782 9,768,871
Depreciation ................. 5,821,765 3,039,708
Other ........................ 465,274 328,046
Preopening expenses .......... 0 1,871,590
------------ ------------
Total costs and expenses . 26,617,785 17,902,652
------------ ------------
Loss from operations ..... (6,931,944) (5,138,192)
INTEREST INCOME, net .............. 18,262 203,047
------------ ------------
Net loss ................. $ (6,913,682) $ (4,935,145)
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-16
<PAGE> 43
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENTS OF MEMBERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Retained
Member Earnings
Contributions (Deficit) Total
------------- ---------- -----
<S> <C> <C> <C>
Balance, December 31, 1995 .......................... $ 43,646,036 $ 73,781 $ 43,719,817
Capital contribution made by Trump Indiana, Inc. 25,563,415 0 25,563,415
Capital contribution made by The Majestic
Star Casino, LLC ........................... 25,563,415 0 25,563,415
Net loss ....................................... 0 (4,935,145) (4,935,145)
------------ ------------ ------------
Balance, December 31, 1996 .......................... $ 94,772,866 $ (4,861,364) $ 89,911,502
Capital contribution made by Trump Indiana, Inc. 2,043,075 0 2,043,075
Capital contribution made by The Majestic
Star Casino, LLC ........................... 2,043,075 0 2,043,075
Net loss ................................... 0 (6,913,682) (6,913,682)
------------ ------------ ------------
Balance, December 31, 1997 .......................... $ 98,859,016 $(11,775,046) $ 87,083,970
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
F-17
<PAGE> 44
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................... $ (6,913,682) $ (4,935,145)
Adjustment to reconcile net loss to net cash flows provided by
(used in) operating activities--
Depreciation ............................................. 5,821,765 3,039,708
Deferred rent ............................................ 1,142,856 1,714,309
Deferred income .......................................... (400,000) 400,000
Changes in operating assets and liabilities--
Decrease (increase) in accounts receivable ............... 4,145 (15,264)
Decrease (increase) in due from members' ................. 261,881 (1,928,390)
Decrease (increase) in inventory ......................... 14,900 (353,966)
Increase in prepaid expenses and other current assets .... (8,599) (91,562)
Increase in other assets ................................. (253,898) (255,381)
Increase (decrease) in accounts payable ................. 1,014,495 (1,859,328)
Increase in accrued expenses ............................. 204,739 460,142
------------ ------------
Net cash flows provided by (used in) operating activities.... 888,602 (3,824,877)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net .............. (4,913,623) (61,290,442)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributed capital .......................................... 4,086,150 51,126,830
------------ ------------
Net increase (decrease) in cash .......................... 61,129 (13,988,489)
CASH BEGINNING OF PERIOD ......................................... 68,380 14,056,869
------------ ------------
CASH END OF PERIOD ............................................... $ 129,509 $ 68,380
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
F-18
<PAGE> 45
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Trump Indiana, Inc. ("Trump Indiana") and The Majestic Star Casino, LLC
("Barden"), the two holders of certificates of suitability for the Gary, Indiana
riverboat casinos, formed Buffington Harbor Riverboats, L.L.C. ("BHR") on
September 27, 1995 and have entered into an agreement (the "BHR Agreement")
relating to the joint ownership, development and operation of all common land
based and waterside operations in support of the Trump Indiana and Barden
riverboat casinos. Under the BHR Agreement, BHR acquired property and
constructed common roadways, utilities and other infrastructure improvements on
BHR's property.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Under the terms of the BHR Agreement, all expenditures requiring a cash
outlay by BHR are billed to Trump Indiana and Barden at cost. Accordingly, BHR
records as expenses the cost of providing such services and records as other
revenues the amounts billed to Trump Indiana and Barden.
Property, Plant and Equipment
Property, plant and equipment is carried at cost. Property and
equipment is depreciated on the straight-line method using rates based on the
following useful lives:
Land improvements 15 years
Buildings 40 years
Building improvements 5 - 10 years
Harbor improvements 10 - 15 years
Furniture, fixtures and equipment 5 years
Income Taxes
BHR makes no provision (benefit) for income taxes since taxable income
(loss) is allocated to the members for inclusion in their respective income tax
returns.
Long-Lived Assets
BHR accounts for long-lived assets under the provisions of Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets" ("SAS No. 121"). SAS No. 121 requires, among other things,
that an entity review its long-lived assets and certain related intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of an asset may not be fully recoverable. BHR does not believe that any such
changes have occurred.
F-19
<PAGE> 46
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is comprised of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land and land improvements....................... $35,091,770 $34,167,743
Building and building improvements............... 40,199,358 37,184,893
Harbor improvements.............................. 16,921,393 16,582,189
Furniture, fixtures and equipment................ 6,595,138 5,959,210
----------- -----------
98,807,659 93,894,035
Less: Accumulated depreciation................... 8,861,474 3,039,708
----------- -----------
Total property, plant and equipment, net.... $89,946,185 $90,854,327
=========== ===========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES:
Indiana Gaming Regulations
The ownership and operation of riverboat gaming operations in Indiana
are subject to strict state regulation under the Riverboat Gambling Act ("Act")
and the administrative rules promulgated thereunder. The Indiana Gaming
Commission ("IGC") is empowered to administer, regulate and enforce the system
of riverboat gaming established under the Act and has jurisdiction and
supervision over all riverboat gaming operations in Indiana, as well as all
persons on riverboats where gaming operations are conducted. The IGC is
empowered to regulate a wide variety of gaming and nongaming related activities,
including the licensing of supplies to, and employees at, riverboat gaming
operations and to approve the form of entity qualifiers and intermediary and
holding companies. Indiana is a new jurisdiction and the emerging regulatory
framework is not yet complete. The IGC has adopted certain final rules and has
published others in proposed or draft form which are proceeding through the
review and final adoption process. The IGC has broad rulemaking power, and it is
impossible to predict what effect, if any, the amendment of existing rules or
the finalization of currently new rules might have on the operations of BHR,
Trump Indiana and Barden.
Leases
Under a lease agreement assumed by BHR from Trump Indiana with Lehigh
Portland Cement Co. ("Lehigh Cement"), BHR has leased certain property, which is
integral to the gaming operations of Trump Indiana and Barden. The lease places
certain restrictions on the use of the harbor by riverboats of Barden and Trump
Indiana, requires the reimbursement of certain costs which may be incurred by
Lehigh Cement, and requires BHR to pursue the permitting and construction of a
new harbor. The lease was rent free through December 29, 1997, and subject to
certain conditions, primarily continuing progress toward permitting and
construction of a new harbor, the lease will extend beyond December 29, 1997
until the earlier of December 31, 2005 or the completion of a new harbor.
Subsequent to the original 30-month term and beginning January, 1998 BHR is
required to make payments of $125,000 per month for the remainder of the
lease term. As of December 31, 1997 and 1996, BHR has recorded deferred rent
expense of $2,857,165 and $1,714,309, respectively. The level of expenditures
necessary to construct a new harbor cannot be accurately estimated at this time.
F-20
<PAGE> 47
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Minimum rental commitments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
Years ended December 31-
<S> <C> <C>
1998 $ 1,500,000
1999 1,500,000
2000 1,500,000
2001 1,500,000
2002 1,500,000
Thereafter 4,500,000
-----------
$12,000,000
</TABLE>
F-21
<PAGE> 48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of The Majestic Star Casino, LLC:
Our report on the financial statements of The Majestic Star Casino, LLC (the
"Company") is included in Part IV, Item 14 to this Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule listed in Part IV of Form 10-K, Item 14(a)2 as of
and for the years ended December 31, 1997 and 1996.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/S/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Chicago, Illinois
February 12, 1998
F-22
<PAGE> 49
SCHEDULE II
THE MAJESTIC STAR CASINO, LLC
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning costs and Cash and
Description of year expenses Recoveries Deductions of year
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31, 1996 $ -0- $190,000 $ -0- $ -0- $190,000
Year ended December 31, 1997 $190,000 $180,000 $ -0- $ -0- $370,000
</TABLE>
F-23
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 30, 1998.
THE MAJESTIC STAR CASINO, LLC
By: Barden Development Inc., Manager
By: /S/ DON H. BARDEN
Don H. Barden
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
/S/ DON H. BARDEN President and Chief Executive Officer March 30, 1998
Don H. Barden of the Manager and the Company
(Principal Executive Officer)
/S/ MICHAEL E. KELLY Vice President and Chief Financial Officer March 30, 1998
Michael E. Kelly (Principal Financial and Accounting Officer
of the Company)
S-1
<PAGE> 51
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.15 Indiana Master Capital Lease Agreement dated September 15,
1997 by and between the Company and PDS Financial Corporation.
10.16 Equipment Financing Agreement dated October 27, 1997 by and
between the Company and PDS Financial Corporation.
11 Computation of Ratio of Earnings to Fixed Charges for the
years ended December 31, 1997 and 1996.
27 Financial Data Schedule (EDGAR Version Only).
<PAGE> 1
EXHIBIT 10.15
INDIANA MASTER CAPITAL LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is made and entered into this 15th day of
September, 1997, by and between PDS FINANCIAL CORPORATION, a Minnesota
corporation ("Lessor"), whose address is 6442 City West Parkway, Suite 300,
Minneapolis, Minnesota 55344 and THE MAJESTIC STAR CASINO, LLC, an Indiana
limited liability company ("Lessee"), whose address is One N. Buffington Harbor,
Gary, Indiana 46406.
Lessor desires to lease to Lessee, and Lessee desires to lease from Lessor
in accordance with the terms and conditions contained herein, certain equipment
more fully described in the Lease Schedule or Schedules, referred to herein as a
"Lease Schedule," as may from time to time be executed by Lessee. All equipment
described in such Lease Schedules shall be collectively referred to as the
"Equipment" and individually referred to as a "Unit" and is to be installed in
and to be used in connection with the business location described in a
particular Lease Schedule ("Premises").
NOW THEREFORE, Lessor and Lessee agree as follows:
1. LEASE. This Lease establishes the general terms and conditions by which
Lessor shall lease the Equipment to Lessee. Each Lease Schedule shall be in the
form provided by Lessor and shall incorporate by reference the terms of this
Lease.
2. TERM: RENT AND PAYMENT.
2.1 TERM. The term of this Lease with respect to each Unit shall commence
on the date set forth in each related Lease Schedule (the "Commencement Date")
and continue as specified in such Lease Schedule ("Term").
2.2 RENT AND PAYMENT. Lessee's obligation to pay rent for the Equipment
shall commence on the Commencement Date and continue for the Term. The Basic
Rent set forth on the Lease Schedule shall be payable on the Commencement Date
and on the same day of each month thereafter ("Rent Date"). Any amounts payable
by Lessee, other than Basic Rent, shall be deemed Additional Charges and shall
be payable on the Rent Date next following the date upon which they accrue or
the last day of the Term, whichever is earlier. Lessee shall make all payments
at the address of Lessor set forth above or at such other address as Lessor may
designate in writing. As used herein, the term "Rent" shall mean all Basic Rent
and Additional Charges.
2.3 LATE CHARGE. If any Rent is not received by Lessor or its assignees
within ten (10) days of when due, a late charge on such Rent shall be due and
payable with such Rent in an amount equal to two percent (2%) of the amount past
due or any part thereof, as reimbursement for administrative costs and not as a
penalty.
2.4 LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee fails to
comply with any of its covenants or obligations herein, Lessor may, at its
option and after notice to Lessee, perform such covenants or obligations on
Lessee's behalf without thereby waiving such conditions or obligations or the
failure to comply therewith and all sums advanced by Lessor in connection
therewith shall be repayable by Lessee as Additional Charges. No such
performance shall be deemed to relieve Lessee of its obligations herein.
<PAGE> 2
3. CERTIFICATE OF ACCEPTANCE. Lessee shall deliver to Lessor a certificate
of delivery, installation and acceptance ("Certificate of Acceptance") in the
form provided by the Lessor.
4. NET LEASE. This Lease including each Lease Schedule is a net lease and
Lessee's obligation to pay all Rent due and the rights of Lessor or its
assignees in, and to, such Rent shall be absolute and unconditional under all
circumstances, notwithstanding: (i) any setoff, abatement, reduction,
counterclaim, recoupment, defense or other right which Lessee may have against
Lessor, its assignees, the manufacturer or seller of any Unit, or any other
person for any reason whatsoever, including, without limitation, any breach by
Lessor of this Lease; (ii) any defect in title, condition, operation, fitness
for use, or any damage to or destruction of, the Equipment; (iii) any
interruption or cessation of use or possession of the Equipment for any reason
whatsoever; or (iv) any insolvency, bankruptcy, reorganization or similar
proceedings instituted by or against Lessee.
5. LOCATION: USE: MAINTENANCE; IDENTIFICATION AND INSPECTION.
5.1 LOCATION, USE, MAINTENANCE AND REPAIRS. (a) Lessee shall keep and use
the Equipment on the Premises and shall not relocate or remove any Unit unless
Lessor consents, in writing, prior to its relocation or removal. (b) Lessee
shall at all times and, at its sole cost and expense, properly use and maintain
the Equipment in good operating condition, other than the normal wear and tear,
and make all necessary repairs, alterations and replacements thereto
(collectively, "Repairs"), all of which shall immediately become the property of
Lessor and subject to this Lease. Lessee shall comply with manufacturer
instructions relating to the Equipment, and any applicable laws and governmental
regulations. (c) Lessee shall pay all costs and expenses associated with removal
and return of the Equipment.
5.2 IDENTIFICATION AND INSPECTION. Upon request by Lessor, Lessee shall
mark each Unit conspicuously with appropriate labels or tags furnished by Lessor
and maintain such markings through the Term to clearly disclose that said Unit
is being leased from Lessor. Subject to Lessee's reasonable security
requirements, Lessee shall permit Lessor's representatives to enter the Premises
(at reasonable times after reasonable notice) where any Unit is located to
inspect such Unit.
6. LOCATION: LIENS AND ENCUMBRANCES.
6.1 PERSONAL PROPERTY. Each Unit is personal property and Lessee shall
not permanently affix any Unit to realty so as to chance its nature to a fixture
or real property and agrees that each Unit shall remain personal property during
tile Term. LESSOR EXPRESSLY RETAINS OWNERSHIP AND TITLE TO THE EQUIPMENT, AS
ALLOWED BY LAW. LESSEE HEREBY AGREES THAT IT SHALL BE RESPONSIBLE FOR ALL OF
LESSOR'S OBLIGATIONS AS REQUIRED BY THE STATE GAMING LAWS AND REGULATIONS
REGARDING MAINTENANCE, USE, POSSESSION AND OPERATION OF THE EQUIPMENT. Lessee
hereby authorizes, empowers, and grants a limited power of attorney to Lessor to
record and/or execute and file, on Lessee's behalf, any certificates,
memorandums, statements, refiling, and continuations thereof as Lessor deems
reasonably necessary or advisable to preserve and protect its interest
hereunder. This Lease shall be construed or interpreted to create or imply the
existence of a finance lease or installment lease contract. Lessor makes no
representation regarding the treatment of this Lease, the Equipment or the
payment of obligations under this Lease for financial statement reporting or tax
purposes.
6.2 LIENS AND ENCUMBRANCES. Unless otherwise provided herein, Lessee
shall not directly or indirectly create, incur or suffer a mortgage, claim,
lien, charge, encumbrance or the legal process of a creditor of Lessee of any
kind upon or against this Lease or any Unit. Lessee shall at all times protect
and defend, at its own cost and expense, the title of Lessor from and against
such mortgages, claims,
<PAGE> 3
liens, charges, encumbrances and legal processes of creditors of Lessee and
shall keep all the Equipment free and clear from all such claims, liens and
legal processes. If any such lien or encumbrance is incurred, Lessee shall
immediately notify Lessor and shall take all actions required by Lessor to
remove the same.
7. RETURN OF EQUIPMENT.
7.1 DUTY OF RETURN. At the expiration of the Term or upon termination of
the Lease, Lessee at its expense shall return (or purchase) each Unit to Lessor
or its designee at the destination specified by Lessor, in accordance with
appropriate gaming laws and regulations. Each Unit shall conform to all of the
manufacturer's specifications and gaming laws and regulations with respect to
normal function, capability, design and condition (less normal wear and tear).
7.2 FAILURE TO RETURN. If Lessee fails to return the Equipment or any
portion thereof, as provided above, within fourteen (14) business days following
expiration of the term or termination of the Lease, then Lessee shall pay to
Lessor an additional month's Rent for each month, or any portion thereof, that
Lessee fails to comply with the terms of this return provision, until all of the
Equipment is returned, as provided herein.
8. RISK OF LOSS: INSURANCE.
8.1 RISK OF LOSS. Lessee shall bear the risk of all loss or damage to
any Unit or caused by any Unit during the period from the time the Unit is
shipped by its vendor until the time it is returned as provided herein.
8.2 UNIT REPLACEMENT. If any Unit is lost, stolen, destroyed, seized by
governmental action or, in Lessee's opinion or Lessor's opinion, damaged ("Event
of Loss"), this Lease shall remain in full force and effect without abatement of
Rent and Lessee shall promptly replace such Unit at its sole expense with a Unit
of equivalent value and utility, and similar kind and in substantially the same
condition as the replaced Unit immediately prior to the Event of Loss. Title to
such replacement unit immediately shall vest and remain in Lessor, and such unit
shall be deemed a Unit under this Lease. Upon such vesting of title and provided
Lessee is not in default under this Lease, Lessor shall cause to be paid to
Lessee or the vendor of the replacement unit any insurance proceeds actually
received by Lessor for the replacement Unit. Lessee shall promptly notify Lessor
of any Event of Loss and shall provide Lessor with and shall enter into, execute
and deliver such documentation as Lessor shall reasonably request with respect
to the replacement of any such Unit.
8.3 INSURANCE. Lessee shall obtain and maintain in full force and effect
all risk, full replacement cost property damage insurance on the Premises: (i)
comprehensive personal liability, and (ii) all risk property damage on the
Equipment in amounts reasonably acceptable to Lessor. Such insurance shall: (i)
name Lessor and its Assignees, if any, as additional insureds and first loss
payees as their interests may appear; and (ii) provide that the policy may not
be canceled or materially altered without thirty (30) days prior written notice
to Lessor and its Assignees. All such insurance shall be placed with companies
having a rating of at least A, Class XII or better by Best's rating service.
Lessee shall furnish to Lessor, upon reasonable request and throughout the Tenn,
insurance certificates of a kind reasonably satisfactory to Lessor and its
Assignees showing, the existence of the insurance required hereunder and premium
paid.
9. LESSOR'S PURCHASE AND PERFORMANCE. Upon receipt of a Lease Schedule
executed and delivered by Lessee, Lessee shall bear all responsibilities and
perform all obligations of Lessor
<PAGE> 4
thereunder other than payment of the purchase price.
10. TAXES.
10.1 TAXES. Lessee agrees to report, file, pay promptly when due to tile
appropriate taxing authority and indemnify, defend, and hold Lessor harmless
from and against any and all applicable taxes (including gross receipts),
assessments, license fees and other federal, state or local governmental charges
of any kind or nature, to-,ether with any penalties, interest or fines related
thereto (collectively, "Taxes") that pertain to the Equipment, its purchase, or
this Lease, except such Taxes based solely upon the net income of Lessor.
10.2 LESSOR'S FILING OF TAXES. Notwithstanding the foregoing, Lessor at
its election after giving notice to Lessee, may report and file sales and/or use
taxes which are filed and paid periodically through the Term, and the amounts so
due may be invoiced to Lessee and payable as specified therein as Additional
Rent.
11. INDEMNIFICATION. Except for the negligence and/or willful misconduct of
Lessor, its employees or agents and assigns, Lessee hereby assumes liability for
and agrees to indemnify, defend, protect, save and hold harmless the Lessor, its
agents, employees, directors and assignees from and against any and all losses,
damages, injuries, claims, penalties, demands and all expenses, legal or
otherwise (including reasonable attorneys' fees) of whatever kind and nature
arising from the purchase, ownership, use, condition, operation or maintenance
of the Equipment, until the Equipment is returned to Lessor. Any claim, defense,
setoff, or other right of Lessee against any such indemnified party shall not in
any way affect, limit, or diminish Lessee's indemnity obligations hereunder.
Lessee shall notify Lessor promptly as to any claim, suit, action, damage, or
injury (arising while the Equipment is in Lessee's possession) related to the
Equipment which if adversely determined could reasonably be expected to result
in liability to Lessee of $1,000,000 or more of which Lessee has actual or other
notice and shall, at its own cost and expense, defend any and all suits which
may be brought against Lessor, shall satisfy, pay and discharge any and all
judgments and fines that may be recovered against Lessor in any such action or
actions, provided, however, that Lessor shall give Lessee written notice of any
such claim or demand. Lessee agrees that its obligations under this Section 11
shall survive the expiration or termination of this Lease.
12. REPRESENTATIONS AND WARRANTIES. Lessee represents and warrants to Lessor
that: i) the making of this Lease and any Lease Schedule executed by Lessee is
duly authorized on the part of Lessee and that upon due execution thereof by
Lessee and Lessor they shall constitute valid obligations binding upon, and
enforceable against, Lessee in accordance with their terms; ii) neither the
making of this Lease or such Lease Schedule, nor the due performance by Lessee,
including the commitment and payment of the Rent, shall result in any breach of,
or constitute a default tinder, or violation of, Lessee's articles of
incorporation, by-laws, or any agreement to which Lessee is a party or by which
Lessee is bound; iii) no approval or consent not already obtained or withholding
of objection is required from any governmental authority with respect to the
entering into, or performance of this Lease or any Lease Schedule by Lessee; and
iv) Lessee has obtained or will obtain all licenses and permits required by
applicable laws or regulations (the "Gaming Laws") for the operation of its
business prior to the commencement of gaming, on the Premises.
13. DISCLAIMERS AND MANUFACTURERS WARRANTIES.
13.1 DISCLAIMERS. LESSEE ACKNOWLEDGES THAT EACH UNIT IS OF THE DESIGN,
CAPACITY AND MANUFACTURE SPECIFIED FOR AND BY THE LESSEE AND
<PAGE> 5
THAT LESSEE IS SATISFIED THAT THE SAME IS SUITABLE FOR LESSEE'S PURPOSES. LESSEE
AGREES, REGARDLESS OF CAUSE, NOT TO ASSERT ANY CLAIM WHATSOEVER AGAINST LESSOR
FOR LOSS OF ANTICIPATORY PROFITS OR CONSEQUENTIAL DAMAGES. LESSOR EXPRESSLY
DISCLAIMS ANY AND ALL WARRANTIES WITH RESPECT TO THE EQUIPMENT WHETHER EXPRESSED
OR IMPLIED. Without limiting, the generality of the foregoing it is intended by
the Lessor and Lessee to exclude any and all implied warranties of
merchantability and fitness for particular purposes. NO SALESMAN OR AGENT OF
LESSOR IS AUTHORIZED TO WAIVE OR ALTER ANY TERM OF THIS LEASE OR MAKE ANY
REPRESENTATION REGARDING THE EQUIPMENT.
13.2 MANUFACTURERS WARRANTIES. LESSEE IS ENTITLED TO THE PROMISES AND
WARRANTIES, INCLUDING THOSE OF ANY MANUFACTURER AND THIRD PARTY, PROVIDED TO
LESSOR BY THE SELLER IN CONNECTION WITH OR AS PART OF THE CONTRACT BY WHICH
LESSOR ACQUIRED THE EQUIPMENT. LESSEE MAY COMMUNICATE WITH SUCH SELLER AND
RECEIVE AN ACCURATE AND COMPLETE STATEMENT OF THOSE RIGHTS, PROMISES AND
WARRANTIES, INCLUDING ANY REMEDIES.
14. ASSIGNMENT OF LEASE.
14.1 ASSIGNMENT BY LESSOR. Lessee acknowledges and agrees that Lessor may
assign, mortgage, or otherwise transfer its interest thereunder including the
grant of a security interest in the Equipment to others ("Assignees") without
consent of Lessee, provided however that the Indiana Gamin-Commission
("Commission") shall be notified of and consent to any assignment. Accordingly,
Lessee and Lessor agree that upon such assignment, Lessee (i) shall acknowledge
such assignment in writing by executing a Notice, Consent and Acknowledgment of
Assignment furnished by Lessor; (ii) shall promptly pay all Rent when due to the
designated Assignees, notwithstanding any defense, setoff, abatement,
recoupment, reduction or counterclaim whatsoever that Lessee may have against
Lessor; (iii) shall not permit the Lease or Lease Schedule so assigned to be
amended or the terms thereof waived without the prior written consent of the
Assignees; (iv) shall not require the Assignees to perform any obligations of
Lessor under such Lease Schedule; (v) shall not terminate or attempt to
terminate the Lease or Lease Schedule on account of any default by Lessor; and
(vi) acknowledges that any Assignee may reassign its rights and interest with
the same force and effect as the assignment described herein.
14.2 ASSIGNMENT OR SUBLEASE BY LESSEE. Lessee shall not assign this Lease
or any Lease Schedule or assign its rights in or sublet the Equipment, or any
interest therein without Lessor's and its Assignee's prior written consent,
which consent shall not be unreasonably withheld.
15. FINANCIAL INFORMATION; FURTHER ASSURANCES.
15.1 FINANCIAL INFORMATION. Throughout the Term, Lessee shall deliver to
Lessor copies of unaudited quarterly and audited annual financial statements of
Lessee which will reflect the financial condition and operations of Lessee as
well as such other information regarding Lessee reasonably requested by Lessor
or its Assignees.
15.2 FURTHER ASSURANCES. Lessee shall execute and deliver to Lessor, such
other documents, and take such further action as Lessor may reasonably request,
in order to effectively carry out the intent and purposes of this Lease and the
Lease Schedules. All documentation shall be in a form reasonably acceptable to
Lessor and its Assignees. Lessee and/or Lessor shall provide all necessary
notices to the Commission as required.
<PAGE> 6
15.3 LEASE AGREEMENT. The parties agree that this Lease shall constitute
a security agreement within the meaning of the Uniform Commercial Code and that
tile Lessor shall be considered a secured party under the provisions thereof and
shall be entitled to all the rights and remedies of a secured party and Lessee,
as debtor, grants to Lessor, as secured party, a security interest in the
Equipment.
16. DEFAULT BY LESSEE; REMEDIES.
16.1 DEFAULT BY LESSEE. Lessee shall be in default upon the occurrence of
any one of the following events ("Event of Default"): (a) failure to pay Rent
when due and such failure continues for 10 days; (b) failure to perform any
other term, condition or covenant of this Lease or any Lease Schedule and is not
remedied within 30 days after receipt of notice from Lessor; (c) Lessee ceases
or is enjoined, restrained or in any way prevented from conducting business as a
going concern; (d) if any proceeding is filed by or against the Lessee for an
assignment for the benefit of creditors, a voluntary or involuntary petition in
bankruptcy, or if Lessee is adjudicated a bankrupt or an insolvent; (e) Lessee
attempts to remove, sell, transfer, encumber, part with possession or sublet the
Equipment or any Unit thereof without the consent of Lessor; (f) any Unit is
attached, levied upon, encumbered, pledged, or seized under any judicial process
and not vacated or stayed within 60 days; (g) any warranty or representation
made or furnished to the Lessor by or on behalf of the Lessee is false in any
material respect when made or furnished; (h) failure to maintain in full force
and effect the licenses and permits required under the Gaming Laws for the
operation of Lessee's business; (i) failure to comply with all applicable
material gaming regulations; (j) if a material default occurs under any
mortgage, indenture, or instrument under which there may be issued or by which
there may be secured or evidenced any indebtedness of Lessee for money borrowed,
whether such indebtedness now exists or shall be created hereafter, which event
of default is not cured within thirty (30) days, or in the event of a
non-monetary default, within such reasonable period of time as may be agreed
upon by the parties hereto; or (k) any change in control of the Lessee or its
business.
16.2 LESSOR REMEDIES. Lessee and Lessor acknowledges that the enforcement
of this Lease requires approval of the Commission and that copies of all Default
Notices, legal proceedings, etc. will be forwarded to the appropriate agency as
required by state law, regulation or upon request of the Commission. Lessee
further acknowledges that upon any Event of Default, and at any time thereafter,
Lessor may, in addition to any and all rights and remedies it may have at law or
in equity, without notice to or demand upon Lessee at its sole option: (i)
declare the aggregate Rent then accrued and unpaid together with the balance of
any Rent to be immediately due and payable; (ii) proceed by appropriate court
action or other proceeding, either at law or in equity to enforce performance by
Lessee of any and all covenants of this Lease; (iii) after 10 days' written
notice to Lessee, terminate any of Lessee's rights under this Lease or Schedule
in which event Lessee shall immediately surrender and return the Equipment to
Lessor pursuant to the provisions hereof, and (iv) subject to appropriate Gaming
Laws, rules, laws and regulations, and required approvals, take possession, sell
and/or re-lease any Unit as Lessor may desire, in its sole discretion. Lessor's
rights and remedies herein are cumulative and in addition to any rights or
remedies available at law or in equity including the Uniform Commercial Code,
and may be exercised concurrently or separately. Lessee shall pay all reasonable
costs, expenses, losses, damages and legal costs (including reasonable
attorneys' fees) incurred by Lessor and its Assignees as a result of enforcing
any terms or conditions of the Lease or any Schedules. A termination hereunder
shall occur only upon written notice by Lessor to Lessee and no repossession or
other act by Lessor after default shall relieve Lessee from any of its
obligations to Lessor hereunder unless Lessor so notifies Lessee in writing.
17. MISCELLANEOUS.
<PAGE> 7
17.1 NOTICES. Except as otherwise required by law, all notices required
herein shall be in writing and sent by prepaid certified mail or by courier,
addressed to the party at the address of the party specified herein or such
other address designated in writing. Notice shall be effective upon its receipt.
17.2 SURVIVAL OF INDEMNITIES. All indemnities of Lessee shall survive and
continue in full force and effect for events occurring prior to the return of
the Equipment to the Lessor, notwithstanding the expiration or termination of
the Term.
17.3 COUNTERPARTS. Each Lease and any Lease Schedule may be executed in
counterparts.
17.4 MULTIPLE LESSEES. If more than one Lessee is named in this Lease or
a Lease Schedule the liability of each shall be joint and several.
17.5 TITLES. Section titles are not intended to have legal effect or
limit or otherwise affect the interpretation of this Lease or any Lease
Schedule.
17.6 WAIVER. No delay or omission in the exercise of any right or remedy
herein provided or otherwise available to Lessor, or prior course of conduct,
shall impair or diminish Lessor's rights to exercise the same or any other right
of Lessor; nor shall any obligation of Lessee hereunder be deemed waived. The
acceptance of rent by Lessor after it s due shall not be deemed to be a waiver
of any breach by Lessee of its obligations under this Lease or any Lease
Schedule.
17.7 SUCCESSORS. This Lease and each Lease Schedule shall inure to the
benefit of and be binding upon Lessor and Lessee and their respective successors
in interest.
17.8 NOT AN OFFER. Neither this Lease nor any Lease Schedule shall be
deemed to constitute an offer or be binding upon Lessor until executed by
Lessor's authorized officer.
17.9 SEVERABILITY. If any provisions of this Lease or any Lease Schedule
shall be held to be invalid or unenforceable, the validity and enforceability of
the remaining provision thereof shall not be affected or impaired in any way.
17.10 MODIFICATION. Lessor and Lessee agree that any modifications to
this Lease or any Lease Schedule shall be in writing and shall be signed by both
parties and their last known assignees, if any.
17.11 LEASE IRREVOCABLE. This Lease is irrevocable for the full Term
hereof and the Rent shall not abate by reason of termination of Lessee's right
of possession and/or the taking of possession by the Lessor or for any other
reason.
17.12 GOVERNING LAW. This Lease and each Lease Schedule are entered into
under and shall be construed in accordance with, and governed by the laws of the
State of Indiana.
17.13 RIDERS. In the event that any riders are attached hereto and made a
part hereof and if there is a conflict between the terms and provisions of any
rider, including any Lease Schedule and the terms and provisions herein, the
terms and provisions of the rider or Lease Schedule shall control to the extent
of such conflict.
17.14 ENTIRE AGREEMENT. LESSEE REPRESENTS THAT IT HAS READ, RECEIVED,
RETAINED A COPY OF AND UNDERSTANDS THIS LEASE, AND AGREES TO BE BOUND BY
<PAGE> 8
ITS TERMS AND CONDITIONS. LESSOR AND LESSEE AGREE THAT THIS LEASE, ALL RIDERS,
LEASE SCHEDULES, OR EXHIBITS HERETO, AND THE LEASE SCHEDULES SHALL CONSTITUTE
THE ENTIRE AGREEMENT AND SUPERSEDE ALL PROPOSALS, ORAL OR WRITTEN, ALL PRIOR
NEGOTIATIONS AND ALL OTHER COMMUNICATIONS BETWEEN LESSOR AND LESSEE WITH RESPECT
TO ANY UNIT.
18. COMMISSION.
18.1 COMMISSION. In accordance with 68.IAC 1-4-1(d), the Commission may
subsequently disapprove and cancel this Agreement. In the event of any such
cancellation, all amounts and obligations due to Lessor hereunder shall become
immediately due and payable.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be duly
executed on the date set forth by their authorized representatives.
LESSEE: LESSOR:
THE MAJESTIC STAR CASINO, LLC, PDS FINANCIAL CORPORATION,
an Indiana limited liability company a Minnesota corporation
By: _____________________________ By: ___________________________
Its: _____________________________ Its: ___________________________
<PAGE> 1
EXHIBIT 10.16
7900-02
LEASE SCHEDULE NO. 1 TO MASTER LEASE AGREEMENT
This Lease Schedule No. 1 is attached to and made a part of the Master
Lease Agreement ("Lease") between PDS FINANCIAL CORPORATION, a Minnesota
corporation ("Lessor"), and THE MAJESTIC STAR CASINO, LLC, an Indiana limited
liability company ("Lessee"), dated September 15, 1997.
1. Description of Equipment: The Equipment listed on Attachment
"A" to this Lease Schedule is added to the Equipment leased
under the Lease and made subject to the provisions of the
Lease.
2. Commencement Date: The Commencement Date for the Equipment
leased under this Schedule will be September 15, 1997.
3. Term: The Term shall commence on the Commencement Date and
shall continue for 48 consecutive months.
4. The Basic Rent due each month during the Term for the
Equipment described herein is as follows:
a. The first payment under this Lease Schedule in an
amount equal to $60,951.66 shall be due and payable
on September 15, 1997.
b. Payment of the Basic Rent in the amount of $60,951.66
shall be due on October 15, 1997 and on the 15th day
of each month thereafter through and including August
15, 2001.
c. In addition to the monthly Basic Rent due as set
forth above, in accordance with Section 10.1 of the
Lease, Lessee shall pay Lessor an amount equal to all
applicable taxes, net of any tax credits, which may
be imposed by any Federal, State or local authority
from time to time.
5. All of the provisions of the Lease are incorporated by
reference herein as if set forth fully herein.
Dated: September 15, 1997
LESSEE: LESSOR:
THE MAJESTIC STAR CASINO, LLC, PDS FINANCIAL CORPORATION,
an Indiana limited liability company a Minnesota corporation
By: _____________________________ By: ___________________________
Its: _____________________________ Its: ___________________________
<PAGE> 2
7900-04
LEASE SCHEDULE NO. 2 TO MASTER LEASE AGREEMENT
This Lease Schedule No. 2 is attached to and made a part of the Master
Lease Agreement ("Lease") between PDS FINANCIAL CORPORATION, a Minnesota
corporation ("Lessor"), and THE MAJESTIC STAR CASINO, LLC, an Indiana limited
liability company ("Lessee"), dated September 15, 1997.
l. Description of Equipment: The Equipment listed on Attachment
"A" to this Lease Schedule is added to the Equipment leased
under the Lease and made subject to the provisions of the
Lease.
2. Commencement Date: The Commencement Date for the Equipment
leased under this Schedule will be September 15, 1997.
3. Term: The Term shall commence on the Commencement Date and
shall continue for 48 consecutive months.
4. The Basic Rent due each month during the Term for the
Equipment described herein is as follows:
a. The first payment under this Lease Schedule in an
amount equal to $48,062.38 shall be due and payable
on September 15, 1997.
b. Payment of the Basic Rent in the amount of $48,062.38
shall be due on October 15, 1997 and on the 15th day
of each month thereafter through and including August
15, 2001.
c. In addition to the monthly Basic Rent due as set
forth above, in accordance with Section 10.1 of the
Lease, Lessee shall pay Lessor an amount equal to all
applicable taxes, net of any tax credits, which may
be imposed by any Federal, State or local authority
from time to time.
5. All of the provisions of the Lease are incorporated by
reference herein as if set forth fully herein.
Dated: September 15, 1997
LESSEE: LESSOR:
THE MAJESTIC STAR CASINO, LLC, PDS FINANCIAL CORPORATION,
an Indiana limited liability company a Minnesota corporation
By: _____________________________ By: ___________________________
Its: _____________________________ Its: ___________________________
<PAGE> 3
7900-05
LEASE SCHEDULE NO. 3 TO MASTER LEASE AGREEMENT
This Lease Schedule No. 3 is attached to and made a part of the Master
Lease Agreement ("Lease") between PDS FINANCIAL CORPORATION, a Minnesota
corporation ("Lessor"), and THE MAJESTIC STAR CASINO, LLC, an Indiana limited
liability company ("Lessee"), dated September 15, 1997.
1. Description of Equipment: The Equipment listed on Attachment
"A" to this Lease Schedule is added to the Equipment leased
under the Lease and made subject to the provisions of the
Lease.
2. Commencement Date: The Commencement Date for the Equipment
leased under this Schedule will be September 15, 1997.
3. Term: The Term shall commence on the Commencement Date and
shall continue for 48 consecutive months.
4. The Basic Rent due each month during tile Term for the
Equipment described herein is as follows:
a. The first payment under this Lease Schedule in an
amount equal to $21,387.43 shall be due and payable
on September 15, 1997.
b. Payment of the Basic Rent in the amount of $21,387.43
shall be due on October 15, 1997 and on the 15th day
of each month thereafter through and including August
15, 2001.
c. In addition to the monthly Basic Rent due as set
forth above, in accordance with Section 10.1 of the
Lease, Lessee shall pay Lessor an amount equal to all
applicable taxes, net of any tax credits, which may
be imposed by any Federal, State or local authority
from time to time.
5. All of the provisions of the Lease are incorporated by
reference herein as if set forth fully herein.
Dated: September 15, 1997
LESSEE: LESSOR:
THE MAJESTIC STAR CASINO, LLC, PDS FINANCIAL CORPORATION,
an Indiana limited liability company a Minnesota corporation
By: _____________________________ By: ___________________________
Its: _____________________________ Its: ___________________________
<PAGE> 4
AMENDMENT TO SALES ORDERS
DATE: September 15, 1997
PARTIES: Seller: Buyer:
IGT The Majestic Star Casino, LLC d/b/a
9295 Prototype Drive Majestic Star Casino
Reno, Nevada 89511 One N. Buffington Harbor
Gary, Indiana 46406
Assignee:
PDS Financial Corporation
Suite 300
6442 City West Parkway
Minneapolis, NW 55344
WHEREAS, The Majestic Star Casino, LLC d/b/a Majestic Star Casino, an
Indiana limited liability company ("Majestic") and IGT, a Nevada corporation
("IGT"), entered into that certain agreement to purchase equipment dated April
5, 1996 referencing Sales Order No. 111513 (the "Sales Order No. 1") as modified
by that certain Modification Of Agreement dated September 12, 1996 (the
"Modification No. 1") and that agreement to purchase equipment dated May 5, 1996
referencing Sales Order No. 112272 (the "Sales Order No. 2") as modified by that
certain Modification Of Agreement Dated September 12, 1996 (the "Modification
No. 2") and that certain agreement to purchase equipment dated April 15, 1996
referencing Sales Order No. 112276 (the "Sales Order No. 3") as modified by that
certain Modification Of Agreement dated September 12, 1996 (the "Modification
No. 3") (Sales Order No. 1, Modification No. 1, Sales Order No. 2, Modification
No. 2, Sales Order No. 3, and Modification No. 3 are occasionally hereinafter
collectively the "Sales Agreements") for the sale by IGT and the purchase by
Majestic of certain equipment described in the Sales Agreements (the
"Equipment"). The Sales Agreements provide terms and conditions for payment of
the purchase prices for the Equipment as well as other terms and conditions
relating thereto.
WHEREAS, IGT has assigned to PDS Financial Corporation, a Minnesota
corporation ("PDS") all of IGT's right, title and interest in and to the
payments due and to become due under the Sales Agreements and a first priority
perfected purchase money security interest in and to the Equipment but none of
IGT's obligations under the Sales Agreements;
WHEREAS, the parties hereto desire to amend the payment terms under the
Sales Agreements so that the payments due under the Sales Agreements shall be
due and payable as more particularly provided herein; and
WHEREAS Majestic acknowledges and agrees, for valuable consideration,
(a) that this Amendment To Sales Orders ("Amendment") is in substitution and
replacement of the payment terms of the Sales Agreements; (b) that all
capitalized terms in this Amendment, if not defined herein, shall have the
meaning ascribed respectively to such terms in the Sales Agreements; (c) that
all of the provisions of the Sales Agreements are incorporated herein by
reference; and (d) to
<PAGE> 5
assume and to pay the payments as evidenced in this Amendment as herein
modified, and to comply with all other terms of the Sales Agreements as hereby
modified, as if such terms were repeated herein, as well as the terms and
provisions of any other documents executed by Majestic in connection herewith
(the Sales Agreements, this Agreement, and any and all documents and instruments
executed in connection therewith and herewith are hereinafter collectively
referred to as the "Collateral Documents").
NOW THEREFORE, for value received, the parties hereto agree as follows:
1. The aforesaid Whereas clauses are incorporated herein as though more
fully stated in their entirety.
2. The terms of payment under the Sales Agreements are amended and
consolidated as follows:
The total amount of indebtedness due under the Sales
Agreements (the "Indebtedness") is THREE MILLION EIGHT HUNDRED
FIVE THOUSAND SEVENTY AND 78/100 DOLLARS ($3,805,070.78)
together with interest on the unpaid principal balance from
and after the date of this Amendment at the annual rate of
interest of eleven and one-half percent (11.5%) per annum
payable in forty-two (42) payments as follows:
(1) On October 15, 1997, there shall be paid an
installment of ONE HUNDRED TEN THOUSAND FOUR HUNDRED
SEVENTY-SEVEN AND 01/100 DOLLARS
($110,477.01) and on the 15th day of each month
thereafter up to and including February 15, 2001,
there shall be paid an installment payment of ONE
HUNDRED TEN THOUSAND FOUR HUNDRED SEVENTY-SEVEN AND
01/100 DOLLARS ($110,477.01).
(2) On March 15, 2001 there shall be paid an installment
payment of ONE HUNDRED TEN THOUSAND FOUR HUNDRED
SEVENTY-SEVEN AND 01/100 DOLLARS ($110,477.01),
together with any unpaid principal balance plus
accrued interest thereon.
(3) The installment payments required to be made monthly
shall be processed through Automated Monthly
Withdrawals (ACH) implemented and maintained by PDS
or PDS's assignee.
(4) Majestic may prepay the balance of the Indebtedness,
in whole but not in part, upon thirty (30) days
advance written
<PAGE> 6
notice, so long as Majestic pays a prepayment premium
equal to 2.25% of the outstanding balance as of such
prepayment.
3. Other Terms. In addition to the terms and conditions of the Sales
Agreements, the above amended payment terms are subject to the following terms
and conditions:
(1) The Collateral Documents are in full force and effect
and there are no defaults, or events which with the
giving of notice and the passage of time would
constitute events of default, under the Collateral
Documents.
(2) In the event of any claim concerning the location,
installation or repair, warranties, or use of the
property or any other claim concerning the Equipment,
regardless of cause or consequence, Buyer's sole
remedy, if any, shall be against the manufacturer of
the Equipment.
(3) PDS shall not be liable for any direct, indirect,
incidental, or consequential damages, including but
not limited to loss of use, revenue, or prospective
profits, resulting from operation, use, misuse or
malfunction of the Equipment.
PDS DISCLAIMS ALL WARRANTIES, BOTH EXPRESS AND
IMPLIED, INCLUDING BUT NOT LIMITED TO, IMPLIED
WARRANTIES OR MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, DESIGN, CAPACITY, AND
PERFORMANCE, WITH RESPECT TO THE EQUIPMENT, AND ANY
ACCOMPANYING ORAL OR WRITTEN MATERIALS OR
INSTRUCTIONS.
(4) If any provision of this Amendment is held invalid or
unenforceable, it shall be considered deleted from
this Amendment, and such invalidity shall not affect
the other provisions which shall be given effect in
the absence of the invalid provisions, and to this
end, the provisions of this Amendment are declared to
be severable.
(5) Time is of the essence in this Amendment and this
Amendment constitutes the entire agreement between
the parties and may not be amended except in writing
signed by all parties hereto. There are no other
written or oral agreements, representations, or
understandings of any kind. If there is any apparent
inconsistency, ambiguity, or conflict between the
terms of this Amendment and the
<PAGE> 7
Sales Agreements, this Amendment shall take
precedence.
(6) Each person executing this Amendment warrants to all
parties hereto that this Amendment contains all
signatures and formalities necessary to bind the
parties hereto and that each person executing this
Amendment is authorized and has received full
authority, approval, and direction to execute and
deliver this Amendment on behalf of the party for
which he signs.
(7) Notwithstanding any other provision in this
Amendment, this Amendment and all of the terms,
conditions, and obligations of this Amendment are
contingent upon the review and approval of this
Amendment by the Indiana Gaming Commission and any
other necessary governmental authority, as well as
their approval of the Equipment; the sale and
shipment of the Equipment by IGT; and for the Buyer
to possess and use the Equipment. The parties
acknowledge and agree that this Amendment is solely
for commercial or business purposes.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first above written.
<TABLE>
<S> <C>
THE MAJESTIC STAR CASINO, LLC, PDS FINANCIAL CORPORATION,
D/B/A MAJESTIC STAR CASINO, a Minnesota corporation
an Indiana limited liability company
By: ________________________________________ By: ________________________________________
Name: ________________________________________ Name:________________________________________
Its: ________________________________________ Its: ________________________________________
Date: ________________________________________ Date:________________________________________
</TABLE>
<PAGE> 8
IGT, a Nevada corporation
By: ________________________________________
Name: ________________________________________
Its: ________________________________________
Date: ________________________________________
<PAGE> 1
EXHIBIT 11
THE MAJESTIC STAR CASINO, LLC
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
---- ----
Available earnings:
<S> <C> <C>
Net income (loss) $(13,887) $ (8,887)
Add interest expense 12,877 8,598
Available earnings (loss) (1,010) (289)
Fixed Charges:
Interest expense $ 12,877 $ 8,598
Capitalized interest 2,317 213
-------- --------
Total Fixed Charges $ 15,194 $ 8,811
======== ========
</TABLE>
- --------
NOTES:
(1) The ratio of earnings to fixed charges for the years ended December 31, 1997
and 1996 was less than one to one. The approximate dollar amount necessary to
cover the deficiency in these periods were:
1997 -- $16,204 and 1996 -- $9,099.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,083,594
<SECURITIES> 0
<RECEIVABLES> 1,249,887
<ALLOWANCES> 370,000
<INVENTORY> 33,717
<CURRENT-ASSETS> 9,993,085
<PP&E> 66,149,630
<DEPRECIATION> 5,764,612
<TOTAL-ASSETS> 134,761,963
<CURRENT-LIABILITIES> 11,698,594
<BONDS> 105,000,000
0
0
<COMMON> 0
<OTHER-SE> 1,475,499
<TOTAL-LIABILITY-AND-EQUITY> 134,761,963
<SALES> 94,712,255
<TOTAL-REVENUES> 94,712,255
<CGS> 0
<TOTAL-COSTS> 94,105,284
<OTHER-EXPENSES> 3,447,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,046,219
<INCOME-PRETAX> (13,887,192)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,887,192)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,887,192)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
