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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): June 30, 1997
HOLLYWOOD PARK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 0-10619 95-3667491
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
1050 South Prairie Avenue, Inglewood, California 90301
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (310) 419-1500
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
MERGER WITH BOOMTOWN, INC.
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On June 30, 1997, pursuant to the Agreement and Plan of Merger dated as of
April 23, 1996 by and among Hollywood Park, Inc. ("Hollywood Park"), HP
Acquisition, Inc., a wholly-owned subsidiary of Hollywood Park, and Boomtown,
Inc. ("Boomtown"), HP Acquisition, Inc. was merged with and into Boomtown (the
"Merger"). As a result of the Merger, Boomtown became a wholly-owned subsidiary
of Hollywood Park and each share of Boomtown common stock, par value $.01 per
share, ("Boomtown Common Stock") was converted into the right to receive 0.625
of a share of Hollywood Park common stock, par value $.10 per share, ("Hollywood
Park Common Stock"). Approximately 5,363,000 shares of Hollywood Park Common
Stock (excluding shares purchased from Edward P. Roski, Jr. as described below)
were issued in the Merger, representing approximately 22.5% of the total
outstanding shares of Hollywood Park Common Stock, after giving effect to such
issuance.
Pursuant to the Agreement and Plan of Merger, Hollywood Park's Board of
Directors was expanded from seven (7) to eleven (11) members and is now
comprised of seven (7) directors selected by Hollywood Park (the "Hollywood Park
Directors") and four (4) directors selected by Boomtown (the "Boomtown
Directors"). Hollywood Park has agreed to cause its Board of Directors to
nominate the initial Boomtown Directors (or replacements elected by a majority
of the Boomtown Directors) for re-election at the first three annual stockholder
meetings following the Effective Date. For a period of three years following
the Merger, the Executive Committee of Hollywood Park's Board of Directors will
consist of three (3) Hollywood Park Directors and two (2) Boomtown Directors,
including R.D. Hubbard, Chief Executive Officer of Hollywood Park, Timothy J.
Parrott, Chairman of the Board and Chief Executive Officer of Boomtown, Richard
J. Goeglein, a current member of the Board of Directors of Boomtown and two
designees of Hollywood Park. In addition, Hollywood Park will establish a three
(3) person Office of the Chairman comprised of Hollywood Park's and Boomtown's
Chief Executive Officers and Hollywood Park's President of Sports and
Entertainment.
DISPOSITION OF BOOMTOWN LAS VEGAS RESORT
----------------------------------------
On July 1, 1997, Hollywood Park completed a swap pursuant to the Blue
Diamond Swap Agreement entered into on August 12, 1996, by and among Boomtown,
Blue Diamond Hotel and Casino, Inc. ("Blue Diamond"), Hollywood Park, Edward P.
Roski, Jr. ("Roski"), IVAC, a California general partnership ("IVAC") and
Majestic Realty Co., as amended (the "Swap Agreement"). Under the Swap
Agreement, immediately following consummation of the Merger, Boomtown and its
subsidiaries transferred their interests in the Blue Diamond hotel/casino
facilities in Las Vegas (including Boomtown's leasehold interest in the land and
certain IVAC Loans (as defined below) which were transferred to
IVAC)(collectively, the "Las Vegas Resort") to Majestic Resorts, LLC, an
affiliate of Roski ("Majestic"), in exchange for cash, two unsecured promissory
notes
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aggregating $8.5 million in principal amount by IVAC and assumption by Roski and
Majestic of certain liabilities (the "Blue Diamond Swap"). In accordance with
the terms of the Swap Agreement, Roski resigned from Boomtown's Board of
Directors, effective as of the effective date of the Merger. See "Certain
Relationships and Related Transactions--Boomtown Las Vegas Transactions with
Edward P. Roski, Jr. and Affiliates."
On July 1, 1997, concurrently with the Blue Diamond Swap, Hollywood Park
and Roski consummated a Stock Purchase Agreement dated August 12, 1996 (the
"Stock Purchase Agreement") pursuant to which Hollywood Park repurchased from
Roski 446,491 shares of Hollywood Park Common Stock receivable by him in the
Merger ("Roski Stock"). The purchase price of approximately $3.5 million was
paid for by an unsecured promissory note having an interest rate equal to the
prime rate plus one percent (1%) per annum. See "Certain Relationships and
Related Transactions--Boomtown Las Vegas Transactions with Edward P. Roski, Jr.
and Affiliates."
BOOMTOWN'S BUSINESS
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Boomtown owns and operates land- based, dockside and riverboat gaming
operations in diverse markets in Verdi, Nevada (near Reno), Biloxi, Mississippi,
and Harvey, Louisiana (near New Orleans). Boomtown's properties offer hotel
accommodations (at Boomtown Reno), gaming and other entertainment amenities to
primarily middle income, value-oriented customers. Hollywood Park believes its
Boomtown properties distinguish themselves from other casinos by their emphasis
on the "old west" theme and their casual, friendly atmosphere.
The following table provides certain information relating to the gaming,
hotel room and undeveloped acreage data as of June 30, 1997 at Boomtown's
properties:
<TABLE>
<CAPTION>
Boomtown Boomtown Boomtown
-------- -------- --------
Reno New Orleans Biloxi Total
---- ----------- ------ -----
<S> <C> <C> <C> <C>
Casino Square
Footage...................... 40,000 30,000 33,632 103,632
Slot Machines................ 1,320 911 1,038 3,269
Table Games.................. 44 55 35 134
Hotel Rooms.................. 122 -- -- 122
Undeveloped
Acreage...................... 503 22 -- 525
</TABLE>
RECENT EVENTS
Concurrently with the closing of the Merger and the Blue Diamond Swap,
Hollywood Park supplied the funds necessary to enable Boomtown to repurchase and
retire an
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aggregate of approximately $102.2 million in principal amount of Boomtown's 11
1/2% First Mortgage Notes due 2003 (the "Boomtown Notes") at a purchase price of
$1,085 per $1,000 in principal amount (together with accrued interest thereon)
pursuant to an offer to purchase the Boomtown Notes, leaving an aggregate of
approximately $1.3 million in principal amount of Boomtown Notes outstanding.
Holders who tendered their Boomtown Notes consented to the elimination or
modification of certain covenants and other changes to the indenture governing
the Boomtown Notes, all to permit the consummation of the Merger and the Blue
Diamond Swap and to provide greater operational flexibility to Hollywood Park.
In addition, Boomtown has made an offer to redeem the remaining Boomtown Notes
at 101% of principal amount (plus accrued interest) pursuant to a change of
control offer provision in the indenture governing the Boomtown Notes. It is
not known how much in aggregate principal amount of the remaining Boomtown
Notes, if any, will be tendered in response to such offer.
BOOMTOWN RENO
Boomtown Reno has been operating for over 25 years (and has been operated by
current Boomtown management since 1987) on 569 acres in Verdi, Nevada (seven
miles west of Reno, Nevada and two miles from the California border) on
Interstate 80, the major highway connecting Northern California and Reno.
Boomtown believes Boomtown Reno has established a loyal customer base primarily
drawn from Interstate 80 traffic. Based on statistics compiled by the State of
Nevada during Boomtown's 1996 fiscal year, Boomtown estimates that 16% of
travelers on Interstate 80 stop to patronize Boomtown Reno. Boomtown Reno
caters to middle-income customers and markets itself as a gaming and
entertainment property complete with amenities for the entire family.
Reno Gaming Market. Reno's primary visitor attraction is gaming. The greater
Reno area accounts for substantially all casino gaming which occurs in Washoe
County, Nevada. Reno continues to promote itself as a major entertainment
destination center, and remains the third largest gaming region in the United
States behind Las Vegas and Atlantic City. Reno is a popular resort area which
attracts tourists from throughout the country by offering gaming as well as
numerous other summer and winter recreational activities. Casino gaming has
grown steadily in the greater Reno area over the past decade and, in 1995,
gaming revenues totaled $748 million. According to statistics compiled by the
State of Nevada, casino gaming revenues in Washoe County increased between
fiscal 1986 and fiscal 1994 at an average annual compound growth rate of
approximately 6% and are expected to grow as a result of the recent development
and expansion of several major casino facilities in the Reno area.
Competition. Boomtown Reno competes directly with casinos in the downtown
Reno area for its customers. However, since a substantial percentage of
Boomtown Reno customers stop at the property as they are driving to and from
other Reno area casinos, Boomtown believes that Boomtown Reno's success is
favorably influenced by the success of other Reno casinos. Nevertheless,
Boomtown's Reno operations are highly dependent upon the customers coming to and
from Reno to gamble, and a decline in the Reno
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gaming market or loss of gaming customers due to increased competition from
other gaming areas could have a material adverse effect on Boomtown's results of
operations.
Future Expansion. Hollywood Park is planning to continue an ongoing expansion
project at Boomtown Reno to add approximately 200 additional hotel rooms, 13,000
square feet of additional gaming floor space, an entertainment lounge, 10,000
square feet of meeting space, additional parking and other amenities. Hollywood
Park believes that this expansion is necessary in order to alleviate capacity
constraints caused by the small number of existing hotel rooms, which have
consistently had approximately 100% occupancy throughout the summer and year
round on weekends and holidays. Additionally, this expansion is expected to
make Boomtown Reno more attractive to small groups and conventions.
Assuming completion of this expansion project, Boomtown will have used less
than 66 of the 569 acres it owns on both sides of Interstate 80.
BOOMTOWN BILOXI
Boomtown Biloxi, which commenced operations in July 1994, is organized as a
Mississippi limited partnership which is majority owned and controlled by
Boomtown. The facility is built on a dockside property occupying nine acres on
Biloxi's historic Back Bay and consists of a land-based facility which houses
all non-gaming amenities and a 33,000-square foot casino constructed on a 400 x
110 foot barge permanently moored to the land-based building. Boomtown's "old
west" theme is the first of its kind in the Gulf Coast area, and Boomtown
management believes the casual atmosphere and western theme distinguishes
Boomtown Biloxi from competing casinos in the Back Bay. The casino offers 1,038
slot machines, 35 table games (including blackjack, craps, roulette, Caribbean
stud, tournament let-it ride, pai gow poker, poker, three card poker and royal
match) and other non-gaming amenities including a full service buffet/menu
service restaurant, a 120-seat deli-style restaurant, a western dance
hall/cabaret and a 20,000-square foot family entertainment center. The family
entertainment center, complete with a dynamic motion theater, and the western
theme distinguish Boomtown Biloxi from other casinos on the Mississippi Gulf
Coast as a destination offering entertainment for the entire family.
Boomtown Biloxi is located one-half mile from Interstate 110, the main highway
connecting Interstate 10 and the Gulf of Mexico. Interstate 10 is the main
thoroughfare connecting New Orleans, Louisiana and Mobile, Alabama. According
to the Mississippi Department of Transportation, over 12 million vehicles travel
past the Boomtown Biloxi site on Interstate 110 each year. Auto accessibility
to the site is superior when approaching from the north due to its immediate
proximity to the Interstate 110 spur from Interstate 10, which provides the bulk
of traffic to the Gulf Coast region. Boomtown Biloxi is constructed in the Back
Bay and is the first casino visible to auto traffic traveling south on
Interstate 110.
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Operating Structure. Boomtown Biloxi is operated by a Mississippi limited
partnership (the "Mississippi Partnership"), of which 85% is owned and
controlled by Boomtown and 15% is owned by Eric Skrmetta ("Skrmetta"). The
Mississippi Partnership leases the Boomtown Biloxi site under a 99 year lease
from Skrmetta's father. Both Boomtown and Skrmetta have an option, exercisable
over the four-year period commencing July 18, 1997, to exchange Skrmetta's
interest in the Mississippi Partnership for, at Skrmetta's option, cash and/or
shares of Hollywood Park Common Stock with an aggregate value equal to the value
of Skrmetta's 15% interest in the Mississippi Partnership, with such value
determined by a formula set forth in the relevant partnership agreements.
Future Expansion. Hollywood Park is evaluating plans for an expansion of
Boomtown Biloxi to add hotel rooms and/or to expand the undeveloped portion of
the barge.
BOOMTOWN NEW ORLEANS
Boomtown New Orleans commenced operations in August 1994 on a 50-acre site in
Harvey, Louisiana, approximately ten miles from the French Quarter of New
Orleans. Gaming operations are conducted from a 250-foot replica of a paddle-
wheel riverboat, offering 911 slot machines and 55 table games (including
blackjack ("21"), craps, poker, roulette, pai gow poker, let it ride and
caribbean stud) in a 30,000 square foot casino. The land-based facility
adjacent to the riverboat dock is composed of a western-themed, 88,000-square
foot facility. The first floor of the building opened December 1994 and offers
patrons a restaurant, a 20,000 square foot family entertainment center and a
western saloon/dancehall.
Operating Structure. Boomtown New Orleans is currently owned and operated by
a Louisiana limited partnership (the "Louisiana Partnership"), of which 92.5% is
owned by Boomtown and 7.5% is owned by Skrmetta. On November 18, 1996, Boomtown
entered into an agreement with Skrmetta under which it would pay approximately
$5.67 million in return for Skrmetta's 7.5% interest in the Louisiana
Partnership. Under the terms of the agreement, Boomtown has made a down payment
of $500,000 and must pay the remaining $5.17 million on or before August 10,
1997. This second payment will be discounted in the event of any prepayment.
Future Expansion. Hollywood Park currently plans to expand the Boomtown New
Orleans land-based facility to include 5,000 to 8,000 square feet of banquet
space, refurbishing the existing gaming area and, possibly, a 150-seat specialty
restaurant and other entertainment activities.
POTENTIAL INDIANA DEVELOPMENT
In December 1995, Boomtown (through a wholly-owned subsidiary), Hilton Gaming
(Switzerland County) Corporation ("Hilton Switzerland") and a local minority
investor formed a joint venture which currently has a pending application for
the only remaining riverboat gaming license expected to be awarded for
operations on the Ohio River in Indiana. As
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amended, the application is for a license in Switzerland County, Indiana which
is located approximately 35 miles south of Cincinnati, Ohio. If a license is
received, the parties plan to construct a facility which would include a
cruising riverboat with 38,000 square feet of casino space and supporting land-
based facilities that will incorporate a "western river-town" themed
entertainment complex with up to 300 hotel rooms, a 700 seat multi-purpose
special events room, several restaurants and significant retail space (the
"Indiana Project"). The joint venture further owns options to lease and
purchase real property in Switzerland County where Hollywood Park plans to
construct land-based facilities. Hollywood Park currently anticipates that the
aggregate cost of the facility, if constructed, would be approximately $120
million, of which Hollywood Park's share would be approximately $60 million.
Pursuant to the terms of the joint venture agreement, Hollywood Park (through
Boomtown) and Hilton Switzerland each own 48.5% of the joint venture entity,
with the remaining interests held by a non-voting local minority partner. So
long as Hilton Switzerland and Hollywood Park hold their original percentages,
they will share management control of the project. In the event the parties no
longer hold their original percentages, the party with the larger interest will
have management control of the project subject to certain minority protections.
There can be no assurance that the joint venture entity will receive the
necessary license and other governmental approvals and environmental permits to
proceed with the Indiana Project.
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REGULATION AND LICENSING
Nevada
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The ownership and operation of casino gaming facilities in Nevada are subject
to: (i) the Nevada Gaming Control Act and the regulations promulgated thereunder
(collectively, "Nevada Act"); and (ii) various local regulations. Boomtown's
gaming operations are subject to the licensing and regulatory control of the
Nevada Gaming Commission ("Nevada Commission"), the Nevada State Gaming Control
Board ("Nevada Board"), Washoe County and the Clark County Liquor and Gaming
Licensing Board ("CCLGLB"). The Nevada Commission, the Nevada Board, Washoe
County and the CCLGLB are collectively referred to as the "Nevada Gaming
Authorities".
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things; (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
though taxation and licensing fees. Changes in such laws, regulations and
procedures could have an adverse effect on Boomtown's gaming operations.
Boomtown's subsidiaries which operate Boomtown Reno and Boomtown Las Vegas are
required to be licensed by the Nevada Gaming Authorities. The gaming licenses
require the periodic payment of fees and taxes and are not transferable.
Boomtown is registered by the Nevada Commission as a publicly traded corporation
("Registered Corporation") and as such , it is required periodically to submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information which the Nevada Commission may require. No person may
become a stockholder of, or receive any percentage of profits from, the
operating subsidiaries without first obtaining licenses and approvals from the
Nevada Gaming Authorities. Boomtown and its operating subsidiaries have obtained
from the Nevada Gaming Authorities the various registrations, approvals, permits
and licenses required in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, Boomtown or its
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operating subsidiaries, in order to determine whether such individual is
suitable or should be licensed as a business associate of a gaming licensee.
Officers, directors and certain key employees of the operating subsidiaries must
file applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers, directors
and key employees of Boomtown who are actively and directly involved in gaming
activities of the operating subsidiaries may be required to be licensed or found
suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may
deny an application for licensing for any cause which they deem reasonable. A
finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Changes in licensee positions must be
reported to the Nevada Gaming Authorities and in addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue to have a
relationship with Boomtown or its operating subsidiaries, the companies involved
would have to server all relationships with such person. In addition, the Nevada
Commission may require Boomtown or the operating subsidiaries to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability and questions pertaining to licensing are not
subject to judicial review in Nevada.
Boomtown and its operating subsidiaries are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing transactions
by the operating subsidiaries must be reported to, or approved by, the Nevada
Commission.
If it were determined that the Nevada Act was violated by either of the
operating subsidiaries, the gaming licenses they hold could be limited,
conditioned, suspended or revoked, subject to compliance with certain statutory
and regulatory procedures. In addition, the operating subsidiary, Boomtown, and
the persons involved could be subject to substantial fines for each separate
violation of the Nevada Act, at the discretion of the Nevada Commission.
Further, a supervisor could be appointed by the Nevada Commission to operate
Boomtown's gaming properties and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the reasonable rental
value of Boomtown's gaming properties) could be forfeited to the State of
Nevada. Limitation, conditioning or suspension of any gaming license or the
appointment of a supervisor could (and revocation of any gaming license would)
materially adversely affect Boomtown's gaming operations and its results of
operations.
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Any beneficial holder of Boomtown's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of Boomtown's voting securities
determined, if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. The applicant must pay all costs of investigation incurred by the Nevada
Gaming Authorities in conducting any such investigation.
The Nevada Act requires any persons who acquires more than 5% of Boomtown's
voting securities to report the acquisition to the Nevada Commission. The Nevada
Act requires that beneficial owners of more than 10% of Boomtown's voting
securities apply to the Nevada Commission for a finding of suitability within
thirty days after the Chairman of the Nevada Board mails the written notice
requiring such filing. Under certain circumstances, an "institutional investor",
as defined in the Nevada Act, which requires more than 10%, but not more than
15%, of Boomtown's voting securities may apply to the Nevada Commission for a
waiver of such finding of suitability if such institutional investor holds the
joint securities for investment purposes only. An institutional investor shall
not be deemed to hold voting securities for investment purposes unless the
voting securities were acquired and are held in the ordinary course of business
as an institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the Board of Directors
of Boomtown, any change in Boomtown's corporate charter, bylaws, management,
policies or operations or any of its gaming affiliates, or any other action
which the Nevada Commission finds to be inconsistent with holding Boomtown's
voting securities for investment purposes only. Activities which are not deemed
to be inconsistent with holding voting securities for investment purposes only
include: (i) voting on all matters voted on by stockholders; (ii) making
financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent. If
the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information, including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. Boomtown is subject to
disciplinary action if, after it receives notice that a person is unsuitable
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to be a stockholder or to have any other relationship with Boomtown or the
operating subsidiaries, Boomtown (i) pays that person any dividend or interest
upon voting securities of Boomtown, (ii) allows that person to exercise,
directly or indirectly, any voting right conferred through securities held by
that person, (iii) pays remuneration in any form to that person for services
rendered or otherwise, or (iv) fails to pursue all lawful efforts to require
such unsuitable person to relinquish his voting securities for cash at fair
market value. Additionally, the CCLGLB has taken the position that it has the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
Boomtown is required to maintain a current stock ledger in Nevada which may be
examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. Boomtown is also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require Boomtown's stock certificates to bear a legend indicating that
the securities are subject to the Nevada Act. However, to date, the Nevada
Commission has not imposed such a requirement on Boomtown.
Boomtown may not make a public offering of its securities without the prior
approval of the Nevada Commission if the securities or the proceeds therefrom
are intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. Such
approval, if given, does not constitute a finding, recommendation or approval by
the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities. Any representation to the
contrary is unlawful.
Changes in control of Boomtown through merger (including the Merger),
consolidation, stock or asset acquisitions, management or consulting agreements,
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or any act or conduct by a person where by such person obtains control of
Boomtown, may not occur without the prior approval of the Nevada Commission.
Entities seeking to acquire control of a Registered Corporation must satisfy the
Nevada Board and Nevada Commission in a variety of stringent standards prior to
assuming control of such Registered Corporation. The Nevada Commission may also
require controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licenses as part of the approval process
relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees and Registered Corporations that are
affiliated with those licensees, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before Boomtown can make exceptional repurchases of voting securities
above the current market price thereof and before a corporate acquisition
opposed by management can be consummated. The Nevada Act also requires prior
approval of a plan of recapitalization proposed by Boomtown's Board of Directors
in response to a tender offer made directly to the Registered Corporation's
stockholders for the purposes of acquiring control of the Registered
Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, as payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, also pay certain fees and taxes to the
State of Nevada.
Any person who is licensed, registered, required to be registered, or is under
common control with such persons (collectively, "Licensees"), and who proposes
to become involved in a gaming venture outside of Nevada, is required to deposit
with the Nevada Board, and thereafter maintain, a revolving fund in
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the amount of $10,000 to pay the expenses of the Nevada Board's investigation of
their participation in such foreign gaming. The revolving fund is subject to
increase or decrease in the discretion of the Nevada Commission. Thereafter,
Licensees are required to comply with certain reporting requirements imposed by
the Nevada Act. A licensee is also subject to disciplinary action by the Nevada
Commission it knowingly violates any laws of the foreign jurisdiction pertaining
to the foreign gaming operation, fails to conduct the foreign gaming operation
in accordance with the standards of honesty and integrity required of Nevada
gaming operations, engages in activities that are harmful to the State of Nevada
or its ability to collect gaming taxes and fees, or employs a person in the
foreign operation who has been denied a license or finding of suitability in
Nevada on the ground of personal unsuitability.
Mississippi
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The ownership and operation of casino facilities in Mississippi are subject
to extensive state and local regulation. Regulation is primarily effected
through the licensing and regulatory control of the Mississippi Gaming
Commission and the Mississippi State Tax Commission (the "Mississippi Gaming
Authorities").
The Mississippi Gaming Control Act (the "Mississippi Act"), which legalized
dockside casino gaming in Mississippi, was enacted on June 29, 1990. Although
not identical, the Mississippi Act is similar to the Nevada Gaming Control Act.
Effective October 29, 1991, the Mississippi Gaming Commission adopted
regulations which are also similar in many respects to the Nevada gaming
regulations.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Gaming Commission seek to: (i) prevent unsavory or unsuitable
persons from having any direct or indirect involvement with gaming at any time
or in any capacity; (ii) establish and maintain responsible accounting practices
and procedures; (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Gaming Commission; (iv) prevent
cheating and fraudulent practices; (v) provide a source of state and local
revenues through taxation and licensing fees; and (vi) ensure that gaming
licensees, to the extent practicable, employ Mississippi residents. The
regulations are subject to amendment and interpretation by the Mississippi
Gaming Commission. Changes in Mississippi laws or regulations may limit or
otherwise materially affect the types of gaming that may be conducted and such
changes, if enacted could have an adverse effect on Boomtown and Boomtown's
Biloxi, Mississippi gaming operations.
The Mississippi Act provides for legalized dockside gaming at the
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<PAGE>
discretion of the 14 counties that either border the Gulf Coast or the
Mississippi River, but only if the voters in such counties have not voted to
prohibit gaming in that county. As of November 30, 1996, dockside gaming was
permissible in nine of the fourteen eligible counties in the State and gaming
operations had commenced in Adams, Coahoma, Hancock, Harrison, Tunica, Warren
and Washington counties. Under Mississippi law, gaming vessels must be located
on the Mississippi River or on navigable waters in eligible counties along the
Mississippi River on in the waters lying south of the counties along the
Mississippi Gulf Coast. At least one lawsuit is pending with respect to the
expansion of eligible gaming sites in Mississippi Gulf Coast counties. The law
permits unlimited stakes gaming on permanently moored vessels on a 24-hour basis
and does not restrict the percentage of space which may be utilized for gaming.
There are no limitations on the number of gaming licenses which may be issued in
Mississippi.
Boomtown is required periodically to submit detailed financial and operating
reports to the Mississippi Gaming Commission and furnish any other information
which the Mississippi Gaming Commission may require. Boomtown and any subsidiary
of Boomtown (or partnership in which the subsidiary is a partner) that operates
a casino in Mississippi (a "Mississippi Gaming Subsidiary"), is subject to the
licensing and regulatory control of the Mississippi Gaming Authorities. If
Boomtown is unable to continue to satisfy the registration requirements of the
Mississippi Act, Boomtown and its Mississippi Gaming Subsidiaries cannot own or
operate gaming facilities in Mississippi. Each Mississippi Gaming Subsidiary
must obtain gaming licenses from the Mississippi Gaming Commission to operate
casinos in Mississippi. A gaming license is issued by the Mississippi Gaming
Commission subject to certain conditions, including continued compliance with
all applicable state laws and regulations and physical inspection of the casinos
prior to opening.
Gaming licenses are not transferable, are initially issued for a two-year
period and must be renewed periodically thereafter. Boomtown Biloxi's gaming
license was renewed in 1996 for a two-year period expiring June 20, 1998. No
person may become a shareholder of or receive any percentage of profits from a
gaming licensee subsidiary of a holding company without first obtaining licenses
and approvals from the Mississippi Gaming Commission. Boomtown has obtained such
approvals in connection with the licensing of Boomtown Biloxi.
Certain officers and employees of Boomtown and the officers, directors and
certain key employees of Boomtown's Mississippi Gaming Subsidiary must be found
suitable or be investigated by the Mississippi Gaming Commission. Boomtown
believes that findings of suitability with respect to such persons associated
with Boomtown Biloxi have been applied for or obtained in connection with the
licensing of Boomtown Biloxi. However, the Mississippi Gaming Commission in its
discretion may require additional person to file applications
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<PAGE>
for suitability. Employees associated with gaming must obtain work permits that
are subject to immediate suspension under certain circumstances. In addition,
any person having a material relationship or involvement with Boomtown may be
required to be found suitable or licensed, in which case those persons must pay
the costs and fees associated with such investigation. The Mississippi Gaming
Commission may deny an application for a license for any cause that it deems
reasonable. Changes in licensed positions must be reported to the Mississippi
Gaming Commission. In addition to its authority to deny an application for a
license, the Mississippi Gaming Commission has jurisdiction to disapprove a
change in corporate position. The Mississippi Gaming Commission has the power to
require any Mississippi Gaming Subsidiary and Boomtown to suspend or dismiss
officers, directors and other key employees or sever relationships with other
persons who refuse to file appropriate applications or whom the authorities find
unsuitable to act in such capacities.
At any time, the Mississippi Gaming Commission has the power to investigate
and require the finding of suitability of any record or beneficial shareholder
of Boomtown. Mississippi law requires any person who acquires more than 5% of
the common stock of a publicly traded holding company to report the acquisition
to the Mississippi Gaming Commission, and such person may be required to be
found suitable. Also, any person who becomes a beneficial owner of more than 10%
of Boomtown's Common Stock, as reported to the Securities and Exchange
Commission, must apply for a finding of suitability by the Mississippi Gaming
Commission and must pay the costs and fees that the Mississippi Gaming
Commission incurs in conducting the investigation. The Mississippi Gaming
Commission has generally exercised its discretion to require a finding of
suitability of any beneficial owner of more than 5% of Boomtown's Common Stock.
However, the Mississippi Gaming Commission has adopted a policy that could
permit certain institutional investors to beneficially own up to 10% of a public
company's stock without a finding of suitability. If a shareholder who must be
found suitable is a corporation, partnership or trust,it must submit detailed
business and financial information, including a list of beneficial owners.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Mississippi Gaming
Commission may be found unsuitable. Any person found unsuitable and who holds,
directly or indirectly, any beneficial ownership of the securities of Boomtown
beyond such time as the Mississippi Gaming Commission prescribes, may be guilty
of a misdemeanor. Boomtown is subject to disciplinary action if, after receiving
notice that a person is unsuitable to be a shareholder or to have any other
relationship with Boomtown or its Mississippi Gaming Subsidiaries, Boomtown: (i)
pays the unsuitable person any dividend or other distribution upon the voting
securities of Boomtown; (ii) recognizes the exercise, directly or indirectly, of
any voting rights conferred by securities of Boomtown; (iii) recognizes the
exercise, directly or indirectly, of any voting rights conferred by securities
held by the unsuitable person; (iv) pays
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<PAGE>
the unsuitable person any remuneration in any form for services rendered or
otherwise, except in certain limited and specific circumstances; or (v) fails to
pursue all lawful efforts to require the unsuitable person to divest himself or
the securities, including, if necessary, the immediate purchase of the
securities for cash at a fair market value.
Boomtown may be required to disclose to the Mississippi Gaming Commission upon
request the identities of the holders of any debt securities. In addition, the
Mississippi Gaming Commission under the Mississippi Act may, in its discretion,
(i) require holders of securities of registered corporations to file
applications, (ii) investigate such holders, and (iii) require such holders to
be found suitable to own such securities. Although the Mississippi Gaming
Commission generally does not require the individual holders of obligations such
as notes to be investigated and found suitable, the Mississippi Gaming
Commission retains the discretion to do so for any reason, including but not
limited to a default, or where the holder of the debt instrument exercises a
material influence over the gaming operations of the entity in question. Any
holder of debt securities required to apply for a finding of suitability must
pay all investigative fees and costs of the Mississippi Gaming Commission in
connection with such an investigation.
The Gaming Subsidiary must maintain a current stock ledger in its principal
office in Mississippi and Boomtown must maintain a current list of stockholders
in the principal offices of the Gaming Subsidiary which must reflect the record
ownership of each outstanding share of any class of equity security issued by
Boomtown. The stockholder list may thereafter be maintained by adding reports
regarding the ownership of such securities that it receives from Boomtown's
transfer agent. The ledger and stockholder lists must be available for
inspection by the Mississippi Gaming Commission at any time. If any securities
of Boomtown are held in trust by an agent or by a nominee, the record holder may
be required to disclose the identity of the beneficial owner to the Mississippi
Gaming Commission. A failure to make such disclosure may be grounds for finding
the record holder unsuitable. Boomtown must also render maximum assistance in
determining the identity of the beneficial owners.
The Mississippi Act requires that the certificates representing securities
of a publicly-traded corporation (as defined in the Mississippi Act) bear a
legend to the general effect that such securities are subject to the Mississippi
Act and the regulations of the Mississippi Gaming Commission. The Mississippi
Gaming Commission has the power to impose additional restrictions on the holders
of Boomtown's securities at any time. Boomtown has received a waiver from this
legend requirement from the Mississippi Gaming Commission.
Substantially all loans, leases, sales of securities and similar
financing transactions by a Mississippi Gaming Subsidiary must be reported to
or approved by the Mississippi Gaming Commission. A Mississippi Gaming
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<PAGE>
Subsidiary may not make an issuance or a public offering of its securities, but
may hypothecate casino facilities, if it obtains the prior approval of the
Mississippi Gaming Commission. Boomtown may not make an issuance or public
offering of its securities without the prior approval of the Mississippi Gaming
Commission if any part of the proceeds of the offering is to be used to finance
the construction, acquisition or operation of gaming facilities in Mississippi
or to retire or extend obligations incurred for one or more such purposes. Such
approval, if given, does not constitute a recommendation or approval of the
investment merits of the securities subject to the offering. Any representation
to the contrary is unlawful.
Change in control of Boomtown through merger (including the Merger),
consolidation, acquisition of assets, management or consulting agreements or any
form of takeover, and certain recapitalizations and stock purchases by Boomtown,
cannot occur without the prior approval of the Mississippi Gaming Commission.
The Mississippi Gaming Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the transaction.
The Mississippi legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Mississippi and
corporations whose stock is publicly traded that are affiliated with those
licensees, may be injurious to stable and productive corporate gaming. The
Mississippi Gaming Commission has established a regulatory scheme to ameliorate
the potentially adverse effects of these business practices upon Mississippi's
gaming industry and to further Mississippi's policy to: (i) assure the financial
stability of corporate gaming operators and their affiliates; (ii) preserve the
beneficial aspects of conducting business in the corporate form; and (iii)
promote a neutral environment for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Mississippi Gaming
Commission before Boomtown may make exceptional repurchases of voting securities
above the current market price of its Common Stock (commonly called "greenmail")
or before a corporate acquisition opposed by management may be consummated.
Mississippi's gaming regulations will also require prior approval by the
Mississippi Gaming Commission if Boomtown adopts a plan of recapitalization
proposed by its Board of Directors opposing a tender offer made directly to the
shareholders for the purpose of acquiring control of Boomtown.
Neither Boomtown nor any subsidiary may engage in gaming activities in
Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Gaming Commission. The Mississippi Gaming
Authorities may require determinations that, among other things, there
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are means for the Mississippi Gaming Authorities to have access to information
concerning the out-of-state gaming operations of Boomtown and its affiliates.
The Mississippi Gaming Commission must approve any future gaming operations of
Boomtown outside Mississippi. The Mississippi Gaming Commission has approved
Boomtown's operations in Nevada and Louisiana but must approve Boomtown's
operations in any other jurisdictions.
If the Mississippi Gaming Commission decides that a Mississippi Gaming
Subsidiary violated a gaming law or regulation, the Mississippi Gaming
Commission could limit, condition, suspend or revoke the license of the Gaming
Subsidiary. In addition, a Mississippi Gaming Subsidiary, Boomtown and the
persons involved could be subject to substantial fines for each separate
violation. Because of such a violation, the Mississippi Gaming Commission could
appoint a supervisor to operate the casino facilities. Limitation, conditioning
or suspension of any gaming license or the appointment of a supervisor could
(and revocation of any gaming license would) materially adversely affect
Boomtown and the Mississippi Gaming Subsidiary's gaming operations and
Boomtown's results of operations.
License fees and taxes, computed in various ways depending on the type of
gaming involved, are payable to the State of Mississippi and to the counties
and cities in which a Mississippi Gaming Subsidiary's respective operations
will be conducted. Depending upon the particular fee or tax involved, these
fees and taxes are payable either monthly, quarterly or annually and are
based upon (i) a percentage of the gross gaming revenues received by the
casino operation, (ii) the number of slot machines operated by the casino or
(iii) the number of table games operated by the casino. The license fee
payable to the State of Mississippi is based upon "gaming receipts"
(generally defined as gross receipts less pay outs to customers as winnings)
and equals 4 percent of gaming receipts of $50,000 or less per month, 6
percent of gaming receipts over $50,000 and less than $134,000 per month, and
8 percent of gaming receipts over $134,000. The foregoing license fees are
allowed as a credit against the partners' Mississippi income tax liability
for the year paid.
In October 1994, the Mississippi Gaming Commission adopted two new
regulations. Under the first regulation, as condition of licensure or
license renewal, casino vessels on the Mississippi Gulf Coast that are not
self-propelled must be moored to withstand a Category 4 hurricane with 155
mile per hour winds and 15 foot tidal surge. Boomtown Biloxi believes that
it currently meets this requirement. The second regulation requires as a
condition of licensure or license renewal that a gaming establishment's plan
include a 500-car parking facility in close proximity to the casino complex
and infrastructure facilities, the expenditures for which will amount to at
least 25% of the casino cost. Such facilities shall include any of the
following: a 250 room hotel of at least a two star rating as defined by the
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current edition of the Mobil Travel Guide, a theme park, golf courses,
marinas, tennis complex, entertainment facilities, or any other such facility
as approved by the Mississippi Gaming Commission as infrastructure. Parking
facilities, roads, sewage and water systems, or facilities normally provided
by cities and/or counties are excluded. The Mississippi Gaming Commission may
in its discretion reduce the number of rooms required, where it is shown to
the Commission's satisfaction that sufficient rooms are available to
accommodate the anticipated visitor load. Boomtown believes that Boomtown
Biloxi currently meets such requirements and was relicensed by the
Mississippi Gaming Commission effective June 20, 1996 for an additional
two-year period. In addition, Boomtown Biloxi is planning to construct and
operate a hotel to satisfy this requirement; however, there can be no
assurance that it will be successful in completing such a hotel or that it
would be able to obtain a waiver from such requirement; however, there can be
no assurance that it will be successful in completing such a hotel. It is
probable that the Mississippi Gaming Commission will require further
development on the casino site including hotel rooms and additional parking
prior to Boomtown Biloxi being relicensed in June 1998.
The sale of food or alcoholic beverages at the Boomtown Biloxi property
is subject to licensing, control and regulation by the applicable state and
local authorities. The agencies involved have full power to limit,
condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect upon the
operations of the affected casino or casinos. Certain officers and managers
of Boomtown and Boomtown Biloxi must be investigated by the Alcoholic
Beverage Control Division of the State Tax Commission (the "ABC") in
connection with Boomtown Biloxi's liquor permits. Changes in licenses
positions must be approved by the ABC.
Louisiana
- ---------
The ownership and operation of a riverboat gaming vessel is subject to
the Louisiana Riverboat Economic Development and Gaming Control Act (the
"Louisiana Act"). As of May 1, 1996, gaming activities are regulated by the
Louisiana Gaming Control Board (the "Board"). The Board is responsible for
issuing the gaming license and enforcing the laws, rules and regulations
relative to riverboat gaming activities. The Board is empowered to issue up
to 15 licenses to conduct gaming activities on a riverboat of new
construction in accordance with applicable law. However, no more than six
licenses may be granted to riverboats operating from any one parish.
The laws and regulations of Louisiana seek to (i) prevent unsavory or
unsuitable persons from having any direct or indirect involvement with gaming
any time or in any capacity; (ii) establish and maintain responsible
accounting practices and procedures; (iii) maintain effective control over
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the financial practices of licensees, including establishing procedures for
reliable record keeping and making periodic reports to the Board; (iv)
prevent cheating and fraudulent practices; (v) provide a source of state and
local revenues through fees; and (vi) ensure that gaming licensees, to the
extent practicable, employ and contract with Louisiana residents, women and
minorities.
The Louisiana Act specifies certain restrictions and conditions relating
to the operation of riverboat gaming, including but not limited to the
following: (i) gaming is not permitted while a riverboat is docked, other
than for forty-five minutes between excursions, unless dangerous weather or
water conditions exist; (ii) each round trip riverboat cruise may not be less
than three nor more than eight hours in duration, subject to specified
exceptions; (iii) agents of the Board are permitted on board at any time
during gaming operations; (iv) gaming devices, equipment and supplies may be
purchased or leased from permitted suppliers; (v) gaming may only take place
in the designated river or waterway; (vi) gaming equipment may not be
possessed, maintained, or exhibited by any person on a riverboat except in
the specifically designated gaming area, or a secure area used for
inspection, repair, or storage of such equipment; (vii) wagers may be
received only from a person present on a licensed riverboat; (viii) persons
under 21 are not permitted in designated gaming areas; (ix) except for slot
machine play, wagers may be made only with tokens, chips, or electronic cards
purchased from the licensee aboard a riverboat, (x) licensees may only use
docking facilities and routes for which they are licensed and may only board
and discharge passengers at the riverboat's licensed berth; (xi) licensees
must have adequate protection and indemnity insurance; (xii) licensees must
have all necessary federal and state licenses, certificates and other
regulatory approvals prior to operating a riverboat and (xiii) gaming may
only be conducted in accordance with the terms of the license and the rules
and regulations adopted by the Board.
No person may receive any percentage of the profits from the Partnership
without first being found suitable. In March 1994, the Partnership, its
officers, key personnel, partners and persons holding a 5% or greater
interest in the partnership were found suitable by the predecessor to the
Board. A gaming license is deemed to be a privilege under Louisiana law and
as such may be denied, revoked, suspended, conditioned or limited at any time
by the Board. In issuing a license, the Board must find that the applicant is
a person of good character, honesty and integrity and the applicant is a
person whose prior activities, criminal record, if any, reputation, habits
and associations do not pose a threat to the public interest of the State of
Louisiana or to the effective regulation and control of gaming, or create or
enhance the dangers of unsuitable, unfair or illegal practices, methods, and
activities in the conduct of gaming or the carrying on of business and
financial arrangements in connection therewith. The Board will not grant any
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licenses unless it finds that: (i) the applicant is capable of conducting
gaming operations, which means that the applicant can demonstrate the
capability, either through training, education, business experience, or a
combination of the above to operate a gaming casino; (ii) the proposed financing
of the riverboat and the gaming operations is adequate for the nature of the
proposed operation and from a source suitable and acceptable to the Board; (iii)
the applicant demonstrates a proven ability to operate a vessel of comparable
size, capacity and complexity to a riverboat in its application for a license;
(v) the applicant designates the docking facilities to be used by the riverboat;
(vi) the applicant shows adequate financial ability to construct and maintain a
riverboat; (vii) the applicant has a good faith plan to recruit, train and
upgrade minorities in all employment classifications; and (viii) the applicant
is of good moral character.
The Board may not award a license to any applicant who fails to provide
information and documentation to reveal any fact material to qualifications
or who supplies information which is untrue or misleading as to a material
fact pertaining to the qualification criteria; who has been convicted of or
plead NOLO CONTENDERE to an offense punishable by imprisonment of more than
one year; who is currently being prosecuted for or regarding whom charges are
pending in any jurisdiction of an offense punishable by more than one year
imprisonment; if any holder of 5% or more in the profits and losses of the
applicant has been convicted of or plead guilty or NOLO CONTENDERE to an
offense, which at the time of conviction is punishable as a felony.
The transfer of a license is prohibited. The sale, assignment, transfer,
pledge, or disposition of securities which represent 5% or more of the total
outstanding shares issued by a holder of a license is subject to Board
approval. A security issued by a holder of a license must generally disclose
these restrictions.
A licensee (the Partnership) must periodically report the following
information to the Board, which is not confidential and is to be available
for public inspection; the licensee's net gaming proceeds from all authorized
games; the amount of net gaming proceeds tax paid; and all quarterly and
annual financial statements presenting historical data that are submitted to
the Board, including annual financial statements that have been audited by an
independent certified public accountant.
The Board has adopted rules governing the method for approval of the area
of operations, the rules and odds of authorized games and devices permitted,
and prescribe grounds and procedures for the revocation, limitation or
suspension of licenses and permits.
On April 19, 1996, the Louisiana legislature adopted legislation
requiring statewide local elections on a parish-by-parish basis to determine
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whether to prohibit or continue to permit licensed riverboat gaming, licensed
video poker gaming, and licenses land-based gaming in Orleans Parish. The
applicable local election took place on November 5, 1996, and the voters in
the parish of the Partnership voted to continue licenses riverboat and video
poker gaming. However, it is noteworthy that the current legislation does not
provide for any moratorium on future local elections on gaming.
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EMPLOYEES
As of December 31, 1996, Boomtown (including persons employed by the Las Vegas
Resort) had a total of 4,102 employees, of whom 1,132 were in gaming operations,
120 were in hotel operations, 922 were in food and beverage, 22 were in vehicle
services, 73 were in the family entertainment centers and 1,833 were employed in
other operations. Boomtown does not directly employ the captains, crew and
maintenance personnel who operate and maintain the Boomtown New Orleans
riverboat. None of Boomtown's employees are represented by a labor union.
Management considers its labor relations to be good.
PROPERTIES
Boomtown Reno owns 569 acres of land at the Boomtown Reno location. Boomtown
also owns all of the facilities located at Boomtown Reno, including the casino,
hotel, fun center, truck stop and recreational vehicle park. Current operations
are located on approximately 61 acres. Of the remaining acreage, approximately
60 acres are zoned commercial and 444 acres are noncommercial. Boomtown Reno
also owns the related water rights. In addition, Boomtown Reno maintains and
operates its own sewage treatment facility at the site.
Boomtown Reno offers its guests a 40,000-square foot casino, including 1,320
slot machines and 44 table games and two keno games. Boomtown Reno also offers
a 122-room hotel, a 35,000-square foot family entertainment center featuring a
theater, an indoor miniature golf course, a restaurant and a ferris wheel, a
16-acre truck stop with approximately 200 parking spaces, a 203-space full-
service recreational vehicle park, a service station, a mini-mart and other
related amenities.
The Boomtown Biloxi dockside property consists of a land-based facility which
houses all non-gaming activities and a 33,632-square foot casino constructed on
a 400 x 110 foot barge permanently moored to the land-based building.
The Boomtown Biloxi barge and building shell are owned by National Gaming
Mississippi, Inc., a subsidiary of Chartwell Leisure, Inc. ("National Gaming").
Boomtown Biloxi leases the assets from National Gaming under a 25-year lease
with a 25-year renewal option. National Gaming receives 16% of the adjusted
earnings before interest, taxes, depreciation, and amortization ("EBITDA") from
Boomtown Biloxi, as defined in the related contract. National Gaming also
provides marketing services to Boomtown Biloxi.
In November 1995, Boomtown executed an agreement with National Gaming whereby
$2.4 million which had been restricted for construction of a hotel was returned
to National Gaming, since the hotel was never built, and National Gaming's share
of the EBITDA distributions was thereupon reduced from 20% to 16%. Hollywood
Park has reached an agreement in principle to repurchase the Boomtown Biloxi
barge currently leased from National Gaming for approximately $5.25 million,
payable $1.5 million down and the balance in three annual installments of $1.25
million for three years. National Gaming's participation in Boomtown Biloxi's
EBITDA and other related agreements would terminate upon consummation of the
barge repurchase. Hollywood Park expects to finalize this agreement in the
third quarter of 1997; however, no assurance can be given that a definitive
agreement regarding repurchase of the National Gaming barge will ultimately be
executed.
In November 1993, the Louisiana Partnership purchased approximately 50 acres
located in Jefferson Parish, 10 miles from downtown New Orleans, Louisiana, for
approximately $3 million. This property is used for land-based amenities related
to its riverboat casino at Boomtown New Orleans. At this property, Boomtown New
Orleans owns all facilities, including the riverboat restaurants, bars, fun
center and entertainment facility.
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BOOMTOWN EXECUTIVE COMPENSATION
The following information under the headings "Summary Compensation Table,"
"Option Grants in Last Fiscal Year," Aggregate Option Exercises in Last Fiscal
Year and Fiscal Year End Option Values," "Employment Agreements" and "Stock
Option Grants" relates to Boomtown prior to the Merger.
Summary Compensation Table
- --------------------------
The following table sets forth all compensation received for services rendered
to Boomtown in all capacities during the fiscal years ended September 30, 1994,
1995 and 1996 by (i) Boomtown's Chief Executive officer, (ii) each of the four
other most highly compensated executive officers of Boomtown, serving as
executive officers of Boomtown at the end of the last fiscal year, whose salary
plus bonus exceeded $100,000 during the last fiscal year and (iii) Richard N.
Scott, who would have qualified as an executive officer of Boomtown pursuant to
item (ii) but for the fact that he was not serving as an executive officer of
Boomtown as of the end of the last fiscal year (the "Named Officers"). All
share references are to Boomtown Common Stock prior to the Merger.
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation Awards
------------------ ------------------------------
Securities
Underlying All Other
Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) SAR's ($)
- --------------------------- ---- ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Timothy J. Parrott...................................... 1996 375,000 0 112,500 0
Chairman of the Board and Chief Executive Officer 1995 357,019 0 0 0
1994 314,146 0 0 0
Robert F. List.......................................... 1996 214,999 0 100,000 0
Executive Vice President and Corporate Counsel 1995 215,600 0 0 0
1994 194,282 0 0 0
Phil E. Bryan........................................... 1996 137,307 0 150,000 0
President and Chief Operating Officer 1995 -- -- -- --
1994 -- -- 0
James W. Middagh....................................... 1996 135,695 0 45,000 0
Senior Vice President of Operations 1995 131,635 0 0 667 (1)
1994 117,768 0 0 0
Donald E. Dixon......................................... 1996 128,000 0 18,750 0
Vice President Human Resources 1995 115,269 0 0 0
1994 94,198 0 0 0
FORMER EXECUTIVE OFFICER
Richard N. Scott (2).................................... 1996 273,492 0 84,500 0
President and Chief Operating Officer 1995 254,366 0 0 4,362 (1)
1994 230,752 0 0 0
- ------------------
</TABLE>
(1) Represents life insurance premiums.
(2) Mr. Scott resigned as President and Chief Operating Officer
effective April 30, 1996.
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Option Grants in Last Fiscal Year
- ---------------------------------
The following table sets forth, as to the Named Officers, certain information
relating to stock options granted during the fiscal year ended September 30,
1996. All share references are to Boomtown Common Stock prior to the Merger.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------------------------------
# of Total
Number of Options Potential Realizable
Securities Granted to Value of Assumed
Underlying Employees in Exercise or Annual Rates of Stock
Options Fiscal Base Price Expiration Price Appreciation for
Name Granted (#) Year (1) ($/Sh) Date Option Term(2)
---- ----------- ------------ ----------- ---------- ----------------------
5% ($) 10% ($)
------- -------
<S> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Timothy J. Parrott 150,000(3) 9.9% 6.25 02/25/03 381,657 889,422
112,500 7.4% 6.25(4) 10/08/05 442,192 1,120,600
Robert F. List 80,000(3) 5.3% 6.25 03/25/03 203,550 474,359
100,000 6.6% 6.25(4) 10/08/05 393,059 996,089
Phil E. Bryan 150,000 9.9% 5.875 04/23/06 554,213 1,404,486
James W. Middagh 60,000(3) 4.0% 6.25 02/25/03 152,663 355,769
45,000 3.0% 6.25(4) 10/08/05 176,877 448,240
Donald E. Dixon 3,500(3) 0.2% 6.25 10/26/02 8,905 20,753
25,000(3) 1.7% 6.25 03/25/03 63,609 148,237
18,750 1.2% 6.25(4) 10/08/05 73,699 186,767
FORMER EXECUTIVE OFFICER
Richard N. Scott 112,500(3) 7.4% 6.25 02/25/03 286,242 667,067
84,500 5.6% 6.35(4) 10/08/05 332,135 841,695
- ---------------------
</TABLE>
(1) The total number of shares subject to options granted to
employees in fiscal 1996 was 1,514,000. In October 1996, all
employees, excluding executive officers and outside directors,
who were granted options at an exercise price in excess of $9.00
per share were offered the opportunity to surrender those grants
in exchange for an equal number of options having a per share
exercise price of $9.00, the closing price of Boomtown Common
Stock on October 6, 1995 (the "October Repricing"). In exchange,
such repriced options, to the extent vested, were not exercisable
until April 10, 1996. In April 1996, all employees, including
executive officers but excluding outside directors, who were
granted options at an exercise price in excess of $6.25 per share
were offered the opportunity to surrender those grants in
exchange for an equal number of options having a per share
exercise price of $6.25, which is equal to the product of (A) the
$10.00 per share closing price of Hollywood Park Common Stock on
April 22, 1996, the date immediately preceding the date of the
Agreement and Plan of Merger, and (B) 0.625, which is the number
of shares of Hollywood Park Common Stock into which each issued
and outstanding share of Boomtown Common Stock converted upon the
effective time of the Merger (the "April Repricing"). The
1,514,000 option shares granted to employees in fiscal 1996
referenced above does not include the double counting of 579,000
option shares resulting from (i) options granted pursuant to the
October Repricing and repriced pursuant to the April Repricing
and (ii) options initially granted in fiscal 1996 and repriced
pursuant to the April Repricing.
(2) The above method of calculation and assumed annual rates of
appreciation have been determined solely in accordance with
calculations specified in the rules and regulations of the SEC
and do not represent Boomtown's estimate or projection of future
stock price or
-24-
<PAGE>
Boomtown's estimate of the true value of the options. In
accordance with the SEC rules, potential realizable value assumes
that the stock price increases from the date of grant until the
end of the option term at the annual rate specified (5% and 10%).
As a result of the April Repricing, pursuant to which the
expiration dates of original options did not change, options
regranted to the Named Officers pursuant to the April Repricing
have terms ranging from six years and five months to nine years
and five months. The potential realizable values indicated for
such options are rounded up to the nearest full year. Potential
realizable value is net of the option exercise price. For an
analysis of the value of outstanding options of Boomtown as of
September 30, 1996, based upon the $4.125 closing price of
Boomtown Common Stock as of such date, see the table entitled
"Aggregate Option Exercises in Last Fiscal Year and Year End
Option Values."
(3) Represents option originally granted prior to fiscal 1996 and
surrendered for repricing pursuant to the April Repricing and,
therefore, treated as being granted in fiscal 1996.
(4) Represents option originally granted in October 1995 at a per
share exercise price of $9.00 and surrendered for repricing
pursuant to the April Repricing.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
- --------------------------------------------------------------------------------
The following table sets forth information concerning the value of unexercised
options as of September 30, 1996 held by the Named Officers. No options were
exercised by the Named Officers during the fiscal year ended September 30, 1996.
All share references are to Boomtown Common Stock prior to the Merger.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year End At Fiscal Year End ($)(1)
----------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Timothy J. Parrott 236,244 225,000 689,283 --
Robert F. List 23,900 160,000 -- --
Phil E. Bryan -- 150,000 -- --
James W. Middagh 52,518 90,000 130,120 --
Donald E. Dixon 8,875 38,375 -- --
FORMER EXECUTIVE OFFICERS
Richard N. Scott 141,355 168,875 392,704 --
</TABLE>
_______________________
(1) Market value of underlying securities based on the $4.125 closing
price of Boomtown Common Stock on September 30, 1996, minus the
exercise price.
-25-
<PAGE>
Employment Agreements
- ---------------------
On the following dates, Boomtown entered into Employment Agreements (the
"Employment Agreements") with the following executive officers (the "Officers"),
pursuant to which the Officers will be employed for the terms and paid the
initial base salaries set forth below opposite their names.
<TABLE>
<CAPTION>
Date of Term of Initial
Officer Agreement Agreement Base Salary
- ------- --------- --------- -----------
<S> <C> <C> <C>
Jerald R. Day 10/08/95 1 year $120,000
Donald E. Dixon 10/08/95 1 year $120,000
Robert F. List 10/08/95 3 years $120,000
James W. Middagh 10/08/95 2 years $135,000
Timothy J. Parrott 10/08/95 3 years $375,000
Richard N. Scott 10/08/95 3 years $265,000
Mary Shick 11/08/95 1 year $145,000
Phil E. Bryan 04/30/96 3 years $300,000
</TABLE>
In addition to the above terms, each Employment Agreement provides that in the
event of a change of control of Boomtown, all options granted to the Officer
prior to such change of control shall become fully vested and exercisable. The
Merger constituted such a change of control. Notwithstanding the above, Mr.
Bryan's Employment Agreement excludes the Merger from the definition of a change
of control. In addition, each Employment Agreement provides that in the event
of termination of employment without cause, the Officer shall receive a
severance payment consisting of, among other things, base salary for the number
of years set forth in the above table under "Term of Agreement," subject to
mitigation in the event the Officer obtains alternative employment during the
applicable severance payment period, as well as accelerated vesting of the
Officer's stock options. In addition, the Employment Agreements provide for the
Officers to receive such fringe benefits and perquisites as may be granted or
established by Boomtown from time to time, including an automobile allowance.
-26-
<PAGE>
Stock Option Grants
- -------------------
In October 1995, the Compensation Committee of the Board of Directors of
Boomtown authorized the grant to the following Officers of nonstatutory stock
options under Boomtown's 1990 Stock Option Plan for the number of shares of
Boomtown Common Stock and at the exercise prices set forth below opposite their
Names. All share references are to Boomtown Common Stock prior to the Merger.
<TABLE>
<CAPTION>
Number of Exercise Price
Officer Shares Per Share
- ------- --------- --------------
<S> <C> <C>
Jerald R. Day 18,750 $6.25
Donald E. Dixon 18,750 $6.25
Robert F. List 100,000 $6.25
James W. Middagh 45,000 $6.25
Timothy J. Parrott 112,500 $6.25
Richard N. Scott 84,500 $6.25
Mary Shick 50,000 $6.25
</TABLE>
The foregoing options were originally granted at a per share exercise price of
$9.00, which was equal to the closing sale price of Boomtown Common Stock on the
market trading day immediately preceding the date of grant, except that Ms.
Shick's option was originally granted at a per share exercise price of $7.50,
which was equal to the closing sales price of Boomtown Common Stock on the
market trading day immediately preceding her hire date. All of such options
were surrendered for repricing pursuant to the April Repricing. With the
exception of the options granted to Ms. Shick, all of the shares subject to such
options shall not become exercisable until October 8, 2003; provided, however,
that (i) one-third of the shares subject to the above described options shall
become exercisable in the event the closing price of Boomtown Common Stock
remains at or above $18.00 for at least five consecutive market trading days,
(ii) one-third of the shares subject to the above described options shall become
exercisable in the event the closing price of Boomtown Common Stock remains at
or above $22.50 for at least five consecutive market trading days, and (iii) the
remaining one-third of the shares subject to the above described options shall
become exercisable in the event the closing price of Boomtown Common Stock
remains at or above $27.00 for at least five consecutive market trading days.
With respect to the options granted to Ms. Shick, one-fourth of the shares
subject to such options shall become exercisable on November 8, 1996, and each
one year anniversary thereafter.
In April 1996, Phil E. Bryan was granted an option to purchase 150,000 shares
at a per share exercise price of $5.875, which was equal to the closing sales
price of Boomtown Common Stock on the market trading day immediately preceding
the date of grant. One-fourth of the shares subject to such option shall become
exercisable on April 23, 1997 and each one year anniversary thereafter.
-27-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--BOOMTOWN
Acquisition of Boomtown Casino
- ------------------------------
In May 1988, Boomtown acquired all of the outstanding stock of Boomtown Casino
for $16.7 million in cash (the "1988 Acquisition"). In order to finance the
1988 Acquisition, including the retirement of existing debt, Boomtown sold
equity securities to Kenneth Rainin and Timothy J. Parrott, and Boomtown Casino
entered into various loan documents with Merrill Lynch Interfunding Inc.
Pursuant to a stock purchase agreement, Mr. Rainin purchased 2,000 shares of
Preferred Stock and 3,042,000 shares of Boomtown Common Stock for an aggregate
purchase price of approximately $4 million in cash, and Mr. Parrott purchased
270,738 shares of Boomtown Common Stock for an aggregate purchase price of
$222,000, of which $1,000 was paid in cash and $221,000 by a promissory note
(the "Promissory Note") secured by a pledge to Boomtown of all of the shares
owned by Mr. Parrott. In November 1994, the Promissory Note was amended to
provide that (i) interest on the Promissory Note, which accrues at a rate of
6.0% per annum, compounded annually, is payable in arrears on the last day of
December, commencing December 31, 1995, (ii) principal is payable in four annual
installments beginning December 31, 1995, and (iii) the shares owned by Mr.
Parrott would be released from the pledge and would no longer secure the amounts
outstanding under the promissory Note.
Boomtown Las Vegas Transactions with Edward P. Roski, Jr. and Affiliates
- ------------------------------------------------------------------------
Prior to the opening of the Las Vegas Resort, Boomtown owned a 50% interest in
Blue Diamond, the operating company leasing the hotel/casino facility and the
land in Las Vegas, and was primarily responsible for the development and
management of the Las Vegas Resort. In June 1994, Boomtown exercised its right
to acquire the remaining 50% of Blue Diamond from Roski in exchange for 714,286
shares of Boomtown Common Stock. Roski was a member of the Board of Directors
of Boomtown and an affiliate of IVAC, a California general partnership ("IVAC"),
which owns the land and building leased by Boomtown for the Las Vegas Resort.
Boomtown loaned IVAC $27.3 million (the "IVAC Loans") which was used to help
construct the Las Vegas Resort. The IVAC Loans were secured by separate deeds
of trust on the Las Vegas Resort, which deeds of trust are subordinate to
separate deeds of trust securing Blue Diamond's and Boomtown's obligations in
connection with an indenture relating to a debt offering. Boomtown received
interest income of $2.7 million annually from IVAC as a result of these loans.
In turn, Blue Diamond paid rent to IVAC in the amount of $5.4 million annually
to lease the facility.
Blue Diamond further had the right to purchase the Las Vegas Resort from IVAC
in accordance with terms of an option which expired in November 1996. On July
1, 1997, Hollywood Park divested all interests in the Las Vegas Resort by
completing a swap pursuant to the Swap Agreement. See "Disposition of Boomtown
Las Vegas Resort."
-28-
<PAGE>
In accordance with the terms of the Swap Agreement, Roski resigned from
Boomtown's Board of Directors, effective as of the date of the Merger.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
See Exhibit 99.1.
(b) Pro Forma Financial Information.
See Exhibit 99.2.
(c) Exhibits.
2 Agreement and Plan of Merger dated as of April 23, 1996 by and among
Hollywood Park, Inc., HP Acquisition, Inc. and Boomtown, Inc.*
23.1 Consent of Ernst & Young LLP
99.1 Financial Statements of business acquired as required by Item 7(a)(1) of
the Current Report on Form 8-K.
A. Consolidated Financial Statements of Boomtown, Inc. as of September 30,
1995 and 1996 and for the years ended September 30, 1994, 1995 and 1996 with
report of Independent Auditors.
B. Unaudited Consolidated Financial Statements of Boomtown, Inc. as of
March 31, 1997 and for the six month periods ended March 31, 1996 and 1997.
99.2 Pro Forma financial information required by Item 7(b)(1) of the Current
Report on Form 8-K.
A. Hollywood Park, Inc. and Subsidiaries Unaudited Pro Forma Condensed
Combined Balance Sheet as of March 31, 1997.
B. Hollywood Park, Inc. and Subsidiaries Unaudited Pro Forma Condensed
Combined Statement of Operations for the year ended December 31, 1996 and for
the three month period ended March 31, 1997.
_________________
* Incorporated by reference to Hollywood Park's Current Report on Form 8-K
dated April 23, 1996.
-29-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HOLLYWOOD PARK, INC.
Date: July 14, 1997 By: /s/ G. Michael Finnigan
---------------------------------
G. Michael Finnigan
President, Sports and Entertainment,
Executive Vice President, Treasurer
and Chief Financial Officer
-30-
<PAGE>
Exhibit Index
-------------
No. Document
- --- --------
2 Agreement and Plan of Merger dated as of April 23, 1996 by and among
Hollywood Park, Inc., HP Acquisition, Inc. and Boomtown, Inc.*
23.1 Consent of Ernst & Young LLP
99.1 Financial Statements of business acquired as required by Item 7(a)(1) of
the Current Report on Form 8-K.
A. Consolidated Financial Statements of Boomtown, Inc. as of September
30, 1995 and 1996 and for the years ended September 30, 1994, 1995
and 1996 with report of Independent Auditors.
B. Unaudited Consolidated Financial Statements of Boomtown, Inc. as of
March 31, 1997 and for the six month periods ended March 31, 1996
and 1997.
99.2 Pro Forma financial information required by Item 7(b)(1) of the Current
Report on Form 8-K.
A. Hollywood Park, Inc. and Subsidiaries Unaudited Pro Forma Condensed
Combined Balance Sheet as of March 31, 1997.
B. Hollywood Park, Inc. and Subsidiaries Unaudited Pro Forma Condensed
Combined Statement of Operations for the year ended December 31,
1996 and for the three month period ended March 31, 1997.
__________________
* Incorporated by reference to Hollywood Park's Current Report on Form 8-K
dated April 23, 1996.
-31-
<PAGE>
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No.333-27501) pertaining to the 1996 Stock Option Plan of
Hollywood Park, Inc. and the Registration Statement (Form S-8 No. 333-31065) of
Hollywood Park, Inc. pertaining to the 1990 Stock Option Plan and 1992 Director
Option Plan of Boomtown, Inc. of our report dated November 15, 1996, except for
the first paragraph of Note 13 as to which the date is November 18, 1996, with
respect to the consolidated financial statements of Boomtown, Inc. included in
the Current Report on Form 8-K of Hollywood Park, Inc. dated July 15, 1997,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Reno, Nevada
July 10, 1997
<PAGE>
EXHIBIT 99.1
Boomtown, Inc. Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors
Boomtown, Inc.
We have audited the accompanying consolidated balance sheets of Boomtown, Inc.
(the "Company") as of September 30, 1995 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based upon 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 consolidated 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 consolidated financial position of Boomtown, Inc. at
September 30, 1995 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Reno, Nevada
November 15, 1996, except
for the first paragraph of
Note 13 as to which the
date is November 18, 1996
F-1
<PAGE>
Boomtown, Inc.
Notes to consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of presentation and consolidation - The consolidated financial statements
include the accounts of Boomtown, Inc. (the "Company" or "Boomtown"), a Delaware
corporation and all of its controlled subsidiaries and partnerships. The
significant operating subsidiaries include gaming operations in Reno, Las Vegas
("Blue Diamond"), Biloxi ("Mississippi Partnership") and New Orleans ("Louisiana
Partnership"). All significant intercompany accounts and transactions have been
eliminated.
Interim financial information - The interim financial information is unaudited.
In the opinion of management, all adjustments considered necessary for a fair
presentation of its consolidated financial position at March 31, 1997, the
consolidated results of operations and consolidated cash flows for the six
months ended March 31, 1997 and 1996, have been included. All adjustments to the
interim financial information were of a normal recurring nature and consistent
with the adjustments made in the consolidated financial statements for the
fiscal years ended September 30, 1994, 1995, and 1996, respectfully. The
Company's operations are seasonal and thus operating results for the six months
ended March 31, 1997 should not be considered indicative of the results that may
be expected for the fiscal year ending September 30, 1997.
Boomtown's Merger with Hollywood Park, Inc. ("Hollywood Park") On April 23,
1996, Boomtown entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Hollywood Park relating to the strategic combination of
Hollywood Park and Boomtown. Pursuant to the Merger Agreement and subject to the
terms and conditions set forth therein, Boomtown would become a wholly owned
subsidiary of Hollywood Park (the "Merger"). Pursuant to the Merger Agreement,
at the effective date of the Merger (the "Effective Date"), each issued and
outstanding share of Boomtown Common Stock will be converted into the right to
receive 0.625 (the "Exchange Ratio") of a share of Hollywood Park Common Stock.
The Merger is intended to be structured as a tax-free reorganization for income
tax purposes and will be accounted for as a purchase for financial reporting
purposes.
Use of Estimates - The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting principles which
require the Company's management to make estimates and assumptions that affect
the amounts reported therein. Actual results could vary from such estimates.
Cash and cash equivalents - Cash and cash equivalents consist of cash on hand
and in banks, interest bearing deposits and highly liquid investments with
original maturities of three months or less. Cash equivalents are carried at
cost which approximates market. The Company paid interest of approximately
$107,000 (net of $5,895,000 capitalized), $13,111,000 (net of $701,000
capitalized), and $13,793,000 (none capitalized) and income taxes of
approximately $1,089,000, $746,000, and $688,500 during the years ended
September 30, 1994, 1995 and 1996, respectively. Long-term debt incurred for
the purchase of property and equipment during the years ended September 30,
1994, 1995 and 1996 amounted to approximately $6,296,000, $1,677,000 and
$2,763,000, respectively.
F-2
<PAGE>
Concentrations of credit risk - The Company places its cash in short-term
investments which potentially subject the Company to concentrations of credit
risk. Such investments are made with financial institutions having a high
credit quality and are collateralized by securities issued by the United States
Government and other investment grade securities.
Inventories - Inventories consist primarily of fuel and petroleum products, food
and beverage stock and hotel linens, uniforms and supplies and are stated at the
lower of cost (determined using the first-in, first-out method) or market.
Depreciation and amortization - Depreciation and amortization of property, plant
and equipment is provided on the straight-line method over the lesser of the
estimated useful lives of the respective assets or the lease term. The
estimated useful lives for each class of property, plant and equipment are as
follows:
<TABLE>
<S> <C>
Buildings and improvements 20-35 years
Furniture and fixtures 7-10 years
Gaming equipment 5-10 years
Outdoor signs 10-20 years
Other assets 3-15 years
</TABLE>
In connection with the Swap Agreement (see Note 4) Blue Diamond's property and
equipment were written down to net realizable value as of September 30, 1996 and
depreciation and amortization ceased.
Intangibles - Goodwill relates to the acquisition of the Reno property in 1988
and the investment in lease (at September 30, 1995) which resulted when the
Company purchased the remaining 50% ownership interest in Blue Diamond (Note 4).
Also, as more fully discussed in Note 4, Blue Diamond had an option to purchase
the Resort during a period of six months beginning in May 1996, and ending in
November 1996. However, through execution of the "Swap Agreement" as discussed
in Note 4, Roski and Boomtown entered into an agreement to terminate the
"Property Lease", whereby Boomtown would immediately cease operations of the
Blue Diamond Resort simultaneous with the closing of Boomtown's merger with
Hollywood Park, Inc., as previously discussed. As a result of the Swap
Agreement, the investment in lease was expensed in fiscal 1996. The additional
goodwill at March 31, 1997, relates to the Company's purchase of the minority
partner's interest in Louisiana - I Gaming, L.P. in December 1996 (Note 13)
(unaudited). Goodwill is being amortized on the straight-line method over
twenty-five years. Accumulated amortization at September 30, 1995 and 1996 was
approximately $3,314,000 and $3,145,000, respectively.
The carrying value of intangibles is periodically evaluated by management and if
facts and circumstances (including undiscounted cash flows) indicate an
impairment, the amount is reduced and an impairment loss is recorded.
Gaming revenues and promotional allowances - In accordance with industry
practice, the Company recognizes as gaming revenues the net win from gaming
activities, which is the difference between gaming wins and losses. Revenues in
the accompanying consolidated statements of operations exclude the retail value
of rooms, food and beverage and other promotional allowances provided to
customers without charge.
F-3
<PAGE>
The estimated costs of providing such promotional allowances have been
classified as gaming operating expenses through interdepartmental allocations as
follows (in thousands):
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Food and beverage $5,433 $11,638 $12,746
Hotel 172 400 299
Other 43 167 210
------ ------- -------
Total $5,648 $12,205 $13,255
====== ======= =======
</TABLE>
Stock based compensation - The Company accounts for its stock option plans in
accordance with the provisions of the Accounting Principles Board's Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees". In 1995, the Financial
Accounting Standards Board released Statement of Financial Accounting Standard
No. 123 (SFAS 123), "Accounting for Stock Based Compensation". SFAS 123
provides an alternative to APB 25 and is effective for fiscal years beginning
after December 15, 1995. The Company expects to continue to account for its
stock plans in accordance with APB 25. Accordingly, SFAS 123 is not expected to
have a material impact on the Company's consolidated financial position or
results of operations.
Advertising costs - Advertising costs are expensed as incurred. Advertising
expenses for the years ended September 30, 1994, 1995 and 1996 totaled
approximately $2.6 million, $6.7 million and $6.3 million, respectively.
Future development costs - The Company capitalizes costs associated with new
gaming projects until 1) the project is no longer considered viable and the
costs are expensed or 2) the likelihood of the project is relatively certain and
the costs are reclassified to pre-opening and expensed when operations commence.
During the year ended September 30, 1995, the Company expensed approximately
$6.1 million of future development costs. During fiscal 1996, future development
costs were approximately $1.6 million and included costs associated with its
pending merger with Hollywood Park, Inc. and its proposed gaming project in the
state of Indiana. These amounts are classified as discontinued projects and
future development costs in the accompanying statements of operations.
Pre-opening expenses - Pre-opening expenses were associated with the
acquisition, development and opening of the Company's new casino resorts. These
amounts were expensed in fiscal 1994, when the casinos commenced operations and
include items that were capitalized as incurred prior to opening and items that
are directly related to the opening of the property and are non-recurring in
nature.
Income taxes - The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes",
which requires the Company to record deferred income taxes for temporary
differences that are reported in different years for financial reporting and for
income tax purposes and classifies deferred tax liabilities and assets into
current and non-current amounts based on the classification of the related
assets and liabilities.
Minority interest - Minority interest represents the minority limited partners'
proportionate share of the equity and operations of the consolidated
partnerships.
F-4
<PAGE>
Net loss per share - Net loss per share is computed using the weighted average
number of shares of Common Stock outstanding and common equivalent shares from
stock options and warrants are excluded from the computation because their
effect is antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of primary and fully diluted earnings per share is not expected to be material.
Fully diluted loss per share amounts are the same as primary per share amounts
for the periods presented.
Reclassifications - Certain reclassifications have been made to the 1994, 1995
and 1996 consolidated financial statements to conform to the 1997 presentation.
2. Issuance of Common Stock and Warrants
During October 1992, the Company sold 2,901,786 shares of common stock in an
initial public offering which generated net proceeds of approximately $26
million after deducting underwriting discounts and expenses. In addition, a
stockholder of the Company (the "Selling Stockholder") sold 835,714 shares of
common stock in the public offering and received proceeds to repay a
subordinated term note and $2 million to redeem all of its outstanding preferred
stock held by the Selling Stockholder.
In connection with the Company's initial public offering, the Company sold to
the underwriters for an aggregate of $25,000, warrants to purchase 162,500
shares of the Company's common stock at $12 per share. The warrants expire
October 1997 and 50% became exercisable in October 1993 and the remaining 50%
became exercisable in October 1994. At any time after October 1994 and prior to
the expiration of the warrants, the holders have a one time right to demand a
registration of the underlying shares, with expenses of such registration to be
paid by the Company.
During June 1993, the Company sold 2,223,380 shares of common stock in a public
offering which generated net proceeds of approximately $57.2 million after
deducting underwriting discounts and expenses. The proceeds were used to fund a
portion of the construction costs of the new gaming facilities and for general
corporate purposes. In addition, a stockholder of the Company sold 1,686,620
shares of common stock in the public offering and received proceeds, net of
underwriting discounts, of $43.9 million.
During November 1993, in connection with the placement of the First Mortgage
Notes (Note 5), the Company issued 472,500 warrants to purchase Common Stock at
$21.19 per share. The warrants became exercisable on December 10, 1993, and
expire on November 1, 1998.
F-5
<PAGE>
3. Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
------------------ March 31,
1995 1996 1997
-------- -------- ---------
(unaudited)
<S> <C> <C> <C>
Buildings and improvements $102,979 $105,097 $106,086
Equipment 24,834 29,834 34,008
Boat 18,925 18,925 18,925
Land and land improvements 17,397 17,690 17,689
Furniture and fixtures 13,166 13,428 14,587
Construction-in-progress 1,631 1,370 2,403
-------- -------- --------
178,932 186,344 193,699
Less accumulated depreciation
and amortization 27,977 35,949 41,268
Write-down of assets in connection
with the Swap Agreement (see Note 4) -- 5,065 5,065
-------- -------- --------
$150,955 $145,330 $147,366
======== ======== ========
</TABLE>
The construction-in-progress amounts at September 30, 1995 and 1996, relate
primarily to the costs associated with the on-going construction of the land-
based facility in Harvey, Louisiana.
Amortization of leased assets is included in depreciation and amortization
expense.
4. Related Party Transactions
Stockholder note - The note receivable from a stockholder was issued in
connection with the stockholder's purchase of the Company's common stock and
therefore has been presented as a reduction of stockholders' equity in the
accompanying consolidated balance sheets. This note, as amended, bears interest
at 6% with interest and principal payable in four annual installments commencing
April 7, 1998 (unaudited).
IVAC note - Prior to the commencement of operations at Boomtown Las Vegas, the
Company loaned IVAC, a California general partnership controlled by Edward P.
Roski ("Roski") and a member of the Company's Board of Directors (the
"Stockholder"), approximately $27.3 million (the "IVAC Notes") for purposes of
constructing the Blue Diamond Resort (the "Resort"). One of the notes has a
principal balance of $7.5 million and the other note, a variable principal note,
has a principal balance of $19.8 million at September 30, 1995 and 1996, and
both notes bear interest at 10%. These notes were written down to their net
realizable value under the Swap Agreement of approximately $8.5 million at
September 30, 1996. The IVAC Notes are secured by separate deeds of trust on
the resort, which deeds of trust are subordinate to separate deeds of trust
securing Blue Diamond and the Company's obligations in connection with the
Indenture. As defined in the terms of the IVAC Notes, interest became payable
upon commencement of Blue Diamond's Las Vegas operations. Interest income
related to the IVAC Notes amounted to approximately $2,729,000 during the years
ended September 30, 1995 and 1996, respectively and offsets a portion of the
rent discussed in the following paragraph. Interest receivable from IVAC at
September 30, 1995 and 1996 amounted to approximately $227,000, respectively.
Prior to commencing gaming operations at the Las Vegas site on May 20, 1994, the
Company owned 50% of Blue Diamond and the Stockholder owned the remaining 50% of
Blue Diamond. After commencement of operations of Blue Diamond, the Company
exercised its option to
F-6
<PAGE>
purchase all of the stockholder's ownership interest in Blue Diamond for 714,286
shares of the Company's common stock. Blue Diamond is leasing the resort from
IVAC for an initial term of five years with certain renewal options in certain
very limited circumstances. Blue Diamond had an option to purchase the resort
from IVAC exercisable during a period of six months beginning in May 1996, in
exchange for, at IVAC's option, either 1) shares of the Company's common stock
(which would be at a minimum of 2.5 million shares) or 2) cash (which amount
would be a minimum of $33 million). At the time of exercise, the investment in
lease would be capitalized as a part of the resort purchase price. In addition,
the Company's loans to IVAC including accrued interest (preceding paragraph)
would be capitalized as part of the resort purchase price.
Termination of Las Vegas Property Lease - On August 12, 1996, Boomtown, Blue
Diamond, Hollywood Park, Roski, IVAC and Majestic Realty entered into the Blue
Diamond Swap Agreement (the "Swap Agreement") pursuant to which the parties
agreed that, upon consummation of the Merger, and contingent upon the closing of
the Merger, Boomtown and Blue Diamond (or any transferee thereof as set forth in
the Swap Agreement) would exchange their entire interest in the Blue Diamond
Resort (the "Resort") (including the IVAC Loans), and effectively transfer all
interest in the Resort to Roski, in exchange for a $5.0 million unsecured
promissory note (the "First Note") and will have an unsecured promissory note
(the "Second Note") equal in amount to the note to be issued by Hollywood Park
to Roski for the purchase of his Boomtown Common Stock referred to in a
following paragraph (valued at approximately $3.5 million) and assumption by
Roski, IVAC or an affiliate of certain liabilities (the "Swap"). The First Note
has an interest rate equal to the prime rate plus one and one half percent
(1.5%) per annum and will provide for annual principal payments of one million
dollars ($1,000,000) plus accrued interest and maturing on the date that is five
years after the Exchange Date (as such term is defined in the Swap Agreement).
The Second Note will have an interest rate equal to the prime rate plus one-half
percent (.5%) per annum and will provide for a payment of all principal plus
accrued interest on the date that is three (3) years after the Exchange Date.
Consummation of the Swap is subject to obtaining all necessary Governmental
approvals, including gaming approval.
In exchange for its interest in the Resort, the Company will receive notes from
Roski payable to Boomtown with an estimated value totaling $8.5 million, an
estimated cash payment of $2.1 million, release from lease obligations under the
Resort lease, Roski's assumption of certain liabilities and note obligations
totaling approximately $3.8 million and the ongoing expenses of the Resort.
Additionally, Roski will assume all operating leases including any residual
balances due under such leases. The Swap Agreement requires approvals from
applicable gaming authorities and Boomtown intends to seek the consent of the
holders of a majority of the outstanding principal amount on the Notes where
defined. The Swap would be effected immediately following the Merger which is
expected to be completed by the end of the first quarter of calendar 1997.
In accordance with the terms of the Swap Agreement, with certain exceptions set
forth in the Swap Agreement, the Company will continue to operate the property
until consummation of the Merger. Boomtown and Blue Diamond will be responsible
for the liabilities of the Resort prior to the Swap and Roski will be
responsible for the liabilities of the Resort subsequent to the Swap. In
addition, Roski will resign from Boomtown's Board of Directors, effective as of
the Exchange Date. Subject to certain conditions set forth in the Swap
Agreement, the Swap may be effectuated through any structure agreed upon by
Boomtown and Hollywood Park. If the Swap were not consummated for any reason,
Boomtown would continue to operate the property through the
F-7
<PAGE>
expiration of the lease term in July 1999, and the IVAC Notes would be required
to be repaid to Boomtown at such time.
Additionally, on August 12, 1996, Hollywood Park and Roski further entered into
a Stock Purchase Agreement (the "Stock Purchase Agreement") pursuant to which
Hollywood Park will, concurrently with the Swap, purchase the stock in Boomtown
held by Roski ("Roski Stock") for its market price on the date of the Swap
(estimated to be $3.5 million). The purchase price will be paid through the
issuance of an unsecured promissory note having an interest rate equal to the
prime rate plus one percent (1%) per annum and providing for four equal annual
principal payments plus accrued interest and maturing on the date that is four
years after the Exchange Date. The Stock Purchase Agreement may also be
terminated by Hollywood Park in the event that Boomtown and Hollywood Park, in
accordance with the provisions set forth in the Swap Agreement, elect to utilize
a structure to effect the Swap which would require Roski to retain the Roski
Stock.
The Company took a non-cash, pre-tax charge of $36.6 million related to the Swap
Agreement. The charge is comprised of the write-off of the Company's investment
in lease of $12.7 million, an $18.9 million write-down of the related party
notes receivable to $8.5 million and the write-down of the remaining net assets
less the liabilities assumed by Roski of $5.0 million. In the event that the
actual amount of the Second Note is less than $3.5 million the Company will
incur an additional loss on the sale of Blue Diamond.
The Company owns an 85% interest in the Mississippi Partnership. As a result of
executing a lease for the property upon which the Mississippi Partnership's
Biloxi, Mississippi gaming facility is located (Note 7), a 15% limited
partnership interest was transferred to an individual (the "Lessor") in lieu of
base rent payments for the first two years. After three years of operation,
either the Company or the Lessor may exercise an option to convert the Lessor's
ownership interest into the Company's common stock or cash, at the option of the
Lessor, at an amount calculated per the agreement which is based upon a multiple
of earnings.
The Company owned a 92.5% interest in the Louisiana Partnership. The remaining
7.5% limited partnership interest was owned by the Lessor identified in the
preceding paragraph (the "Partner").
Quarterly distributions to all partners will be required in both the Mississippi
Partnership and the Louisiana Partnership based upon the pro-rata share of cash
flows generated, as defined. Subsequent to year-end Boomtown entered into an
agreement to purchase the Partner's 7.5% partnership interest (see Note 13).
F-8
<PAGE>
5. Long-Term Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
------------------ March 31,
1995 1996 1997
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
11.5% first mortgage notes (net of
unamortized discount of
approximately $2.7 million,
$2.4 million, and $2.3 millions
as of September 30, 1995, 1996
March 31, 1997, respectively) $100,842 $101,052 $101,167
13% note payable 4,336 3,227 2,615
Capital lease obligations 1,126 2,734 668
11.5% notes payable 2,431 1,300 278
12.25% note payable 760 448 3,475
-------- -------- --------
109,495 108,761 108,203
Less amounts due within one year 2,948 5,032 5,254
-------- -------- --------
$106,547 $103,729 $102,949
======== ======== ========
</TABLE>
On November 24, 1993, the Company completed the private placement of $103.5
million of 11.5% First Mortgage Notes Due November 2003 (the "Notes"). Interest
on the Notes is payable semi-annually. The Notes will be redeemable at the
option of the Company, in whole or in part, on or after November 1, 1998, at a
premium to the face amount ($103.5 million) which decreases on each subsequent
anniversary date, plus accrued interest to the date of redemption. The Notes
are secured by substantially all of the Company's assets.
The Indenture governing the Notes places certain business, financial and
operating restrictions on the Company and its subsidiaries including, among
other things, the incurrence of additional indebtedness, issuance of preferred
equity interests and entering into operating leases; limitations on dividends,
repurchases of capital stock of the Company and redemptions of subordinated
debt; limitations on amending existing partnership and facility construction
agreements; and limitations on the use of proceeds from the issuance of the
Notes.
The 13%, 11.5% and 12.25% notes payable are secured by property, plant and
equipment with net book values of approximately $17,296,000, $2,922,000 and
$718,000, at September 30, 1996. The notes mature in January 1999, September
1997, and January 1998, respectively.
The capital lease obligations are secured by equipment with a net book value of
$3,632,000 at September 30, 1996. The capital lease obligations mature between
September 1997 and January 1998.
Principal maturates of long-term debt by fiscal year as of September 30, 1996
are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 5,032
1998 2,084
1999 593
2000 --
2001 --
Thereafter 103,500
--------
</TABLE>
F-9
<PAGE>
<TABLE>
<S> <C>
$111,209
========
</TABLE>
6. Income Taxes
The (benefit) provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------
1994 1995 1996
------ -------- --------
<S> <C> <C> <C>
Current:
Federal $ 947 ($ 1,805) ($ 669)
State 195 768 870
------ -------- --------
1,142 (1,037) 201
Deferred (primarily federal) (3,921) 1,913 593
------ -------- --------
($2,779) $ 876 $ 794
====== ======== ========
</TABLE>
The difference between the Company's (benefit) provision for income taxes as
presented in the accompanying consolidated statements of operations and a
provision (benefit) for income taxes computed at the federal statutory rate is
comprised of the items shown in the following table as a percentage of pre-tax
earnings (loss):
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------
1994 1995 1996
---------- --------- ---------
<S> <C> <C> <C>
Income tax (benefit) provision
at the statutory rate ( 34.0%) ( 34.0%) ( 34.0%)
Goodwill amortization 1.6 8.3 0.8
Meals and entertainment 1.3 17.5 0.4
Loss on investments 5.4 0.0 0.0
Loss on sale of Blue Diamond 0.0 0.0 31.7
State income taxes, net of federal benefit (1.4) 41.0 1.8
Merger costs 0.0 0.0 1.3
Operating loss benefit limitation 0.0 8.0 0.0
Others, net 0.9 3.0 0.3
------ ----- ------
( 26.2%) 43.8% 2.3%
====== ===== ======
</TABLE>
F-10
<PAGE>
The significant components of the deferred income tax assets and liabilities
included in the accompanying consolidated balance sheets are as follows (in
thousands):
<TABLE>
<CAPTION>
September 30,
-------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred income tax assets:
Pre-opening costs, net of amortization $3,768 $2,607
Compensation accrued for stock
appreciation rights and stock option plans 1,062 1,062
Loss on sale of Blue Diamond 0 1,722
Alternative minimum tax credit
carryforwards 887 1,071
Capital loss carryforwards 575 6,911
Operating loss carryforwards 160 160
Merger expenses 0 402
Accrued expenses 1,410 1,829
Less valuation allowance - loss
carryforwards and merger expenses ( 735) (7,473)
-------- --------
Total deferred income tax assets 7,127 8,291
-------- --------
Deferred income tax liabilities:
Excess of book basis over tax basis
of assets acquired (3,232) (3,187)
Depreciation (3,692) (5,466)
Prepaid expenses (1,322) (1,101)
State deferreds ( 0) (249)
-------- --------
Total deferred income tax liabilities (8,246) (10,003)
-------- --------
Net deferred income tax liability ($1,119) ($1,712)
======== ========
</TABLE>
7. Commitments and Contingencies
Operating leases - The Company and its subsidiaries lease facilities, billboards
and certain equipment under noncancelable operating lease arrangements with
terms in excess of one year. The aggregate future minimum annual rental
commitments as of September 30, 1996 under operating leases having noncancelable
lease terms in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
Related Party
(Note 4) Other
-------------- -------
<S> <C> <C>
1997 $ 5,429 $10,257
1998 5,429 3,437
1999 3,456 1,568
2000 0 451
2001 0 340
Thereafter 0 871
------- -------
$14,314 $16,924
======= =======
</TABLE>
Termination of Las Vegas property lease - As more fully discussed in Note 4 the
Company entered into the Swap Agreement pursuant to which Boomtown will be
released from its obligations under the Resort Lease.
F-11
<PAGE>
Barge lease - The Mississippi Partnership sold the barge in Biloxi, Mississippi
and the building upon the barge housing the casino to HFS Gaming Corporation
("HFS"), a Delaware corporation. $2.4 million of the $11 million sales price
was held by the Company to be used for the development and construction at the
Mississippi casino site. Simultaneously with the sale, the Mississippi
Partnership leased the barge and building for 25 years and was granted the
option to purchase the leased asset for fair market value at the end of the
lease or upon the occurrence of certain events as defined in the lease
agreement. In the event of default by the Mississippi Partnership, HFS may
terminate the lease or require the Mississippi Partnership to repurchase the
assets for fair market value. HFS agreed to provide certain marketing services
for the Mississippi Partnership. The Mississippi Partnership will pay HFS
aggregate rent under the lease and payments for services under the marketing
agreement equal to approximately 20% of the annual adjusted earnings before
interest, taxes, depreciation and amortization, as defined, for the Partnership
(including the proposed hotel). As the lease payments represent contingent
rentals, they are excluded from the future minimum annual rental commitments
schedule above. HFS subsequently transferred its contractual rights to National
Gaming Corporation, Inc. ("NGC").
In November, 1995 Boomtown executed an agreement with NGC whereby the $2.4
million was returned to NGC in return for reduction of the EBITDA distributions
from 20% to 16%. Additionally, the Company secured an option to buy the barge
from NGC as well as to buy out the EBITDA participation at a cost approximating
the original investment made by HFS less the $2.4 million that was paid. The
option terminates on March 31, 1997, but is renewable for an additional two
years for $100,000 a year.
Tidelands lease - The Mississippi Partnership leases submerged tidelands at the
casino site from the State of Mississippi. Annual rent is $525,000 and the term
of the lease is ten years with a five-year option to renew. Rent in the second
five-year period of the lease will be determined in accordance with Mississippi
law. Annual rent in the five-year renewal term will be based on an appraisal
obtained by the State of Mississippi.
Land lease with a related party - The Company signed an agreement to lease
property through the Mississippi Partnership intended for the development,
construction and operation of the Mississippi gaming facility. The Mississippi
Partnership invested $2 million as a long-term deposit on the lease and
committed to annual rentals of base rent (estimated at $2 million) and
percentage rent (5% of adjusted gaming win over $25 million), plus $200,000 per
year during the first ten years of the lease. The Mississippi Partnership
exchanged a 15% interest with the lessor in lieu of base rent payments for the
first two years. Rent expense is being charged to operations for the two year
period and the lessor's limited partner capital account is being credited. The
lease term is 99 years and is cancelable upon one year's notice.
Rental expense - Included in the accompanying consolidated statements of
operations, rental expense was approximately, $3,879,000 (including $389,000 in
contingent rentals), $16,102,000 (including $511,000 in contingent rentals) and
$19,243,000 (including $729,000 in contingent rentals) during the years ended
September 30, 1994, 1995 and 1996, respectively. During the years ended
September 30, 1994, 1995, and 1996, $2,418,000, $8,140,000 and $8,363,000,
respectively, of rental expense was with related parties.
Self-insurance - The Company maintains a plan of partial self-insurance for
medical and dental coverage for substantially all full-time employees and their
dependents. Claims aggregating between $50,000 and $75,000 or more per
individual during the policy year are fully covered by
F-12
<PAGE>
insurance. Management has established reserves considered adequate to cover
estimated future payments on claims incurred through September 30, 1996.
Gaming license requirements - In October 1994, the Mississippi Gaming Commission
adopted a regulation that requires, as a condition of licensure or license
renewal, for a gaming establishment's plan to include various expenditures
including parking facilities and infrastructure facilities amounting to at least
25% of the casino cost. Although the Company believes they have satisfied this
requirement, there can be no assurance the Mississippi Gaming Commission will
not require further development on the casino site including hotel rooms and
additional parking facilities. Additionally, there can be no assurance that the
Partnership will be successful in completing such a project or that the
Partnership would be able to obtain a waiver if the Partnership decides not to
build.
8. FunFlight Program
The Company operates a gaming junket program under the name Boomtown FunFlights.
This program contracts with agents in various cities to book passengers on a
chartered airplane for either overnight or "turn-around" flights to Boomtown
Reno. The agents are paid a commission for each passenger booked. The
passenger pays a nominal "boarding fee" which is recorded as revenue upon the
passenger's arrival at the casino. The Company pays all costs associated with
this program.
9. Stock Option plans
Stock Option Plan - On March 8, 1991, the Company's Board of Directors adopted a
non-qualified stock option plan for officers and key employees (the "Option
Plan"). The Option Plan authorized the grant of up to 198,744 shares of the
Company's common stock. All available shares under the Option Plan were granted
retroactive to October 1, 1989 to one individual at $.66 per share subject to
certain contingent exercisability provisions. This option was amended in 1992,
to provide full vesting and exercisability as of June 30, 1992, and it expires
in March 2001.
The Option Plan was amended and restated on September 10, 1992 to provide for
the granting to employees of the Company of incentive stock options and for the
granting of non-statutory stock options and stock purchase rights to employees
and consultants of the Company. The options granted will be for various terms
not exceeding ten years and will vest over periods determined at the date of
grant. The exercise price for incentive stock options granted will be not less
than the fair market value of the common stock at the date of grant. At
September 30, 1996, the total number of shares reserved for issuance under the
Option Plan is 1,892,066 of which options to purchase 1,726,742 shares have been
granted at exercise prices ranging from $.66 to $6.25 per share. At September
30, 1996, options to purchase 586,992 shares of the Company's common stock at
exercise prices ranging from $.66 to $6.25 per share were exercisable.
During the year ended September 30, 1996 the Company's Board of Directors
repriced certain non-executive options of the Option Plan totaling 165,000
shares to $9.00 from prices ranging from $11.50 to $20.75. Subsequently a
repricing occurred concurrent with the Merger Agreement (April 23, 1996) whereby
virtually all options outstanding, under the Option Plan as of such date were
repriced to $6.25.
1992 Directors' Option Plan - On September 10, 1992, the Company's Board of
Directors adopted a directors' option plan (the "Directors' Plan") whereby each
non-employee director is granted an option to purchase 3,900 shares of the
Company's' common stock upon joining the Board and an
F-13
<PAGE>
option to purchase 1,300 shares of common stock on each anniversary date
thereafter during their tenure as a director. The options granted have a ten-
year term and vest ratably over a three-year period. The exercise price is the
fair market value of the common stock on the date of grant. Options granted
under the Directors' Plan may be exercised only (1) while the optionee director
is serving as a director on the Company's Board, (2) within twelve months after
termination by death or disability, or (3) within three months after termination
as a director for any other reason. A total of 45,000 share have been granted
under this plan at original exercise prices ranging from $4.88 to $26.50 per
share. At September 30, 1996, options to purchase 19,064 shares of the Company's
common stock at prices ranging from $12.00 to $26.50 were exercisable under this
plan.
1993 Employee Stock Bonus Plan - On February 25, 1993, the Company's Board of
Directors adopted a Stock Bonus Plan (the "Bonus Plan") which covers certain
employees of the Company. The Company has authorized and reserved 5,000 shares
of common stock for granting under the Bonus Plan. The shares granted under the
plan vest ratably over a four-year period. At September 30, 1996, the Company
has not granted any shares under the Bonus Plan.
10. 401(k) Plan
On January 1, 1993, the Company's Board of Directors approved a voluntary
savings and investment plan (the "401(k) Plan"). The 401(k) Plan is available
to all eligible employees of the Company and subsidiaries. Under the 401(k)
Plan the Company will match 50% of employees' contributions up to a maximum of
5% of the employees' wages. The Company's 401(k) Plan expense was
approximately, $233,000, $384,000 and $623,000 during the years ended September
1994, 1995, and 1996, respectively.
11. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported on the accompanying
consolidate balance sheets for cash and cash equivalents approximates their fair
value.
Notes receivable: The fair value of the Company's notes receivable at September
30, 1995 was estimated by discounting the future cash flows using interest rates
determined by management to reflect the credit risk and remaining maturities of
the related notes receivable. The September 30, 1996 value was based on the
negotiated price with Roski as discussed in Note 4.
11.5% first mortgage notes: The fair value of the Company's other long-term
notes are estimated based upon market quotes of notes with similar
characteristics and remaining maturities.
Other long-term debt: The fair values of the Company's notes payable and
capital lease obligations are estimated using discounted cash flow analyses,
based on the Company's current incremental borrowing rates for similar types of
borrowing instruments.
The carrying amounts and fair values of the Company's financial instruments at
September 30, 1995 and 1996 are as follows (in thousands):
F-14
<PAGE>
<TABLE>
<CAPTION>
September 30, 1995
-----------------------
Carrying
Amount Fair Value
-------- ----------
<S> <C> <C>
Cash and cash equivalents $ 20,775 $ 20,775
Notes receivable 27,294 26,652
11.5% first mortgage notes 100,842 95,738
Other long-term debt 8,653 8,390
<CAPTION>
September 30, 1996
-----------------------
Carrying
Amount Fair Value
-------- ----------
<S> <C> <C>
Cash and cash equivalents $ 23,101 $ 23,101
Notes receivable 8,683 7,947
11.5% first mortgage notes 101,052 106,605
Other long-term debt 7,709 7,606
</TABLE>
12. Summarized Consolidating Financial Information (unaudited)
In connection with the Notes issued in November 1993 (Note 5), the subsidiaries
of the Company (guarantor entities) have guaranteed the Notes. Summarized
consolidating financial information follows:
Summarized Consolidating Financial Information
As of and for the year ended September 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Guarantor Entities
------------------------------------------
Boomtown, Blue Diamond Boomtown Non-wholly Elimination's & Boomtown
Inc. Hotel & Hotel & Owned Reclassifications Inc.
(Parent Co.) Casino, Inc. Casino, Inc. Subsidiaries Dr(Cr) (consolidated)
-------------------------------------------------------------------------------------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 24,346 $ 4,756 $ 6,779 $ 11,170 ($ 10,373) $ 36,678
Advances to affiliates 112,391 -- -- -- ( 112,391) --
Non-current assets 44,360 3,080 59,576 96,087 ( 33,793) 169,310
-------- -------- --------- ---------- ----------- ---------
$181,097 $ 7,836 $ 66,355 $ 107,257 ($ 156,557) $ 205,988
======== ======== ========= ========== =========== =========
Current liabilities $ 6,652 $ 11,054 $ 4,523 $ 15,178 ($ 10,373) $ 27,034
Non-current liabilities 106,159 -- 209 2,460 ( 261) 108,567
Advances from parent -- 33,785 11,479 67,127 ( 112,391) --
Equity 68,286 (37,003) 50,144 22,492 ( 33,532) 70,387
-------- -------- --------- ---------- ----------- ---------
$181,097 $ 7,836 $ 66,355 $ 107,257 ($ 156,557) $ 205,988
======== ======== ========= ========== =========== =========
Revenues $ -- $ 44,721 $ 67,618 $ 123,703 $ -- $ 236,042
Income (loss) from operations ($ 21,455) ($ 26,007) $ 3,602 $ 18,596 $ -- ($ 25,264)
Equity in earnings (loss) of
consolidated subsidiaries
and partnerships ($ 12,559) $ -- $ -- $ -- $ 12,559 $ --
Net loss ($ 22,499) ($ 24,194) $ 1,496 $ 9,494 $ 645 ($ 35,058)
Net cash provided by (used in)
operating activities $ 1,503 ($ 3,606) ($ 308) $ 13,781 $ -- $ 11,370
Net cash used in
investing activities ( 544) ( 1,928) ( 3,075) -- ( 5,547)
Net cash provided by (used in)
financing activities ( 1,857) 4,083 4,564 ( 10,287) -- ( 3,497)
-------- -------- --------- ---------- ----------- ---------
Net increase (decrease) in cash
and cash equivalents ( 354) ( 67) 2,328 419 -- 2,326
Cash and cash equivalents:
Beginning of year 10,811 2,630 1,334 6,000 -- 20,775
-------- -------- --------- ---------- ----------- ---------
End of year $ 10,457 $ 2,563 $ 3,662 $ 6,419 $ -- $ 23,101
======== ======== ========= ========== =========== =========
</TABLE>
Notes to Summarized Consolidated Financial Information (unaudited)
(1) Blue Diamond Hotel & Casino, Inc. is a wholly-owned subsidiary that is
consolidated in the accompanying consolidated financial statements.
(2) Boomtown Hotel and Casino, Inc. is a wholly-owned subsidiary that is
consolidated in the accompanying consolidated financial statements. These
amounts do not include the operations of the Company's wholly-owned
subsidiaries which are general partners of the Company's non-wholly owned
subsidiaries. The operations of such wholly-owned subsidiaries are
insignificant and have been included in the column "Non-wholly Owned
Subsidiaries."
(3) "Non-wholly Owned Subsidiaries" include Boomtown Inc.'s majority-owned
subsidiaries in Mississippi and Louisiana and 100% of the assets,
liabilities and equity of the limited partnerships formed to operate the
gaming facilities in those states.
(4) Eliminations consist of Boomtown Inc.'s (a) investment in the guarantor
entities, (b) advances to the guarantor and non-guarantor entities and
subsidiaries and (c) equity in earnings (loss) of consolidated subsidiaries
and partnerships. The advances are subordinated in right of payment to the
guarantees of the Notes.
F-15
<PAGE>
Summarized Consolidating Financial Information
As of and for the six months ended March 31, 1997
(in thousands, unaudited)
<TABLE>
<CAPTION>
Guarantor Entities
-----------------------------------------------------
Blue
Diamond Boomtown Louisiana-I Mississippi-I Elimination's &
Boomtown, Hotel & Hotel & Gaming, Gaming, Reclassifications Boomtown,
Inc. Casino, Inc. Casino, Inc. L.P. L.P. Dr (Cr) Inc.
(Parent Co.) (1) (2) (3) (4) (5) (consolidated)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets $ 22,348 $ 4,837 $ 6,755 $ 5,298 $ 5,199 ($ 13,490) $ 30,947
Advances to affiliates 115,349 -- -- -- -- ( 115,349) --
Non-current assets 48,917 2,651 59,614 60,126 42,137 ( 36,793) 176,652
---------------------------------------------------------------------------------------------------
$186,614 $ 7,488 $ 66,369 $ 65,424 $ 47,336 ($165,632) $207,599
===================================================================================================
Current liabilities $ 11,747 $12,889 $ 4,376 $ 6,443 $ 9,783 ($ 13,490) $ 31,748
Non-current liabilities 104,608 -- 138 1,549 35 -- 106,330
Advances from parent -- 35,264 13,036 24,967 42,082 ( 115,349) --
Equity 70,259 ( 40,665) 48,819 32,465 ( 4,564) ( 36,793) 69,521
---------------------------------------------------------------------------------------------------
$186,614 $ 7,488 $ 66,369 $ 65,424 $ 47,336 ($165,632) $207,599
===================================================================================================
Revenues $ -- $24,203 $ 28,514 $ 36,451 $ 27,184 $ -- $116,352
Income (loss) from
operation ($ 1,280) ($ 3,289) ($ 1,313) $ 7,881 $ 1,788 $ -- $ 3,787
Equity in earnings (loss)
of consolidated
subsidiaries $ 275 $ -- $ -- $ -- $ -- ($ 275) $ --
Net income (loss) ($ 1,263) ($ 3,662) ($ 1,323) $ 6,249 ($ 893) ($ 96) ($ 988)
Net cash provided by (used
in) operating activities ( 4,276) ( 791) 1,039 7,943 1,885 -- 5,800
Net cash used in
investing activities ( 7) ( 89) ( 2,085) ( 1,552) ( 1,444) -- ( 5,177)
Net cash provided by (used
in) financing activities 926 1,128 1,296 ( 5,780) ( 511) -- ( 2,941)
---------------------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents ( 3,357) 248 250 611 ( 70) -- ( 2,318)
Cash and cash equivalents:
Beginning of year 10,457 2,563 3,662 3,512 2,907 -- 23,101
---------------------------------------------------------------------------------------------------
End of period $ 7,100 $ 2,811 $ 3,912 $ 4,123 $ 2,837 $ -- $ 20,783
===================================================================================================
</TABLE>
- -------------
Notes to Summarized Consolidating Financial Information:
(1) Blue Diamond Hotel & Casino, Inc. is a wholly-owned subsidiary that is
consolidated in the accompanying consolidated financial statements.
(2) Boomtown Hotel & Casino, Inc. is a wholly-owned subsidiary that is
consolidated in the accompanying consolidated financial statements. These
amounts do not include the operations of the Company's wholly-owned subsidiaries
which are general partners of the Company's non wholly-owned subsidiaries.
(3) Louisiana-I Gaming, L.P. is a wholly-owned subsidiary (as of November 18,
1996) that is consolidated in the Company's consolidated financial statements.
(4) Mississippi-I Gaming, L.P. is a non wholly-owned subsidiary of the Company
that is consolidated in the Company's consolidated financial statements.
(5) Eliminations consist of Boomtown, Inc.'s (a) investment in the guarantor
entities, (b) advances to the guarantor and non-guarantor subsidiaries and (c)
equity earnings (loss) of consolidated subsidiaries and partnerships. The
advances are subordinated in right of payment to the guarantees of the Notes.
13. Subsequent Events
Acquisition of Louisiana Partnership Minority Interest - On November 18, 1996
the Company entered into an agreement with Eric Skrmetta, the lessor, in which
the Company agreed to pay $5,673,000 in return for Skrmetta's 7.5% interest in
the Louisiana Partnership in addition to releasing the Company from any and all
claims, liabilities and causes of action of any kind arising from or related to
the Partnership agreement. Terms of the agreement, required Boomtown to
F-16
<PAGE>
make a deposit of $500,000 by December 5, 1996 and the remaining $5,173,000 to
be paid not later than August 10, 1997. Additionally, the $5,173,000 shall be
reduced by a discount for the time that the amount or any portion thereof is
paid in full prior to August 10, 1997.
Merger with Hollywood Park (unaudited) - On June 30, 1997, pursuant to the
Merger Agreement dated as of April 23, 1996, by and among Hollywood Park, HP
Acquisition, Inc., a wholly owned subsidiary of Hollywood Park, and Boomtown, HP
Acquisition, Inc. was merged with and into Boomtown. See "Item 2 Acquisition or
Disposition of Assets - Merger with Boomtown, Inc."
Swap Agreement Consummation (unaudited) - On July 1, 1997, Boomtown completed a
swap pursuant to the Swap Agreement. See "Item 2 Acquisition or Disposition of
Assets - Disposition of Boomtown Las Vegas Resort."
Early Extinguishment of First Mortgage Notes (unaudited) - Concurrently with the
closing of the Merger and the Swap, Hollywood Park supplied the funds necessary
to enable Boomtown to repurchase and retire an aggregate of approximately $102.7
million in principal amount of Boomtown's First Mortgage Notes (the "Notes")
leaving an aggregate of approximately $1.4 million in principal amount of the
Notes outstanding. See "Item 2 Acquisition or Disposition of Assets -
Boomtown's Business - Recent events."
F-17
<PAGE>
Boomtown, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
----------------------- March 31,
1996 1995 1997
----------- ----------- --------------
(unaudited)
--------------
(in thousands)
----------------------------------------
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents (including restricted cash of
approximately $2.4 million as of September 30, 1995) $23,101 $20,775 $20,783
Accounts receivable, net 942 924 1,490
Income taxes receivable 1,815 1,508 254
Inventories 1,725 2,715 1,944
Prepaid expenses 7,333 7,025 4,908
Other current assets 1,762 765 1,567
---------- ----------- -----------
Total current assets 36,678 33,712 30,946
Property, plant and equipment, net 145,330 150,955 147,366
Goodwill, net 6,267 6,644 10,048
Investment in lease, net 0 13,077 0
Notes receivable from a related party 8,683 27,294 8,686
Other assets 9,030 7,516 10,553
---------- ----------- -----------
$205,988 $239,198 $207,599
========== =========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $3,812 $3,747 $3,436
Accrued compensation 3,611 2,930 3,405
Other accrued liabilities 8,823 9,740 13,852
Accrued interest payable 5,005 4,959 5,013
Income taxes payable 751 506 789
Current portion of long-term debt 5,032 2,948 5,254
---------- ----------- -----------
Total current liabilities 27,034 24,830 31,749
Long-term debt (net of unamortized discount of approximately
$2.5 million, $2.7 million, and $2.3 million as of September
30, 1996, and 1995, and as of March 31, 1997, respectively)
September 30, 1996, and 1995, and 103,729 106,547 102,949
Deferred income taxes 3,183 1,621 3,381
Deferred gain on sale leaseback 112 213 0
Minority interest 1,542 741 0
Commitments and contingencies -- -- --
(see Note 7 and Note 13)
Stockholders' equity:
Common stock, $0.01 par value, 20,000,000 shares authorized
9,266,193, 9,233,074 and 9,282,690 issued and outstanding
as of September 30, 1996 and 1995, and as of March 31, 1997,
respectively, net of a note receivable from a stockholder of
$221,000 103,653 103,453 103,774
Retained earnings (deficit) (33,265) 1,793 (34,254)
---------- ----------- -----------
Total stockholders' equity 70,388 105,246 69,520
---------- ----------- -----------
$205,988 $239,198 $207,599
========== =========== ===========
</TABLE>
F-18
<PAGE>
Boomtown, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended September 30, Six months ended March 31,
------------------------------------- -----------------------------
1996 1995 1994 1997 1996
-------- -------- -------- -------- --------
(unaudited)
---------------------
(in thousands, except per share data)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Gaming $188,368 $189,306 $76,326 $94,123 $91,370
Family entertainment center 6,300 6,387 3,656 2,472 2,706
Food and beverage 16,314 15,613 7,973 8,191 7,583
Hotel and recreational vehicle park 7,289 6,584 3,082 3,797 3,600
Showroom 823 440 329 479 392
Truck stop, service station and mini-mart 14,401 10,811 10,858 6,232 5,499
Other income 2,547 2,626 1,151 1,059 1,363
-------- -------- -------- -------- --------
236,042 231,767 103,375 116,353 112,513
-------- -------- -------- -------- --------
Expenses:
Gaming 73,479 73,233 30,818 38,221 38,088
Gaming equipment leases 6,716 5,811 412 2,615 3,393
Family entertainment center 3,332 3,274 1,762 1,693 1,633
Food and beverage 19,213 17,639 8,179 10,948 10,312
Hotel and recreational vehicle park 3,002 3,168 1,706 1,649 1,579
Showroom 683 308 2,130 349 332
Truckstop, service station and mini-mart 13,038 9,722 9,661 5,668 4,953
Marketing and promotion 22,439 19,593 7,524 12,700 10,887
General and administrative 70,620 75,296 25,760 32,180 31,927
Pre-opening expenses 0 0 15,787 0 0
Discontinued projects/future development 1,603 6,054 0 618 160
Loss on sale of Boomtown Las Vegas 36,563 0 0 0 0
Depreciation and amortization 10,618 10,422 5,891 5,925 5,298
-------- -------- -------- -------- --------
261,306 224,520 109,630 112,566 108,562
-------- -------- -------- -------- --------
Income (loss) from operations (25,264) 7,247 (6,255) 3,787 3,951
Interest expense, net of capitalized interest (13,838) (13,434) (5,632) (6,956) (6,833)
Interest and other income 4,193 3,081 2,624 1,586 1,552
Loss on marketable securities 0 0 (1,691) 0 0
Gain (loss) on sale of assets 0 0 0 (72) 71
-------- -------- -------- -------- --------
Loss before minority interests, extraordinary
item and income taxes (34,909) (3,106) (10,954) (1,655) (1,259)
Minority interests 645 1,105 352 (96) 625
-------- -------- -------- -------- --------
Loss before extraordinary item and income taxes (34,264) (2,001) (10,602) (1,751) (634)
Income tax expense (benefit) 794 876 (2,779) (762) (325)
-------- -------- -------- -------- --------
Loss before extraordinary item (35,058) (2,877) (7,823) (989) (309)
Extraordinary item - early extinguishment of debt,
net of tax effect of approximately $141,000 0 0 229 0 0
-------- -------- -------- -------- --------
Net loss ($35,058) ($2,877) ($8,052) ($989) ($309)
======== ======== ======== ======== ========
Per common share:
Loss before extraordinary item ($3.79) ($0.31) ($0.90) ($0.11) ($0.03)
======== ======== ======== ======== ========
Extraordinary loss $0.00 $0.00 ($0.03) $0.00 $0.00
======== ======== ======== ======== ========
Net loss ($3.79) ($0.31) ($0.93) ($0.11) ($0.03)
======== ======== ======== ======== ========
Number of common shares 9,248 9,228 8,690 9,275 9,243
======== ======== ======== ======== ========
</TABLE>
F-19
<PAGE>
Boomtown, Inc.
Consolidated Statements of Stockholders' Equity
For the years ended September 30, 1996, 1995 and 1994
and for the six months ended March 31, 1997 (unaudited)
<TABLE>
<CAPTION>
Common Stock Retained Total
---------------------- Earnings Stockholders'
Shares (#) Amount ($) (Deficit) Equity
---------- ---------- --------- -------------
(in thousands)
----------------------------------------------------
<S> <C> <C> <C> <C>
Balances, September 30, 1993 8,506 $88,313 $12,722 $101,035
Issuance of common stock warrants 0 2,995 0 2,995
Employer 401(k) contributions 4 75 0 75
Common stock issued for additional interest in Blue Diamond
Hotel & Casino, Inc. (Boomtown Las Vegas) 714 11,964 0 11,964
Net loss 0 0 (8,052) (8,052)
---------- ---------- ---------- --------------
Balances, September 30, 1994 9,224 103,347 4,670 108,017
Employer 401(k) contributions 9 105 0 105
Net loss 0 0 (2,877) (2,877)
---------- ---------- ---------- --------------
Balances, September 30, 1995 9,233 103,452 1,793 105,245
Employer 401(k) contributions 33 200 0 200
Net loss 0 0 (35,058) (35,058)
---------- ---------- ---------- --------------
Balances, September 30, 1996 9,266 103,652 (33,265) 70,387
Employer 401(k) contributions (unaudited) 17 122 0 122
Net loss (unaudited) 0 0 (989) (989)
---------- ---------- ---------- --------------
Balances, March 31, 1997 (unaudited) 9,283 $103,774 ($34,254) $69,520
========== ========== ========== ==============
</TABLE>
F-20
<PAGE>
Boomtown, Inc.
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Years ended September 30, Six months ended March 31,
-------------------------------------- --------------------------
1996 1995 1994 1997 1996
-------- -------- -------- -------- --------
(unaudited)
--------------------------
(in thousands)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ($35,058) ($2,877) ($8,052) ($988) ($309)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Lease expense recorded in exchange for limited
partnership interest 1,500 2,000 389 0 1,000
Minority interests (645) (1,105) (351) 96 375
Gain (loss) on sale of property, plant and equipment 191 164 (57) (72) 70
Depreciation and amortization 10,618 10,422 5,891 5,925 5,298
Loss on sale of Boomtown Las Vegas 36,563 0 0 0 0
Deferred income taxes 2,598 1,614 (4,145) 197 150
Changes in operating assets and liabilities:
Accounts receivable, net (256) 397 (1,011) (550) (141)
Income taxes receivable (440) (1,508) 0 0 0
Inventories 154 301 (2,453) (219) (454)
Prepaid expenses (208) 93 (4,971) 2,425 1,987
Accounts payable, net 149 (5,406) 7,950 (376) (102)
Income taxes payable 330 24 213 38 226
Accrued compensation 681 1,320 631 (206) 367
Other accrued liabilities (1,048) 4,189 4,467 (147) (302)
Other changes, net (1,278) 312 1,318 (323) (1,569)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities 13,851 9,940 (181) 5,800 6,596
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 215 7,953 17,464 13 201
Additions to property, plant and equipment (5,679) (15,146) (114,729) (4,990) (2,751)
Payments for future development costs 0 1,871 (1,775) (200) 0
Loans to related parties 0 0 (7,794) 0 0
Change in construction related payables (84) (1,472) 680 0 (76)
-------- -------- -------- -------- --------
Net cash used in investing activities (5,548) (6,794) (106,154) (5,177) (2,626)
Cash flows from financing activities:
Proceeds from short-term borrowings 0 5,000 0 0 0
Repayment of short-term borrowings 0 (5,000) 0 0 0
Prepaid property lease (2,480) 0 0 0 (2,480)
Proceeds from long-term debt 377 8,794 100,240 0 1,064
Payment of long-term debt (3,874) (2,363) (107) (2,941) (1,747)
Distributions to minority interests 0 (193) 0 0 0
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities (5,977) 6,238 100,133 (2,941) (3,163)
-------- -------- -------- -------- --------
Increase (decrease) in cash and cash equivalents 2,326 9,384 (6,202) (2,318) 807
Cash and cash equivalents at the beginning of the period 20,775 11,391 17,593 23,101 20,775
-------- -------- -------- -------- --------
Cash and cash equivalents at the end of the period $23,101 $20,775 $11,391 $20,783 $21,582
======== ======== ======== ======== ========
</TABLE>
F-21
<PAGE>
EXHIBIT 99.2
Hollywood Park, Inc.
Unaudited Pro Forma Combined Consolidated Condensed
Financial Statements
The following unaudited pro forma combined consolidated condensed balance sheet
has been prepared by combining the unaudited consolidated balance sheets of
Hollywood Park and Boomtown as of March 31, 1997.
The following unaudited pro forma combined consolidated condensed statements of
operations have been prepared by combining the audited consolidated statement of
operations of Hollywood Park for the year ended December 31, 1996, with the
unaudited consolidated statement of operations of Boomtown, also for the year
ended December 31, 1996, and for the three months ended March 31, 1997, for both
Hollywood Park and Boomtown. (Historically, Boomtown reported results on a
fiscal year end of September 30.)
The acquisition of Boomtown will be accounted for using the purchase method of
accounting for business combinations. These pro forma financial statements
should be read in conjunction with the accompanying notes.
The following unaudited pro forma combined consolidated condensed financial
statements are presented with Boomtown Las Vegas property's results excluded,
because this property was divested in connection with the Merger.
The pro forma information is presented for illustrative purposes only, and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated in an earlier period, nor
is it necessarily indicative of the future operating results or financial
position.
These pro forma financial statements are based on, and should be read in
conjunction with, the historical consolidated financial statements and the
related notes thereto of Hollywood Park and Boomtown.
F-22
<PAGE>
Hollywood Park, Inc.
Notes to Unaudited Pro Forma Combined Consolidated Condensed
Balance Sheet
Assumptions The Merger will be accounted for under the purchase method of
accounting for a business combination. The total estimated purchase price was
based on the estimated issuance of approximately 5,809,000 shares of Hollywood
Park Common Stock at an estimated price of $9.8125 per share.
Pro Forma Adjustments The following adjustments have been made to the unaudited
pro forma combined consolidated condensed balance sheet:
(a) To record the redemption of 99.5% of Boomtown's outstanding First Mortgage
Notes at 108.5%, including the payment of two months of accrued interest,
the amortization of the balance of Boomtown's First Mortgage Notes issuance
costs and discount, and the write-up to 101% of the remaining 0.5% of the
First Mortgage Notes.
(b) To record the issuance of Hollywood Park's Notes, issued at face value, with
issuance costs of approximately $4,438,000 (net of 15 months of
amortization), to be amortized straight line basis over ten years.
(c) To record the estimated up-front loan fees associated with the Hollywood
Park bank credit facility, to be amortized on a straight line basis over
five years.
(d) To record the promissory note payable from Hollywood Park to the lessor of
Boomtown's Las Vegas property, as required by the agreement to divest this
property; to adjust the equity accounts for the retirement of the Hollywood
Park Common Stock, which would be exchanged for the Boomtown Common Stock
purchased from the lessor of Boomtown's Las Vegas property; and to record
the required annual principal payments.
(e) The excess acquisition cost (Hollywood Park Common Stock valued at $9.8125
per Common Share and estimated Merger costs of $5,600,000) over net assets
acquired is approximately $10,510,000 (or $10,181,000 net of 15 months of
amortization) and is allocated to goodwill, which will be amortized over 40
years on a straight line basis.
(f) To accrue three months of 9.25% interest payable on the Hollywood Park
Notes. (Interest is assumed to be paid semi-annually, on January 1 and July
1.)
(g) To eliminate Boomtown's equity accounts. The stockholders' equity accounts
have been adjusted to reflect the approximately 5,809,000 shares of
Hollywood Park Common Stock expected to be issued in the Merger, based on
Hollywood Park's Common Stock valued at $9.8125.
F-23
<PAGE>
Hollywood Park, Inc.
Notes to Unaudited Pro Forma Combined Consolidated Condensed
Statements of Operations
Assumptions The unaudited pro forma combined consolidated condensed statements
of operations for the year ended December 31, 1996, and for the three months
ended March 31, 1997, are presented as if the Boomtown acquisition, and the
divestment of the Boomtown Las Vegas property had taken place on January 1,
1996. The following unaudited pro forma combined consolidated condensed
statements of operations have been prepared by combining the audited
consolidated statement of operations of Hollywood Park for the year ended
December 31, 1996, with the unaudited consolidated statement of operations of
Boomtown, also for the year ended December 31, 1996, and for the three months
ended March 31, 1997, for both Hollywood Park and Boomtown. (Historically,
Boomtown reported results on a fiscal year end of September 30.)
Pro Forma Adjustments The unaudited pro forma combined consolidated condensed
statements of operations have been prepared on the basis that the acquisition
was consummated as set forth in the Notes to the Unaudited Pro Forma Combined
Consolidated Condensed Balance Sheet included herein.
The following adjustments have been made to the unaudited pro forma combined
consolidated condensed statements of operations:
(a) To record the estimated interest income on the excess net proceeds from the
Hollywood Park Notes at 4.0%.
(b) To eliminate the amortization of the issuance costs associated with the
Boomtown First Mortgage Notes.
(c) To record the amortization of the issuance costs associated with the
Hollywood Park Notes.
(d) To record the amortization of the excess purchase price over net assets
acquired. Total estimated excess purchase price of $10,510,000 will be
amortized over 40 years on a straight line basis.
(e) To eliminate the amortization of the discount associated with the Boomtown
First Mortgage Notes.
(f) To record the interest expense associated with the promissory note from
Hollywood Park to the lessor of Boomtown's Las Vegas property as required
by the agreement to divest this property.
(g) To eliminate the interest expense associated with Boomtown's First Mortgage
Notes.
(h) To amortize the up-front loan fees associated with Hollywood Park's bank
credit facility.
(i) To record the interest expense associated with the Hollywood Park Notes at
9.25%.
(j) To record the estimated 40% tax benefit associated with the pro forma
expenses, after adding back the amortization of goodwill (see (d)) which is
not deductible for income tax purposes.
Reclassifications Certain reclassifications have been made to the Hollywood
Park and Boomtown historical consolidated statements of operations to conform to
the pro forma combined consolidated condensed statements of operations.
F-24
<PAGE>
Pro Forma Per Share Data The pro forma per share amounts, as presented in the
unaudited pro forma combined consolidated condensed statements of operations,
were based on the weighted average number of shares outstanding during the
period, inclusive of the effect, when dilutive, of the exercise of stock
options. Included were approximately 5,809,000 shares of Hollywood Park Common
Stock to be issued in the Merger, adjusted for the retirement of the shares of
approximately 446,000 shares of Hollywood Park Common Stock (which would be
exchanged for the Boomtown Common Stock) that Hollywood Park would purchase from
the lessor of Boomtown's Las Vegas property pursuant to divesting Boomtown's Las
Vegas property in connection with the Merger.
Combination Costs It is expected that Hollywood Park will incur costs of
approximately $5,600,000 related to the Merger. These costs will be
incorporated into the price of the acquisition under the purchase method of
accounting for a business combination. Costs incurred by Boomtown will be
expensed as incurred.
F-25
<PAGE>
Hollywood Park, Inc.
Unaudited Pro Forma Combined Consolidated Condensed
Balance Sheet
As of March 31, 1997
(Excludes Boomtown Las Vegas)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
to Eliminate Pro Forma Pro Forma
Hollywood Boomtown Adjusted Pro Forma Combined
Park, Inc. Boomtown, Inc. Las Vegas Boomtown, Inc. Adjustments Consolidated
---------- -------------- ------------ -------------- ----------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $9,825 $20,783 ($806) $19,977 ($113,197)(a) $33,014
-- -- -- -- 120,562 (b) --
-- -- -- -- (3,460)(c) --
-- -- -- -- (693)(d) --
Restricted cash 322 0 0 0 0 322
Short term investments 5,135 0 0 0 0 5,135
Other receivables 6,474 1,744 (272) 1,472 0 7,946
Deferred tax assets 6,667 0 0 0 0 6,667
Prepaid expenses and other assets 7,398 8,419 (1,565) 6,854 (5,210)(a) 15,520
-- -- -- -- 2,595 (c) --
-- -- -- -- 3,883 (b) --
---------- -------------- ------------ -------------- ----------- ------------
Total current assets 35,821 30,946 (2,643) 28,303 4,480 68,604
Notes receivable 809 8,686 0 8,686 0 9,495
Property, plant and equipment,
net 129,991 147,366 (640) 146,726 0 276,717
Goodwill, net 20,235 10,048 0 10,048 10,181 (e) 40,464
Other assets 12,658 10,553 (207) 10,346 0 23,004
---------- -------------- ------------ -------------- ----------- ------------
$199,514 $207,599 ($3,490) $204,109 $14,661 $418,284
========== ============== ============ ============== =========== ============
Liabilities and
Stockholders' Equity
Current Liabilities:
Accounts payable $9,809 $3,436 ($781) $2,655 $0 $12,464
Accrued liabilities 20,306 23,032 (2,259) 20,773 (1,984)(a) 41,987
-- -- -- -- 2,892 (f) --
Current portion of notes payable 41 5,254 (450) 4,804 693 (d) 5,538
---------- -------------- ------------ -------------- ----------- ------------
Total current liabilities 30,156 31,722 (3,490) 28,232 1,601 59,989
Notes payable 282 102,949 0 102,949 (100,767)(a) 129,548
-- -- -- -- 5 (a) --
-- -- -- -- 125,000 (b) --
-- -- -- -- 2,079 (d) --
Deferred tax liabilities 8,655 3,381 0 3,381 0 12,036
Minority interest 3,037 27 0 27 0 3,064
---------- -------------- ------------ -------------- ----------- ------------
Total liabilities 42,130 138,079 (3,490) 134,589 27,918 204,637
Stockholders' equity:
Capital stock -
Preferred 28 0 0 0 0 28
Common 1,838 103,774 0 103,774 (45)(d) 2,374
-- -- -- -- (103,774)(g) --
-- -- -- -- 581 (g) --
Capital in excess of par 167,704 0 0 0 10,181 (e) 243,380
-- -- -- -- (3,420)(d) --
-- -- -- -- (34,278)(g) --
-- -- -- -- 103,193 (g) --
Retained earnings (accumulated
deficit) (12,186) (34,254) 0 (34,254) (15,661)(a) (32,135)
-- -- -- -- (555)(b) --
-- -- -- -- (865)(c) --
-- -- -- -- (2,892)(f) --
-- -- -- -- 34,278 (g) --
---------- -------------- ------------ -------------- ----------- ------------
Total stockholders' equity 157,384 69,520 0 69,520 (13,257) 213,647
---------- -------------- ------------ -------------- ----------- ------------
$199,514 $207,599 ($3,490) $204,109 $14,661 $418,284
========== ============== ============ ============== =========== ============
</TABLE>
F-26
<PAGE>
Hollywood Park, Inc.
Unaudited Pro Forma Combined Consolidated
Statements of Operations
For the year ended December 31, 1996
(Excludes Boomtown Las Vegas)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
to Eliminate Pro Forma Pro Forma
Hollywood Boomtown Adjusted Pro Forma Combined
Park, Inc. Boomtown, Inc. Las Vegas Boomtown, Inc. Adjustments Consolidated
----------- -------------- ------------ -------------- ----------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Gaming $50,717 $188,942 ($30,960) $157,982 $0 $208,699
Racing 71,308 0 0 0 0 71,308
Food and beverage 13,947 16,677 (7,887) 8,790 0 22,737
Hotel and recreational vehicle park 0 7,427 (5,744) 1,683 0 1,683
Truck stop and service station 0 14,859 (159) 14,700 0 14,700
Other income 7,253 13,413 (3,210) 10,203 295 (a) 17,751
--------- --------- --------- --------- --------- ---------
143,225 241,318 (47,960) 193,358 295 336,878
--------- --------- --------- --------- --------- ---------
Expenses:
Gaming 27,249 111,364 (21,644) 89,720 0 116,969
Racing 30,167 0 0 0 0 30,167
Food and beverage 19,573 20,015 (9,860) 10,155 0 29,728
Hotel and recreational vehicle park 0 3,110 (2,471) 639 0 639
Truck stop and service station 0 13,462 (83) 13,379 0 13,379
General and administrative 41,477 64,356 (17,272) 47,084 0 88,561
Other 2,485 4,132 (143) 3,989 0 6,474
Depreciation and amortization 10,695 10,880 (956) 9,924 (312)(b) 21,014
-- -- -- -- 444 (c) --
-- -- -- -- 263 (d) --
Write off of investment in a business 11,412 0 0 0 0 11,412
Loss on sale of business 0 36,563 0 36,563 0 36,563
--------- --------- --------- --------- --------- ---------
143,058 263,882 (52,429) 211,453 395 354,906
--------- --------- --------- --------- --------- ---------
Operating income (loss) 167 (22,564) 4,469 (18,095) (100) (18,028)
Interest expense 942 13,988 (299) 13,689 (216)(e) 15,156
-- -- -- -- 329 (f) --
-- -- -- -- (11,843)(g) --
-- -- -- -- 692 (h) --
-- -- -- -- 11,563 (i) --
--------- --------- --------- --------- --------- ---------
Income (loss) before minority
interests and income taxes (775) (36,552) 4,768 (31,784) (625) (33,184)
Minority interest 15 (164) 0 (164) 0 (149)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes (790) (36,388) 4,768 (31,620) (625) (33,035)
Income tax expense (benefit) 3,459 (320) 1,370 1,050 (145)(j) 4,364
--------- --------- --------- --------- --------- ---------
Net income (loss) ($4,249) ($36,068) $3,398 ($32,670) ($480) ($37,399)
========= ========= ========= ========= ========= =========
Dividend requirement on
convertible preferred stock $1,925
Net loss allocated to common shareholders ($39,324)
=========
Per common share:
Net loss - primary ($1.65)
Net loss - fully diluted ($1.65)
Number of common shares - primary 23,868
Number of common shares - fully diluted 26,160
</TABLE>
F-27
<PAGE>
Hollywood Park, Inc.
Unaudited Pro Forma Combined Consolidated
Statements of Operations
For the three months ended March 31, 1997
(Excludes Boomtown Las Vegas)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
to Eliminate Pro Forma Pro Forma
Hollywood Boomtown Adjusted Pro Forma Combined
Park, Inc. Boomtown, Inc. Las Vegas Boomtown, Inc. Adjustments Consolidated
----------- -------------- ------------ -------------- ----------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Gaming $12,682 $48,556 ($8,018) $40,538 $0 $53,220
Racing 9,629 0 0 0 0 9,629
Food and beverage 2,543 4,183 (2,133) 2,050 0 4,593
Hotel and recreational vehicle park 0 1,898 (1,577) 321 0 321
Truck stop and service station 0 2,978 (40) 2,938 0 2,938
Other income 1,961 2,828 (739) 2,089 74 (a) 4,124
----------- -------------- ------------ -------------- ----------- ------------
26,815 60,443 (12,507) 47,936 74 74,825
----------- -------------- ------------ -------------- ----------- ------------
Expenses:
Gaming 7,245 30,762 (5,682) 25,080 0 32,325
Racing 4,977 0 0 0 0 4,977
Food and beverage 3,708 5,487 (2,654) 2,833 0 6,541
Hotel and recreational vehicle park 0 817 (665) 152 0 152
Truck stop and service station 0 2,724 (26) 2,698 0 2,698
General and administrative 8,690 12,056 (4,169) 7,887 0 16,577
Other 695 950 (34) 916 0 1,611
Depreciation and amortization 2,884 3,107 (247) 2,860 (78) (b) 5,843
-- -- -- -- 111 (c) --
-- -- -- -- 66 (d) --
----------- -------------- ------------ -------------- ----------- ------------
28,199 55,903 (13,477) 42,426 99 70,724
----------- -------------- ------------ -------------- ----------- ------------
Operating income (loss) (1,384) 4,540 970 5,510 (25) 4,101
Interest expense 64 3,465 (54) 3,411 (54) (e) 3,590
-- -- -- -- 66 (f) --
-- -- -- -- (2,961) (g) --
-- -- -- -- 173 (h) --
-- -- -- -- 2,891 (i) --
----------- -------------- ------------ -------------- ----------- ------------
Income (loss) before minority
interests and income taxes (1,448) 1,075 1,024 2,099 (140) 511
Minority interest 22 0 0 0 0 22
----------- -------------- ------------ -------------- ----------- ------------
Income (loss) before income taxes (1,470) 1,075 1,024 2,099 (140) 489
Income tax expense (benefit) (575) 696 38 734 (30) (j) 129
----------- -------------- ------------ -------------- ----------- ------------
Net income (loss) ($895) $379 $986 $1,365 ($110) $360
=========== ============== ============ ============== =========== ============
Dividend requirement on
convertible preferred stock $481
Net loss allocated to common shareholders ($121)
============
Per common share:
Net loss - primary ($0.01)
Net loss - fully diluted ($0.01)
Number of common shares - primary 23,735
Number of common shares - fully diluted 26,027
</TABLE>
F-28
