<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1999
Commission file number 0-106-619
PINNACLE ENTERTAINMENT, INC.
(FORMERLY HOLLYWOOD PARK, INC.)
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
95-3667491
(IRS Employer Identification No.)
330 North Brand Boulevard, Suite 1100, Glendale, California 91203
(Address of Principal Executive Offices) (Zip Code)
(818) 662-5900
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
PINNACLE ENTERTAINMENT, Inc.
Common Stock, $.10 par value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates (therefore
excludes officers, directors and beneficial owners of 10% or more) of the
registrant at March 24, 2000, was $394,681,400 based on a closing price of
$20.00 per common share. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of outstanding shares of the registrant's common stock, as of the
close of business on March 24, 2000: 26,271,678.
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PINNACLE ENTERTAINMENT, INC.
Table of Contents
Part I
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<S> <C>
Item 1. Description of Business .......................................... 1
Company Name Change............................................... 1
Acquisition Proposal.............................................. 1
General........................................................... 1
Gaming, Race Track and Other Operations........................... 3
Expansion Plans................................................... 7
Government Regulation............................................. 8
Competition....................................................... 22
Federal Income Tax Matters........................................ 23
Employees......................................................... 24
Other............................................................. 25
Item 2. Properties........................................................ 25
Properties........................................................ 25
Expansion Properties.............................................. 26
Properties Held For Sale.......................................... 26
Item 3. Legal Proceedings................................................. 26
Item 4. Submission of Matters to a Vote of Security Holders............... 28
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................. 28
Item 6. Selected Financial Data........................................... 29
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 31
Forward-Looking Statements and Risk Factors....................... 31
Factors Affecting Future Operating Results........................ 31
Results of Operations............................................. 34
Liquidity, Capital Resources and Other Factors
Influencing Future Results...................................... 37
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........ 38
Item 8. Financial Statements.............................................. 38
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................... 38
Part III
Item 10. Directors and Executive Officers of the Registrant................ 39
Item 11. Executive Compensation............................................ 42
Summary Compensation Table........................................ 42
Executive Deferred Compensation Plan.............................. 42
Stock Option Plans................................................ 43
Options/SAR Grants in Last Fiscal Year............................ 44
Aggregated Options/SAR Exercises in Last Fiscal Year and
Fiscal Year End Options/SAR Values.............................. 45
Board Meetings, Board Committees and Director Compensation........ 45
Amended and Restated Directors Deferred Compensation Plan......... 46
Employment Contracts, Termination of Employment and
Change-in-Control Arrangements................................. 47
Compensation Committee Interlocks and Insider Participation....... 48
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 49
Item 13. Certain Relationships and Related Transactions.................... 50
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 51
Signatures................................................................. 59
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
COMPANY NAME CHANGE In February 2000, Hollywood Park, Inc. changed its name to
Pinnacle Entertainment, Inc. Pinnacle Entertainment, Inc. (the "Company" or
"Pinnacle Entertainment") is a diversified gaming company that owns and operates
eight casinos (four with hotels) in Nevada, Mississippi, Louisiana and
Argentina, two of which are subject to a pending sales transaction. Pinnacle
Entertainment receives lease income from two card clubs, both in the Los Angeles
metropolitan area; and owns and operates a horse racing facility in Arizona,
which is also subject to a pending sale transaction.
ACQUISITION PROPOSAL On March 8, 2000, the Company announced it had received a
proposal pursuant to which Harveys Casino Resorts ("Harveys") would acquire all
of the outstanding shares of common stock of Pinnacle Entertainment for cash at
$25 per fully diluted share (the "Acquisition Proposal"). The Acquisition
Proposal is subject to, among other things, the execution of a definitive
agreement containing the customary terms and conditions, including regulatory
approval, the agreement of Pinnacle Entertainment's senior management to retain
an equity interest in the combined company and the approval of a majority of
Pinnacle Entertainment's shareholders (see Note 20 to the Notes to Consolidated
Financial Statements). The Company's Board of Directors, excluding management
members, agreed to evaluate the Acquisition Proposal and to negotiate on an
exclusive basis through the end of March 2000. Harveys Casino Resorts is
majority owned by Colony Capital, Inc., a private investment firm.
GENERAL Pinnacle Entertainment owns and operates, through its Boomtown, Inc.
("Boomtown") subsidiary, land-based, dockside and riverboat gaming operations in
Verdi, Nevada ("Boomtown Reno"), Biloxi, Mississippi ("Boomtown Biloxi") (which
is subject to a pending sale transaction - see Note 4 to the Notes to
Consolidated Financial Statements) and Harvey, Louisiana ("Boomtown New
Orleans"), respectively. Pinnacle Entertainment also owns and operates, through
its Casino Magic Corp. ("Casino Magic") subsidiary, dockside gaming casinos in
the cities of Bay St. Louis and Biloxi, Mississippi ("Casino Magic Bay St.
Louis" and "Casino Magic Biloxi") (Casino Magic Bay St. Louis is subject to a
pending sale transaction - see Note 4 to the Notes to Consolidated Financial
Statements); riverboat gaming in Bossier City, Louisiana ("Casino Magic Bossier
City"); and two land-based casinos in Argentina ("Casino Magic Argentina"). In
October 1999, the Company purchased the 49% minority interest not owned by
Pinnacle Entertainment in Casino Magic Argentina (see Note 5 to the Notes to
Consolidated Financial Statements). Casino Magic's results of operations were
not consolidated with the Company prior to the October 15, 1998 acquisition of
Casino Magic, thus generating significant variances when comparing the 1999
financial results with those of 1998. Pinnacle Entertainment receives lease
income from two card clubs - the Hollywood Park-Casino and Crystal Park Hotel
and Casino. Since September 1999, the Hollywood Park-Casino has been leased from
Churchill Downs California Company ("Churchill Downs"), a wholly owned
subsidiary of Churchill Downs Incorporated, and is subleased to an unaffiliated
third party operator (see Note 3 to the Notes to Consolidated Financial
Statements). Prior to September 1999, the Hollywood Park-Casino was owned and
operated by the Company. The Crystal Park Hotel and Casino ("Crystal Park") is
owned by the Company and is leased to the same card club operator that now
leases and operates the Hollywood Park-Casino. In September 1999, the Company
completed the sale of the Hollywood Park Race Track in Inglewood, California to
Churchill Downs (see Note 3 to the Notes to Consolidated Financial Statements).
The Company owns Turf Paradise, Inc. ("Turf Paradise"), a horse racing facility
in Phoenix, Arizona, which is subject to a pending sale transaction (see Note 4
to the Notes to Consolidated Financial Statements). The Company began
construction in July 1999 on the Belterra Resort and Casino, a hotel and
riverboat casino resort in Switzerland County, Indiana, in which the Company
owns a 97% interest, with the remaining 3% held by a non-voting local partner
(see Note 6 to the Notes to Consolidated Financial Statements).
The Company's strategic plan is to develop a broad base of regionally
diversified casino entertainment facilities by developing new properties,
expanding existing facilities and making selected acquisitions in
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casino markets. The strategic plan anticipates the Company will establish and
maintain a prominent position in each of the markets in which it operates. In
the realization of this strategy, the Company acquired Boomtown in June 1997 and
Casino Magic in October 1998, hired a gaming management team in January 1999,
completed the sale of the Hollywood Park Race Track in September 1999, entered
into a definitive agreement to sell Turf Paradise in February 2000 and is
entertaining the Acquisition Proposal.
The Company is the successor to the Hollywood Park Turf Club, organized in 1938,
incorporated in 1981 under the name Hollywood Park Realty Enterprises, Inc., and
in 1992, as part of a restructuring, renamed Hollywood Park, Inc. In February
2000, Hollywood Park, Inc. changed its name to Pinnacle Entertainment (the name
change was effected through the merger of a newly created wholly owned
subsidiary into Hollywood Park, Inc. in which Hollywood Park, Inc. changed its
name). Pinnacle Entertainment's active subsidiaries are as follows: (1)
Boomtown, Inc., which has five active subsidiaries: Boomtown Hotel & Casino,
Inc., Bayview Yacht Club, Inc., Mississippi - I Gaming, L.P., Louisiana Gaming
Enterprises, Inc. and Louisiana - I Gaming; (2) Casino Magic Corp., which has
eight active subsidiaries: Mardi Gras Casino Corp., Biloxi Casino Corp.,
Jefferson Casino Corporation, Casino Magic of Louisiana, Corp., Casino Magic
Neuquen S.A., Casino Magic Support Services S.A,; Casino Magic Management
Services Corp. and Casino One Corp.; (3) Turf Paradise, Inc.; (4) HP/Compton,
Inc.; (5) HP Casino, Inc.; (6) HP Yakama, Inc.; (7) Realty Investment Group,
Inc.; and (8) Belterra Resort (Indiana), LLC.
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The following is an overview of the Company's gaming properties:
NUMBER OF
GAMING ---------------------------------
SQUARE SLOT TABLE HOTEL
PROPERTY TYPE OF GAMING FOOTAGE MACHINES GAMES ROOMS
-------- -------------- ------- -------- ----- -----
OPERATING PROPERTIES:
<S> <C> <C> <C> <C> <C>
Boomtown Reno Land-based 45,000 1,265 39 318
Boomtown New Orleans Cruising Riverboat 30,000 1,185 38 --
Casino Magic Biloxi Dockside 47,700 1,197 47 378
Casino Magic Bossier City Dockside Riverboat 30,000 1,058 41 188
Casino Magic Argentina (a) Land-based 33,000 515 55 --
------------ ----------- ---------- ----------
Subtotal 185,700 5,220 220 884
============ =========== ========== ==========
PROPERTIES HELD FOR SALE:
Boomtown Biloxi Dockside 33,632 1,184 28 --
Casino Magic Bay St. Louis Dockside 39,500 1,123 38 201
Turf Paradise Race Track Horse Racing
-- -- -- --
------------ ----------- ---------- ----------
Subtotal 73,132 2,307 66 201
------------ ----------- ---------- ----------
Grand Total 258,832 7,527 286 1,085
============ =========== ========== ==========
CARD CLUBS LEASED:
Hollywood Park-Casino (b) Card Club 30,000 -- 145 --
Crystal Park Casino (b) Card Club 30,000 -- 60 226
============ =========== ========== ==========
Card Club Total 60,000 -- 205 226
============ =========== ========== ==========
DEVELOPMENT PROPERTY:
Belterra Resort & Casino (c) Cruising Riverboat 38,000 1,300 55 309
============ =========== ========== ==========
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- ---
(a) There are two separate land-based casinos in Argentina, Casino Magic Neuqen
and Casino Magic San Martin de los Andes,
(b) The Company does not operate these properties. It leases the Hollywood
Park-Casino and Crystal Park Casino to an
(c) The Company owns 97% of Belterra Resort and Casino, which is expected to
open in August 2000.
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GAMING RACE TRACK AND OTHER OPERATIONS BOOMTOWN, INC. On June 30, 1997, pursuant
to the Agreement and Plan of Merger dated as of April 23, 1996, by and among the
Company, HP Acquisition, Inc., (a wholly owned subsidiary of the Company), and
Boomtown, HP Acquisition, Inc. was merged with and into Boomtown (the "Boomtown
Merger"). As result of the Boomtown Merger, Boomtown became a wholly owned
subsidiary of the Company and each share of Boomtown common stock was converted
into the right to receive 0.625 of a share of the Company's common stock.
Approximately 5,362,850 shares of the Company's common stock, valued at $9.8125
per share (excluding shares retired, as described below) were issued in the
Boomtown Merger.
The Boomtown Merger was accounted for under the purchase method of accounting
for a business combination. The purchase price of the Boomtown Merger was
allocated to identifiable assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition. Based on financial analyses,
which considered the impact of general economic, financial and market conditions
on the assets acquired and the liabilities assumed, the estimated fair values
approximated their carrying values. The Boomtown Merger generated approximately
$15,302,000 of excess acquisition cost over the recorded value of the net assets
acquired, all of which was allocated to goodwill, which is being amortized over
40 years. The Company anticipates such goodwill will be reduced by approximately
$3,054,000 in connection with the sale of Boomtown Biloxi (see Note 4 to the
Notes to Consolidated Financial Statements). The amortization of the goodwill is
not deductible for income tax purposes.
The Company acquired three of the four Boomtown properties: Boomtown Reno,
Boomtown New Orleans and Boomtown Biloxi.
Boomtown Reno has been operating for over 32 years on 569 acres in the rolling
foothills of the Sierra Nevada mountains, (current operations are utilizing
approximately 61 acres, with 250 acres available for development) in Verdi,
Nevada. Depending on the direction of travel, Boomtown Reno is either the first
or the last hotel casino in Nevada seen when traveling on Interstate 80. About
25,000 cars and trucks pass by every day, mostly heading to or from California.
And every year, about 1,400,000 of them, or approximately 15% of all highway
traffic, stop in for gaming, dining or lodging. In 1999, Boomtown Reno completed
renovations at the property that added 196 new rooms, 24 luxury suites, new
convention/meeting space and new and improved restaurants. Boomtown Reno also
features, among other amenities, a truck stop, a recreational vehicle park, and
a full service gas station with a mini-mart and a family fun center.
Boomtown New Orleans opened in August 1994 on a 50-acre site in Harvey,
Louisiana, approximately ten miles from the French Quarter of New Orleans. Prior
to August 8, 1997, Boomtown New Orleans had a 7.5% minority interest partner. On
November 18, 1996, Boomtown entered into an agreement to buy out the minority
partner for $5,670,000, and as of August 8, 1997, the full payment had been
made. Located in the suburban area of New Orleans referred to as the "Westbank",
Boomtown New Orleans boasts a large new riverboat with the friendliest employees
and the best array of gaming attractions in the area. Adding to the appeal,
there were a number of improvements in 1999, such as a totally remodeled buffet
and the addition of a Cajun steak and seafood restaurant. Boomtown New Orleans
is the only gaming property in the Westbank.
Boomtown Biloxi opened in July 1994 and occupies 19 acres on Mississippi's
historic Back Bay of the Mississippi Gulf Coast. Boomtown Biloxi had been
operating with a 15% minority interest partner, and on September 11, 1998, the
Company acquired the minority interest for $400,000. Boomtown Biloxi leases the
majority of the acreage under a 99-year lease. Boomtown Biloxi targets middle
income local residents and offers a value oriented gaming experience, including
one of the best buffets in the Biloxi gaming market. Boomtown Biloxi is the
subject of a pending sale transaction - see Note 4 to the Notes to Consolidated
Financial Statements.
The fourth Boomtown property, Boomtown Las Vegas, was divested following the
Boomtown Merger on July 1, 1997. Boomtown and its subsidiaries exchanged
substantially all of their interest in the Las Vegas property, including
substantially all of the operating assets and notes receivable of approximately
$27,300,000
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from the landowner/lessor of the Las Vegas property for, among other things, two
unsecured notes receivable totaling approximately $8,465,000, cash, assumption
of certain liabilities and release from certain lease obligations. In addition,
concurrently with the divestiture of the Las Vegas property, the Company
purchased and retired 446,491 shares of the Company's common stock issued to a
former principal of Boomtown for a price of approximately $3,465,000, payable in
the form of a Pinnacle Entertainment promissory note.
CASINO MAGIC CORP. On October 15, 1998, the Company acquired Casino Magic,
pursuant to the February 19, 1998 Agreement of Merger among Casino Magic Corp.,
the Company, and HP Acquisition II, Inc. (a wholly owned subsidiary of the
Company) (the "Casino Magic Merger"). The Company paid cash of approximately
$80,904,000 for Casino Magic's common stock. At the date of the acquisition, the
Company had purchased 792,900 common shares of Casino Magic, on the open market,
at a total cost of approximately $1,615,000. The Company paid $2.27 per share
for the remaining 34,929,224 shares of Casino Magic common stock outstanding.
The Casino Magic Merger was accounted for under the purchase method of
accounting for a business combination. The purchase price of the Casino Magic
Merger was allocated to identifiable assets acquired and liabilities assumed
based on their estimated fair values at the date of acquisition. Assets acquired
and liabilities assumed were, when found to be necessary, written up or down to
their fair market values based on financial analyses, which considered the
impact of general economic, financial and market conditions. The Casino Magic
Merger generated approximately $43,284,000 of excess acquisition cost over the
recorded value of the net assets acquired, all of which was allocated to
goodwill, to be amortized over 40 years. The Company anticipates such goodwill
will be reduced by approximately $10,277,000 in connection with the pending sale
of Casino Magic Bay St. Louis (see Note 4 to the Notes to Consolidated Financial
Statements). The amortization of the goodwill is not deductible for income tax
purposes.
Casino Magic owns and operates i) dockside casinos in Bay St. Louis,
Mississippi, and Biloxi, Mississippi; ii) dockside riverboat gaming in Bossier
City, Louisiana, and iii) land-based casinos at two Argentina locations.
Casino Magic Bay St. Louis, which is subject to a pending sale transaction (see
Note 4 to the Notes to Consolidated Financial Statements), began operations in
September 1992, on a permanently moored barge in a 17 acre marina with the
adjoining land-based facilities situated on 591 acres. Bay St. Louis is
approximately 46 miles east of New Orleans and 40 miles west of Biloxi. The
three story land-based building houses a restaurant, buffet, snack bar, gift
shop, and a live entertainment lounge. The property has a 201 room hotel, an
1,800 seat arena for concerts and sporting events, and is the only Casino in the
Gulf Coast market with an 18-hole championship golf course on the same property
as the gaming facility.
Casino Magic Biloxi is located in the Mississippi Gulf Coast market, and began
operations in June 1993. The facility includes over 47,000 square feet of gaming
space with 1,197 slot machines and 47 table games, a 378 luxury room hotel,
complete with 16 individually themed master suites and 70 junior suites, 6,600
square feet of convention and meeting space and a fine dining restaurant. The
property is nestled between two other casinos on the main strip of Biloxi,
commonly referred to as Casino Row. Biloxi, Mississippi is at the center of the
Mississippi Gulf Coast, which emerged as one of the major regional gaming
markets in the United States, exceeding the billion-dollar gaming revenue
milestone in 1999.
Casino Magic Bossier City opened in October 1996 on 23 acres of land, with
casino operations conducted from a dockside riverboat. The property is highly
visible from, and has convenient access to, Interstate 20, a major
thoroughfare connecting Shreveport/Bossier City to Dallas/Fort Worth, just a
three hour drive away. Casino Magic Bossier City boosts a 188-room luxury hotel,
with four master suites, 88 junior suites, a 55,000 square foot entertainment
pavilion, which includes the 350 seat Abracadabra buffet restaurant, a gift
shop, a bar and lounge area, and a 300 seat live entertainment theater.
In December 1994, Casino Magic, through its wholly owned subsidiary, Casino
Magic Neuquen S.A., entered into a twelve-year concession agreement with the
Province of Neuquen, Argentina. Casino Magic Argentina operates two casinos in
the Province of Neuquen in the cities of Neuquen and San Martin de los Andes
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in west-central Argentina. Neuquen Province is the gateway to the well
established tour destinations and ski resorts of the Andes Mountains. There are
approximately 900,000 residents within a 50 mile radius of the two cities.
HOLLYWOOD PARK-CASINO The Hollywood Park-Casino is located in Inglewood,
California. On September 10, 1999, the Company completed the dispositions of the
Hollywood Park Race Track and Hollywood Park-Casino to Churchill Downs for
$117,000,000 cash and $23,000,000 cash, respectively (see Note 3 to the Notes to
Consolidated Financial Statements). The Company then entered into a 10-year
leaseback of the Hollywood Park-Casino at an annual lease rate of $3,000,000 per
annum, with a 10-year renewal option. The Company then subleased the facility to
a third party operator for a lease payment of $6,000,000 per year. The sublease
is for a one-year period, at which time the Company and sub lessee will
negotiate the terms of any sublease extension.
By California state law, a corporation may operate a gambling enterprise in
California only if every officer, director and shareholder holds a state
gambling license. Only 5% or greater shareholders of a publicly traded racing
association, however, must hold a state gambling license. As a practical matter,
therefore, public corporations that are not qualified California racing
associations may not operate gambling enterprises in California. As a result,
the Hollywood Park-Casino, since September 10, 1999, is leased to, and operated
by, an unrelated third party.
By California state law, a California card club casino may neither bank card
games nor offer certain of the casino games permitted in Nevada and other
traditional gaming jurisdictions, and thus does not participate in the wagers
made or in the outcome of any of the games played.
THE CRYSTAL PARK CASINO The Crystal Park Casino, located in Compton, California
opened on October 25, 1996. As of December 31, 1997, the Company owned 100% of
Crystal Park Hotel and Casino Development Company, LLC ("Crystal Park LLC"), the
entity that owns the Crystal Park Casino. In December 1997, the Company paid
$1,000,000 (or the initial amount the member contributed) for 3.4% of Crystal
Park LLC and in February 1998, paid an additional $2,000,000 (or the initial
amount the member contributed) for the remaining outstanding 6.8% of Crystal
Park LLC in a transaction with an effective date of December 31, 1997.
As noted above, public corporations that are not qualified California racing
associations may not operate gambling enterprises in California. As a result,
the Crystal Park Casino is leased to, and operated by, the same third party
which operates the Hollywood Park-Casino. The lease is a 48 month, triple net
lease executed on December 19, 1997. Rent due under the lease was scheduled to
increase as of July 1, 1998, but under present market conditions, will be
$100,000 per month for the foreseeable future. Previously, the Crystal Park
Casino was under lease to Compton Entertainment, Inc. ("CEI"). On November 4,
1997, Crystal Park LLC obtained a judgment in an action for unlawful detainer
against CEI, due to CEI's failure to pay a portion of the June 1997 rent and to
make required additional rent payments. In October 1997, the California Attorney
General revoked CEI's conditional gaming registration, and the City of Compton
revoked CEI's city gaming license. CEI closed the Crystal Park Casino on October
11, 1997. The Crystal Park Casino reopened on December 26, 1997.
TURF PARADISE RACE TRACK Turf Paradise, located in Phoenix, Arizona and subject
to a pending sale transaction (see Note 4 to the Notes to Consolidated Financial
Statements), has one continuous live thoroughbred race meet that starts in
September and runs through May. Live racing is primarily conducted Friday
through Tuesday, with live races simulcast to approximately 45 off-track sites
in Arizona. The live racing signal is also simulcast to approximately 45 out-of-
state hubs, from which the signal is further disseminated to approximately 650
sites in five countries.
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At Turf Paradise, the state of Arizona fixes the pari-mutuel percentage
commissions for on-track, and within the state off-track racing as follows:
<TABLE>
<CAPTION>
Win, Place, Two-Horse Three or More
Show Pool Horse Pool
---------------- ----------------- ----------------
<S> <C> <C> <C>
Live in-state handle 18% 19% 23%
Simulcast in-state handle 20% 21% 25%
</TABLE>
Turf Paradise also receives approximately 2.0% to 3.5% of the out-of-state,
off-track pari-mutuel handle wagered on its live races. When operating as a
simulcast facility for the smaller northern Arizona race tracks, Turf Paradise
receives 3.8% of the pari-mutuel handle generated at Turf Paradise.
OTHER GAMING Pinnacle Entertainment, through its wholly owned subsidiary HP
Yakama, Inc. ("HP Yakama") loaned approximately $9,618,000 to the Tribal Gaming
Corporation (the "Tribal Corporation") to construct the Legends Casino in 1998.
The Tribal Corporation gave HP Yakama a promissory note for the $9,618,000,
payable in 84 equal installments at a 10% rate of interest. As of December 31,
1999, the remaining balance on the note was $8,086,000.
Pursuant to a seven year Master Lease between HP Yakama and the Confederated
Tribes and Bands of the Yakama Indian Nation (the "Tribes"), HP Yakama must pay
the Tribes monthly rent of $1,000. HP Yakama and the Tribal Corporation entered
into a corresponding seven year Sublease, under which the Tribal Corporation
owes rent to HP Yakama. Rent under the Sublease was initially set at 28% of Net
Revenues (as defined in the relevant agreements), and decreases to 22% over the
seven year term of the lease. Through the end of 1999, the Company had received
approximately $622,000 of rent under the sublease.
GENERAL All of the Company's properties in Mississippi and Louisiana are
dependent upon attracting customers within their respective geographical
markets. The Company has three casinos in Mississippi, two in Biloxi and one in
nearby Bay St. Louis, and two casinos in Louisiana, one in Bossier City and one
in Harvey, near New Orleans (the Louisiana properties are located 320 miles
apart). The Company has a pending sales transaction for the sale of two of the
Mississippi properties (see Note 4 to the Notes to Consolidated Financial
Statements). There can be no assurance that the Company will be able to continue
to attract a sufficient number of customers necessary to make its operations
profitable. In addition, adverse regulatory changes or changes in the gaming
environment in Mississippi and Louisiana could have a materially adverse effect
on the Company's operations.
The Company's riverboat and dockside gaming facilities in Mississippi and
Louisiana, as well as any additional riverboats that might be developed or
acquired, such as the Belterra Resort and Casino, are subject to risks in
addition to those associated with land-based casinos, including loss of service
due to casualty, mechanical failure, extended or extraordinary maintenance,
flood, hurricane or other severe weather conditions. For cruising riverboats
there are additional risks associated with the movement of vessels on waterways,
including risks of casualty due to river turbulence and severe weather
conditions.
In September 1998, a hurricane struck the Gulf Coast region and Boomtown Biloxi,
Boomtown New Orleans, Casino Magic Biloxi, and Casino Magic Bay St. Louis were
forced to shut down operations for approximately one week, though none of the
properties sustained significant damage. If any of the Company's casinos, be it
riverboat, dockside or land-based cease operations for any period of time, it
could adversely affect the Company's results of operations.
MISSISSIPPI ANTI-GAMING INITIATIVE In 1998, two referenda were proposed which,
if approved, would have amended the Mississippi Constitution to ban gaming in
Mississippi and would have required all currently legal gaming entities to cease
operations within two years of the ban. A Mississippi State Circuit Court judge
ruled that the first of the proposed referenda was illegal because, among other
reasons, it failed to include required information regarding its anticipated
effect on government revenues. The Mississippi Supreme Court affirmed the
Circuit Court ruling, but only on procedural grounds. The second referendum
proposal
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included the same language on government revenues as the first referendum and
was struck down by another Mississippi State Circuit Court judge on the same
grounds as the first.
On March 22, 1999, another such referendum was filed with the Mississippi
Secretary of State. The Circuit Court of Hinds County struck down this third
referendum on May 6, 1999 because the initiative failed once again to include
language pertaining to the initiative's negative economic impact. This matter
has been appealed to the Mississippi Supreme Court where disposition is
currently pending. Any such referendum must be approved by the Mississippi
Secretary of State and signatures of approximately 98,000 registered voters must
be gathered and certified in order for such a proposal to be included on a
statewide ballot for consideration by the voters. The next election, for which
the proponents could attempt such a proposal on the ballot, would be November
2000. It is likely at some point that a revised initiative will be filed which
would adequately address the issues regarding the effect on government revenues
of prohibition of gaming in Mississippi. However, while it is too early in the
process for the Company to make any predictions with respect to whether such a
referendum will appear on a ballot or the likelihood of such a referendum being
approved by the voters, if such a referendum were passed and gaming were
prohibited in Mississippi, it would have a materially adverse effect on the
Company.
ARKANSAS The Arkansas Attorney General has, to date, certified at least three
(3) ballot initiatives that would permit casino gambling in the State. Each
initiative requires the collection, by July 7, 2000, of more than 70,000
signatures to qualify it for the November 2000 general election ballot. The
proposed initiatives each vary in their scope and breadth. The Company's Casino
Magic Bossier City casino, in particular, could be negatively impacted by the
existence of casino gambling in Arkansas.
EXPANSION PLANS The following is a summary of the property enhancements and
expansion projects that the Company undertook with respect to its properties.
BOOMTOWN RENO The expansion and renovation of Boomtown Reno was completed in
1999. The renovation included 196 new rooms, 24 luxury suites, new convention/
meeting space and new improved restaurants.
BOOMTOWN NEW ORLEANS In 1999, improvements included a totally remodeled buffet
and a Cajun steak and seafood restaurant.
CASINO MAGIC BOSSIER CITY Casino Magic Bossier City completed its 188 room
luxury hotel in December 1998, as well as other improvements to the 55,000
square foot Pavilion.
Based on the success of the luxury hotel tower completed in December 1998, the
overall strong performance of the property and the anticipated growth of the
Shreveport/Bossier City market, the Company is currently evaluating a
major expansion of the Casino Magic Bossier City facility. Such an
expansion would include: i) a new 300 room luxury hotel tower, ii) a new
riverboat casino comparable in size and quality to that now being constructed in
connection with the Belterra Resort and Casino, and iii) a completely redesigned
pavilion building.
CASINO MAGIC BILOXI Based on the success of the 378 hotel expansion completed in
May 1998, the anticipated growth of the Gulf Coast market and the superior
location of the Casino Magic Biloxi property (the heart of Casino Row), the
Company is evaluating a further expansion and renovation of the property. Such a
renovation would include: i) remodeling the facility to a new theme, ii) adding
a 250 all-suite hotel tower, iii) expanding the casino gaming square footage,
iv) building an entertainment facility, and v) adding themed restaurants and
retail shops.
BELTERRA RESORT AND CASINO In July 1999, the Company broke ground on the
Belterra Resort and Casino and is continuing on schedule for an opening in
August 2000. The project is located in Switzerland County, Indiana, which is
approximately 35 miles southwest of Cincinnati, Ohio and will be the gaming site
most readily accessible to major portions of northern and central Kentucky,
including the city of Lexington.
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The Company plans to spend approximately $200,000,000 ($30,635,000 of which has
been spent as of December 31, 1999) in total cost (including land, capitalized
interest, pre-opening expenses, organizational expenses and community grants) on
the Belterra Resort and Casino, which will feature a 15-story, 308-room hotel, a
cruising riverboat casino with approximately 1,800 gaming positions, an 18-hole
championship golf course, a 1,500 seat entertainment facility, four restaurants,
retail areas and other amenities. (See Note 6 to the Notes to Consolidated
Financial Statements.)
LAKE CHARLES In November 1999, the Company filed an application for the
fifteenth and final gaming license to be issued by the Louisiana Gaming Control
Board. The Company's application is seeking approval to operate a cruising
riverboat casino, hotel and golf course resort complex in Lake Charles,
Louisiana.
In connection with such submittal, the Company entered into an option agreement
with the Lake Charles Harbor and Terminal District (the "District") to lease
225-acres of unimproved land from the District upon which such resort complex
would be constructed. The term of the lease would be for a total of up to 70
years. The lease would require the Company to develop certain on- and off- site
improvements. If awarded the license by the Louisiana Gaming Control Board, the
Company anticipates building a resort similar in design and scope to the
Belterra Resort and Casino currently under construction. (See Note 6 to the
Notes to Consolidated Financial Statements.)
There can be no assurance that the Company will be successful in completing any
currently contemplated or future expansion projects or, even if they are
completed, that the projects will be successful. Numerous factors, including
regulatory or financial constraints, could intervene and cause the Company to
alter, delay or abandon expansion plans. Such risks include an inability to
secure required financing and required local gaming approvals and other permits
and approvals, as well as risks typically associated with any construction
project, including possible shortages of materials or skilled labor, unforeseen
engineering, environmental or geological problems, work stoppages, weather
interference and unanticipated costs overruns. In addition, the Company is
subject to state and local laws and regulations, ordinances and similar
provisions relating to zoning and other matters that may restrict the possible
uses of the Company's land and other assets. Any additional development of the
Company's land, including the expansion plans described above, would require
approval of such items as environmental impact reports and similar
certifications. There can be no assurance that other requisite approvals would
be obtained.
GOVERNMENT REGULATION 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 fifteen 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.
An initial license to conduct gaming operations is valid for a term of five
years. The Louisiana Act provides for successive five year renewals after the
initial five year term.
The laws and regulations of Louisiana 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 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)
in parishes bordering the Red River, such as the Company's Casino Magic property
in Bossier, gaming may be conducted dockside; however, in all other authorized
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locations such as Boomtown New Orleans, 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 Company's
operations in Louisiana without first being found suitable. In March 1994,
Boomtown New Orleans, 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. In April 1996, the Board's predecessor confirmed that
Casino Magic Bossier's officers, key personnel, partners and persons holding a
5% or greater interest in the corporation were suitable and authorized to
acquire an existing licensee. In July 1999, the Board renewed Boomtown New
Orleans' license to conduct gaming operations. In January 2000, Casino Magic
Bossier filed an application to renew its license to conduct gaming operations.
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 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 pled 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 pled 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 prior Board approval. A
security issued by a holder of a license must generally disclose these
restrictions.
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Section 2501 of the regulations enacted by the Louisiana State Police Riverboat
Gaming Division pursuant to the Louisiana Act (the "Regulations") requires prior
written approval of the Board of all persons involved in the sale, purchase,
assignment, lease, grant or foreclosure of a security interest, hypothecation,
transfer, conveyance or acquisition of an ownership interest (other than in a
corporation) or economic interest of five percent (5%) or more in any licensee.
Section 2523 of the Regulations requires notification to and prior approval from
the Board of the (a) application for, receipt, acceptance or modification of a
loan, or the (b) use of any cash, property, credit, loan or line of credit, or
the (c) guarantee or granting of other forms of security for a loan by a
licensee or person acting on a licensee's behalf. Exceptions to prior written
approval include without limitation to any transaction for less than $2,500,000
in which all of the lending institutions are federally regulated, the
transaction modifies the terms of an existing, previously approved loan
transaction, or if the transaction involves publicly registered debt and
securities sold pursuant to a firm underwriting agreement.
The failure of a licensee to comply with the requirements set forth above may
result in the suspension or revocation of that licensee's gaming license.
Additionally, if the Board finds that the individual owner or holder of a
security of a corporate license or intermediary company or any person with an
economic interest in a licensee is not qualified under the Louisiana Act, the
Board may require, under penalty of suspension or revocation of the license,
that the person not (a) receive dividends or interest on securities of the
corporation, (b) exercise directly or indirectly a right conferred by securities
of the corporation, (c) receive remuneration or economic benefit from the
licensee, or (d) continue in an ownership or economic interest in the licensee.
A licensee 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 Louisiana Act restricts gaming space on riverboats to no more than 30,000
square feet. The Board has adopted rules governing the method for approval of
the area of operations and the rules and odds of authorized games and devices
permitted, and prescribing 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 whether to
prohibit or continue to permit licensed riverboat gaming, licensed video poker
gaming, and licensed land-based gaming in Orleans Parish. The applicable local
election took place on November 5, 1996, and the voters in the parishes of
Boomtown New Orleans and Casino Magic Bossier voted to continue licensed
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.
Fees to the state of Louisiana for conducting gaming activities on a riverboat
include (i) $50,000 per riverboat for the first year of operation and $100,000
per year, per riverboat thereafter, plus (ii) 18.5% of net gaming proceeds.
MISSISSIPPI The ownership and operation of casino facilities in Mississippi are
subject to extensive state and local regulation, but primarily the licensing and
regulatory control of the Mississippi Gaming Commission (the "Mississippi
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 June 29, 1990. Although not
identical, the Mississippi Act is similar to the Nevada Gaming Control Act. The
Mississippi Commission adopted regulations which are also similar in many
respects to the Nevada gaming regulations.
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The laws, regulations and supervisory procedures of Mississippi and the
Mississippi 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 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 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 the Company and the Company's Mississippi gaming
operations.
The Mississippi Act provides for legalized dockside gaming at the discretion of
the fourteen counties that 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. During 1998, certain anti-gaming groups proposed for adoption through
the initiative and referendum process certain amendments to the Mississippi
Constitution which would prohibit gaming in the state. The proposals were
declared illegal by Mississippi courts on constitutional and procedural grounds.
If another such proposal were to be offered and if a sufficient number of
signatures were to be gathered to place a legal initiative on the ballot, it is
possible for the voters of Mississippi to consider such a proposal in November
of 2000. As of January 1, 2000, 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 or in the
waters lying south of the counties along the Mississippi Gulf Coast. 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.
The Mississippi Act permits substantially all traditional casino games and
gaming devices, and, on August 11, 1997, a Mississippi Circuit Court judge
issued a ruling that the Mississippi Act permits race books on the premises of
licensed casinos. The Mississippi Commission appealed the decision to the
Mississippi Supreme Court, which has not yet rendered a decision.
The Company and any subsidiary of the Company (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 Commission. The Company must be registered under the Mississippi Act
as a publicly traded holding company for the Mississippi Gaming Subsidiaries and
is required periodically to submit detailed financial and operating reports to
the Mississippi Commission and furnish any other information which the
Mississippi Commission may require. If the Company is unable to continue to
satisfy the registration requirements of the Mississippi Act, the Company and
its Mississippi Gaming Subsidiaries cannot own or operate gaming facilities in
Mississippi.
Each Mississippi Gaming Subsidiary must maintain a gaming license from the
Mississippi Commission to operate a casino in Mississippi. Such licenses are
issued by the Mississippi Commission subject to certain conditions, including
continued compliance with all applicable state laws and regulations. Gaming
licenses are not transferable, are issued for a two-year period and must be
renewed periodically thereafter. Boomtown Biloxi's license must be renewed in
July of 2000, Casino Magic Bay St. Louis's license must be renewed in April of
2000, and Casino Magic Biloxi's license must be renewed in December of 2000. No
person may become a stockholder of or receive any percentage of profits from a
licensed subsidiary of a registered holding company without first obtaining
licenses and approvals from the Mississippi Commission. The Company has obtained
such approvals in connection with the licensing of its Mississippi Gaming
Subsidiaries, and the registration of the Company as a publicly-traded holding
company.
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Certain officers and employees of the Company and the officers, directors and
certain key employees of the Company's Mississippi Gaming Subsidiaries must be
found suitable to be licensed by the Mississippi Commission. The Company
believes that it has obtained, applied for or is in the process of applying for
all necessary findings of suitability with respect to such persons associated
with the Company or its Mississippi Gaming Subsidiaries, although the
Mississippi Commission in its discretion may require additional persons to file
applications for findings of suitability. In addition, any person having a
material relationship or involvement with the Company may be required to be
found suitable, in which case those persons must pay the costs and fees
associated with such investigation. The Mississippi Commission may deny an
application for a finding of suitability for any cause that it deems reasonable.
Changes in certain licensed positions must be reported to the Mississippi
Commission. In addition to its authority to deny an application for a finding of
suitability, the Mississippi Commission has jurisdiction to disapprove a change
in a person's corporate position or title and such changes must be reported to
the Mississippi Commission. The Mississippi Commission has the power to require
any Mississippi Gaming Subsidiary and the Company 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.
Employees associated with gaming must obtain work permits that are subject to
immediate suspension under certain circumstances. The Mississippi Commission
shall refuse to issue a work permit to a person convicted of a felony and it may
refuse to issue a work permit to a gaming employee if the employee has committed
certain misdemeanors, or knowingly violated the Mississippi Act, or for any
other reasonable cause.
At any time, the Mississippi Commission has the power to investigate and require
the finding of suitability of any record or beneficial stockholder of the
Company. Mississippi law requires any person who acquires more than 5% of the
common stock of a publicly traded corporation registered with the Mississippi
Commission to report the acquisition to the Mississippi Commission, and such
person may be required to be found suitable. Also, any person who becomes a
beneficial owner of more than 10% of the common stock of such a company, as
reported to the Securities and Exchange Commission, must apply for a finding of
suitability by the Mississippi Commission and must pay the costs and fees that
the Mississippi Commission incurs in conducting the investigation. The
Mississippi Commission has generally exercised its discretion to require a
finding of suitability of any beneficial owner of more than 5% of a registered
publicly-traded holding company's common stock. However, the Mississippi
Commission has adopted a policy that permits certain institutional investors to
own beneficially up to 10% of a registered public company's common stock without
a finding of suitability. If a stockholder 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
Commission may be found unsuitable. The same restrictions apply to a record
owner, if the record owner, after request, fails to identify the beneficial
owner. Management believes that compliance by the Company with the licensing
procedures and regulatory requirements of the Mississippi Commission will not
affect the marketability of the Company's securities. Any person found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
the securities of the Company beyond such time as the Mississippi Commission
prescribes, may be guilty of a misdemeanor. The Company is subject to
disciplinary action if, after receiving notice that a person is unsuitable to be
a stockholder or to have any other relationship with the Company or its
Mississippi Gaming Subsidiaries, the Company: (i) pays the unsuitable person any
dividend or other distribution upon the voting securities of the Company; (ii)
recognizes the exercise, directly or indirectly, of any voting rights conferred
by securities of the Company held by the unsuitable person; (iii) pays the
unsuitable person any remuneration in any form for services rendered or
otherwise, except in certain limited and specific circumstances; or (iv) fails
to pursue all lawful efforts to require the unsuitable person to divest himself
of the securities, including, if necessary, the immediate purchase of the
securities for cash at a fair market value.
The Company may be required to disclose to the Mississippi Commission upon
request the identities of the holders of any of the Company's debt or other
securities. In addition, under the Mississippi Act the
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Mississippi Commission may, in its discretion, (i) require holders of securities
of registered corporations, including debt securities such as the Company's 9.5%
Notes and the 9.25% Notes, to file applications, (ii) investigate such holders,
and (iii) require such holders to be found suitable to own such securities. If
the Mississippi Commission determines that a person is unsuitable to own such
security, then the issuer may be sanctioned, including the loss of its
approvals, if without the prior approval of the Mississippi 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. Although the Mississippi Commission generally does not require the
individual holders of obligations such as the Notes to be investigated and found
suitable, the Mississippi 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 Commission in connection with such an investigation.
Each Mississippi Gaming Subsidiary must maintain in Mississippi a current ledger
with respect to ownership of its equity securities, and the Company must
maintain in Mississippi a current list of stockholders of the Company which must
reflect the record ownership of each outstanding share of any class of equity
security issued by the Company. The ledger and stockholder lists must be
available for inspection by the Mississippi Commission at any time. If any
securities of the Company 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 Commission. A failure to make such disclosure may be grounds
for finding the record holder unsuitable. The Company 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 bear a legend to the general effect that such
securities are subject to the Mississippi Act and the regulations of the
Mississippi Commission. The Company has received from the Mississippi Commission
a waiver from this legend requirement. The Mississippi Commission has the power
to impose additional restrictions on the holders of the Company's securities at
any time.
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 Commission. A Mississippi Gaming Subsidiary may not make a
public offering of its securities, but may pledge or mortgage casino facilities.
The Company may not make a public offering of its securities without the prior
approval of the Mississippi 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.
Under the regulations of the Mississippi Commission, a gaming licensee may not
guarantee a security issued by an affiliate company pursuant to a public
offering, or pledge its assets to secure payment or performance of the
obligations evidenced by the security issued by the affiliated company, without
the prior approval of the Mississippi Commission. A pledge of stock of a gaming
licensee and the foreclosure of such a pledge are ineffective without the prior
approval of the Mississippi Commission. Moreover, restrictions on the transfer
of an equity security issued by a Mississippi licensee and agreements not to
encumber such securities are ineffective without the prior approval of the
Mississippi Commission.
Changes in control of the Company through merger, consolidation, acquisition of
assets, management or consulting agreements or any form of takeover, cannot
occur without the prior approval of the Mississippi Commission. The Mississippi
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.
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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 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
Commission before the Company may make exceptional repurchases of voting
securities in excess of 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 Commission if the Company 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 the
Company.
Neither the Company nor any subsidiary may engage in gaming activities in
Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Commission. The Mississippi Commission may
require determinations that, among other things, there are means for the
Mississippi Commission to have access to information concerning the out-of-state
gaming operations of the Company and its affiliates. The Mississippi Commission
has approved the Company's current operations in other jurisdictions but must
approve the Company's future gaming operations in any new jurisdictions.
If the Mississippi Commission decides that a Mississippi Gaming Subsidiary
violated a gaming law or regulation, the Mississippi Commission could limit,
condition, suspend or revoke the license of the Mississippi Gaming Subsidiary,
subject to compliance with certain statutory and regulatory procedures. In
addition, a Mississippi Gaming Subsidiary, the Company and the persons involved
could be subject to substantial fines for each separate violation. Because of
such a violation, the Mississippi Commission could attempt to 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 the Company,
the Mississippi Gaming Subsidiary's gaming operations and the Company'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% of gaming receipts of
$50,000 or less per month, 6% of gaming receipts over $50,000 and less than
$134,000 per month, and 8% of gaming receipts over $134,000. The foregoing
license fees are allowed as a credit against the licensee's Mississippi income
tax liability for the year paid. The gross revenue fee imposed by the
Mississippi communities in, which the Company's casino operations are located,
equals approximately 4% of the gaming receipts.
In October 1994, the Mississippi Commission adopted two new regulations. Under
the first regulation, as a 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. The Company believes that all of its Mississippi Gaming
Subsidiaries currently meet 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 current edition
of the Mobil Travel Guide, a theme park, golf courses, marinas, tennis complex,
entertainment
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facilities, or any other such facility as approved by the Mississippi Commission
as infrastructure. Parking facilities, roads, sewage and water systems, or
facilities normally provided by cities and/or counties are excluded. The
Mississippi 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. The Company
believes that all of its Mississippi Gaming Subsidiaries currently meet such
requirements. The Mississippi Commission has recently adopted amendments to the
regulation that increase the infrastructure development requirement from 25% to
100% for new casinos (or upon acquisition of a closed casino), but grandfather
existing licensees.
The sale of food or alcoholic beverages at the Mississippi Gaming Subsidiaries
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 materially adverse effect upon the operations of the
affected casino or casinos. Certain officers and managers of the Company and the
Mississippi Gaming Subsidiaries must be investigated by the Alcoholic Beverage
Control Division of the State Tax Commission (the "ABC") in connection with the
Mississippi Gaming Subsidiaries' liquor permits. Changes in licensed positions
must be approved by the ABC.
NEVADA 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. The
Company'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") and Washoe County. The Nevada Commission, the
Nevada Board and Washoe County 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
through taxation and licensing fees. Changes in such laws, regulations and
procedures could have an adverse effect on Boomtown Reno's gaming operations.
Boomtown Hotel & Casino, Inc. (the "Gaming Subsidiary"), which operates Boomtown
Reno and two other gaming operations with slot machines only, is required to be
licensed by the Nevada Gaming Authorities. The gaming licenses require the
periodic payment of fees and taxes and are not transferable. The Company is
currently registered by the Nevada Commission as a publicly traded corporation
(a "Registered Corporation") and has been found suitable to own the stock of
Boomtown, which is registered as an intermediary company ("Intermediary
Company"). Boomtown has been found suitable to own the stock of the Gaming
Subsidiary, which is a corporate licensee (a "Corporate Licensee") under the
terms of the Nevada Act. As a Registered Corporation, the Company 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 holder of an interest of, or
receive any percentage of profits from an Intermediary Company or a Corporate
Licensee without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company, Boomtown and the Gaming Subsidiary have obtained from
the Nevada Gaming Authorities the various registrations, findings of
suitability, 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, the Company, Boomtown or the
Gaming Subsidiary 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 Company, Boomtown and the Gaming
Subsidiary must file
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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 the Company and Boomtown who are actively and directly
involved in gaming activities of the Gaming Subsidiary 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 licensed 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 having a
relationship with the Company, Boomtown or the Gaming Subsidiary, the companies
involved would have to sever all relationships with such person. In addition,
the Nevada Commission may require the Company, Boomtown or the Gaming Subsidiary
to terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
The Company and the Gaming Subsidiary 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
Company, Boomtown and the Gaming Subsidiary must be reported to or approved by
the Nevada Commission.
If it were determined that the Nevada Act was violated by the Gaming Subsidiary,
the gaming licenses it holds could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory procedures.
In addition, the Company, Boomtown, the Gaming Subsidiary 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 Reno and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for reasonable rental value of the casino) could be forfeited to the
State of Nevada. Limitation, conditioning or suspension of the gaming licenses
of the Gaming Subsidiary or the appointment of a supervisor could (and
revocation of any gaming license would) materially adversely affect the
Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and be found suitable as a beneficial holder of the Company's voting securities
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 person who acquires beneficial ownership of more
than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a Registered Corporation'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 acquires more than 10%, but not more than 15%, of a Registered
Corporation's voting securities may apply to the Nevada Commission for a waiver
of such finding of suitability if such institutional investor holds the voting
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 the Registered Corporation, any change in the Registered Corporation's
corporate charter, bylaws, management, policies or operations of the Registered
Corporation, or any of its gaming affiliates, or any other action which the
Nevada Commission finds to be inconsistent with holding the Registered
Corporation's voting securities for investment purposes
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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
beyond such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. The Company is subject to disciplinary action if,
after it receives notice that a person is unsuitable to be a stockholder or to
have any other relationship with the Company, Boomtown or the Gaming Subsidiary,
the Company (i) pays that person any dividend or interest upon voting securities
of the Company, (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 including, if necessary, the immediate purchase
of said voting securities for cash at fair market value.
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.
The Company 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. The Company is also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require that the Company's stock certificates 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 the Company.
The Company is not permitted to 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. On March 25, 1999, the Nevada Commission granted the Company prior
approval to make public offerings for a period of two years, subject to certain
conditions (the "Shelf Approval"). The Shelf Approval also applies to any
affiliated company wholly owned by the Company (an "Affiliate"), which is a
publicly traded corporation or would thereby become a publicly traded
corporation pursuant to a public offering. The Shelf Approval also includes
approval for Boomtown and the Gaming Subsidiary to guarantee any security issued
by, and for the Gaming Subsidiary to hypothecate its assets to secure the
payment or performance of any obligations evidenced by a security issued by the
Company or an Affiliate in a public offering under the Shelf Registration. The
Shelf Approval also includes approval to place restrictions upon the transfer of
and enter into agreements not to encumber the equity securities of Boomtown and
the Gaming Subsidiary (collectively, "Stock
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Restrictions"). The Shelf Approval, however, may be rescinded for good cause
without prior notice upon the issuance of an interlocutory stop order by the
Chairman of the Nevada Board. The Shelf Approval does not constitute a finding
recommendation or approval of the Nevada Gaming Authorities as to the accuracy
or the adequacy of the prospectus or the investment merits of the securities
offered thereby. Any representation to the contrary is unlawful.
Changes in control of a Registered Corporation through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby he obtains control, 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
licensed 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 corporate gaming licensees, and Registered Corporations that
are affiliated with those operations, 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 licensees 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 the Registered Corporation 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 the Registered
Corporation'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, are payable to the State of Nevada and to Washoe County,
in which the Gaming Subsidiary's 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 a cabaret, nightclub,
cocktail lounge or casino showroom in connection with the serving or selling of
food or refreshments, or the selling of any merchandise.
Any person who is licensed, required to be 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 the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of such Licensee's 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. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities or
enter into associations that are harmful to the State of Nevada or its ability
to collect gaming taxes and fees, or employ, contract with, or associate with a
person in the foreign operation who has been denied a license or finding of
suitability in Nevada on the ground of unsuitability.
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CALIFORNIA Operation of California card club casinos such as the Hollywood
Park-Casino and the Crystal Park Casino is governed by the Gambling Control Act
(the "GCA") and is subject to the oversight of the California Attorney General
and the California Gambling Control Commission. Under the GCA, a California card
club casino may only offer certain forms of card games, including Poker, Pai
Gow, and California Blackjack. A card club casino may not offer many of the card
games and other games of chance permitted in Nevada and other jurisdictions
where the Company conducts business.
Although the California Attorney General takes the position that, under the GCA,
only individuals, partnerships or privately-held companies (as opposed to
publicly-traded companies such as Pinnacle Entertainment) are eligible to
operate card club casinos, the enactment of California Senate Bill 100 ("SB-
100") in 1995, and the subsequent enactment of Senate Bill-8 permit a publicly-
owned racing association to own and operate a card club casino if it also owns
and operates a race track on the same premises.
In September 1995, the Attorney General granted the Company a provisional
registration under SB-100 to operate the Hollywood Park-Casino, which
provisional registration was renewed effective January 1, 1999. Pursuant to the
GCA, on September 10, 1999, in connection with the sale of the Hollywood Park
Race Track (see Note 3 to the Notes to Consolidated Financial Statements), the
Company was no longer eligible to operate the Hollywood Park-Casino and
therefore entered into a sub lease arrangement of the Hollywood Park-Casino with
the same third party operator which leases the Crystal Park Casino. In the event
the GCA were to be amended to permit publicly-traded companies such as Pinnacle
Entertainment to operate card clubs, the Company, and its officers, directors
and certain stockholders, would likely have to file the necessary licensing
applications with the Attorney General, if it wished to operate the Hollywood
Park-Casino or the Crystal Park Casino.
Pursuant to the GCA, the operator of a card club casino, and its officers,
directors and certain stockholders are required to be registered by the Attorney
General and licensed by the municipality in which it is located. A permanent
registration will not be granted until the California Department of Justice
completes its review of the applications of The Company and its corporate
officers and directors. The Attorney General has broad discretion to deny a
gaming registration and may impose reasonably necessary conditions upon the
granting of a gaming registration. Grounds for denial include felony
convictions, criminal acts, convictions involving dishonesty, illegal gambling
activities, and false statements on a gaming application. Such grounds also
generally include having a financial interest in a business or organization that
engages in gaming activities that are illegal under California law. In addition,
the Attorney General possesses broad authority to suspend or revoke a gaming
registration on any of the foregoing grounds, as well as for violation of any
federal, state or local gambling law, failure to take reasonable steps to
prevent dishonest acts or illegal activities on the premises of the card club
casino, failure to cooperate with the Attorney General in its oversight of the
card club casino and failure to comply with any condition of the registration.
The City of Inglewood and the City of Compton have granted the operator of the
Hollywood Park-Casino and the Crystal Park Casino all municipal gaming licenses
necessary for operation of such facilities, and the operator has received
provisional registrations for both locations from the California Department of
Justice.
INDIANA On September 14, 1998, the Indiana Gaming Commission ("Indiana
Commission") voted to award a Certificate of Suitability to Pinnacle Gaming
Development Corporation ("Pinnacle Gaming"), ninety-seven percent (97%) of the
equity of which is owned and controlled by affiliates of the Company. By action
approved by the Indiana Commission, Pinnacle Gaming has been absorbed by
Belterra Resort (Indiana), LLC ("Belterra"). The Company continues to own a 97%
interest in Belterra. The Certificate of Suitability, issued by the Indiana
Commission, authorizes Belterra to develop a riverboat gaming resort, including
a hotel and golf course, in Switzerland County, Indiana. Upon completion of
development of the project in accordance with the Certificate of Suitability and
satisfaction of other conditions, the Indiana Commission is expected to issue a
license to Belterra. That license would be the fifth and final license
authorized under Indiana law for riverboat gaming operations conducted from
sites on the Ohio River. Certificates of Suitability have a one hundred eighty
(180) day life and are subject to renewal by Commission action. The Certificate
of Suitability originally
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awarded to Pinnacle Gaming and held by Belterra has been renewed on three (3)
occasions and will be subject to one additional renewal before the anticipated
opening date for gaming and hotel operations.
The ownership and operation of riverboat casinos docked at Indiana-based sites
are subject to extensive state regulation under the Indiana Riverboat Gaming Act
("Indiana Act") and regulations which the Indiana Commission has adopted under
the Indiana Act. The Indiana Act and the regulations are significant to the
Company's prospects for successfully developing and operating the Switzerland
County, Indiana based riverboat casino and associated developments through
Belterra, its Indiana affiliate.
The Indiana Act extends broad and pervasive regulatory powers and authority to
the Indiana Commission. It has adopted a comprehensive set of regulations
covering ownership and reporting for licensed riverboat casinos together with
"rules of the game" governing riverboat casino operations. The Indiana
Commission has also adopted a set of regulations under the Indiana Act which
covers numerous operational matters concerning riverboat casinos licensed by the
Commission.
Among the regulations adopted by the Indiana Commission is one dealing with
riverboat excursions, routes and public safety. The Indiana Act requires
licensed riverboat casinos to be cruising vessels, and the regulations carry out
the legislative intent with appropriate recognition of public safety needs. The
regulations explicitly preclude "dockside gambling". Riverboat gaming excursions
are limited to a duration of up to four hours unless otherwise expressly
approved by the Indiana Commission. Excursion routes and schedules are subject
to the approval of the Indiana Commission. No gaming may be conducted while the
boat is docked except: (1) for thirty-minute embarkment and disembarkment
periods at the beginning and end of a cruise; (2) if the master of the riverboat
reasonably determines that specific weather or water conditions present a danger
to the riverboat, its passengers and crew; (3) if either the vessel or the
docking facility is undergoing mechanical or structural repair; (4) if water
traffic conditions present a danger to the riverboat, riverboat passengers and
crew, or to other vessels on the water, or (5) if the master has been notified
that a condition exists that would cause a violation of Federal law if the
riverboat were to cruise.
For Ohio River excursions, such as those Belterra will conduct from its
Switzerland County development, "full excursions" must be conducted at all times
during the year unless the master determines otherwise, for the above-stated
reasons. A "full excursion" is a cruise on the Ohio River. The Ohio River has
waters in both Indiana and Kentucky. The Company believes there is ample room to
cruise fully in Indiana waters on the Ohio River with no need or likelihood of
entering Kentucky waters. Therefore, the provisions of Kentucky law (which
preclude any kind of casino gaming) will not have any impact on the Company's
prospective Indiana operations.
An Indiana riverboat owner's license has an initial effective period of five
years; thereafter, a license is subject to annual renewal. The Indiana
Commission has broad discretion over the initial issuance of licenses and over
the renewal, revocation, suspension and control of riverboat owner's licenses.
Belterra has received a Certificate of Suitability designed to lead to issuance
of a license upon completion of project development and satisfaction of various
conditions. The Indiana Act requires a reinvestigation after three years to
ensure the owner continues to be in compliance with the Indiana Act. Officers,
directors and principal owners of the actual license holder and employees who
are to work on the riverboat are subject to substantial disclosure requirements
as a part of securing and maintaining necessary licenses. Significant contracts
to which Belterra is party are subject to disclosure and approval processes
imposed by the regulations. A riverboat owner's licensee may not enter into or
perform any contract or transaction in which it transfers or receives
consideration which is not commercially reasonable or which does not reflect the
fair market value of the goods or services rendered or received. All contracts
are subject to disapproval by the Indiana Commission. Suppliers of gaming
equipment and materials must also be licensed under the Indiana Act.
Licensees are statutorily required to disclose to the Indiana Commission the
identity of all directors, officers and persons holding direct or indirect
beneficial interests of 1% or greater. The Indiana Commission also requires a
broad and comprehensive disclosure of financial and operating information on
licensees and their principal officers, and their parent corporations and other
upstream owners. The Company and Belterra
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have provided full information and documentation to the Indiana Commission, and
they must continue to do so until issuance of the license and then throughout
the period of licensure. The Indiana Act prohibits contributions to candidate
for a state, legislative, or local office, or to a candidate's committee or to a
regular party committee by the holder of a riverboat owner's license or a
supplier's license, by an officer of a licensee, by an officer of a person that
holds at least a 1% interest in the licensee or by a person holding at least a
1% interest in the licensee. The Indiana Commission has promulgated a rule
requiring quarterly reporting by such licensees, officers, and persons.
As a condition to receiving a license to conduct riverboat casino operations
from the Indiana Commission, the Company has obtained permits and approvals from
the United States Army Corp of Engineers to develop the facilities it will use
to conduct operations. Clearances will be required to be received from the
Indiana Department of Natural Resources for portions of the proposed
development. Alcoholic beverage permits for riverboat excursions and for the
hotel and boarding facilities will be required as will various other permits and
governmental consents or clearances.
Adjusted gross receipts from gambling games authorized under the Indiana Act are
subject to a tax at the rate of 20% on adjusted gross receipts. "Adjusted gross
receipts" means the total of all cash and property received from gaming
operations less cash paid out as winnings and uncollectible gaming receivables
(not to exceed 2%). The Indiana Act also prescribes an additional tax for
admissions, based upon $3 per person per excursion. Property taxes may be
imposed on riverboats at rates determined by local taxing authorities. Income to
the Company from Belterra will be subject to the Indiana gross income tax, the
Indiana adjusted gross income tax and the Indiana supplemental corporate net
income tax. Sales on a riverboat and at related resort facilities are subject to
applicable use, excise and retail taxes. The Indiana Act requires a riverboat
owner licensee to directly reimburse the Indiana Commission for the costs of
inspectors and agents required to be present while authorized gaming is
conducted.
Through the establishment of purchasing "goals," the Indiana Act encourages
minority and women's business enterprise participation in the riverboat gaming
industry. Any person issued a riverboat owner's license must establish goals of
at least 10% of the total dollar value of the licensee's contracts for goods and
services with minority business enterprises and 5% of the total dollar value of
the licensee's contracts for goods and services with women's business
enterprises. Compliance with these conditions is incorporated into the Indiana
Affiliate's Certificate of Suitability. The Indiana Commission may suspend,
limit or revoke the owner's license or impose a fine for failure to comply with
the statutory requirements. The Indiana Commission has indicated it will be
vigilant in monitoring attainment of these goals.
Minimum and maximum wagers on games on the riverboat are left to the discretion
of the licensee. Wagering may not be conducted with money or other negotiable
currency. There are no statutory restrictions on extending credit to patrons;
however, the matter of credit may come under scrutiny in future legislative
sessions.
If an institutional investor acquires 5% or more of any class of voting
securities of a holding company of a licensee, the investor is required to
notify the Indiana Commission and to provide additional information, and may be
subject to a finding of suitability. Any other person who acquires 5% or more of
any class of voting securities of a holding company of a licensee is required to
apply to the Indiana Commission for a finding of suitability. A riverboat
licensee or an affiliate may not enter into a debt transaction of $1,000,000 or
more without approval of the Indiana Commission. The Indiana Commission has
taken the position that a "debt transaction" includes increases in maximum
amount available under reducing revolving credit facilities. A riverboat owner's
license is a revocable privilege and is not a property right under the Indiana
Act. A riverboat owner licensee or any other person may not lease, hypothecate,
borrow money against or loan money against or otherwise scrutinize or monetize a
riverboat owner's license.
The study commission on the impact of legalized wagering in Indiana appointed by
the Governor has called for a limit on expansion of legalized wagering in
Indiana.
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Proposals introduced before the 2000 General Assembly in Indiana to authorize
dockside gaming by eliminating cruise requirements were not successful. Parts of
those legislative efforts included proposals for increased taxes on admissions
or increased taxes on adjusted gross gaming receipts. These matters are the
subject of continued attention by legislators and other policy makers.
ARIZONA The Arizona Racing Commission ("ARC") has jurisdiction and supervision
over all racing activities in the State of Arizona. The ARC issues live racing
permits that are valid for three years, and off-track permits are granted on a
year to year basis. In June 1997, Turf Paradise received a live racing permit
from the ARC, which will remain in force through the 1999/2000 race year. The
permit specifies that live racing may be conducted between the first week of
September through the third week of May and that, so long as there is live
racing at Turf Paradise on an average of at least five days a week, Turf
Paradise may have simulcast wagering on days when there is no live racing.
ARGENTINA The Provincial Government of Neuquen, Argentina enacted a casino
privatization program to issue twelve-year exclusive concession agreements to
operate existing casinos. The Company's two casinos are the only casinos in the
province of Neuquen, in west central Argentina, and are located in Neuquen City
and San Martin de los Andes. The casinos had previously been operated by the
provincial government. The Ministry of Finance of Argentina has adopted a
modified regulatory system for casinos, based somewhat on the regulatory system
utilized by the State of Nevada, and such regulatory system is being
administered by the Provincial Government of Neuquen. The Company cannot predict
what effect the enactment of other laws, regulations or pronouncements relating
to casino operations may have on the operations of Casino Magic Argentina.
COMPETITION Pinnacle Entertainment faces significant competition in each of the
jurisdictions in which it has established gaming operations, and such
competition is expected to intensify as new gaming operations enter these
markets and existing competitors expand their operations. The Company's
properties compete directly with other gaming properties in Nevada, Mississippi,
Louisiana, Indiana, California, Arizona, and Argentina. To a lesser extent, the
Company also competes for customers with other casino operators in North
American markets, including casinos located on Indian reservations, and other
forms of gaming such as lotteries. Many of the Company's competitors are larger,
have substantially greater name recognition and marketing resources as well as
access to lower cost sources of financing. Moreover, consolidation of companies
in the gaming industry could increase the concentration of large gaming
companies in the markets which the Company operates, and may result in Pinnacle
Entertainment's competitors having even greater resources, name recognition and
licensing prospects than such competitors currently enjoy.
MISSISSIPPI AND LOUISIANA - GULF COAST MARKETS The Company operates four gaming
properties (including two which are pending a sale) in this market; Boomtown New
Orleans, Boomtown Biloxi, Casino Magic Bay St. Louis and Casino Magic Biloxi.
Competition in this market expanded during 1999. Further, Mississippi law does
not limit the number of gaming licenses that may be granted. In March 1999,
Mirage Resorts opened the Beau Rivage Resort, an 1,800 room hotel and casino in
Biloxi costing in excess of $675,000,000. Grand Casino Biloxi, a subsidiary of
Park Place Entertainment, expanded its casino, which is next to Casino Magic
Biloxi. In the spring of 2000, the New Palace Casino is expected to open in
Biloxi and will have 232 hotel rooms, restaurants and a casino. Grand Casino
Gulfport in June 1999 completed and opened a 600 room hotel expansion, as well
as a 3 acre water park, spa and salon at its Gulfport property (located near
Bay. St. Louis). Mandalay Bay has announced plans to construct a new hotel and
casino at Bay St. Louis, but construction has not yet begun.
BOSSIER CITY/SHREVEPORT MARKET The Company operates its 188 room luxury hotel
and riverboat Casino Magic Bossier City property in the Bossier City/Shreveport
market, which competes directly with three other gaming facilities. The largest
is Horseshoe Casino, which has a 606 room luxury hotel and has the largest
riverboat, at 62,400 square feet (though all of the casinos in Louisiana are
limited to 30,000 square feet of gaming space). Isle of Capri Casinos has
completed construction of a 305 room hotel, which opened in mid-1999.
Additionally, Hollywood Casino (which is not affiliated with the Company) has
begun construction of a $230,000,000 hotel and riverboat casino in Shreveport,
which is expected to open in the fourth quarter of
22
<PAGE>
2000. Harrah's is also constructing an approximately 500 room hotel in
Shreveport adjacent to its casino, which is expected to open in the fall of
2000.
NEW ORLEANS MARKET The Company operates its Boomtown New Orleans property in
Harvey, Louisiana, approximately ten miles from the French Quarter of New
Orleans, on the "Westbank" in Jefferson Parish. In October 1999, Harrah's Jazz
Casino opened a significant land-based casino and entertainment facility in
downtown New Orleans. The Harrah's Jazz Casino has 100,000 square feet and
approximately 4,200 gaming positions compared with Boomtown New Orleans which
has 30,000 square feet and approximately 1,300 positions.
CALIFORNIA AND RENO MARKETS, PROPOSITION 1A In California, the Company leases
the Hollywood Park-Casino and the Crystal Park Casino (both which are California
card clubs) to a third party operator, and operates Boomtown Reno in Nevada.
Indian tribes have operated casinos in California for approximately ten years,
and currently there are approximately 40 Indian tribes operating gambling halls,
though most are significantly smaller than the typical Las Vegas casino. In
March 2000, California voters passed Proposition 1A, a ballot initiative that
allows Indian tribes to conduct various gaming activities including horse race
wagering, gaming devices (including slot machines), banked card games (as in
traditional Las Vegas card games) and lotteries. As a result of the passage of
Proposition 1A in California, the Company expects the increased Indian gaming
competition will adversely affect the Company's gaming operations in Reno,
Nevada and the California Card Clubs which are run by a third party operator.
The Hollywood Park-Casino and the Crystal Park Casino also face competition from
other card club casinos in neighboring cities.
ARIZONA MARKET The Company operates the Turf Paradise Race Track in this market.
In February 2000, the Company signed a definitive agreement to sell this
property for $53,000,000 cash and it is expected to close in April or May 2000.
Turf Paradise's primary competition is from local Indian run Las Vegas-style
casinos. Twenty of the twenty-one tribes in Arizona are currently involved in
gaming at some level, with five of the state's eleven Indian run casinos
operating within 60 miles of Turf Paradise.
GENERAL While the Company believes that it has been able to effectively compete
in these markets to date, increasing competition may adversely affect gaming
operations in the future. The Company believes that increased legalized gaming
in other states, particularly in areas close to our existing gaming properties,
such as in Texas, Alabama or Kentucky could adversely affect its operations.
FEDERAL INCOME TAX MATTERS The Company accounts for income taxes under Statement
of Financial Accounting Standards No. 109 ACCOUNTING FOR INCOME TAXES, whereby
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
As of December 31, 1999, the Company had federal net operating loss ("NOL") and
capital loss ("CL") carryforwards of approximately $64,700,000, and $5,600,000,
respectively, comprised principally of NOL carryforwards acquired in the Casino
Magic and Boomtown Mergers, and CL carryforwards resulting from the disposition
of Boomtown's Las Vegas property. The NOL carryforwards expire on various dates
through 2018, and the CL carryforwards expire on various dates through 2002. In
addition, the Company has approximately $400,000 of foreign tax credits related
to Casino Magic Argentina operations, which expire in 2000, and approximately
$8,400,000 of alternative minimum tax credits which do not expire. The
alternative minimum tax credits can reduce future federal income taxes but
generally cannot reduce federal income taxes paid below the amount of
alternative minimum tax.
Under several provisions of the Internal Revenue Code (the "Code") and the
regulations promulgated thereunder, the utilization of NOL, CL and tax credit
carryforwards to reduce tax liability is restricted under certain circumstances.
Events which cause such a limitation include, but are not limited to, certain
changes in the ownership of a corporation. Both the Boomtown Merger and the
Casino Magic Merger caused such a
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<PAGE>
change in ownership with respect to Boomtown and Casino Magic. As a result, the
Company's use of approximately $13,800,000 and $50,900,000 of Boomtown and
Casino Magic's NOL carryforwards, respectively; $1,400,000 of Boomtown's CL
carryforwards; and $3,400,000 and $3,700,000 of Boomtown and Casino Magic's tax
credit carryforwards, respectively, is subject to certain limitations imposed by
Sections 382 and 383 of the Code and by the separate return limitation year
rules of the consolidated return regulations. Section 382 of the Code generally
provides that in each taxable year following an ownership change with respect to
a corporation, the corporation (or consolidated group of which the corporation
is a part) is subject to a limitation on the amount of the corporation's pre-
ownership change NOLs which maybe used equal to the value of the stock of the
corporation (determined immediately prior to the ownership change and subject to
certain adjustments) multiplied by the "long term tax exempt rate" which is in
effect at the time of the ownership change. For ownership changes occurring
during June 1997 (Boomtown) and October 1998 (Casino Magic), the long term tax
exempt rates were 5.64% and 5.15%, respectively. Section 383 of the Code imposes
a comparable and related set of rules for limiting the use of CL and tax credit
carryforwards in the event of an ownership change. In addition, the separate
return limitation year rules of the consolidated return regulations generally
provide that Boomtown and Casino Magic's pre-merger NOLs can be used in
computing post-merger taxable income of the Company only to the extent that
Boomtown and Casino Magic, respectively, contribute to the Company's
consolidated income. The separate return limitation year rules also impose
similar limitations with respect to CL and tax credit carryforwards of Boomtown
and Casino Magic. Furthermore, the utilization of the foreign tax credit is also
subject to certain limitations imposed by Section 904 of the Code which
generally provides that foreign tax credits cannot be used to reduce U.S. tax
liability on income sources with the U.S. These various limitations restrict the
amount of NOL, CL and tax credit carryforwards that may be used by the Company
in any taxable year and, consequently, are expected to defer the Company's use
of a substantial portion of such carryforwards and may ultimately prevent the
Company's use of a portion thereof. Therefore, a valuation allowance has been
recorded related to the Boomtown and Casino Magic carryforwards.
For California tax purposes, as of December 31, 1999, the Company also had
approximately $11,700,000 of Los Angeles Revitalization Zone ("LARZ") tax
credits. The LARZ tax credits can only be used to reduce certain California tax
liability and cannot be used to reduce federal tax liability. A valuation
allowance has been recorded with respect to the LARZ tax credits because the
Company may not generate enough income subject to California tax to utilize the
LARZ tax credits before they expire.
EMPLOYEES The following is a summary of Pinnacle Entertainment's employees by
property at December 31, 1999:
<TABLE>
<CAPTION>
PERMANENT SEASONAL TOTAL STAFFING
PROPERTY STAFF STAFF RANGE
---------------------------------- --------------- -------------- -----------------
<S> <C> <C> <C>
Belterra (a) 8 -- 8
Boomtown Reno 1,000 150 1,000 - 1,150
Boomtown New Orleans 1,156 -- 1,156
Boomtown Biloxi (b) 988 -- 988
Casino Magic Bay St. Louis (b) 1,210 50 1,210 - 1,260
Casino Magic Biloxi 1,319 -- 1,319
Casino Magic Bossier City 1,450 -- 1,450
Casino Magic Argentina 255 10 265
Turf Paradise (b) 85 340 85 - 425
Corporate 35 -- 35
-------------- ------------- -----------------
Total 7,506 550 7,506 - 8,056
============== ============= =================
(a) When Belterra opens in August 2000, it expects to have approximately 1,400 employees.
(b) This property is pending a sale in which when consummated, the employees will no longer be
</TABLE>
The Company does not employ the staff at the Hollywood Park-Casino or the
Crystal Park Casino.
The Company's staff is non-union. The Company believes that it has good
relationships with its employees.
24
<PAGE>
OTHER Information concerning backlog, sources and availability of raw materials
is not essential to an understanding of the Company's business.
The Company does not engage in material research activities relating to
development of new products or services or improvement of existing products or
services.
Compliance with federal, state and local provisions which have been enacted or
adopted regulating the discharge of materials into the environment or otherwise
relating to the protection of the environment have not had a material effect
upon capital expenditures, earnings or the competitive position of the Company.
The Company owns two land-based casinos in Argentina. Casino Magic Argentina's
contribution to the Company's net income is immaterial as compared with the
contributions of the Company's domestic gaming operations.
ITEM 2. PROPERTIES
The following describes the Company's principal real estate properties:
PROPERTIES
PINNACLE ENTERTAINMENT, INC. In connection with the sale of the Hollywood Park
Race Track to Churchill Downs (see Note 3 to the Notes to Consolidated Financial
Statements), the Company relocated its corporate offices to Glendale,
California. The Company leases approximately 10,000 square feet under a sub
lease agreement that expires in May 2005.
HOLLYWOOD PARK-CASINO As discussed in Note 3 to the Notes to Consolidated
Financial Statements, upon the sale of the Hollywood Park-Casino to Churchill
Downs, the Company entered into a 10-year leaseback agreement with Churchill
Downs, and immediately sub leased the facility to an unaffiliated third party
tenant to operate the card club casino. The Hollywood Park-Casino contains
approximately 30,000 square feet of card club gaming space and 30,000 square
feet of retail and restaurant space.
THE CRYSTAL PARK CASINO The Crystal Park LLC owns approximately six acres
including the ground floor of the Crystal Park Casino, which houses the
approximately 40,000 square feet of gaming space. The Crystal Park LLC leases
the hotel, along with approximately 35 acres of unimproved land (to be used for
expansion, if ever needed) from the City of Compton under a 50 year lease. An
unaffiliated third party operates the Crystal Park Casino under a four year
triple net lease.
BOOMTOWN RENO The Company owns 569 acres in Verdi, Nevada, with current
operations presently utilizing approximately 61 acres. The Company considers
approximately 250 of the excess acreage as available for development. The
Company owns all of the improvements and facilities at the property, including
the casino, hotel, truck stop, recreational vehicle park and service station,
along with the related water rights.
BOOMTOWN NEW ORLEANS The Company owns approximately 50 acres in Harvey,
Louisiana which are utilized by Boomtown New Orleans. The Company owns the
facilities and associated improvements at the property, including the riverboat
casino.
CASINO MAGIC BILOXI Casino Magic Biloxi is located on approximately 16 acres, of
which 4.5 acres are owned and approximately 11.5 acres are leased, inclusive of
approximately 6.4 acres of submerged tidelands leased from the state of
Mississippi. The tidelands are under a ten year lease, with approximately 4
years remaining, with a five year option to renew. The Company owns the barge on
which the casino is located and all of the land-base facilities including the
hotel.
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<PAGE>
CASINO MAGIC BOSSIER CITY The Company owns 23 acres on the Red River in Bossier
City, Louisiana. The property contains a dockside riverboat casino, hotel,
parking structure and other land-based facilities, all of which are owned by the
Company. The property secures the Casino Magic 13% Notes. The Company leases
approximately one acre of water bottoms from the State of Louisiana.
CASINO MAGIC ARGENTINA The Company operates two casinos in west central
Argentina, in the cities of Neuquen and San Martin de los Andes. The Company
does not own any real property at these sites.
EXPANSION PROPERTIES
BELTERRA RESORT AND CASINO The Company owns and leases a total of approximately
315 acres in Switzerland County, Indiana. The Company is constructing a
15-story, 308-room hotel, a cruising riverboat casino with approximately 1,800
gaming positions, an 18-hole championship golf course, a 1,500 seat
entertainment facility, four restaurants, retail areas and other amenities.
LAKE CHARLES In November 1999, the Company filed an application for the
fifteenth and final gaming license to be issued by the Louisiana Gaming Control
Board. The Company's application is seeking approval to operate a cruising
riverboat casino, hotel and golf course resort complex in Lake Charles,
Louisiana.
In connection with such submittal, the Company entered into an option agreement
with the Lake Charles Harbor and Terminal District to lease 225-acres of
unimproved land from the District upon which such resort complex would be
constructed. The term of the lease would be for a total of up to 70 years. The
lease would require the Company to develop certain on- and off- site
improvements. If awarded the license by the Louisiana Gaming Control Board, the
Company anticipates building a resort similar in design and scope to the
Belterra Resort and Casino currently under construction.
PROPERTIES HELD FOR SALE
BOOMTOWN BILOXI The Company leases substantially all of the 19 acres that
Boomtown Biloxi utilizes for operations, under a 99 year lease, entered into in
1994. In addition, the Company leases property for parking under several lease
agreements ranging from 10 to 25 years. The Company leases approximately 5.1
acres of submerged tidelands, underneath the barge where the casino sits, from
the state of Mississippi under a ten year lease with a five year option to
renew. The Company owns the barge and all of the land-based facilities.
CASINO MAGIC BAY ST. LOUIS The Company owns approximately 591 acres in Bay St.
Louis, Mississippi, including the 17 acre marina where the gaming barge is
moored. There are approximately 50 acres available for development. The property
includes a golf course, a hotel, a recreational vehicle park, and other
land-based facilities, all of which are owned by the Company.
TURF PARADISE Turf Paradise, located in the northwest region of Phoenix,
Arizona, owns approximately 275 acres and all associated improvements, with
approximately 100 acres available for future development.
INGLEWOOD, CALIFORNIA The Company owns approximately 97 acres of unimproved
land adjacent to the Hollywood Park Race Track in Inglewood, California.
ITEM 3. LEGAL PROCEEDINGS
POULOS LAWSUIT A class action lawsuit was filed on April 26, 1994, in the United
States District Court, Middle District of Florida (the "Poulos Lawsuit"), naming
as defendants 41 manufacturers, distributors and casino operators of video poker
and electronic slot machines, including Casino Magic. The lawsuit alleges that
the defendants have engaged in a course of fraudulent and misleading conduct
intended to induce people to play such games based on false beliefs concerning
the operation of the gaming machines and the extent to which there is an
opportunity to win. The suit alleges violations of the Racketeer Influenced and
Corrupt Organization Act, as well as claims of common law fraud, unjust
enrichment and negligent
26
<PAGE>
misrepresentation, and seeks damages in excess of $6 billion. On May 10, 1994, a
second class action lawsuit was filed in the United States District Court,
Middle District of Florida (the "Ahern Lawsuit"), naming as defendants the same
defendants who were named in the Poulos Lawsuit and adding as defendants the
owners of certain casino operations in Puerto Rico and the Bahamas, who were not
named as defendants in the Poulos Lawsuit. The claims in the Ahern Lawsuit are
identical to the claims in the Poulos Lawsuit. Because of the similarity of
parties and claims, the Poulos Lawsuit and Ahern Lawsuit were consolidated into
one case file in the United States District Court, Middle District of Florida.
On December 9, 1994 a motion by the defendants for change of venue was granted,
transferring the case to the United States District Court for the District of
Nevada, in Las Vegas. In an order dated April 17, 1996, the court granted
motions to dismiss filed by Casino Magic and other defendants and dismissed the
Complaint without prejudice. The plaintiffs then filed an amended Complaint on
May 31, 1996 seeking damages against Casino Magic and other defendants in excess
of $1 billion and punitive damages for violations of the Racketeer Influenced
and Corrupt Organizations Act and for state common law claims for fraud, unjust
enrichment and negligent misrepresentation. Casino Magic and other defendants
have moved to dismiss the amended Complaint. Casino Magic believes that the
claims are without merit and does not expect that the lawsuit will have a
materially adverse effect on the financial condition or results of operations of
Casino Magic.
CASINO AMERICA LITIGATION On or about September 6, 1996, Casino America, Inc.
commenced litigation in the Chancery Court of Harrison County, Mississippi,
Second Judicial District, against Casino Magic, and James Edward Ernst, its then
Chief Executive Officer, seeking injunctive relief and unspecified compensatory
damages in an amount to be proven at trial as well as punitive damages. The
plaintiff claims, among other things, that the defendants (i) breached the terms
of an agreement they had with the plaintiff, (ii) tortiously interfered with
certain of the plaintiff's business relations; and (iii) breached covenants of
good faith and fair dealing they allegedly owed to the plaintiff. On or about
October 8, 1996, the defendants interposed an answer, denying the allegations
contained in the Complaint. On June 26, 1998, defendents filed a motion for
summary judgment. Thereafter, plaintiffs, in July of 1998, filed a motion to
reopen discovery. Both of these motions are pending. On November 30, 1999, the
matter was transferred to the First Judicial District Court for Harrison County,
Mississippi. No trial date has been set. While the Company cannot predict the
outcome of this action, it believes plaintiff's claims are without merit and
intends to vigorously defend this action.
BUS LITIGATION On May 9, 1999, a bus owned and operated by Custom Bus Charters,
Inc. was involved in an accident in New Orleans, Louisiana while en route to
Casino Magic in Bay St. Louis, Mississippi. To date, multiple deaths and
numerous injuries are attributed to this accident and the Company's
subsidiaries, Casino Magic Corp. and / or Mardi Gras Casino Corp., together with
several other defendants, have been named in thirty-eight (38) lawsuits, each
seeking unspecified damages due to the deaths and injuries sustained in this
accident. While the Company cannot predict the outcome of the litigation, the
Company believes Casino Magic is not liable for any damages arising from this
accident and the Company and its insurers intend to vigorously defend these
actions.
SKRMETTA LAWSUIT A suit was filed on August 14, 1998 in the Circuit Court of
Harrison County, Mississippi by the ground lessor of property underlying
Boomtown Biloxi landbased improvements in Biloxi, Mississippi (the "Project").
The lawsuit alleges that the plaintiff agreed to exchange the first two years'
ground rentals for an equity position in the Project based upon defendants'
purported assurances that a hotel would be constructed as a component of the
Project. Plaintiff seeks recovery in excess of $4,000,000 plus punitive
damages. No substantive developments in the matter occurred prior to July 30,
1999 when the court denied the defendants' motions to arbitrate, and to stay,
the matter. Trial of the matter will commence on March 28, 2000. The Company
believes that the claims are without merit and intends to contest the matter
vigorously.
CLASS ACTION LAWSUITS On March 14, 2000, Harbor Finance Partners filed a class
action lawsuit in the Chancery Court of the State of Delaware against the
Company, and each of its directors, claiming that the defendants have breached
their fiduciary duty to the stockholders of the Company by agreeing to negotiate
exclusively with Harveys Resorts Casinos, a majority owned company of Colony
Capital, Inc. (see Acquisition Proposal discussion above). On March 21, 2000, a
similar class action lawsuit was filed by Leta Hilliard in the Superior Court of
the State of California. The lawsuits claim that the Company and its directors
have failed to
27
<PAGE>
undertake an appropriate evaluation of the Company's worth and engage in an
auction of the Company with third parties, and that the price for the stock is
inadequate. The Company intends to vigorously defend these actions and believes
no basis exists for the plaintiffs' claims.
Pinnacle Entertainment is party to a number of other pending legal proceedings,
though management does not expect that the outcome of such proceedings, either
individually or in the aggregate, will have a material effect on the Company's
financial results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is listed on the New York Stock Exchange and is
traded under the name Pinnacle Entertainment, Inc., identified by the symbol
"PNK". Prior to February 28, 2000, the Company's common stock was traded on the
New York Stock Exchange under the name Hollywood Park, Inc., identified by the
symbol "HPK".
The following table sets forth the high and low sales prices per common share of
the Company's common stock on the New York Stock Exchange. All sales prices are
rounded to the nearest 0.125. The prices shown are between dealers and do not
reflect retail markups, markdowns, or commissions, nor do they necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Price Range
----------------------------------
High Low
---------------- ----------------
<S> <C> <C>
1999
----
First Quarter $10.44 $8.25
Second Quarter 17.00 10.50
Third Quarter 18.69 14.75
Fourth Quarter 23.13 15.13
1998
----
First Quarter $22.19 $11.75
Second Quarter 13.25 11.00
Third Quarter 12.38 10.00
Fourth Quarter 10.56 8.13
</TABLE>
As of March 24, 2000, there were approximately 3,342 stockholders of record
of the Company's common stock.
DIVIDENDS The Company did not pay any dividends in 1999 or 1998. Payments of
future dividends would be at the discretion of the Company's Board of Directors
and would depend upon, among other things, future earnings, operational and
capital requirements, the overall financial condition of the Company and general
business conditions. The Board of Directors does not anticipate paying any cash
dividends on the Company's common stock in the foreseeable future.
28
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information for the years 1995 through 1999 was
derived from the consolidated financial statements of the Company. The Hollywood
Park Race Track and Hollywood Park-Casino were disposed of in September 1999.
The Company leased the Hollywood Park-Casino back from Churchill downs and
immediately subleased the facility to an unaffiliated third party (see Note 3 to
the Notes to Consolidated Financial Statements). Casino Magic was acquired on
October 15, 1998 and Boomtown was acquired on June 30, 1997, with both
acquisitions accounted for under the purchase method of accounting for a
business combination, and therefore Casino Magic's and Boomtown's financial
results were not included in periods prior to their respective acquisitions. The
Crystal Park Casino began operations on October 25, 1996, under a lease with an
unaffiliated third party. As of March 31, 1996, Sunflower Racing, Inc.'s (a
horse and greyhound racing facility in Kansas) results of operations were no
longer consolidated with the Company's due to Sunflower Racing, Inc.'s May 17,
1996, filing for reorganization under Chapter 11 of the Bankruptcy Code. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
financial statements and related notes thereto.
29
<PAGE>
<TABLE>
<CAPTION>
Pinnacle Entertainment, Inc.
Selected Financial Data
For the years ended December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- ------------- ------------ ------------ -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gaming $ 557,526 $ 293,057 $ 137,659 $ 50,717 $ 26,656
Racing 55,209 66,871 68,844 71,308 79,862
Food and beverage 39,817 30,510 19,894 13,947 19,783
Other 54,305 36,529 21,731 7,253 4,271
----------- ----------- ----------- ----------- -----------
706,857 426,967 248,128 143,225 130,572
----------- ----------- ----------- ----------- -----------
Expenses:
Gaming 309,508 161,549 74,733 27,249 5,291
Racing 22,694 29,316 30,304 30,167 30,960
Food and beverage 46,558 38,860 25,745 19,573 24,749
General, administrative and other 174,030 118,397 77,370 43,962 54,735
Depreciation and amortization 51,924 32,121 18,157 10,695 11,384
(Gain) loss on disposition of assets (42,061) 2,221 0 11,412 0
----------- ----------- ----------- ----------- -----------
562,653 382,464 226,309 143,058 127,119
----------- ----------- ----------- ----------- -----------
Operating income 144,204 44,503 21,819 167 3,453
Interest expense, net 57,544 22,518 7,302 942 3,922
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and
minority interests 86,660 21,985 14,517 (775) (469)
Minority interests 1,687 374 (3) 15 0
Income tax expense 40,926 8,442 5,850 3,459 693
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 44,047 $ 13,169 $ 8,670 ($ 4,249) ($ 1,162)
=========== =========== =========== =========== ===========
=======================================================================================================================
Dividends on convertible preferred stock $ 0 $ 0 $ 1,520 $ 1,925 $ 1,925
----------- ----------- ----------- ----------- -----------
Net income (loss) available to (allocated to)
common stockholders $ 44,047 $ 13,169 $ 7,150 ($ 6,174) ($ 3,087)
=========== =========== =========== =========== ===========
Net income (loss) per common share:
Basic $ 1.70 $ 0.50 $ 0.33 ($ 0.33) ($ 0.17)
Diluted $ 1.67 $ 0.50 $ 0.32 ($ 0.33) ($ 0.17)
OTHER DATA:
Earnings before interest, taxes, depreciation
amortization and other non-recurring
items (EBITDA) $ 157,087 $ 80,085 $ 42,459 $ 22,274 $ 20,925
Cash flows provided by (used in):
Operating activities $ 75,323 $ 38,112 $ 14,365 $ 13,677 $ 20,291
Investing activities (51,063) (136,532) (16,226) (19,895) (32,922)
Financing activities 54,868 118,498 9,609 (4,268) (2,085)
Capital expenditures 59,680 56,747 32,505 23,786 25,150
BALANCE SHEET DATA:
Cash and cash equivalents $ 123,362 $ 44,234 $ 24,156 $ 16,408 $ 25,532
Short-term investments 123,428 3,179 0 4,766 6,447
Total assets 1,045,408 891,339 419,029 205,886 283,303
Current liabilities 145,008 128,592 57,317 35,364 74,951
Long term notes payable 618,698 527,619 132,102 282 15,629
Total liabilities 764,532 656,611 195,729 44,711 117,557
Minority interests 0 3,752 1,946 3,015 0
Stockholders' equity 280,876 230,976 221,354 158,160 165,746
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Except for the historical information contained herein, the matters addressed in
this Annual Report on Form 10K may constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended. Such
forward-looking statements are subject to a variety of risks and uncertainties
that could cause actual results to differ materially from those anticipated by
Pinnacle Entertainment, Inc.'s management. Factors that may cause actual
performance of Pinnacle Entertainment, Inc. to differ materially from that
contemplated by such forward-looking statements include, among others: the
failure to complete pending asset sale transactions (discussed below); the
failure to complete or successfully operate planned expansion and development
projects (including the Belterra Resort and Casino); the failure to obtain
adequate financing to meet strategic goals; the failure to obtain or retain
gaming licenses or regulatory approvals; increased competition by casino
operators who have more resources and have built or are building competitive
casino properties; severe weather conditions; the failure to meet Pinnacle
Entertainment, Inc.'s debt service obligations; and other adverse changes in the
gaming markets in which Pinnacle Entertainment, Inc. operates (particularly in
the southeastern United States). The Private Securities Litigation Reform Act of
1995 (the "Act") provides certain "safe harbor" provisions for forward-looking
statements. All forward-looking statements made in this Annual Report on Form
10K are made pursuant to the Act. For more information on the potential factors
which could affect the Company's financial results, please review the Company's
filings with the Securities and Exchange Commission, including the Company's
Form S-4 Registration Statement dated March 26, 1999, and the discussion
contained therein under the caption "Risk Factors".
FACTORS AFFECTING FUTURE OPERATING RESULTS
SALES OF HOLLYWOOD PARK RACE TRACK AND HOLLYWOOD PARK-CASINO On September 10,
1999, the Company completed the dispositions of the Hollywood Park Rack Track
and Hollywood Park-Casino to Churchill Downs for $117,000,000 cash and
$23,000,000 cash, respectively. Churchill Downs acquired the race track, 240
acres of related real estate and the Hollywood Park-Casino. The Company then
entered into a 10-year leaseback of the Hollywood Park-Casino at an annual lease
rate of $3,000,000 per annum, with a 10-year renewal option. The Company then
subleased the facility to a third party operator for a lease payment of
$6,000,000 per year. The sublease is for a one-year period, at which time the
Company and sub lessee will negotiate the terms of any sublease extension.
The disposition of the Hollywood Park Race Track and related real estate was
accounted for as a sale and resulted in a pre-tax gain of $61,522,000. The
disposition of the Hollywood Park-Casino was accounted for as a financing
transaction and therefore not recognized as a sale for accounting purposes as
the Company subleased the Hollywood Park-Casino to a third-party operator. Under
the provisions of SFAS No. 121, the Company recorded an impairment write-down of
the Hollywood Park-Casino of $20,446,000 during the quarter ended September 30,
1999. The pre-tax gain on the sale of the race track and impairment write-down
of the Hollywood Park-Casino are included in "(Gain) loss on disposition of
assets, net" in the accompanying Consolidated Statements of Operations. Pursuant
to accounting guidelines, the Company recorded a long-term debt obligation of
$23,000,000 for the Hollywood Park-Casino (see Note 9 to the Notes to
Consolidated Financial Statements). The Hollywood Park-Casino building will
continue to be depreciated over its estimated useful life. The estimated tax
liability on the sales transactions to Churchill Downs is approximately
$22,000,000.
31
<PAGE>
Condensed results of operations for the Hollywood Park Race Track and the
Hollywood Park-Casino for the years ended December 31, 1999, 1998 and 1997 were:
YEAR ENDED DECEMBER 31,
------------------------------
1999 (a) 1998 1997
-------- -------- --------
(IN THOUSANDS)
Revenues $ 86,235 $114,751 $121,799
Expenses 73,019 103,760 107,775
-------- -------- --------
Operating income 13,216 10,991 14,024
Interest expense (b) 0 0 0
-------- -------- --------
Income before income taxes $ 13,216 $ 10,991 $ 14,024
======== ======== ========
(a) Operating results through the sales date of September 10, 1999.
(b) No interest expense was specifically identified for these operations.
PENDING CASINO, RACE TRACK AND LAND SALES Assets held for sale at December 31,
1999 consisted of the following, and excluded the related goodwill and deferred
income taxes associated with such assets:
NET PROPERTY
PLANT &
EQUIPMENT OTHER TOTAL
----------- -------- --------
(IN THOUSANDS)
Two casinos in Mississippi $115,731 $ 5,876 $121,607
Turf Paradise Race Track in Arizona 10,873 4,359 15,232
Other (primarily undeveloped land in California) 17,810 0 17,810
-------- -------- --------
$144,414 $ 10,235 $154,649
======== ======== ========
Sales transactions for these assets were pending or the properties were actively
being marketed as of December 31, 1999. There are no assurances these
transactions will close or the anticipated cash proceeds and after tax gains as
described below will be achieved. Until the sales transactions are completed,
the Company continues to operate the race track and casinos held for sale. In
addition, certain liabilities will be assumed by the buyers of these assets.
Such liabilities, consisting primarily of accrued liabilities and accounts
payable, have been classified as "Liabilities to be assumed by buyers of assets
held for sale" on the accompanying Consolidated Balance Sheets. Goodwill net of
amortization at December 31, 1999 includes approximately $13,331,000 related to
the pending race track and casino sales. The after tax cash proceeds generated
by these sales will be used to retire long-term debt, make capital improvements
to existing properties or acquire new properties and for general corporate
purposes.
CASINOS IN MISSISSIPPI On December 10, 1999, the Company announced it had
entered into definitive agreements with subsidiaries of Penn National Gaming,
Inc. ("Penn National") to sell its Casino Magic Bay St. Louis, Mississippi, and
Boomtown Biloxi, Mississippi, casino operations for $195,000,000 in cash.
Subsidiaries of Penn National will purchase all of the operating assets and
certain liabilities and related operations of the Casino Magic Bay St. Louis and
Boomtown Biloxi properties, including the 590 acres of land at Casino Magic Bay
St. Louis and the leasehold rights at Boomtown Biloxi. The transactions are
subject to certain closing conditions, including approval by the Mississippi
Gaming Commission, the purchaser completing the necessary financing and
termination of the Hart-Scott-Rodino waiting period. The Company estimates the
transactions will close in the second quarter of 2000 and generate an after tax
gain of approximately $32,300,000.
32
<PAGE>
RACE TRACK IN ARIZONA On December 30, 1999, the Company announced the signing of
a letter of intent under which the Company will sell its Turf Paradise horse
racing facility located in Phoenix, Arizona to a private investor. In February
2000, the Company announced the signing of a definitive agreement for the sale
of Turf Paradise for $53,000,000 in cash. The agreement includes the horse
racing operations and all 275 acres at the Phoenix, Arizona property. Pinnacle
Entertainment anticipates closing the transaction in the second quarter of 2000.
The after tax gain from such sale is expected to be approximately $23,000,000.
OTHER On July 15, 1999, the Company announced it had entered into an agreement
to sell 42 acres of the 139 acres retained in the Churchill Downs transaction
for approximately $24,000,000 in cash. In March 2000, the Company completed the
sale (see Note 20 to the Notes to Consolidated Financial Statements). The
Company anticipates an after tax gain of approximately $13,800,000 from this
sale. On November 4, 1999, the Company announced it had entered into an
agreement for the sale of the remaining 97 acres for approximately $63,000,000
in cash. On February 7, 2000, the Company elected to terminate such agreement
and has begun discussions with other buyers. The Company expects to close the
sale of this property for cash by the end of 2000, which will result in a gain.
The Company owns other land parcels in Missouri, which it is actively trying to
sell.
Condensed results of operations for the Casino Magic Bay St. Louis and Boomtown
Biloxi casinos and the Turf Paradise horse racing facility for the years ended
December 31, 1999, 1998 and 1997 are as follows:
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 (a) 1997 (b)
-------- -------- --------
(IN THOUSANDS)
Revenues $174,380 $100,014 $ 46,655
Expenses 145,066 86,051 40,479
-------- -------- --------
Operating income 29,314 13,963 6,176
Interest expense (income), net 86 339 (153)
-------- -------- --------
Income before income taxes $ 29,228 $ 13,624 $ 6,329
======== ======== ========
(a) Includes the results of Casino Magic Bay St. Louis from October 15, 1998
(see Note 5 to the Notes to Consolidated Financial Statements).
(b) Includes the results of Boomtown Biloxi from June 30, 1997 (see Note 5 to
the Notes to Consolidated Financial Statements).
EXPANSION & DEVELOPMENT BELTERRA RESORT AND CASINO In September 1998, the
Indiana Gaming Commission approved the Company to receive the last available
license to conduct riverboat gaming operations on the Ohio River in Indiana for
the Belterra Resort and Casino. Pinnacle Entertainment owns 97% of the Belterra
Resort and Casino (currently under construction), with the remaining 3% held by
a non-voting local partner.
In July 1999, the Company broke ground on the Belterra Resort and Casino and is
continuing on schedule for an opening in August 2000. The project is located in
Switzerland County, Indiana, which is approximately 35 miles southwest of
Cincinnati, Ohio and will be the gaming site most readily accessible to major
portions of northern and central Kentucky, including the city of Lexington.
The Company plans to spend approximately $200,000,000 ($30,635,000 of which has
been spent as of December 31, 1999) in total costs (including land, capitalized
interest, pre-opening expenses, organizational expenses and community grants) on
the Belterra Resort and Casino, which will feature a 15-story, 308-room hotel, a
cruising riverboat casino with approximately 1,800 gaming positions, an 18-hole
championship golf course, a 1,500 seat entertainment facility, four restaurants,
retail areas and other amenities.
33
<PAGE>
In October 1999, the Company acquired the Ogle Haus Inn, a 54-room hotel
operation in the city of Vevay, for $2,500,000. The Company is utilizing the
facility principally for the Belterra pre-opening operations, including housing
various key management staff, converting rooms into offices and training hotel
and food and beverage employees. Operational costs of the Ogle Haus Inn, as well
as all other pre-opening costs of Belterra Resort and Casino, are being expensed
as incurred. After completion of Belterra, the Ogle Haus will be operated as a
hotel and restaurant facility and will provide overflow capacity for Belterra.
LAKE CHARLES In November 1999, the Company filed an application for the
fifteenth and final gaming license to be issued by the Louisiana Gaming Control
Board. The Company was one of five applicants for such license. The Company's
application is seeking approval to operate a cruising riverboat casino, hotel
and golf course resort complex in Lake Charles, Louisiana. The Louisiana Gaming
Control Board has not awarded such license and there are no assurances such
license will be issued to the Company or any other applicant.
In connection with such submittal, Pinnacle Entertainment has entered into an
option agreement with the Lake Charles Harbor and Terminal District to lease
225-acres of unimproved land from the District upon which such resort complex
would be constructed. The initial lease option is for a six-month period ending
January 2000, with three six-month renewal options, at a cost of $62,500 per
six-month option. If the lease option is exercised, the annual rental payment
would be $815,000, with a maximum annual increase of 5%. The term of the lease
would be for a total of up to 70 years, with an initial term of 10 years and six
consecutive renewal options of 10 years each. The lease would require the
Company to develop certain on-and off- site improvements at the location. If
awarded the license by the Louisiana Gaming Control Board, the Company
anticipates building a resort similar in design and scope to the Belterra Resort
and Casino currently under construction in Indiana.
CALIFORNIA CARD CLUBS By California state law, a corporation may operate a
gambling enterprise in California only if every officer, director and
shareholder holds a state gambling license. Only 5% or greater shareholders of a
publicly traded racing association, however, must hold a state gambling license.
As a practical matter, therefore, public corporations that are not qualified
racing associations may not operate gambling enterprises in California. As a
result, the Hollywood Park-Casino, since September 10, 1999 (see sales of
California track and casino above), and the Crystal Park Hotel and Casino, are
leased to, and operated by, an unrelated third party.
By law, a California card club may neither bank card games nor offer certain of
the casino games permitted in Nevada and other traditional gambling
jurisdictions, and thus does not participate in the wagers made or in the
outcome of any of the games played.
YEAR 2000 The Company has not experienced any disruption due to the Year 2000
issue. The Year 2000 issue exists because computer systems and applications were
historically designed to use two digit fields (rather than four) to designate a
year, which could result in miscalculations or system failures. Costs incurred
prior to December 31, 1999 to mitigate the Year 2000 issue were approximately
$1,028,000. The Company cannot be assured there will not be Year 2000 issues in
the future.
RESULTS OF OPERATIONS
On October 15, 1998, the Company acquired Casino Magic, and accounted for the
acquisition under the purchase method of accounting for a business combination.
As required under the rules of the purchase method of accounting for a business
combination, Casino Magic's results of operations were not consolidated with
those of the Company prior to the acquisition date, thus generating significant
variances when comparing 1999's financial results with those of 1998 and 1997.
In addition, the results of operations of the Hollywood Park Race Track and
Hollywood Park-Casino, which were disposed of on September 10, 1999, are
included in the results of operations only until that date. Future revenue and
operating results will be materially reduced due to the sale of these assets, as
well as by the
34
<PAGE>
future sale of assets, which are classified as held for sale at
December 31, 1999 on the Consolidated Balance Sheets (see discussion above).
YEAR ENDED DECEMBER 31, 1999, COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Total revenues increased by $279,890,000, or 65.6%, for the year ended December
31, 1999, as compared to the year ended December 31, 1998. Contribution to total
revenue from Casino Magic was approximately $280,723,000 in 1999 compared to
$63,621,000 in 1998. This increase is primarily attributed to the timing of the
Casino Magic acquisition. The 1998 results include operations from the five
Casino Magic casinos from the October 15, 1998, acquisition date to December 31,
1998, whereas their results are included in all of 1999. Gaming revenues
increased by $264,469,000, or 90.2%, with $260,806,000 of the increase due to
Casino Magic. The remaining net increase is due to increases at each of the
Boomtown properties, offset by a decrease in gaming revenue at the Hollywood
Park-Casino (due to the September 10, 1999, disposition discussed above).
Boomtown Reno gaming revenues increased by $6,765,000, primarily attributed to
the remodeling completed in 1999, enhanced marketing programs and unusually warm
weather in the fourth quarter 1999 which provided increased visitor counts to
the casino. Boomtown New Orleans gaming revenue increased by $9,778,000,
primarily attributed to updated marketing and advertising programs in 1999 as
well as a new slot machine mix for the casino floor. Similar increases are not
expected in 2000 particularly in light of the opening of a larger land-based
casino in New Orleans by a competitor in late October 1999. Boomtown Biloxi
gaming revenue increased by $1,137,000, primarily due to a growth in the Biloxi
gaming market brought about by the opening of a larger casino hotel in the
second quarter 1999, as well as expansions by other competitors, and by the
success of the buffet marketing. Racing revenue decreased by $11,662,000, or
17.4%, including a decrease of $12,220,000 from the sale of the Hollywood Park
Race Track (discussed above). Turf Paradise revenue increased by $558,000,
primarily due to increase sale of the racing signal to out of state locations.
Food and beverage revenue increased by $9,307,000, or 30.5%, with $9,045,000 of
the increase due to Casino Magic. The remaining net increase is due to increases
at Boomtown Reno and Boomtown Biloxi, offset by decreases at the Hollywood Park
Race Track and Hollywood Park-Casino. Boomtown Reno food and beverage revenues
increased by $1,561,000, primarily due to the improvements completed in 1999 and
the higher visitor counts. Boomtown Biloxi food and beverage revenues increased
by $2,189,000, primarily due to an aggressive marketing program focusing on the
property's buffet. Hotel and recreational vehicle revenues increased by
$8,661,000, or 281.6%, with $6,821,000 of the increase due Casino Magic. The
remaining increase is due primarily to the hotel room addition and room
renovation at Boomtown Reno. Truck stop income increased by $3,145,000, or
21.7%, due primarily to the increased traffic flow at the Boomtown Reno
property, and increased fuel prices. Other income increased by $5,970,000, or
31.5%, with $4,051,000 of the increase due to Casino Magic. The remaining
increase is primarily due to the lease rent income earned by the Hollywood
Park-Casino (see discussion above).
Total operating expenses increased by $180,189,000, or 47.1%, for the year ended
December 31, 1999, as compared to the year ended December 31, 1998. Excluding
any gain (loss) on the disposition of assets, operating expenses increased by
$224,471,000, or 59.0%, during the year ended December 31, 1999, as compared to
the year ended December 31, 1998. Contribution to total operating expenses in
1999 from Casino Magic was $229,788,000 compared to $54,582,000 in 1998. Gaming
expenses increased by $147,959,000, or 91.6%, including $153,897,000 due to
Casino Magic, and decreases at Boomtown Reno and the Hollywood Park-Casino (due
to the disposition discussed above), offset by increases at Boomtown New
Orleans. Boomtown Reno gaming expenses decreased by $1,561,000, primarily due to
improved marketing programs in 1999 including the elimination of the costly fun
flight program and by management changes. Boomtown New Orleans gaming expenses
increased by $4,782,000, primarily due to the corresponding increase in gaming
revenue, including the improved marketing programs. Racing expenses decreased by
$6,622,000, or 22.6%, including a decrease in Hollywood Park Race Track racing
expenses of $6,807,000 due to the sale of the race track discussed above and an
increase in racing expenses at Turf Paradise of $185,000 primarily attributed to
the increased racing revenues. Food and beverage expenses increased by
$7,698,000, or 19.8%, including an increase of $9,457,000 due to Casino Magic
and a decrease of $4,662,000 due to the dispositions of the Hollywood Park Race
Track and Hollywood Park-Casino. Boomtown
35
<PAGE>
Reno food and beverage expenses increased by $1,750,000, consistent with the
overall increase in food and beverage revenue. Boomtown Biloxi food and beverage
expenses increased by $1,175,000, also primarily due to the increase in revenue
and volume at the buffet. Hotel and recreational vehicle expense increased by
$4,710,000, or 388.3%, with $3,499,000 due to the addition of Casino Magic and
the remainder due to the additional hotel operations at Boomtown Reno. Truck
stop expenses increased by $3,017,000, or 22.7%, primarily due to the increased
volume at the Boomtown Reno property and fuel costs. General and administrative
expenses increased by $40,200,000, or 42.5%, with $36,095,000 due to the
addition of Casino Magic and increased casino management. Depreciation and
amortization increased by $19,803,000, or 61.7%, including $20,338,000 due to
Casino Magic, offset by a reduction in depreciation and amortization expenses
from the disposition of the Hollywood Park Race Track in September 1999
(discussed above). Pre-opening costs for the Belterra Resort and Casino
increased by $2,199,000, or 267.8%, consistent with the development of the
project. Gain on disposition of assets of $42,061,000 is primarily related to
the dispositions of the Hollywood Park Race Track and Hollywood Park-Casino.
Other expenses increased by $5,507,000, or 65.5%, including $6,502,000 due to
the Casino Magic acquisition, offset by a reduction in other expenses from the
dispositions of the Hollywood Park Race Track and Hollywood Park-Casino in
September 1999 (discussed above). Net interest expense increased by $35,026,000,
or 155.6%, with $14,502,000 of the increase due primarily to the debt assumed in
the Casino Magic acquisition and the remaining increase due to the 9.25% Notes
issued in February 1999. Income tax expense increased by $32,484,000, or 384.8%,
with approximately $22,000,000 of the increase attributed to the dispositions of
the track and casino.
YEAR ENDED DECEMBER 31, 1998, COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
On October 15, 1998, and on June 30, 1997, the Company acquired Casino Magic and
Boomtown, respectively, and accounted for each acquisition under the purchase
method of accounting for a business combination. As required under the rules of
the purchase method of accounting for a business combination, Casino Magic's and
Boomtown's results of operations were not consolidated with those of the
Company's, prior to their respective acquisition dates, thus generating
significant variances when comparing 1998's financial results with those of
1997. Boomtown's results of operations include a full year of activity in 1998
and just six months of activity in 1997 (July 1, 1997 through December 31,
1997). Casino Magic's results of operations include the period October 16, 1998
through December 31, 1998, only, and no 1997 results.
Total revenues increased by $178,839,000, or 72.1%, for the year ended December
31, 1998, as compared to the year ended December 31, 1997. Approximately
$174,075,000 ($110,454,000 related to Boomtown and $63,621,000 related to Casino
Magic) of the increase was due to the timing of Boomtown and Casino Magic
acquisitions. Gaming revenues increased by $155,398,000, or 112.9%, with
$150,095,000 of the increase due to the timing of acquisitions. Gaming revenues
increased at the Boomtown properties by $10,687,000 (when comparing the six
months ended December 31, 1998 to the six months ended December 31, 1997) due
primarily to increases at Boomtown New Orleans, generated by a new larger
riverboat placed into service in February 1998. Gaming revenues decreased at the
Hollywood Park-Casino by approximately $4,562,000, primarily a result of the ban
on smoking in such establishments and economic problems in various Asian
countries (as a significant number of Hollywood Park-Casino's patrons are
Asian). Racing revenues decreased by $1,973,000, or 2.9%, due to there being
five fewer live race days at the Hollywood Park Race Track in 1998 as compared
to 1997. Food and beverage revenues increased by $10,616,000, or 53.4%, with
$9,002,000 of the increase due to the timing of acquisitions, and the balance of
the increase primarily attributable to increased sales at both Boomtown New
Orleans and Boomtown Biloxi, a result of successful marketing programs. Hotel
and recreational vehicle park revenues increased by $2,139,000, or 228.3%, due
to the timing of acquisitions. Truck stop and service station revenues (all of
which are attributable to Boomtown Reno) increased by $5,866,000, or 67.9%,
primarily due to the timing of the Boomtown acquisition. Other income increased
by $6,793,000, or 55.9%, with $6,456,000 of the increase due to the timing of
acquisitions.
Total operating expenses increased by $156,155,000, or 69.0%, during the year
ended December 31, 1998, as compared to the year ended December 31, 1997.
Approximately $151,578,000 ($96,996,000 related to Boomtown and $54,582,000
related to
36
<PAGE>
Boomtown and $54,582,000 related to Casino Magic) of the increase related to the
timing of acquisitions. Gaming expenses increased by $86,816,000, or 116.2%,
with $85,538,000 of the increase due to the timing of acquisitions, with the
balance of the increase primarily a corresponding result of the increased gaming
revenues at the Boomtown properties. Food and beverage expenses increased by
$13,115,000, or 50.9%, with $10,801,000 of the increase due to the timing of
acquisitions. The balance of the increase was primarily due to increased costs
at Boomtown New Orleans and Boomtown Biloxi, where food and beverage marketing
promotions were increased. Hotel and recreational vehicle expenses increased by
$857,000, or 240.7%, primarily due to the timing of acquisitions. Truck stop and
service station expenses (all of which are attributable to Boomtown Reno)
increased by $5,310,000, or 66.6%, due primarily to the timing of the Boomtown
acquisition. General and administrative expenses increased by $33,156,000, or
53.9%, with $33,361,000 of the increase attributable to the timing of
acquisitions, with the balance of the increase primarily due to additional
staffing at corporate, and expansion related expense increases. Depreciation and
amortization increased by $13,964,000, or 76.9%, with $12,236,000 of the
increase due to the timing of acquisitions, with the balance of the increase
primarily due to Boomtown New Orleans' February 1998 placement of a new
riverboat into service. Loss on write off of assets was $2,221,000 for the year
ended December 31, 1998, of which $1,086,000 related to the closing of the
Hollywood Park Golf Center; $500,000 related to the abandonment of a project in
Kansas, with the balance related to the write off of obsolete assets at Boomtown
Reno. Other expenses increased by $883,000, or 11.7%, including $2,892,000
due to the timing of acquisitions, offset by a reduction in REIT restructuring
expenses (the Company ceased in 1998 its effort to restructure into a real
estate investment trust). Net interest expense increased by $15,216,000, or
208.4%, due to interest on the 9.5% Notes, which were issued in August 1997, and
interest on bank borrowings, including borrowing to purchase Casino Magic and to
retire the Casino Magic 11.5% Notes. Income tax expense increased by $2,592,000,
or 44.3%, due to increased pre-tax income in 1998.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FACTORS INFLUENCING FUTURE RESULTS
As of December 31, 1999, The Company had cash, cash equivalents and short-term
investments, all of which had maturities within ninety days, of $246,790,000
compared to $47,413,000 as of December 31, 1998.
The Consolidated Statements of Cash Flows detailing changes in the cash balances
are on page 66.
Operating activities provided net cash increase of $75,323,000 in 1999 compared
with $38,112,000 in 1998. This year-over-year change is largely due to the
increase in net income, increased depreciation and increased current deferred
tax liabilities. The increase in the current deferred tax liabilities at
December 31, 1999 results primarily because Federal and State income taxes of
approximately $22,000,000 due on the gain of the sale of the Hollywood Park Race
Track have not yet been paid.
The 1999 investing activities included the purchase of the minority interest in
Casino Magic Argentina for $16,500,000, the net purchase of short-term
investments of $120,249,000 and the purchase of $59,680,000 of property, plant
and equipment. The construction, land costs and other capitalizable cost for the
Belterra Resort and Casino represented approximately $31,000,000 of the
additions to property, plant and equipment. Approximately $160,000,000 will be
required in 2000 to complete construction and fund the necessary pre-opening
expenses, community grants and other related expenses associated with the
project (which amount excludes capitalized interest and other non-cash costs).
The net cash provided from financing activities of $54,868,000 reflects that in
February 1999, the Company received the net proceeds from the issuance of
$350,000,000 of 9.25% Senior Subordinated Notes, which proceeds were used to
retire all of the Company's outstanding bank borrowings of $287,000,000 and to
invest in approximately $63,000,000 of short term securities. Since February,
the Company has not borrowed any amounts under its bank credit facility and in
May 1999 such bank credit facility was reduced from $300,000,000 (with an option
to increase to $375,000,000) to $200,000,000 (with an option to increase to
$300,000,000).
37
<PAGE>
At December 31, 1999, the Company had signed definitive sales agreements to sell
assets for $219,000,000 cash, which transactions are expected to close in 2000.
This includes the sale of essentially all of the assets to operate the Casino
Magic Bay St. Louis and Boomtown Biloxi casinos in Mississippi and vacant land
adjacent to the Hollywood Park Race Track sold in 1999. In addition, in February
2000, the Company signed a definitive agreement for the sale of Turf Paradise
Race Track in Phoenix, Arizona, for $53,000,000 in cash, and is actively seeking
buyers to purchase the additional land in California and Missouri. See "Pending
Casino, Race Track and Land Sales" above for additional information on these
proposed transactions. The sales of these assets are expected to generate gains;
however, there is no assurance any of these transactions will be consummated in
2000.
The Company believes that its available cash, cash equivalents, short-term
investments, cash to be generated by assets held for sale and cash flow from
operations will be sufficient to finance operations and capital requirements for
the foreseeable future. Although the Company has substantial cash resources and
unused bank credit facilities, it has committed to utilize approximately
$160,000,000 to complete the Belterra project and pay approximately $22,000,000
in Federal and State income taxes related to the sale of the Hollywood Park
Race Track. In addition, the Company may use a portion of these resources to i)
reduce its outstanding debt obligations prior to their scheduled maturities, ii)
make significant capital improvements to existing properties, and/or iii) make
acquisitions of other casino properties or companies. To the extent cash is used
for these purposes, the Company's cash reserves will also be diminished and the
Company may require additional capital to finance any such activities.
Additional capital may be generated through internally generated cash flow,
future borrowings (including amounts available under the bank credit facility)
and/or lease transactions. There can be no assurance, however, that such capital
will be available on terms acceptable to the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary exposure to market risk (or the risk of loss arising from
adverse changes in market rates and prices, such as interest rates and foreign
currency exchange rates) is with respect to potential interest rate risk
associated with the long term floating interest rate on borrowings under the
bank credit facility (see - Liquidity, Capital Resources and Other Factors
Affecting Future Results). As of December 31, 1999, the Company had no
outstanding borrowings under the bank credit facility.
As of December 31, 1999, the Company did not hold any investments in market risk
sensitive instruments of the type described in Item 305 of Regulation S-K.
ITEM 8. FINANCIAL STATEMENTS
Financial statements and accompanying footnotes are attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
38
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the Directors
and Executive Officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------------- -------- ----------------------------
<S> <C> <C>
R.D. Hubbard (a) 64 Chairman of the Board of
Directors and Chief
Executive Officer
Paul R. Alanis 51 Director, President and
Chief Operating Officer
Robert T. Manfuso (b) 62 Director
James L. Martineau (b) 59 Director
Gary G. Miller (c) 49 Director
Michael Ornest (c) 42 Director
Timothy J. Parrott (a) 52 Director
Lynn P. Reitnouer (a), (b) 67 Director
Herman Sarkowsky (c) 74 Director (resigned in March
2000)
Marlin Torguson 55 Director
J. Michael Allen 52 Senior Vice President, Chief Operating Officer
of Gaming Operations
G. Michael Finnigan 51 President and Chief Executive Officer of Realty
Investment Group, Inc., a wholly-owned subsidiary
of the Company
Bruce C. Hinckley 53 Senior Vice President, Chief Financial Officer
and Treasurer
</TABLE>
- ----
(a) Member of Executive Committee
(b) Member of Compensation Committee
(c) Member of Audit Committee
MR. HUBBARD has been a Director of the Company since 1990; Chairman of the Board
and Chief Executive Officer of the Company since September 1991; Chairman of the
Board and Chief Executive Officer, Hollywood Park Operating Company from
February 1991 to September 1999; President, Hollywood Park Operating Company
from February to July 1991; Chairman, AFG Industries, Inc. and its parent
company, Clarity Holdings Corp. (glass manufacturing), and director of AFG
Industries, Inc.'s subsidiaries, from 1978 to July 1993; Chairman of the Board
(and 60% stockholder until March 1994), Sunflower (The Woodlands Race Tracks--
greyhound racing and horse racing) from 1988 to March 1994; President, Director,
and majority owner, Ruidoso Downs Racing, Inc. (horse racing) since 1988;
Chairman of the Board, Chief Executive Officer and sole stockholder, Multnomah
Kennel Club, Inc. (greyhound racing) from December 1991 to April 1998; and owner
and breeder of numerous thoroughbreds and quarter horses since 1962.
MR. ALANIS has been a Director of the Company since October 1999; President and
Chief Operating Officer of the Company since January 1999; President, Horseshoe
Gaming, Inc., which is the manager and a member of Horseshoe Gaming, LLC, and
Horseshoe GP, Inc., a wholly-owned subsidiary of Horseshoe Gaming, LLC, from
January 1996 to December 1998; President, KII-Pasadena, Inc. since December
1988; and President, Koar International, Inc. from 1991 to 1995.
MR. MANFUSO has been a Director of the Company since 1991; Director, Hollywood
Park Operating Company from February 1991 to January 1992; Co-Chairman of the
Board, Laurel Racing Association (horse race track management) from 1984 to
February 1994; Vice Chairman of the Board, The Maryland Jockey Club (horse
racing) from 1986 to February 1994; Executive Vice President, Laurel Racing
Association from 1984 to May 1990; Executive Vice President, The Maryland Jockey
Club from 1986 to June 1990; Director, Maryland Horse Breeders Association from
1984 to 1992; and Member, Executive Committee, Maryland Million since 1991.
MR. MARTINEAU has been a Director of the Company since May 1999; President (and
Founder), Viracon, Inc. from 1970 to 1996; Executive Vice President, Apogee
Enterprises, Inc. (which acquired Viracon, Inc. in 1973) from 1996 to 1998;
Director, Apogee Enterprises, Inc. since 1973; Advisory Director, Northstar
Photonics since
39
<PAGE>
December 1998; Chairman, Genesis Portfolio Partners, LLC since
August 1998; Director, Borgen Systems since 1994; and Trustee, Owatonna
Foundation since 1973.
MR. MILLER has been a Director of the Company since May 1999; Chairman and Chief
Executive Officer, Fore Star Golf since 1993; President, Cumberland Capital
Corporation since 1990; Executive Vice President--Finance and Administration,
Treasurer, Director, AFG Industries, Inc. from 1977 to 1993; Director, Nordic
Tugs since January 1999; and Director, United Stationers, Inc. from 1992 to
October 1998.
MR. ORNEST has been a Director of the Company since October 1998 (and his family
has been a shareholder of the Company since 1962); Director of the Ornest Family
Partnership since 1983; Director of the Ornest Family Foundation since 1993;
Director of the Toronto Argonauts Football Club from 1988 to 1990; President of
the St. Louis Arena and Vice President of the St. Louis Blues Hockey Club from
1983 to 1986; and Managing Director of the Vancouver Canadians Baseball Club,
Pacific Coast League from 1979 to 1980.
MR. PARROTT has been a Director of the Company since June 1997; Chairman of the
Board and Chief Executive Officer, Boomtown, Inc. from September 1992 to October
1998; President and Treasurer, Boomtown, Inc. from June 1987 to September 1992;
Director, Boomtown, Inc. since 1987; Chairman of the Board and Chief Executive
Officer, Boomtown Hotel & Casino, Inc. since May 1988; Chief Executive Officer,
Parrott Investment Company (a family-held investment company with agricultural
interests in California) since April 1995; and Director, The Chronicle
Publishing Company since April 1995.
MR. REITNOUER has been a Director of the Company since 1991; Director, Hollywood
Park Operating Company from September 1991 to January 1992; Partner, Crowell
Weedon & Co. (stock brokerage) since 1969; Director and Chairman of the Board,
COHR, Inc. from 1986 to 1999; Director and Chairman, Forest Lawn Memorial Parks
Association since 1975; and Trustee, University of California Santa Barbara
Foundation (and former Chairman) since 1992.
MR. SARKOWSKY was a Director of the Company from 1991 to March 2000; Director,
Hollywood Park Operating Company from February 1991 to January 1992; Owner,
Sarkowsky Investment Corporation and SPF Holding, Inc. (real estate development
and investments) since 1980; Director, The Sarkowsky Foundation (charitable
foundation) since 1982; thoroughbred horse breeder and owner since 1959;
Director, Synetics, Inc. (porous plastic manufacturing); Director, Eagle
Hardware & Garden, since 1990; and Director, Medical Manager Corp. Mr. Sarkowsky
elected to resign from the Company's Board of Directors in March 2000.
MR. TORGUSON has been a Director of the Company since October 1998; Chairman of
the Board, Casino Magic Corp. since December 1994; President and Chief Executive
Officer, Casino Magic from April 1992 through November 1994; Chief Financial
Officer and Treasurer, Casino Magic from April 1992 to February 1993; and 50%
owner and a Vice President, G.M.T. Management Co. (casino management and
operations) from December 1983 to December 1994.
Mr. ALLEN has served as the Company's Senior Vice President and Chief Operating
Officer, Gaming Operations, since January 1999; Senior Vice President, Horseshoe
Gaming, Inc. from October 1, 1995 to December 31, 1998 and, prior to that,
General Manager, Horseshoe Casino Center from May 1994; and Principal of Gaming
Associates, Inc. from September 1992 to May 1994.
Mr. FINNIGAN has served as the President and Chief Executive Officer of Realty
Investment Group, Inc. a wholly-owned subsidiary of the Company which conducts
all of the Company's real estate business and related development activities,
since December 1998; Chief Financial Officer and Executive Vice President of the
Company and Hollywood Park Operating Company from March 1989 to March 31, 1999;
President, Sports and Entertainment, from January 1996 to December 1998;
President, Gaming and Entertainment, from February 1994 to January 1996;
Treasurer of the Company and Hollywood Park Operating Company from March 1992 to
March 31, 1999; Chairman of the Board, Southern California Special Olympics
since 1996; Chairman of the Board, Centinela Hospital since 1996; and Director,
Shoemaker Foundation since 1993.
40
<PAGE>
Mr. HINCKLEY joined the Company in February 1999 and has served as its Chief
Financial Officer, Senior Vice President and Treasurer since April 1, 1999;
Executive Vice President, Chief Financial Officer and Secretary, Iwerks
Entertainment, Inc. from September 1996 to February 1999; financial consultant
from September 1995 to September 1996; and Vice President, Controller and Chief
Accounting Officer, Caesars World, Inc. (casino and hotel company) from November
1985 to September 1995. Mr. Hinckley is a certified public accountant.
In accordance with the requirements of the Agreement and Plan of Merger dated as
of April 23, 1996 governing the Boomtown merger, the Company's Board was
expanded upon completion of the Boomtown merger to eleven directors, seven of
whom (Messrs. Hubbard, Harry Ornest, J.R. Johnson, Manfuso, Reitnouer, Sarkowsky
and Warren B. Williamson) had been serving as members of the Company's Board
(the "Company Directors") and four of whom (Messrs. Parrott, Richard Goeglein,
Peter L. Harris and Delbert W. Yocam) had been members of the Boomtown Board of
Directors (the "Boomtown Directors"). The Company agreed to cause its Board of
Directors and any nominating committee thereof to take the necessary steps to
nominate the initial Boomtown Directors or their replacements (selected by a
majority of the Boomtown Directors) for re-election at the first three annual
stockholders meetings following June 30, 1997. On March 29, 1999, with the
consent of Mr. Parrott, the sole Boomtown Director then on the Company's Board,
the Company's Board of Directors amended the by-laws to eliminate the
requirement that the Boomtown Directors or their replacements be nominated for
re-election.
In connection with the Casino Magic acquisition, Mr. Torguson agreed to vote his
Casino Magic shares (which amounted to approximately 21.5% of the then
outstanding common stock of Casino Magic) in favor of the acquisition by the
Company. The Company agreed to appoint Mr. Torguson to the Board of Directors of
the Company.
In October 1999, the Board of Directors of the Company amended the Company's
by-laws to increase the number of directors on the Board from nine to ten.
41
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following tables summarize the annual and long-term compensation of, and
stock options held by, the Company's Chief Executive Officer and the four
additional most highly compensated executive officers whose annual salaries and
bonuses exceeded $100,000 in total during the fiscal year ended December 31,
1999 (collectively, the "Named Officers"). None of the Named Officers held stock
appreciation rights during the years reported in the tables.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
-----------------
Annual Compensation Securities
-------------------------- Underlying
Name and Principal Salary Bonus Other Annual Options/ All Other
Position Year ($) ($) Compensation SARs (#) Compensation
- ------------------------------ ------ ------------ ---------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
R. D. Hubbard 1999 $ 500,000 $ 700,000 $0 100,000 $1,339 (a)
Chairman of the Board 1998 500,000 160,000 0 50,000 2,370 (b)
and Chief Executive 1997 400,000 40,235 0 45,000 4,740 (b)
Paul R. Alanis 1999 $ 600,000 $ 400,000 $0 0 $1,735 (c)
President and Chief 1998 0 0 0 400,000 0
Operating Officer 1997 0 0 0 0 0
J. Michael Allen 1999 $ 389,657 $ 125,000 $0 0 $1,735 (d)
Senior Vice President and 1998 0 0 0 200,000 0
Chief Operating Officer of 1997 0 0 0 0 0
Gaming Operations
G. Michael Finnigan 1999 $ 400,000 $ 500,000 $0 40,000 $1,003 (e)
President and Chief 1998 307,600 75,000 0 35,000 23,633 (f)
Executive Officer of 1997 307,608 0 0 25,000 3,555 (b)
Investment Group, Inc.
Bruce C. Hinckley 1999 $ 192,514 $ 75,000 $0 25,000 $1,756 (g)
Senior Vice President, 1998 0 0 0 0 0
Chief Financial Officer 1997 0 0 0 0 0
Treasurer
</TABLE>
(a) Includes the Company matching contribution under the Company's 401(k) Plan
of $790, and $549 of payment by the Company for premiums with respect to
term life insurance.
(b) Reflects the Company matching contributions under the Company's 401(k)
Plan.
(c) Includes the Company matching contribution under the Company's 401(k) Plan
of $1,666, and $69 of payment by the Company for premiums with respect to
term life insurance.
(d) Includes the Company matching contribution under the Company's 401(k) Plan
of $1,666, and $69 of payment by the Company for premiums with respect to
term life insurance.
(e) Includes the Company matching contribution under the Company's 401(k) Plan
of $790 and $213 of payment by the Company for premiums with respect to
term life insurance.
(f) Includes the Company matching contribution under the Company's 401(k) Plan
of $2,370, and $21,262 of distribution related to the termination of the
Company's Supplemental Executive Retirement Plan.
(g) Includes the Company matching contribution under the Company's 401(k) Plan
of $1,687, and $69 of payment for premiums with respect to term life
insurance.
EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 2000, the Company adopted the Executive Deferred
Compensation Plan ("Executive Plan"), which allows certain highly compensated
employees of the Company and its subsidiaries (each an "Employer") to defer, on
a pre-tax basis, a portion of their base annual salaries and bonuses. The
Executive Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee") and
42
<PAGE>
participation in the Executive Plan is limited to employees who are (i)
determined by an Employer to be includable within a select group of management
or highly compensated employees, (ii) specifically selected by an Employer and
(iii) approved by the Committee. A participating employee may elect to defer up
to 75% of his or her base annual salary and up to 90% of his or her bonus per
year. Any such deferred compensation is credited to a deferral contribution
account. A participating employee is at all times fully vested in his or her
deferred contributions, as well as any appreciation or depreciation attributable
thereto.
For purposes of determining the rate of return credited to a deferral
contribution account, each participating employee must select from a list of
hypothetical investment funds among which deferred contributions shall be
allocated. Although a participating employee's deferred compensation will not be
invested directly in the selected hypothetical investment funds, his or her
deferral compensation account shall be adjusted according to the performance of
such funds.
Participating employees may elect in advance to receive their deferral
contribution account balances upon retirement in a lump sum or in annual
payments of five, ten or fifteen years (except that, if an employee's account
balance is less than $10,000, such balance will be paid as a lump sum). A
participating employee may make an advance election to defer retirement
distributions until age 75. In the event a participating employee dies or
suffers a disability (as defined in the Executive Plan) during employment, such
employee's account balance shall be paid (i) in one lump sum if the account
balance is less than $10,000, or (ii) if the account balance is $10,000 or more,
in five annual installments unless the employee has elected, in advance and with
the Committee's approval, to receive a lump sum distribution. In the event of a
voluntary or involuntary termination of employment for any reason other than
retirement, disability or death, a participating employee shall receive his or
her account balance (i) in one lump sum if the account balance is less than
$10,000, or (ii) if the account balance is $10,000 or more, in five annual
installments unless the employee has elected, in advance and with the
Committee's approval, to receive a lump sum distribution.
A participating employee may make an advance election to receive interim
distributions from a deferral compensation account prior to retirement, but not
earlier than three years after the election is made. Such interim distributions
are distributed as lump sum payments. In the event of a financial emergency
(such as a sudden illness or accident, a loss of property due to casualty or
other extraordinary and unforeseeable events beyond the employee's control), a
participating employee may petition the Committee to suspend deferrals and/or to
request withdrawal of a portion of the account to satisfy the emergency. A
participating employee may request to receive all of his or her account balance,
without regard to whether benefits are due or the occurrence of a financial
emergency; any distribution made pursuant to such a request shall be subject to
forfeiture of ten percent (10%) of the total account balance and temporary
suspension of the employee's participation in the Executive Plan; PROVIDED,
HOWEVER, that a distribution pursuant to a request, following a change in
control (as defined in the Executive Plan), by a participating employee to
receive all or a portion of his or her account balance without regard to whether
benefits are due or the occurrence of a financial emergency (i) shall not be
subject to the ten percent (10%) forfeiture of any part of the account balance
if such request was made within ninety (90) days following the change in
control, and (ii) shall be available in lump sum or in installment payments over
up to five years.
An Employer may terminate, amend or modify the Executive Plan with respect to
its participating employees at any time, except that (i) no termination,
amendment or modification may decrease or restrict the value of a participating
employee's account balance and (ii) no amendment or modification shall be made
after a change in control which adversely affects the vesting, calculation or
payment of benefits or any other rights or protections of any participating
employee. Upon termination of the Executive Plan, all amounts credited to
participating employees' accounts shall be distributed in lump sums.
STOCK OPTION PLANS
In 1993 and 1996, the stockholders of the Company adopted stock option plans
("Stock Option Plans"), which provided for the issuance of up to 625,000 and
900,000 shares of the Company's Common Stock upon exercise of the options,
respectively. Except for the provisions governing the number of shares issuable
43
<PAGE>
thereunder and except for certain provisions which reflect changes in tax and
securities laws, the provisions of the Stock Option Plans are substantially
similar. The Stock Option Plans are administered and terms of option grants are
established by the Compensation Committee of the Board of Directors. Under the
Stock Option Plans, options alone or coupled with stock appreciation rights may
be granted to selected key employees, directors, consultants and advisors of the
Company. Options become exercisable according to a vesting period as determined
by the Compensation Committee at the date of grant, and expire on the earlier of
one month after termination of employment, six months after the death or
permanent disability of the optionee, or the expiration of the fixed option term
set by the Compensation Committee at the grant date (not to exceed ten years
from the grant date). The exercise prices of all options granted under the Stock
Option Plans are determined by the Compensation Committee on the grant date,
provided that the exercise price of an incentive stock option may not be less
than the fair market value of the Common Stock at the date of grant.
As of December 31, 1999, the 1996 Stock Option Plan was the only plan with stock
option awards available for grant; all of the 625,000 shares eligible for
issuance under the 1993 Stock Option Plan had been granted. Of the 900,000
shares eligible for issuance under the 1996 Stock Option Plan, options to
purchase 554,449 had been granted. In addition, 721,077 and 256,136 shares of
Common Stock were issuable upon exercise of options granted under pre-merger
stock option plans of Boomtown and Casino Magic, respectively, which the Company
assumed in each merger. The Company has filed registration statements with the
Securities and Exchange Commission covering an aggregate of 3,505,332 shares of
Common Stock issuable upon exercise of options granted under the Stock Option
Plans, Boomtown's stock option plans and Casino Magic's stock option plans.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table summarizes the option grants to Named Officers during the
year ended December 31, 1999. None of the Named Officers held stock appreciation
rights during the year ended December 31, 1999.
<TABLE>
<CAPTION>
Individual Grants
- ------------------------------------------------------------------------------------------------
Percent of
Total
Number of Options/ Potential Realizable Value
Securities SARs at Assumed Annual Rates
Underlying Granted to Exercise of Stock Price Appreciation
Options/SARs Employees or for Option Term
Granted in Fiscal Base Price Expiration -----------------------------
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
- -------------------- ----------------- -------------- ------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
R.D. Hubbard 100,000 36% $9.625 Mar. 29, 2009 $ 605,000 $1,534,000
G. Michael Finnigan 40,000 15% 9.625 Mar. 29, 2009 242,000 614,000
Bruce C. Hinckley 25,000 9% 9.6875 Mar. 17, 2009 151,000 386,000
</TABLE>
44
<PAGE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTIONS/SAR VALUES
The following table sets forth information with respect to the exercise of stock
options during the year ended December 31, 1999, and the final year end value of
unexercised options. None of the Named Officers held stock appreciation rights
during the year ended December 31, 1999.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired At Fiscal At Fiscal
On Value Year-End (#) Year-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable (a)
- ----------------------- --------- ------------ --------------- ------------------------
<S> <C> <C> <C> <C> <C>
R.D. Hubbard 0 $0 133,000/149,000 $1,452,941/$1,699,434
Paul R. Alanis 0 $0 200,000/200,000 $2,059,375/$2,059,375
J. Michael Allen 0 $0 100,000/100,000 $1,029,688/$1,029,688
G. Michael Finnigan 30,000 $213,912 63,332/ 71,668 $666,239/$782,199
Bruce C. Hinckley 0 $0 0/ 25,000 $0/$318,750
</TABLE>
BOARD MEETINGS, BOARD COMMITTEES AND DIRECTOR COMPENSATION
The full Board of Directors of the Company had three formal meetings in 1999 and
acted by unanimous written consent on one occasion. During 1999, each incumbent
director of the Company attended at least 75% of the aggregate of (i) the three
meetings of the Board of Directors, and (ii) the total number of meetings of the
committees on which he served (during the periods that he served).
The Company has a standing Executive Committee, which is chaired by Mr. Hubbard
and currently consists of Messrs. Hubbard, Reitnouer, and Parrott. The Executive
Committee has and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Company to the
fullest extent authorized by Delaware law. The Executive Committee had three
formal meetings in 1999 and acted by unanimous written consent on thirteen
occasions.
The Company has a standing Audit Committee, which is chaired by Mr. Miller and
currently consists of Messrs. Miller, Sarkowsky and Ornest. The functions of the
Audit Committee are to provide an avenue of communication between the Board of
Directors and the independent external auditors, the Company's financial
management and the internal auditors; to assure the independence of the
Company's independent auditors and the adequacy of disclosure to stockholders
and to the public; to consider matters of accounting policy; and to recommend
independent auditors to the Board of Directors for approval. The Audit Committee
met two times in 1999 and acted by unanimous written consent on one occasion.
The Company has a standing Compensation Committee, which is chaired by Mr.
Reitnouer and currently consists of Messrs. Reitnouer, Martineau and Manfuso.
The functions of the Compensation Committee are to make recommendations to the
Board of Directors regarding the annual salaries and other compensation of the
officers of the Company, to provide assistance and recommendations with respect
to the compensation policies and practices of the Company and to assist with the
administration of the Company's compensation plans. The Compensation Committee
met three times in 1999 and acted by unanimous written consent on ten occasions.
The Executive Committee acts as the Company's nominating committee. The
Executive Committee generally does not consider nominees recommended by the
Company's stockholders.
45
<PAGE>
All directors hold office until the next annual meeting of stockholders and
until their successors are duly elected and qualified. Directors are entitled to
receive an annual retainer of $25,000 per year plus $1,000 for each Board
meeting attended, which they may take in cash or in deferred compensation under
the Company's Amended and Restated Directors Deferred Compensation Plan as
outlined below. In addition, non-employee directors are entitled to receive a
minimum of 2,000 stock options. Members of the Executive Committee, Audit
Committee and Compensation Committee also receive $1,000 for each committee
meeting attended, and such amounts are also eligible for the Amended and
Restated Directors Deferred Compensation Plan.
On August 5, 1999, each of Messrs. Martineau, Miller and Ornest was granted a
non-qualified stock option to purchase 5,000 shares of Common Stock at an
exercise price of $14.75 per share. One-third of the shares purchasable upon
exercise of these options will vest on each of the first, second and third
anniversary of the grant date. All of these options expire on the tenth
anniversary of the grant date and, except for the option granted to Mr.
Martineau, were granted under the Company's 1996 Stock Option Plan.
On October 29, 1999, each of Messrs. Manfuso, Martineau, Miller, Ornest,
Parrott, Reitnouer, Sarkowsky and Torguson was granted a non-qualified stock
option to purchase 2,000 shares of Common Stock at an exercise price of $17.3125
per share. One-third of the shares purchasable upon exercise of these options
was vested on the grant date, with an additional one-third to vest on each of
the first and second anniversary of the grant date. All of these options expire
on the tenth anniversary of the grant date and, except for the options granted
to Messrs. Manfuso, Martineau and Reitnouer, were granted under the Company's
1996 Stock Option Plan.
AMENDED AND RESTATED DIRECTORS DEFERRED COMPENSATION PLAN
Participation in the Company's Amended and Restated Directors Deferred
Compensation Plan (the "Directors Plan") is limited to directors of the Company,
and each eligible director may elect to defer all or a portion of his annual
retainer and any fees for meetings attended. Any such deferred compensation is
credited to a deferred compensation account, either in cash or in shares of
Common Stock, at each director's election. As of the date the director's
compensation would otherwise have been paid, and depending on the director's
election, the director's deferred compensation account will be credited with
either (i) cash, (ii) the number of full and/or fractional shares of Common
Stock obtained by dividing the amount of the director's compensation for the
calendar quarter or month which he elected to defer, by the average of the
closing price of the Common Stock on the principal stock exchange on which the
Common Stock is listed (or, if the common shares are not listed on a stock
exchange, the NASDAQ National Market System) on the last ten business days of
the calendar quarter or month for which such compensation is payable or (iii) a
combination of cash and shares of Common Stock as described in clause (i) and
(ii). All cash amounts credited to the director's deferred compensation account
bear interest at an amount to be determined from time to time by the Board of
Directors.
If a director has elected to receive shares of Common Stock in lieu of his
retainer and the Company declares a dividend, such director's deferred
compensation account is credited at the end of each calendar quarter with the
number of full and/or fractional shares of Common Stock obtained by dividing the
dividends which would have been paid on the shares credited to the director's
deferred compensation account as of the dividend record date, if any, occurring
during such calendar quarter if such shares had been shares of issued and
outstanding Common Stock on such date, by the closing price of the Common Stock
on the principal stock exchange on which the Common Stock is listed (or, if the
common shares are not listed on a stock exchange, the NASDAQ National Market
System) on the date such dividend(s) was paid. In addition, if the Company
declares a dividend payable in shares of Common Stock, the director's deferred
compensation account is credited at the end of each calendar quarter with the
number of full and/or fractional shares of Common Stock which such shares would
have been entitled to if such shares had been shares of issued and outstanding
Common Stock on the record date for such stock dividend(s).
46
<PAGE>
Participating directors do not have any interest in the cash and/or Common Stock
credited to their deferred compensation accounts until distributed in accordance
with the Directors Plan, nor do they have any voting rights with respect to such
shares until shares credited to their deferred compensation accounts are
distributed. The rights of a director to receive payments under the Directors
Plan are no greater than the rights of an unsecured general creditor of the
Company. Each participating director may elect to have the aggregate amount of
cash and shares credited to his deferred compensation account distributed to him
in one lump sum payment or in a number of approximately equal annual
installments over a period of time not to exceed fifteen years. The lump sum
payment or the first installment will be paid as of the first business day of
the calendar quarter immediately following the cessation of the director's
service as a director of the Company. Prior to the beginning of any calendar
year, a director may elect to change the method of distribution, but amounts
credited to a director's account prior to the effective date of such change may
not be affected, but rather will be distributed in accordance with the election
at the time such amounts were credited to the director's deferred compensation
account.
The maximum number of shares of Common Stock that can be issued pursuant to the
Directors Plan is 275,000 shares. The Company is not required to reserve or set
aside funds or shares of Common Stock for the payment of its obligations
pursuant to the Directors Plan. The Company is obligated to make available, as
and when required, a sufficient number of shares of Common Stock to meet the
needs of the Directors Plan. The shares of Common Stock to be issued under the
Directors Plan may be either authorized and unissued shares or reacquired
shares.
Amendment, modification or termination of the Directors Plan may not (i)
adversely affect any eligible director's rights with respect to amounts then
credited to his account or (ii) accelerate any payments or distributions under
the Directors Plan (except with regard to bona fide financial hardships).
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has entered into a three-year employment agreement with Paul R.
Alanis, effective January 1, 1999. Mr. Alanis' annual compensation is $600,000,
with an annual bonus of not less than $100,000 and up to $600,000. The bonus is
payable as follows: (a) $100,000 if Mr. Alanis remains employed by the Company
for the year in question; (b) $200,000 based on the Company's actual earnings
before interest, taxes, depreciation and amortization as compared to budget, and
not exceeding the capital budget; and (c) the remaining $300,000 to be awarded
at the discretion of the Board of Directors. If Mr. Alanis terminates his
employment for good reason, or if the Company terminates Mr. Alanis without
cause, Mr. Alanis will receive an annual salary of $700,000 through the balance
of the contract period, and retain his health and disability insurance for six
months after termination. Mr. Alanis will also immediately vest in all stock
option grants. Since Mr. Alanis was not promoted to the Company's Chief
Executive Officer by December 31, 1999, he may elect, on or before March 31,
2000, to terminate his employment. Upon such termination, Mr. Alanis would be
entitled to a lump sum severance payment of $700,000, and continued health and
disability insurance coverage for six months. He would also immediately vest in
75% of the 400,000 options granted to him on September 10, 1998.
The Company has entered into a three-year employment agreement with J. Michael
Allen, effective January 1, 1999. Mr. Allen's annual compensation is $400,000,
with a possible bonus of up to $200,000. The bonus is payable as follows: (a)
$100,000 based on the Company's actual earnings before interest, taxes,
depreciation and amortization as compared to budget, and not exceeding the
capital budget, and (b) $100,000 at the discretion of the Board of Directors. If
Mr. Allen terminates his employment for good reason, or if the Company
terminates him without cause, and so long as he does not compete with the
Company or its subsidiaries in the gaming business prior to the end of the
employment contract term, he will be entitled to $400,000 per year for the
balance of the employment contract term, with health and disability insurance
coverage for six months. Mr. Allen will also immediately vest in all stock
option grants. If Mr. Alanis terminates his employment due to his failure to be
promoted to the Company's Chief Executive Officer by December 31, 1999, Mr.
Allen may elect, within 90 days after Mr. Alanis' termination, to terminate his
employment. Upon such termination, Mr. Allen would receive any accrued but
unpaid salary and vacation benefits.
47
<PAGE>
The Company has entered into a three-year employment agreement with G. Michael
Finnigan, effective January 1, 1999. Mr. Finnigan's annual compensation is
$400,000 with an annual bonus of up to $200,000. The bonus is payable as
follows: (a) an amount at the discretion of the Board in the first year, and (b)
in each of the remaining years, $100,000 based on Realty Investment Group,
Inc.'s performance, and $100,000 at the discretion of the Board of Directors. If
Mr. Finnigan terminates his employment for good reason (defined for present
purposes as a material breach of the employment agreement by the Company and
failure to timely remedy such breach), or if the Company terminates him without
cause, Mr. Finnigan will receive his annual compensation for one year (including
salary and bonus), with health and disability coverage for six months. Mr.
Finnigan will also immediately vest in all of his stock options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Reitnouer served on the Compensation Committee from January 1, 1999 to
December 31, 1999. Messrs. Johnson and Williamson were members of the
Compensation Committee from January 1, 1999 to May 1999. Messrs. Martineau and
Manfuso were members of the Compensation Committee from May 1999 to December 31,
1999. None of the members of the Compensation Committee were officers or
employees or former officers or employees of the Company or its subsidiaries,
except that Mr. Williamson served as Secretary of the Company from September
1991 to August 1996.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the name, address (address is provided for
persons listed as beneficial owners of 5% or more of the outstanding Common
Stock), number of shares and percent of the outstanding Common Stock
beneficially owned as of March 24, 2000 (except where a different date is
indicated below) by each person known to the Board of Directors of the Company
to be the beneficial owner of 5% or more of the outstanding shares of Common
Stock, each Director, each Named Officer, and all current Directors and
Executive Officers as a group.
<TABLE>
<CAPTION>
Shares Percent of
Beneficially Shares
Name and Address of Beneficial Owner Owned Outstanding (a)
----------------------------------------------- ---------------------- --------------------
<S> <C> <C>
Legg Mason, Inc. 2,883,104 (b) 11.0%
111 South Calvert Street
Baltimore, Maryland 21202
R.D. Hubbard 2,802,820 (c) 10.6%
Pinnacle Entertainment, Inc.
330 North Brand Boulevard, Suite 1100
Glendale, California 91203
Paul R. Alanis 500,000 (d) 1.9%
Timothy J. Parrott 410,049 (e) 1.5%
Michael Ornest 301,166 (f) 1.1%
Marlin Torguson 92,100 (g) *
Herman Sarkowsky 68,708 (h) *
Lynn P. Reitnouer 64,000 (i) *
Robert T. Manfuso 42,333 (j) *
James L. Martineau 6,858 (k) *
Gary G. Miller 3,667 (l) *
G. Michael Finnigan 113,748 (m) *
J. Michael Allen 100,000 (n) *
Bruce C. Hinckley 13,333 *
Current Directors and Executive
Officers as a group (13 persons) 4,518,782 (o) 16.7%
</TABLE>
* Less than one percent (1%) of the outstanding common shares.
(a) Assumes exercise of stock options beneficially owned by the named
individual or entity into shares of Common Stock which are exercisable
within 60 days of March 24, 2000. Based on 26,271,678 shares outstanding
as of March 24, 2000.
(b) Based upon information provided by the stockholder in Schedule 13G filed
with the Securities and Exchange Commission on February 14, 2000.
According to such Schedule 13G, as of December 31, 1999, 2,515,000 (9.6%)
shares were held by Legg Mason Fund Adviser, Inc., which has power to
dispose thereof. The Schedule 13G further reports that the remaining
368,104 shares were held by Legg Mason Capital Management, Inc., Legg
Mason Trust, fsb and Legg Mason Wood Walker, Inc., which have power to
dispose thereof. Legg Mason Fund
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Adviser, Inc., Legg Mason Capital Management, Inc., Legg Mason Trust, fsb
and Legg Mason Wood Walker, Inc. are reported as subsidiaries of Legg
Mason, Inc.
(c) Includes 183,000 shares of Common Stock, which Mr. Hubbard has the right
to acquire upon the exercise of options, which are exercisable within 60
days of March 24, 2000.
(d) Includes 200,000 shares of Common Stock, which Mr. Alanis has the right
to acquire upon the exercise of options, which are exercisable within 60
days of March 24, 2000.
(e) Includes 237,278 shares of Common Stock which Mr. Parrott has the right
to acquire upon exercise of options which are exercisable within 60 days
of March 24, 2000, including 235,278 options assumed by the Company in
connection with the Boomtown merger.
(f) Includes 2,000 shares of Common Stock, which Mr. Ornest has the right to
acquire upon the exercise of options, which are exercisable within 60
days of March 24, 2000.
(g) Includes 2,000 shares of Common Stock, which Mr. Torguson has the right
to acquire upon the exercise of options, which are exercisable within 60
days of March 24, 2000.
(h) Includes 14,000 shares of Common Stock, which Mr. Sarkowsky has the right
to acquire upon the exercise of options, which are exercisable within 60
days of March 24, 2000. Mr. Sarkowsky resigned as a Director in March
2000.
(i) Includes 14,000 shares of Common Stock, which Mr. Reitnouer has the right
to acquire upon the exercise of options, which are exercisable within 60
days of March 24, 2000.
(j) Includes 14,000 shares of Common Stock, which Mr. Manfuso has the right
to acquire upon the exercise of options, which are exercisable within 60
days of March 24, 2000.
(k) Includes 6,191 shares of Common Stock owned by Mr. Martineau's wife,
beneficial ownership of which is disclaimed by Mr. Martineau, and 667
shares of Common Stock which Mr. Martineau has the right to acquire upon
the exercise of options, which are exercisable within 60 days of March
24, 2000.
(l) Includes 667 shares of Common Stock, which Mr. Miller has the right to
acquire upon the exercise of options, which are exercisable within 60
days of March 24, 2000.
(m) Includes 88,333 shares of Common Stock, which Mr. Finnigan has the right
to acquire upon the exercise of options, which are exercisable within 60
days of March 24, 2000.
(n) Includes 100,000 shares of Common Stock, which Mr. Allen has the right to
acquire upon the exercise of options, which are exercisable within 60
days of March 24, 2000.
(o) Includes 864,278 shares of Common Stock of which the Directors and
Executive Officers may be deemed to have beneficial ownership following
the exercise of options to purchase Common Stock, which are exercisable
within 60 days of March 24, 2000. Excluding such shares, the Directors
and Executive Officers of the Company have beneficial ownership of
3,654,504 shares of Common Stock, which represents 13.9% of the shares of
Common Stock outstanding as of March 24, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 2, 1998, the Company and R.D. Hubbard Enterprises, Inc. ("Hubbard
Enterprises"), which is wholly owned by Mr. Hubbard, entered into a new Aircraft
Time Sharing Agreement. The former agreement was entered into in November 1993.
The June 2, 1998 Aircraft Time Sharing Agreement is identical to the former
agreement in all aspects, except for the type of aircraft covered by the
agreement. The Aircraft Time Sharing Agreement expired on December 31, 1999, and
automatically renews each month unless written notice of termination is given by
either party at least two weeks before a renewal date. The Company reimburses
Hubbard Enterprises for expenses incurred as a result of the Company's use of
the aircraft, which totaled approximately $176,000 in 1999, $72,000 in 1998 and
$106,000 in 1997.
On August 31, 1998, the Company received a promissory note for up to $3,500,000
from Paul R. Alanis. As of December 31, 1998, the Company had loaned Mr. Alanis
$3,232,000, who used the funds to purchase 300,000 shares of Common Stock. The
principal amount of the promissory note, along with accrued interest, was paid
in full in June 1999.
Timothy J. Parrott purchased 270,738 shares of Boomtown common stock in
connection with Boomtown's 1988 acquisition of Boomtown Hotel & Casino, Inc.
(which operates Boomtown Reno). Mr. Parrott paid an aggregate purchase price for
the common stock of $222,000, of which $1,000 was paid in cash and $221,000 was
paid by a promissory note secured by pledge to Boomtown of all of the shares
owned by Mr. Parrott. As of October 31, 1998, Mr. Parrott resigned his position
as Chairman of Boomtown, and was retained by the Company as a consultant to
provide services relating to gaming and other business issues. Mr. Parrott was
50
<PAGE>
retained for a three year period, with an annual retainer of $350,000 with
health and disability benefits equivalent to those he received as Chairman of
Boomtown. Mr. Parrott's $221,000 note will be forgiven in three equal parts on
each anniversary of the consulting agreement.
Marlin Torguson, who beneficially owned approximately 21.5% of the outstanding
common shares of Casino Magic prior to the Company's acquisition of Casino
Magic, agreed, in connection with such acquisition, to vote his Casino Magic
shares in favor of the acquisition by the Company. In addition, Mr. Torguson
agreed to continue to serve as an employee of Casino Magic for three years
following the acquisition and, during such three-year period, not to compete
with the Company or Casino Magic in any jurisdiction in which either the Company
or Casino Magic operates. The Company appointed Mr. Torguson to its board of
directors. The Company issued to Mr. Torguson 60,000 shares of the Company's
Common Stock as compensation for his three-year service as an employee, and will
pay him $300,000 per year, during a three-year period, for his non-compete
agreement. In addition, the Company issued Mr. Torguson 30,000 options to
acquire the Company's Common Stock as of the October 15, 1998 acquisition of
Casino Magic, priced at the closing price of the Common Stock on that date. The
foregoing payments will be made to Mr. Torguson whether or not the Company or
Casino Magic terminates Mr. Torguson's employment, except for termination for
cause.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report.
1. The consolidated financial statements are set forth in the index to
Consolidated Financial Statements attached hereto.
2. Exhibits
Exhibit
Number Description of Exhibit
- ------ ----------------------
2.1 Agreement and Plan of Merger, by and among Hollywood Park, Inc., HP
Acquisition, Inc. and Boomtown, Inc., dated April 23, 1996, is hereby
incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K, filed May 3, 1996.
2.2 Agreement and Plan of Merger, dated as of February 19, 1998, among
Casino Magic Corp., Hollywood Park, Inc. and HP Acquisition II, Inc.,
is hereby incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K, filed February 26, 1998.
3.1 Certificate of Incorporation of Hollywood Park, Inc., is hereby
incorporated by reference to Exhibit 3.1 to the Company's Amendment No.
1 to Form S-4 Registration Statement dated March 26, 1999.
3.2 Restated By-laws of Hollywood Park, Inc. are hereby incorporated by
reference to Exhibit 3.2 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
3.3 * Certificate of Ownership and Merger, dated February 23, 2000, merging
Pinnacle Entertainment, Inc. into Hollywood Park, Inc.
3.4 Articles of Incorporation of HP/Compton, Inc., are hereby incorporated
by reference to Exhibit 3.9 to the Company's Amendment No. 1 to Form
S-4 Registration dated October 30, 1997.
3.5 By-laws of HP/Compton, Inc., are hereby incorporated by reference to
Exhibit 3.10 to the Company's Amendment No. 1 to Form S-4 Registration
Statement dated October 30, 1997.
3.6 Articles of Organization of Crystal Park Hotel and Casino Development
Company, LLC, are hereby incorporated by reference to Exhibit 3.11 to
the Company's Amendment No. 1 to Form S-4 Registration Statement dated
October 30, 1997.
3.7 Operating Agreement of Crystal Park Hotel and Casino Development
Company, LLC, are hereby incorporated by reference to Exhibit 3.12 to
the Company's Amendment No. 1 to Form S-4 Registration Statement dated
October 30, 1997.
3.8 Restated Articles of Incorporation of Turf Paradise, Inc., are hereby
incorporated by reference to Exhibit 3.13 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated October 30, 1997.
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<PAGE>
3.9 By-laws of Turf Paradise, are hereby incorporated by reference to
Exhibit 3.14 to the Company's Amendment No. 1 to Form S-4 Registration
Statement dated October 30, 1997.
3.10 Certificate of Incorporation of HP Yakama, Inc., is hereby incorporated
by reference to Exhibit 3.15 to the Company's Amendment No. 1 to Form
S-4 Registration Statement dated October 30, 1997.
3.11 By-laws of HP Yakama, Inc., are hereby incorporated by reference to
Exhibit 3.16 to the Company's Amendment No. 1 to Form S-4 Registration
Statement dated October 30, 1997.
3.12 Amended and Restated Certificate of Incorporation of Boomtown, Inc., is
hereby incorporated by reference to Exhibit 3.17 to the Company's
Amendment No. 1 to Form S-4 Registration Statement dated October 30,
1997.
3.13 By-laws of Boomtown, Inc., are hereby incorporated by reference to
Exhibit 3.18 to the Company's Amendment No. 1 to Form S-4 Registration
Statement dated October 30, 1997.
3.14 Certificate of Amended and Restated Articles of Incorporation of
Boomtown Hotel & Casino, Inc., are hereby incorporated by reference to
Exhibit 3.19 to the Company's Amendment No. 1 to Form S-4 Registration
Statement dated October 30, 1997.
3.15 Revised and Restated By-laws of Boomtown Hotel & Casino, Inc., are
hereby incorporated by reference to Exhibit 3.20 to the Company's
Amendment No. 1 to Form S-4 Registration Statement dated October 30,
1997.
3.16 Articles of Incorporation of Bayview Yacht Club, Inc., are hereby
incorporated by reference to Exhibit 3.21 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated October 30, 1997.
3.17 By-laws of Bayview Yacht Club, Inc., are hereby incorporated by
reference to Exhibit 3.22 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated October 30, 1997.
3.18 Certificate of Mississippi Limited Partnership of Mississippi - I
Gaming, L.P., are hereby incorporated by reference to Exhibit 3.23 to
the Company's Amendment No. 1 to Form S-4 Registration Statement dated
October 30, 1997.
3.19 Amended and Restated Agreement of Limited Partnership of Mississippi -
I Gaming, L.P., is hereby incorporated by reference to Exhibit 10.31 to
the Company's Quarterly Report on Form 10-Q for quarter ended June 30,
1997.
3.20 Articles of Incorporation of Louisiana Gaming Enterprises, Inc., are
hereby incorporated by reference to Exhibit 3.25 to the Company's
Amendment No. 1 to Form S-4 Registration Statement dated October 30,
1997.
3.21 Second Amended and Restated Partnership Agreement of Louisiana - I
Gaming, a Louisiana Partnership in Commendam, is hereby incorporated by
reference to Exhibit 3.26 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
3.22 Certificate of Incorporation of HP Yakama Consulting, Inc., is hereby
incorporated by reference to Exhibit 3.27 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated March 26, 1999.
3.23 By-laws of HP Yakama Consulting, Inc., are hereby incorporated by
reference to Exhibit 3.28 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
3.24 Articles of Incorporation of Casino Magic Corp., are hereby
incorporated by reference to Exhibit 3.29 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated March 26, 1999.
3.25 Amended By-laws of Casino Magic Corp., are hereby incorporated by
reference to Exhibit 3.30 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
3.26 Articles of Incorporation of Casino Magic American Corp., are hereby
incorporated by reference to Exhibit 3.31 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated March 26, 1999.
3.27 By-laws of Casino Magic American Corp., are hereby incorporated by
reference to Exhibit 3.32 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
3.28 Articles of Incorporation of Biloxi Casino Corp., are hereby
incorporated by reference to Exhibit 3.33 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated March 26, 1999.
3.29 By-laws of Biloxi Casino Corp., are hereby incorporated by reference to
Exhibit 3.34 to the Company's Amendment No. 1 to Form S-4 Registration
Statement dated March 26, 1999.
52
<PAGE>
3.30 Articles of Incorporation of Casino Magic Finance Corp., are hereby
incorporated by reference to Exhibit 3.35 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated March 26, 1999.
3.31 By-laws of Casino Magic Finance Corp., are hereby incorporated by
reference to Exhibit 3.36 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
3.32 Articles of Incorporation of Casino One Corporation, are hereby
incorporated by reference to Exhibit 3.37 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated March 26, 1999.
3.33 By-laws of Casino One Corporation, are hereby incorporated by reference
to Exhibit 3.38 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
3.34 Articles of Incorporation of Bay St. Louis Casino Corp., are hereby
incorporated by reference to Exhibit 3.39 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated March 26, 1999.
3.35 By-laws of Bay St. Louis Casino Corp., are hereby incorporated by
reference to Exhibit 3.40 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
3.36 Articles of Incorporation of Mardi Gras Casino Corp., are hereby
incorporated by reference to Exhibit 3.41 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated March 26, 1999.
3.37 By-laws of Mardi Gras Casino Corp., are hereby incorporated by
reference to Exhibit 3.42 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
3.38 Articles of Incorporation of Boomtown Hoosier, Inc., are hereby
incorporated by reference to Exhibit 3.43 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated March 26, 1999.
3.39 By-laws of Boomtown Hoosier, Inc., are hereby incorporate by reference
to Exhibit 3.44 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
3.40 Articles of Incorporation of Indiana Ventures LLC, are hereby
incorporated by reference to Exhibit 3.45 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated March 26, 1999.
3.41 Operating Agreement of Indiana Ventures LLC, is hereby incorporated by
reference to Exhibit 3.46 to the Company Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
3.42 Articles of Incorporation of HP Casino, Inc., are hereby incorporated
by reference to Exhibit 3.51 to the Company's Amendment No. 1 to Form
S-4 Registration Statement dated March 26, 1999.
3.43 By-laws of HP Casino, Inc., are hereby incorporated by reference to
Exhibit 3.52 to the Company's Amendment No. 1 to Form S-4 Registration
Statement dated March 26, 1999.
4.1 Hollywood Park 1996 Stock Option Plan is hereby incorporated by
reference to Exhibit 10.24 to the Company's Registration Statement on
Form S-4 dated September 18, 1996.
4.2 Hollywood Park 1993 Stock Option Plan is hereby incorporated by
reference to Exhibit 4.2 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
4.3 Indenture, dated August 1, 1997, by and among the Company, Hollywood
Park Operating Company, Hollywood Park Food Services, Inc., Hollywood
Park Fall Operating Company, HP/Compton, Inc., Crystal Park Hotel and
Casino Development Company, LLC, HP Yakama, Inc., Turf Paradise, Inc.,
Boomtown, Inc., Boomtown Hotel & Casino, Inc., Louisiana - I Gaming,
Louisiana Gaming Enterprises, Inc., Mississippi - I Gaming, L.P.,
Bayview Yacht Club, Inc. and The Bank of New York, as trustee, is
hereby incorporated by reference to Exhibit 10.37 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
4.4 First Supplemental Indenture, dated as of February 5, 1999, to
Indenture dated as of August 1, 1997 governing the 9.5% Senior
Subordinated Notes due 2007, by and among the Company and Hollywood
Park Operating Company, as co-issuers, and Bayview Yacht Club, Inc.,
Boomtown Hotel & Casino, Inc., Boomtown, Inc., Crystal Park Hotel and
Casino Development Company, LLC, Hollywood Park Fall Operating Company,
Hollywood Park Food Services, Inc., Hollywood Park Operating Company,
HP/Compton, Inc., HP Yakama, Inc., Louisiana Gaming Enterprises, Inc.,
Louisiana - I Gaming, a Louisiana Partnership in Commendam, Mississippi
- I Gaming, LP, and Turf Paradise, Inc. as guarantors, and The Bank of
New York, as trustee, is hereby incorporated by reference to Exhibit
4.4 to the Company's S-4 Registration dated March 2, 1999.
53
<PAGE>
4.5 Form of Series B 9.5% Senior Subordinated Notes due 2007 (included in
Exhibit 4.3), is hereby incorporated by reference to the Company's
Amendment No.1 to Registration Statement on Form S-4 dated October 30,
1997.
4.6 Indenture, dated as of February 18, 1999, governing the 9.25% Senior
Subordinated Notes due 2007, by and among the Company as issuer, and
Bay St. Louis Casino Corp., Bayview Yacht Club, Inc., Biloxi Casino
Corp., Boomtown Hoosier, Inc., Boomtown Hotel & Casino, Inc., Boomtown,
Inc., Casino Magic American Corp., Casino Magic Corp., Casino Magic
Finance Corp., Casino One Corporation, Crystal Park Hotel and Casino
Development Company, LLC, Hollywood Park Fall Operating Company,
Hollywood Park Food Services, Inc., Hollywood Park Operating Company,
HP Casino, Inc., HP/Compton, Inc., HP Yakama, Inc., HP Yakama
Consulting, Inc., Indiana Ventures LLC, Louisiana Gaming Enterprises,
Inc., Louisiana - I Gaming, a Louisiana Partnership in Commendam, Mardi
Gras Casino Corp., Mississippi - I Gaming, L.P., Pinnacle Gaming
Development Corp., Switzerland County Development Corp., and Turf
Paradise, Inc. as initial guarantors, and The Bank of New York, as
trustee, is hereby incorporated by reference to Exhibit Company's S-4
Registration Statement dated March 2, 1999.
4.7 Form of Series B 9.25% Senior Subordinated Notes due 2007 (included in
Exhibit 4.6), is hereby incorporated by reference to Exhibit 4.7 to the
Company's S-4 Registration Statement dated March 2, 1999.
10.1 Directors Deferred Compensation Plan for Hollywood Park, Inc. is hereby
incorporated by reference to Exhibit 10.1 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated March 26, 1999.
10.2 Aircraft Time Sharing Agreement dated June 2, 1998, by and between
Hollywood Park, Inc. and R.D. Hubbard Enterprises, Inc. is hereby
incorporated by reference to Exhibit 10.2 to the Company's Amendment
No.1 to Form S-4 Registration Statement dated March 26, 1999.
10.3 Amended and Restated Disposition and Development Agreement of Purchase
and Sale, and Lease with Option to Purchase, dated August 2, 1995, by
and between The Community Redevelopment Agency of the City of Compton
and Compton Entertainment, Inc., is hereby incorporated by reference to
Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995.
10.4 Guaranty, dated July 31, 1995, by Hollywood Park, Inc., in favor of the
Community Redevelopment Agency of the City of Compton, is hereby
incorporated by reference to Exhibit 10.17 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995.
10.5 Assignment, Assumption and Consent Agreement, by and among HP/Compton,
Inc., and Crystal Park Hotel and Casino Development Company LLC,
Hollywood Park, Inc. and The Community Redevelopment Agency of the City
of Compton, dated July 18, 1996, is hereby incorporated by reference to
Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.
10.6 Operating Agreement for Crystal Park Hotel and Casino Development
Company, LLC, a California Limited Liability Company, dated July 18,
1996, effective August 28, 1996, is hereby incorporated by reference to
Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.
10.7 Lease, by and between Crystal Park Hotel and Casino Development
Company, LLC and California Casino Management, Inc., dated December 19,
1997, is hereby incorporated by reference to Exhibit 10.41 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997.
10.8 Addendum to the Lease Agreement dated December 19, 1997, by and between
Crystal Park Hotel and Casino Development Company, LLC and California
Casino Management, Inc., dated June 30, 1998, is hereby incorporated by
reference to Exhibit 10.46 of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998.
10.9 Blue Diamond Swap Agreement by and among Boomtown, Inc., Blue Diamond
Hotel & Casino, Inc., Hollywood Park, Inc., Edward P. Roski, Jr., IVAC
and Majestic Realty Co., dated August 12, 1996, is hereby incorporated
by reference to Exhibit 10.22 to the Company's Registration Statement
on Form S-4 filed September 18, 1996.
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<PAGE>
10.10 Stock Purchase Agreement, by and between Hollywood Park, Inc. and
Edward P. Roski, Jr., dated August 12, 1996, is hereby incorporated by
reference to Exhibit 10.23 to the Company's Registration Statement on
Form S-4 filed September 18, 1996.
10.11 Second Addendum to the Lease Agreement dated December 19, 1997, by and
between Crystal Park Hotel and Casino Development Company, LLC and
California Casino Management, Inc. dated March 8, 1999, is hereby
incorporated by reference to Exhibit 10.11 to the Company's Amendment
No.1 to Form S-4 Registration Statement dated March 26, 1999.
10.12 Ground Lease, dated October 19, 1993, between Raphael Skrmetta as
Landlord and Mississippi - I Gaming, L.P. as Tenant, is hereby
incorporated by reference to Exhibit 10.33 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.
10.13 First Amendment to Ground Lease dated October 19, 1993, between Raphael
Skrmetta and Mississippi - I Gaming, L.P., is hereby incorporated by
reference to Exhibit 10.34 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997.
10.14 Second Amendment to Ground Lease dated October 19, 1993, between
Raphael Skrmetta and Mississippi - I Gaming, L.P., is hereby
incorporated by reference to Exhibit 10.35 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.
10.15 Profit Participation Agreement, by and between Hollywood Park, Inc.,
and North American Sports Management, Inc., dated July 14, 1997, is
hereby incorporated by reference to Exhibit 10.40 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
10.16 Loan Agreement, by and between Yakama Tribal Gaming Corporation and HP
Yakama, Inc., dated September 11, 1997, is hereby incorporated by
reference Exhibit 10.41 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
10.17 Security Agreement, by and between Yakama Tribal Gaming Corporation and
HP Yakama, Inc., dated September 11, 1997, is hereby incorporated by
reference to Exhibit 10.42 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.
10.18 Master Lease, by and between The Confederated Tribes and Bands of the
Yakama Indian Nation and HP Yakama, Inc., dated September 11, 1997, is
hereby incorporated by reference to Exhibit 10.43 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
10.19 Sublease, by and between HP Yakama, Inc. and Yakama Tribal Gaming
Corporation, dated September 11, 1997, is hereby incorporated by
reference to Exhibit 10.44 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.
10.20 Construction and Development Agreement, by and between Yakama Tribal
Gaming Corporation and HP Yakama Consulting, Inc., dated September 11,
1997, is hereby incorporated by reference to Exhibit 10.45 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997.
10.21 Voting Agreement, dated as of February 25, 1998, by and between
Hollywood Park, Inc., and Marlin F. Torguson, is hereby incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K,
filed February 26, 1998.
10.22 Public Trust Tidelands Lease, dated August 15, 1994, by and between the
Secretary of State on behalf of the State of Mississippi and
Mississippi - I Gaming, L.P., is hereby incorporated by reference to
Exhibit 10.43 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
10.23 Public Trust Tidelands Lease Amendment, dated March 31, 1997, by and
between the Secretary of State on behalf of the State of Mississippi
and Mississippi - I Gaming, L.P., is hereby incorporated by reference
to Exhibit 10.43 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
10.24 Option agreement, by and among The Webster Family Limited Partnership
and The Diuguid Family Limited Partnership, and Pinnacle Gaming
Development Corp., dated June 2, 1998, is hereby incorporated by
reference to Exhibit 10.47 of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998.
10.25 Memorandum of Option Agreement, by and between the Webster Family
Limited Partnership and The Duiguid Family Limited Partnership, and
Pinnacle Gaming Development Corp., dated June 2, 1998, is hereby
incorporated by reference to Exhibit 10.48 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.
55
<PAGE>
10.26 Amended and Restated Option Agreement, by and among Daniel Webster,
Marsha S. Webster, William G. Duiguid, Sara T. Diuguid, J.R. Showers,
III and Carol A. Showers, and Pinnacle Gaming Development Corp., dated
June 2, 1998, is hereby incorporated by reference to Exhibit 10.49 of
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998.
10.27 Memorandum of Amended and Restated Option Agreement, by and between
Daniel Webster, Marsha S. Webster, William Diuguid, Sara T. Diuguid,
J.R. Showers, III and Carol A. Showers, and Pinnacle Gaming Development
Corp., dated June 4, 1998, is hereby incorporated by reference to
Exhibit 10.50 of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998.
10.28 Assignment of Option Agreement, by Daniel Webster and Marsha S.
Webster, and Pinnacle Gaming Development Corp., dated June 2, 1998, is
hereby incorporated by reference to Exhibit 10.51 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
10.29 Amended and Restated Reducing Revolving Loan Agreement, dated October
14, 1998, among Hollywood Park, Inc., and the banks named therein,
Societe Generale and Bank of Scotland (as Managing Agents), First
National Bank of Commerce (as Co-Agent), and Bank of America National
Trust and Savings Association (as Administrative Agent), is hereby
incorporated by reference to Exhibit 2 of the Company's Current Report
on Form 8-K, filed October 30, 1998.
10.30 Purchase Agreement, dated February 12, 1999, by and among the Company
and Bay St. Louis Casino Corp., Bayview Yacht Club, Inc., Biloxi Casino
Corp., Boomtown Hoosier, Inc., Boomtown Hotel & Casino, Inc., Boomtown,
Inc., Casino Magic American Corp., Casino Magic Corp., Casino Magic
Finance Corp., Casino One Corporation, Crystal Park Hotel and Casino
Development Company, LLC, Hollywood Park Fall Operating Company,
Hollywood Park Food Services, Inc., Hollywood Park Operating Company,
HP Casino, Inc., HP/Compton, Inc., HP Yakama, Inc., HP Yakama
Consulting, Inc., Indiana Ventures LLC, Louisiana Gaming Enterprises,
Inc., Louisiana - I Gaming, a Louisiana Partnership in Commendam, Mardi
Gras Casino Corp., Mississippi - I Gaming, L.P., Pinnacle Gaming
Development Corp., Switzerland County Development Corp., and Turf
Paradise, Inc., and Lehman Brothers, Inc., CIBC Oppenheimer Corp.,
Morgan Stanley & Co., Incorporated, NationsBanc Montgomery Securities
LLC, SG Cowen Securities Corporation, and Wassers Securities, Inc., as
initial purchasers, is hereby incorporated by reference to Exhibit
10.34 to the Company's S-4 Registration Statement dated March 2, 1999.
10.31 Registration Rights Agreement, dated as of February 18, 1999, by and
among the Company and Bay St. Louis Casino Corp., Bayview Yacht Club,
Inc., Biloxi Casino, Corp., Boomtown Hoosier, Inc., Boomtown Hotel &
Casino, Inc., Boomtown, Inc., Casino Magic American Corp., Casino Magic
Finance Corp., Casino One Corporation, Crystal Park Hotel and Casino
Development Company, LLC, Hollywood Park Fall Operating Company,
Hollywood Park Food Services, Inc., Hollywood Park Operating Company,
HP Casino, Inc., HP/Compton, Inc., HP Yakama, Inc., HP Yakama
Consulting, Inc., Indiana Ventures LLC, Louisiana Gaming Enterprises,
Inc., Louisiana - I Gaming, a Louisiana Partnership in Commendam, Mardi
Gras Casino Corp., Mississippi - I Gaming L.P., Pinnacle Gaming
Development Corp., Switzerland County Development Corp., and Turf
Paradise, Inc., and Lehman Brothers Inc., CIBC Oppenheimer Corp.,
Morgan Stanley & Co. Incorporated, NationsBanc Montgomery Securities
LLC, SG Cowen Securities Corporation and Wasserstein P Securities,
Inc., as initial purchasers, is hereby incorporated by reference to
Exhibit 10.35 to the Company's S-4 Registration Statement dated March
2, 1999.
10.32 Employment Agreement, dated December 23, 1998, by and between Hollywood
Park, Inc. and G. Michael Finnigan, is hereby incorporated by reference
to Exhibit 10.36 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
10.33 Employment Agreement, dated September 10, 1998, by and between
Hollywood Park, Inc. and Paul Alanis, is hereby incorporated by
reference to Exhibit 10.37 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
10.34 Employment Agreement, dated September 10, 1998, by and between
Hollywood Park, Inc. and Mike Allen, is hereby incorporated by
reference to Exhibit 10.38 to the Company's Amendment No. 1 to Form S-4
Registration Statement dated March 26, 1999.
56
<PAGE>
10.35 Employment Agreement, dated January 1, 1999, by and between Hollywood
Park, Inc. and Donald M. Robbins, is here by incorporated by reference
to Exhibit 10.39 to the Company's Amendment No. 1 S-4 Registration
Statement dated March 26, 1999.
10.36 Purchase Agreement, dated as of February 25, 1998, among Hilton Gaming
(Switzerland County) Corporation and Boomtown Hoosier, Inc., is hereby
incorporated by reference to Exhibit 10.40 to the Company's Amendment
No. 1 to Form S-4 Registration Statement dated March 26, 1999.
10.37 Asset Purchase Agreement, dated May 5, 1999, among Hollywood Park, Inc.
and Churchill Downs Incorporated, is hereby incorporated by reference
to Exhibit 10.41 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999.
10.38 Amendment No. 1 to Amended and Restated Reducing Revolving Loan
Agreement, dated June 2, 1999, is hereby incorporated by reference to
Exhibit 10.42 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999.
10.39 Amendment No. 2 to Amended and Restated Reducing Revolving Loan
Agreement, dated September 24, 1999, is hereby incorporated by
reference to Exhibit 10.43 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999.
10.40 Asset Purchase Agreement, dated as of December 9, 1999, between BSL,
Inc., and Casino Magic Corp. is hereby incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed December
21, 1999.
10.41 Asset Purchase Agreement, dated as of December 9, 1999, between BTN,
Inc. and Boomtown, Inc. is hereby incorporated by reference to Exhibit
10.2 to the Company's Current Report on Form 8-K filed December 21,
1999.
10.42 First Amendment to Asset Purchase Agreement, dated December 17, 1999,
between BSL, Inc. and Casino Magic Corp. is hereby incorporated by
reference to Exhibit 10.3 to the Company's Current Report on Form 8-K
filed December 21, 1999.
10.43 First Amendment to Asset Purchase Agreement, dated December 17, 1999,
between BTN, Inc. and Boomtown, Inc. is hereby incorporated by
reference to Exhibit 10.4 to the Company's Current Report on Form 8-K
filed December 21, 1999.
10.44 Guaranty issued by Penn National in favor of Casino Magic Corp. entered
into as of December 9, 1999 is hereby incorporated by reference to
Exhibit 10.5 to the Company's Current Report on Form 8-K filed December
21, 1999.
10.45 Guaranty issued by Penn National in favor of Boomtown, Inc. entered
into as of December 9, 1999 is hereby incorporated by reference to
Exhibit 10.6 to the Company's Current Report on Form 8-K filed December
21, 1999.
10.46 Guaranty issued by Hollywood Park in favor of BSL, Inc. entered into as
of December 9, 1999 is hereby incorporated by reference to Exhibit 10.7
to the Company's Current Report on Form 8-K filed December 21, 1999.
10.47 Guaranty issued by Hollywood Park in favor of BTN, Inc. entered into as
of December 9, 1999 is hereby incorporated by reference to Exhibit 10.8
to the Company's Current Report on Form 8-K filed December 21, 1999.
10.48 * Executive Deferred Compensation Plan for Hollywood Park, Inc.
10.49 * Agreement for Purchase and Sale of Assets, dated as of February 24,
2000, between Pinnacle Entertainment, Inc. and Jerry Simms.
11.1 * Statement re: Computation of Per Share Earnings
21.1 Subsidiaries of Hollywood Park, Inc. is hereby incorporated by
reference to Exhibit 21.1 to the Company's Form S-4 Registration
Statement dated March 2, 1999.
23.1 * Consent of Arthur Andersen LLP
27.1 * Financial Data Schedule
- --------
* Filed herewith
57
<PAGE>
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed December 21, 1999, to report (i)
the execution on December 9, 1999 of the Asset Purchase Agreements
under which wholly-owned subsidiaries of the Company agreed to sell the
operating assets of certain of the Company's casino properties to
subsidiaries of Penn National Gaming, Inc., and (ii) the December 10,
1999 press release announcing the execution of such Agreements.
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PINNACLE ENTERTAINMENT, INC.
(Registrant)
By: /s/ R.D. HUBBARD Dated: March 27, 2000
-----------------------------------
R.D. Hubbard
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
By: /s/ BRUCE C. HINCKLEY Dated: March 27, 2000
-----------------------------------
Bruce C. Hinckley
Senior Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
59
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
it the capacities and on the dates indicated:
PINNACLE ENTERTAINMENT, INC.
/s/ R.D. HUBBARD Dated: March 27, 2000
- ----------------------------------------
R.D. Hubbard - Director
/s/ PAUL ALANIS Dated: March 27, 2000
- ----------------------------------------
Paul Alanis - Director
/s/ ROBERT T. MANFUSO Dated: March 27, 2000
- ----------------------------------------
Robert T. Manfuso - Director
/s/ JAMES MARTINUEAU Dated: March 27, 2000
- ----------------------------------------
James Martineau - Director
/s/ GARY MILLER Dated: March 27, 2000
- ----------------------------------------
Gary Miller - Director
/s/ MICHAEL ORNEST Dated: March 27, 2000
- ----------------------------------------
Michael Ornest - Director
/s/ TIMOTHY J. PARROTT Dated: March 27, 2000
- ----------------------------------------
Timothy J. Parrott - Director
/s/ LYNN P. REITNOUER Dated: March 27, 2000
- ----------------------------------------
Lynn P. Reitnouer - Director
/s/ MARLIN TORGUSON Dated: March 27, 2000
- ----------------------------------------
Marlin Torguson - Director
60
<PAGE>
PINNACLE ENTERTAINMENT, INC.
Index to Consolidated Financial Statements
Report of Independent Public Accountants
Report of Arthur Andersen LLP............................................62
Consolidated Statements of Operations for the years
ended December 31, 1999, 1998 and 1997................................63
Consolidated Balance Sheets as of December 31, 1999 and 1998...............64
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997..................65
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997................................66
Notes to Consolidated Financial Statements.................................67
Schedule II ...............................................................90
Other Financial Data.......................................................91
61
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Pinnacle Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of Pinnacle
Entertainment, Inc., (a Delaware corporation, formerly Hollywood Park, Inc.) and
subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pinnacle Entertainment, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 8, 2000 (except with
respect to the matters discussed
in Note 20, as to which the date
is March 21, 2000)
62
<PAGE>
<TABLE>
<CAPTION>
Pinnacle Entertainment, Inc.
Consolidated Statements of Operations
For the years ended December 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C>
REVENUES:
Gaming $ 557,526 $ 293,057 $ 137,659
Racing 55,209 66,871 68,844
Food and beverage 39,817 30,510 19,894
Hotel and recreational vehicle park 11,737 3,076 937
Truck stop and service station 17,644 14,499 8,633
Other 24,924 18,954 12,161
--------- --------- ---------
706,857 426,967 248,128
--------- --------- ---------
EXPENSES:
Gaming 309,508 161,549 74,733
Racing 22,694 29,316 30,304
Food and beverage 46,558 38,860 25,745
Hotel and recreational vehicle park 5,923 1,213 356
Truck stop and service station 16,296 13,279 7,969
General and administrative 134,870 94,670 61,514
Depreciation and amortization 51,924 32,121 18,157
Pre-opening costs, Belterra Resort and Casino 3,020 821 0
(Gain) loss on disposition of assets, net (42,061) 2,221 0
Other 13,921 8,414 7,531
--------- --------- ---------
562,653 382,464 226,309
--------- --------- ---------
OPERATING INCOME 144,204 44,503 21,819
Interest expense, net 57,544 22,518 7,302
--------- --------- ---------
Income before minority interests and income taxes 86,660 21,985 14,517
Minority interests 1,687 374 (3)
Income tax expense 40,926 8,442 5,850
--------- --------- ---------
NET INCOME $ 44,047 $ 13,169 $ 8,670
========= ========= =========
================================================================================================
Dividend requirements on convertible preferred stock $ 0 $ 0 $ 1,520
--------- --------- ---------
Net income attributable to common stockholders $ 44,047 $ 13,169 $ 7,150
========= ========= =========
Net income per common share:
Net income - basic $ 1.70 $ 0.50 $ 0.33
Net income - diluted $ 1.67 $ 0.50 $ 0.32
Number of shares - basic 25,966 26,115 22,010
Number of shares - diluted 26,329 26,115 22,340
</TABLE>
See accompanying notes to the consolidated financial statements.
63
<PAGE>
<TABLE>
<CAPTION>
Pinnacle Entertainment, Inc.
Consolidated Balance Sheets
December 31, December 31,
1999 1998
------------ ------------
ASSETS (in thousands, except share data)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 123,362 $ 44,234
Restricted cash 0 0
Short term investments 123,428 3,179
Receivables, net 17,132 16,783
Prepaid expenses and other assets 13,118 15,207
Deferred income taxes 0 18,425
Assets held for sale 154,649 0
Current portion of notes receivable 5,785 2,320
------------ ------------
Total current assets 437,474 100,148
Notes receivable 8,912 17,852
Net property, plant and equipment 437,715 602,912
Goodwill, net of amortization 87,481 97,098
Gaming licenses, net of amortization 41,485 44,037
Debt issuance costs, net of amortization 22,813 12,105
Other assets 9,528 17,187
------------ ------------
$ 1,045,408 $ 891,339
============ ============
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 21,096 $ 20,970
Accrued interest 26,080 16,741
Other accrued liabilities 45,569 61,498
Accrued compensation 16,073 17,819
Liabilities to be assumed by buyers of assets held for sale 9,866 0
Deferred income taxes 19,542 0
Current portion of notes payable 6,782 11,564
------------ ------------
Total current liabilities 145,008 128,592
Notes payable, less current maturities 618,698 527,619
Deferred income taxes 826 400
Minority interests 0 3,752
Stockholders' Equity:
Capital stock --
Preferred - $1.00 par value, authorized 250,000 shares;
none issued and outstanding in 1999 and 1998 0 0
Common - $0.10 par value, authorized 40,000,000 shares;
26,234,699 and 25,800,069 shares issued and outstanding in 1999 and 1998 2,624 2,580
Capital in excess of par value 224,654 218,375
Retained earnings 53,598 10,021
------------ ------------
Total stockholders' equity 280,876 230,976
------------ ------------
$ 1,045,408 $ 891,339
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
64
<PAGE>
<TABLE>
<CAPTION>
Pinnacle Entertainment, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31, 1999, 1998 and 1997
Retained
Capital in Earnings Total
Preferred Common Excess of (Accumulated Stockholders'
Stock Stock Par Value Deficit) Equity
--------- --------- ---------- ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1996 $ 28 $ 1,833 $ 167,074 ($10,775) $ 158,160
Net income 0 0 0 8,670 8,670
Issuance of common stock to acquire
Boomtown, Inc. 0 582 56,425 0 57,007
Repurchase and retirement of common stock 0 (45) (3,420) 0 (3,465)
Common stock options exercised 0 20 1,975 0 1,995
Other (28) 232 296 (1,513) (1,013)
--------- --------- --------- --------- ---------
BALANCE AS OF DECEMBER 31, 1997 0 2,622 222,350 (3,618) 221,354
Net income 0 0 0 13,169 13,169
Repurchase and retirement of common stock 0 (50) (5,490) 0 (5,540)
Common stock options exercised 0 8 627 0 635
Tax benefit associated with exercised
common stock options 0 0 888 0 888
Investment in stock - unrealized holding gain 0 0 0 470 470
--------- --------- --------- --------- ---------
BALANCE AS OF DECEMBER 31, 1998 0 2,580 218,375 10,021 230,976
Net income 0 0 0 44,047 44,047
Executive stock option compensation 0 0 828 0 828
Common stock options exercised 0 44 4,335 0 4,379
Tax benefit associated with exercised
common stock options 0 0 1,116 0 1,116
Investment in stock - realized holding gain 0 0 0 (470) (470)
--------- --------- --------- --------- ---------
BALANCE AS OF DECEMBER 31, 1999 $ 0 $ 2,624 $ 224,654 $ 53,598 $ 280,876
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
65
<PAGE>
<TABLE>
<CAPTION>
Pinnacle Entertainment, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 44,047 $ 13,169 $ 8,670
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 51,924 32,121 18,157
(Gain) loss on disposition of assets (42,061) 2,221 0
Other changes that (used) provided cash, net of the effects
of the purchase and disposition of businesses:
Receivables, net (2,242) (2,937) (312)
Prepaid expenses and other assets (4,780) 2,927 (452)
Accounts payable (10,948) (3,074) (2,468)
Accrued liabilities (16,254) 2,009 (9,119)
Accrued interest payable 9,344 516 5,175
Deferred income taxes 38,393 (5,546) (4,822)
All other, net 7,900 (3,294) (464)
--------- --------- ---------
Net cash provided by operating activities 75,323 38,112 14,365
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (59,680) (56,747) (32,505)
Receipts from disposition of property, plant and equipment 140,083 980 187
Principal collected on notes receivable 5,283 2,489 52
Notes receivable issued 0 (12,850) 0
(Purchase of) proceeds from short term investments, net (120,249) (2,709) 4,776
Payment to buy-out minority interest in subsidiaries (16,500) (1,946) (1,000)
Net cash paid for the acquisition of Casino Magic 0 (65,749) 0
Cash acquired in the acquisition of Boomtown, net of
cash transaction and other costs 0 0 12,264
--------- --------- ---------
Net cash used in investing activities (51,063) (136,532) (16,226)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from secured Bank Credit Facility 17,000 270,000 112,000
Payment of secured Bank Credit Facility (287,000) 0 (112,000)
Payment of notes payable (15,566) (7,625) (4,942)
Assumption of notes payable 1,364 0 0
Proceeds from issuance of 9.5% Notes 0 0 125,000
Proceeds from issuance of 9.25% Notes 350,000 0 0
Payment of the 11.5% Casino Magic Notes 0 (135,000) 0
Payment of 11.5% Boomtown Notes 0 (1,253) (110,924)
Increase in debt issuance costs (15,309) (2,719) 0
Common stock options exercised 4,379 635 1,995
Common stock repurchase and retirement 0 (5,540) 0
Dividends paid to preferred stockholders 0 0 (1,520)
--------- --------- ---------
Net cash provided by financing activities 54,868 118,498 9,609
--------- --------- ---------
Increase in cash and cash equivalents 79,128 20,078 7,748
Cash and cash equivalents at the beginning of the period 44,234 24,156 16,408
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 123,362 $ 44,234 $ 24,156
========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
66
<PAGE>
PINNACLE ENTERTAINMENT, INC.
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL In February 2000, a newly formed wholly owned subsidiary of Hollywood
Park, Inc. merged into Hollywood Park, Inc. for the sole purpose of changing
Hollywood Park, Inc.'s name to Pinnacle Entertainment, Inc. Pinnacle
Entertainment, Inc. (the "Company" or "Pinnacle Entertainment") is a diversified
gaming company that owns and operates eight casinos (four with hotels) in
Nevada, Mississippi, Louisiana and Argentina, two of which are subject to a
pending sales transaction (see Note 4). Pinnacle Entertainment receives lease
income from two card clubs, both in the Los Angeles metropolitan area; and owns
and operates a horse racing facility in Arizona, which is also subject to a
pending sale transaction (see Note 4).
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of Pinnacle Entertainment and its majority owned subsidiaries. All
significant inter-company accounts and transactions have been eliminated. The
Company's significant subsidiaries include Boomtown, Inc. (and its Boomtown
casinos), Casino Magic, Corp. (and its Casino Magic casinos), Turf Paradise,
Inc. and Belterra Resort and Casino, LLC.
GAMING LICENSES In 1994, Casino Magic acquired a twelve-year concession
agreement to operate the two Casino Magic Argentina casinos, and capitalized the
costs related to obtaining the concession agreement. The costs are being
amortized over the life of the concession agreement (see Note 5). In 1996,
Casino Magic acquired a Louisiana gaming license to conduct the gaming
operations of Casino Magic Bossier City. Casino Magic allocated a portion of the
purchase price to the gaming license and is amortizing the cost over twenty-five
years.
AMORTIZATION OF DEBT ISSUANCE COSTS Debt issuance costs incurred in connection
with long-term debt and bank financing are capitalized and amortized to interest
expense during the period the debt or loan commitments are outstanding.
Amortization expense was $2,343,000, $1,141,000 and $598,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
GOODWILL Goodwill consists of the excess of the acquisition cost over the fair
value of net assets acquired in business combinations and is being amortized on
a straight-line basis over 40 years. Amortization expense was $2,859,000,
$1,888,000 and $943,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
RACING REVENUES AND EXPENSES The Company recorded pari-mutuel revenues,
admissions, food and beverage and other racing income associated with racing on
a daily basis, except for prepaid admissions, which were recorded ratably over
the racing season. Expenses associated with racing revenues were charged against
income in those periods in which racing revenues were recognized. Other expenses
were recognized as they occurred throughout the year.
GAMING REVENUE AND PROMOTIONAL ALLOWANCES Gaming revenues at the Boomtown and
Casino Magic properties consists of the difference between gaming wins and
losses, and at the Hollywood Park-Casino consists of fees collected from patrons
on a per seat or per hand basis. Revenues in the accompanying statements of
operations exclude the retail value of food and beverage, hotel rooms and other
items provided to patrons on a complimentary basis. The estimated cost of
providing these promotional allowances (which is included in gaming expenses)
during the years ended December 31, 1999, 1998, and 1997 was $41,341,000,
$21,270,000 (which includes Casino Magic's promotional allowances from October
15, 1998) and $8,285,000 (which includes Boomtown's promotional allowances from
June 30, 1997), respectively.
USE OF ESTIMATES The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect (i) the reported amounts of assets
and liabilities, (ii) the disclosure of contingent assets and liabilities at the
date of
67
<PAGE>
consolidated financial statements, and (iii) the reported amounts of
revenues and expenses during the reporting period. The Company uses estimates in
evaluating the recoverability of property, plant and equipment, other long-term
assets, deferred tax assets and in determining litigation and other obligations.
PROPERTY, PLANT AND EQUIPMENT Additions to property, plant and equipment are
recorded at cost and projects in excess of $10,000,000 include interest on funds
borrowed to finance construction. Capitalized interest was $1,359,000,
$2,142,000 and $425,000 in fiscal 1999, 1998 and 1997, respectively.
Depreciation and amortization are provided on the straight-line method over
their estimated useful lives as follows:
YEARS
-----
Land improvements 3 to 25
Buildings 5 to 40
Vessels and Barges 25 to 31
Equipment 3 to 10
Maintenance and repairs are charged to expense, and betterments are capitalized.
The cost of property sold or otherwise disposed of and its associated
accumulated depreciation are eliminated from both the property and accumulated
depreciation accounts with any gain or loss recorded in the expense accounts.
Property, plant and equipment is carried on the Company's balance sheets at
depreciated cost. Whenever there are recognized events or changes in
circumstances that affect the carrying amount of the property, plant and
equipment, management reviews the assets for possible impairment.
CASH AND CASH EQUIVALENTS Cash and cash equivalents consisted of cash,
certificates of deposit and short term investments with original maturities of
90 days or less, as well as restricted cash of $300,000 at December 31, 1998.
There was no restricted cash at December 31, 1999.
SHORT TERM INVESTMENTS Short term investments are classified as held to maturity
and are carried at cost, which approximates market value.
INCOME TAXES The Company accounts for income taxes under Statement of Financial
Accounting Standards 109, ACCOUNTING FOR INCOME TAXES ("SFAS No. 109"), whereby
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that included the enactment date.
STOCK-BASED COMPENSATION The Company accounts for its stock-based compensation
under Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and follows the disclosure provisions of Financial Accounting
Standards Board's Statement of Accounting Standards No. 123 ACCOUNTING FOR
STOCK-BASED COMPENSATION.
SEGMENT INFORMATION Statement of Financial Accounting Standards No. 131
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS No.
131") was effective for years after December 31, 1997, and has been adopted by
the Company for all periods presented in these consolidated financial
statements. SFAS No. 131 establishes guidelines for public companies in
determining operating segments based on those used for internal reporting to
management. Based on these guidelines, Pinnacle Entertainment reports
information under a single gaming segment.
LONG-LIVED ASSETS The Company periodically reviews the propriety of the carrying
amount of long-lived assets and the related intangible assets as well as the
related amortization period to determine whether current events or circumstances
warrant adjustments to the carrying value and/or the estimates of useful
68
<PAGE>
lives. This evaluation consists of comparing asset carrying values to the
Company's projection of the undiscounted cash flows over the remaining lives of
the assets, in accordance with Statement of Financial Accounting Standards No.
121 ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF ("SFAS No. 121"). Based on its review, the Company believes
that as of December 31, 1999, there were no significant impairments of its
long-lived assets or related intangible assets. In September 1999, an impairment
write-down of the Hollywood Park-Casino was recorded (see Note 3).
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In September 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS No.
133"). The Company has not made such investments in the past and does not expect
to make such investments in the foreseeable future, and thus SFAS No. 133 has no
impact on the financial reporting of the Company.
COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130,
REPORTING COMPREHENSIVE INCOME ("SFAS 130") requires that the Company disclose
comprehensive income and its components. The objective of SFAS 130 is to report
a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with owners. Comprehensive income is the sum of the following: net income and
other comprehensive income, which is defined as all other nonowner changes in
equity. Other comprehensive income is immaterial for all periods.
EARNINGS PER SHARE Basic earnings per share are based on net income less
preferred stock dividend requirements divided by the weighted average common
shares outstanding during the period. Diluted earnings per share assume exercise
of in-the-money stock options outstanding at the beginning of the year or date
of the issuance, unless they are antidilutive.
RECLASSIFICATIONS Certain reclassifications have been made to the 1998 and 1997
amounts to be consistent with the 1999 financial statement presentation.
NOTE 2 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------------------------
1999 1998 1997
----------------- ---------------- -----------------
(in thousands)
Cash paid during the year for:
<S> <C> <C> <C>
Interest $58,943 $22,024 $1,321
Income taxes 6,223 8,195 827
</TABLE>
NOTE 3 - ASSETS SOLD
On September 10, 1999, the Company completed the dispositions of the Hollywood
Park Race Track and Hollywood Park-Casino to Churchill Downs California Company
("Churchill Downs"), a wholly owned subsidiary of Churchill Downs Incorporated,
for $117,000,000 cash and $23,000,000 cash, respectively. Churchill Downs
acquired the race track, 240 acres of related real estate and the Hollywood
Park-Casino. The Company then entered into a 10-year leaseback of the Hollywood
Park-Casino at an annual lease rate of $3,000,000 per annum, with a 10-year
renewal option. The Company then subleased the facility to a third party
operator for a lease payment of $6,000,000 per year. The sublease is for a
one-year period, at which time the Company and sublessee will negotiate the
terms of any sublease extension.
The disposition of the Hollywood Park Race Track and related real estate was
accounted for as a sale and resulted in a pre-tax gain of $61,522,000. The
disposition of the Hollywood Park-Casino was accounted for as a financing
transaction and therefore not recognized as a sale for accounting purposes as
the Company subleased the Hollywood Park-Casino to a third-party operator. Under
the provisions of SFAS No. 121, the Company recorded an impairment write-down of
the Hollywood Park-Casino of $20,446,000 during the quarter ended September 30,
1999. The pre-tax gain on the sale of the race track and impairment write-
69
<PAGE>
down of the Hollywood Park-Casino are included in "(Gain) loss on disposition of
assets, net" in the accompanying Consolidated Statements of Operations. Pursuant
to accounting guidelines, the Company recorded a long-term debt obligation of
$23,000,000 for the Hollywood Park-Casino (see Note 9). The Hollywood
Park-Casino building will continue to be depreciated over its estimated useful
life. The estimated tax liability on the sales transactions to Churchill Downs
is approximately $22,000,000.
Condensed results of operations for the Hollywood Park Race Track and the
Hollywood Park-Casino for the years ended December 31, 1999, 1998 and 1997 were:
1999 (a) 1998 1997
-------- -------- --------
(IN THOUSANDS)
Revenues $ 86,235 $114,751 $121,799
Expenses 73,019 103,760 107,775
-------- -------- --------
Operating income 13,216 10,991 14,024
Interest expense (b) 0 0 0
-------- -------- --------
Income before income taxes $ 13,216 $ 10,991 $ 14,024
======== ======== ========
(a) Operating results through the sales date of September 10, 1999.
(b) No interest expense was specifically identified for these operations.
NOTE 4 - ASSETS HELD FOR SALE
Assets held for sale at December 31, 1999 consisted of the following, and
excluded the related goodwill and deferred income taxes associated with such
assets:
NET PROPERTY
PLANT &
EQUIPMENT OTHER TOTAL
----------- -------- --------
(IN THOUSANDS)
Two casinos in Mississippi $115,731 $ 5,876 $121,607
Turf Paradise Race Track in Arizona 10,873 4,359 15,232
Other (primarily undeveloped land in California) 17,810 0 17,810
-------- -------- --------
$144,414 $ 10,235 $154,649
======== ======== ========
Sales transactions for these assets were pending or the properties were actively
being marketed as of December 31, 1999. There are no assurances these
transactions will close or the anticipated cash proceeds and after tax gains as
described below will be achieved. Until the sales transactions are completed,
the Company continues to operate the race track and casinos held for sale. In
addition, certain liabilities will be assumed by the buyers of these assets.
Such liabilities, consisting primarily of accrued liabilities and accounts
payable, have been classified as "Liabilities to be assumed by buyers of assets
held for sale" on the accompanying Consolidated Balance Sheets. Goodwill net of
amortization at December 31, 1999 includes approximately $13,331,000 related to
the pending race track and casino sales.
CASINOS IN MISSISSIPPI On December 10, 1999, the Company announced it had
entered into definitive agreements with subsidiaries of Penn National Gaming,
Inc. ("Penn National") to sell its Casino Magic Bay St. Louis, Mississippi, and
Boomtown Biloxi, Mississippi, casino operations for $195,000,000 in cash.
Subsidiaries of Penn National will purchase all of the operating assets and
certain liabilities and related operations of the Casino Magic Bay St. Louis and
Boomtown Biloxi properties, including the 590 acres of land at Casino Magic
Bay St. Louis and the leasehold rights at Boomtown Biloxi. The transactions are
subject to certain closing
70
<PAGE>
conditions, including approval by the Mississippi Gaming Commission, the
purchaser completing the necessary financing and termination of the Hart-Scott-
Rodino waiting period. The Company estimates the transactions will close in the
second quarter of 2000 and generate an after tax gain of approximately
$32,300,000.
RACE TRACK IN ARIZONA On December 30, 1999, the Company announced the signing of
a letter of intent under which the Company will sell its Turf Paradise horse
racing facility located in Phoenix, Arizona to a private investor. In February
2000, the Company announced the signing of a definitive agreement for the sale
of Turf Paradise for $53,000,000 in cash. The agreement includes the horse
racing operations and all 275 acres at the Phoenix, Arizona property. Pinnacle
Entertainment anticipates closing the transaction in the second quarter of 2000.
The after tax gain from such sale is expected to be approximately $23,000,000.
OTHER On July 15, 1999, the Company announced it had entered into an agreement
to sell 42 acres of the 139 acres retained in the Churchill Downs transaction
for approximately $24,000,000 in cash. In March 2000, the Company completed the
sale (see Note 20). The Company anticipates an after tax gain of approximately
$13,800,000 from this sale. On November 4, 1999, the Company announced it had
entered into an agreement for the sale of the remaining 97 acres for
approximately $63,000,000 in cash. On February 7, 2000, the Company elected to
terminate such agreement and has begun discussions with other buyers. The
Company expects to close the sale of this property for cash by the end of 2000,
which will result in a gain.
The Company owns other land parcels in Missouri, which it is actively trying to
sell.
Condensed results of operations for the Casino Magic Bay St. Louis and Boomtown
Biloxi casinos and the Turf Paradise horse racing facility for the years ended
December 31, 1999, 1998 and 1997 are as follows:
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 (a) 1997 (b)
-------- -------- --------
(IN THOUSANDS)
Revenues $174,380 $100,014 $ 46,655
Expenses 145,066 86,051 40,479
-------- -------- --------
Operating income 29,314 13,963 6,176
Interest expense (income), net 86 339 (153)
-------- -------- --------
Income before income taxes $ 29,228 $ 13,624 $ 6,329
======== ======== ========
(a) Includes the results of Casino Magic Bay St. Louis from October 15, 1998
(see Note 5).
(b) Includes the results of Boomtown Biloxi from June 30, 1997 (see Note 5).
NOTE 5 - ACQUISITIONS
CASINO MAGIC ARGENTINA On October 8, 1999, the Company purchased the 49%
minority interest not owned by the Company in Casino Magic Argentina for
$16,500,000 in cash. The Casino Magic Argentina operations consist of two
casinos in the Province of Neuquen, Argentina. The Company operates the two
casinos under an exclusive concession contract with the Province that is
currently scheduled to expire in December 2006. The Company and the province are
in discussions to possibly extend such concession contract for an additional ten
years. The $12,300,000 purchase price in excess of the minority interest of
approximately $4,200,000 is being amortized over the extended life of the
concession contract beginning October 1999.
CASINO MAGIC ACQUISITION On October 15, 1998, the Company acquired Casino Magic,
Corp. (the "Casino Magic Merger"). The Company paid cash of approximately
$80,904,000 for Casino Magic's common stock. At the date of the acquisition, the
Company had purchased 792,900 common shares of Casino Magic on the open market,
at a total cost of approximately $1,615,000. The Company paid $2.27 per share
for the remaining 34,929,224 shares of Casino Magic common stock outstanding.
71
<PAGE>
The Casino Magic Merger was accounted for under the purchase method of
accounting for a business combination. The purchase price of the Casino Magic
Merger was allocated to identifiable assets acquired and liabilities assumed
based on their estimated fair values at the date of acquisition. Assets acquired
and liabilities assumed were, when necessary, written up or down to their fair
market values based on financial analyses, which considered the impact of
general economic, financial and market conditions. The Casino Magic Merger
generated approximately $43,284,000 of excess acquisition cost over the recorded
value of the net assets acquired, all of which was allocated to goodwill, and is
being amortized over 40 years. The Company anticipates such goodwill will be
reduced by approximately $10,277,000 in connection with the pending sale of
Casino Magic Bay St. Louis in 2000 (see Note 4). The amortization of this
goodwill is not deductible for income tax purposes. At December 31, 1999 and
1998, accumulated amortization was $1,350,000 and $262,000, respectively.
BOOMTOWN, INC. On June 30, 1997, pursuant to the Agreement and Plan of Merger
dated as of April 23, 1996, the Company acquired Boomtown (the "Boomtown
Merger"). As result of the Boomtown Merger, Boomtown became a wholly owned
subsidiary of the Company and each share of Boomtown common stock was converted
into the right to receive 0.625 of a share of the Company's common stock.
The Boomtown Merger was accounted for under the purchase method of accounting
for a business combination. The purchase price of the Boomtown Merger was
allocated to identifiable assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition. Based on financial analyses,
which considered the impact of general economic, financial and market conditions
on the assets acquired and the liabilities assumed, the estimated fair values
approximated their carrying values. The Boomtown Merger generated approximately
$15,302,000 of excess acquisition cost over the recorded value of the net assets
acquired, all of which was allocated to goodwill, to be amortized over 40 years.
The Company anticipates such goodwill will be reduced by approximately
$3,054,000 in connection with the pending sale of Boomtown Biloxi in 2000 (see
Note 4). The amortization of the goodwill is not deductible for income tax
purposes. At December 31, 1999 and 1998, accumulated amortization was $773,000
and $375,000, respectively.
PRO FORMA RESULTS OF OPERATIONS The following unaudited pro forma results of
operations were prepared under the assumption that the acquisitions of Boomtown
and Casino Magic had occurred as of January 1, 1997. The historical results of
operations of Boomtown prior to the Company's June 30, 1997 acquisition
(excluding the approximately $1,900,000 net loss associated with Boomtown's Las
Vegas property, which was sold on June 30, 1997), and Casino Magic prior to the
Company's October 15, 1998 acquisition were combined with the Company's results
for 1998 and 1997. Pro forma adjustments were made for the following: (a) the
early retirement of $102,200,000 principal amount of the Boomtown 11.5% Notes;
(b) the issuance of the 9.5% Notes; (c) redemption of the Casino Magic 11.5%
Notes; (d) the borrowing of approximately $222,615,000 to redeem the Casino
Magic 11.5% Notes ($141,515,000) and to purchase Casino Magic's common stock
($81,100,000); (e) amortization of the costs associated with amending the Bank
Credit Facility to provide the funds necessary to purchase Casino Magic's common
stock and redeem the Casino Magic 11.5% Notes; (f) elimination of compensation
expense associated with three Casino Magic executives who resigned and will not
be replaced; (g) elimination of expenses associated with Casino Magic's board of
directors; (h) the amortization of the excess purchase price over net assets
acquired for both the Casino Magic Merger and the Boomtown Merger; (i) the
amortization of the premium associated with the purchase accounting write-up of
the Casino Magic 13% Notes; and (j) the tax expense associated with the net pro
forma adjustments.
72
<PAGE>
PINNACLE ENTERTAINMENT, INC.
Unaudited Pro Forma Combined Consolidated Results of Operations
For the years ended
December 31,
-----------------------------
1998 1997
------------- -------------
(in thousands, except per share data)
Revenues:
Gaming $ 516,622 $ 467,328
Racing 66,871 68,844
Other 82,846 74,659
------------- -------------
$ 666,339 $ 610,831
============= =============
Operating income (a) $ 74,752 $ 55,569
============= =============
Income before extraordinary item $ 7,678 $ 4,323
Extraordinary item, redemption of the
Casino Magic 11.5% Notes $ 0 $ 11,039
------------- -------------
Net income (loss) $ 7,678 ($6,716)
Dividend requirement on preferred stock $ 0 $ 1,520
------------- -------------
Net income (loss) to common shareholders $ 7,678 ($ 8,236)
============= =============
Per common share:
Net income (loss) - basic $0.29 ($0.37)
Net income (loss) - diluted $0.29 ($0.37)
- --------
(a) In 1998, the operating income is inclusive of costs of $6,243,000, related
to the Casino Magic merger.
The unaudited pro forma combined results of operations are for comparative
purposes only and are not necessarily indicative of the operating results or
financial position that would have occurred if the Boomtown Merger and the
Casino Magic Merger had occurred as of January 1, 1997.
NOTE 6 - EXPANSION AND DEVELOPMENT
BELTERRA RESORT AND CASINO In September 1998, the Indiana Gaming Commission
approved the Company to receive the last available license to conduct riverboat
gaming operations on the Ohio River in Indiana for the Belterra Resort and
Casino. Pinnacle Entertainment owns 97% of the Belterra Resort and Casino
(currently under construction), with the remaining 3% held by a non-voting local
partner.
In July 1999, the Company broke ground on the Belterra Resort and Casino and is
continuing on schedule for an opening in August 2000. The project is located in
Switzerland County, Indiana, which is approximately 35 miles southwest of
Cincinnati, Ohio and will be the gaming site most readily accessible to major
portions of northern and central Kentucky, including the city of Lexington.
The Company plans to spend approximately $200,000,000 ($30,635,000 of which has
been spent as of December 31, 1999) in total costs (including land, capitalized
interest, pre-opening expenses, organizational expenses and community grants) on
the Belterra Resort and Casino, which will feature a 15-story, 308-room hotel, a
cruising riverboat casino with approximately 1,800 gaming positions, an 18-hole
championship golf course, a 1,500 seat entertainment facility, four restaurants,
retail areas and other amenities.
In October 1999, the Company acquired the Ogle Haus Inn, a 54-room hotel
operation in the city of Vevay, for $2,500,000. The Company is utilizing the
facility principally for the Belterra pre-opening operations, including housing
various key management staff, converting rooms into offices and training hotel
and food and beverage employees. Operational costs of the Ogle Haus Inn, as well
as all other pre-opening costs of Belterra Resort and Casino, are being expensed
as incurred. After completion of Belterra, the Ogle Haus will be operated as a
hotel and restaurant facility and will provide overflow capacity for Belterra.
73
<PAGE>
LAKE CHARLES In November 1999, the Company filed an application for the
fifteenth and final gaming license to be issued by the Louisiana Gaming Control
Board. The Company was one of five applicants for such license. The Company's
application is seeking the approval to operate a cruising riverboat casino,
hotel and golf course resort complex in Lake Charles, Louisiana. The Louisiana
Gaming Control Board has not awarded such license and there are no assurances
such license will be issued to the Company or any other applicant.
In connection with such submittal, Pinnacle Entertainment has entered into an
option agreement with the Lake Charles Harbor and Terminal District to lease
225-acres of unimproved land from the District upon which such resort complex
would be constructed. The initial lease option is for a six-month period ending
January 2000, with three six-month renewal options, at a cost of $62,500 per
six-month option. If the lease option is exercised, the annual rental payment
would be $815,000, with a maximum annual increase of 5%. The term of the lease
would be for a total of up to 70 years, with an initial term of 10 years and six
consecutive renewal options of 10 years each. The lease would require the
Company to develop certain on-and off- site improvements at the location. If
awarded the license by the Louisiana Gaming Control Board, the Company
anticipates building a resort similar in design and scope to the Belterra Resort
and Casino currently under construction in Indiana.
NOTE 7 - SHORT TERM INVESTMENTS
As of December 31, 1999, short term held to maturity investments consisted of
investments in commercial paper of $123,428,000. The commercial paper consisted
of investment grade instruments issued by major corporations and financial
institutions that are highly liquid and have original maturities between three
months and one year. Commercial paper held as short term investments is carried
at cost which approximates market value.
At December 31, 1998, short term available for sale investments consisted of
investments in equity securities of approximately $3,179,000.
Interest income for the years ended December 31, 1999, 1998 and 1997 was
$7,927,000, $1,842,000 and $1,294,000, respectively.
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held at December 31, 1999, and 1998 consisted of
the following:
December 31,
-------------------------------------
1999 (a) 1998
----------------- ----------------
(in thousands)
Land and land improvements $71,052 $141,536
Buildings 253,126 393,200
Equipment 134,701 174,270
Vessel and barges 65,580 76,605
Construction in progress 32,813 46,297
---------------- ----------------
557,272 831,908
Less accumulated depreciation 119,557 228,996
---------------- ----------------
$437,715 $602,912
================ ================
(a) Excludes $213,992,000 of assets and $69,578,000 of accumulated
depreciation related to assets classified as held for sale (see Note 4)
74
<PAGE>
NOTE 9 - SECURED AND UNSECURED NOTES PAYABLE
Notes payable at December 31, 1999, and 1998 consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
---------------- ---------------
(in thousands)
<S> <C> <C>
Secured notes payable, Bank Credit Facility $0 $270,000
Unsecured 9.25% Notes 350,000 0
Unsecured 9.5% Notes 125,000 125,000
Casino Magic 13% Notes (a) 119,814 121,685
Hollywood Park-Casino debt obligation 22,566 0
Other secured notes payable 5,785 16,569
Other unsecured notes payable 2,315 5,288
Capital lease obligations 0 641
---------------- ---------------
625,480 539,183
Less current maturities 6,782 11,564
---------------- ---------------
$618,698 $527,619
================ ===============
</TABLE>
(a) Includes a write up to fair market value (net of amortization), as of
the October 15, 1998 acquisition of Casino Magic, of $6,939,000 and
$8,810,000, as of December 31, 1999 and 1998, respectively, as required
under the purchase method of accounting for a business combination.
SECURED NOTES PAYABLE, BANK CREDIT FACILITY Under the terms of the 1998 bank
credit facility with a syndicate of banks, expiring in 2003 (the "Credit
Facility"), the Company chose in May of 1999 to reduce the amount available
under the facility from $300,000,000 (with an option to increase to
$375,000,000), to $200,000,000 (with an option to increase to $300,000,000). The
Credit Facility also provides for letters of credit up to $30,000,000 and swing
line loans of up to $10,000,000.
At December 31, 1998, the Company had outstanding borrowings under the Credit
Facility of $270,000,000. Through February of 1999, the Company borrowed an
additional $17,000,000, before repaying all $287,000,000 with a portion of the
proceeds from the issuance of the 9.25% Notes (see below). The Credit Facility
has remained unused since the February 1999 repayment, and there was no
outstanding balance at December 31, 1999.
Interest rates on borrowings under the Credit Facility are determined by adding
a margin, which is based upon the Company's debt to cash flow ratio (as defined
in the Credit Facility), to either the LIBOR rate or Prime Rate (at the
Company's option). The Company also pays a quarterly commitment fee on the
unused balance of the Credit Facility. The Credit Facility allows for interest
rate swap agreements or other interest rate protection agreements, to a maximum
notional amount of $300,000,000. Presently, the Company does not use such
financial instruments.
UNSECURED 9.25% AND 9.5% NOTES In February of 1999 the Company issued
$350,000,000 of 9.25% Senior Subordinated Notes due 2007 (the "9.25% Notes"),
the proceeds of which were used to pay the outstanding borrowings on the Credit
Facility, fund current capital expenditures, and other general corporate
purposes.
In August of 1997 the Company issued $125,000,000 of 9.5% Senior Subordinated
Notes due 2007 (the "9.5% Notes"). On January 29, 1999, the Company received the
required number of consents to modify selected covenants associated with the
9.5% Notes. Among other things, the modifications lowered the required minimum
consolidated coverage ratio for debt assumption and increased the size of
allowed borrowings under the Credit Facility. The Company paid a consent fee of
$50.00 per $1,000 principal amount of the 9.5% Notes, which, combined with other
transactional expenses, is being amortized over the remaining term of the 9.5%
Notes.
75
<PAGE>
The 9.25% and 9.5% Notes are redeemable, at the option of the Company, in whole
or in part, on the following dates, at the following premiums to face value:
<TABLE>
<CAPTION>
9.25% Notes redeemable: 9.5% Notes redeemable:
-------------------------------------------- -------------------------------------------
after February 14, at a premium of After July 31, at a premium of
-------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C>
2003 104.625% 2002 104.750%
2004 103.083% 2003 102.375%
2005 101.542% 2004 101.188%
2006 100.000% 2005 100.000%
2007 maturity 2006 100.000%
2007 maturity
</TABLE>
Both the 9.25% and 9.5% Notes are unsecured obligations of the Company,
guaranteed by all material restricted subsidiaries of the Company, as defined in
the indentures. The subsidiaries which do not guaranty the debt include certain
Casino Magic subsidiaries, principally Casino Magic of Louisiana, Corp. (Casino
Magic Bossier City) and the Casino Magic Argentina subsidiaries. The indentures
governing the 9.25% and 9.5% Notes, as well as the Credit Facility, contain
certain covenants limiting the ability of the Company and its restricted
subsidiaries to incur additional indebtedness, issue preferred stock, pay
dividends or make certain distributions, repurchase equity interests or
subordinated indebtedness, create certain liens, enter into certain transactions
with affiliates, sell assets, issue or sell equity interests in its
subsidiaries, or enter into certain mergers and consolidations.
CASINO MAGIC 13% NOTES In August of 1996 Casino Magic of Louisiana, Corp.
(Casino Magic Bossier City) issued $115,000,000 of 13% First Mortgage Notes due
2003 (the "Casino Magic 13% Notes"), with contingent interest equal to 5% of
Casino Magic Bossier City's adjusted consolidated cash flow (as defined by the
indenture). The Casino Magic 13% Notes are secured by a first priority lien and
security interest in substantially all of the assets of Casino Magic Bossier
City. The Casino Magic 13% Notes are redeemable, at the option of the Company,
in whole or in part, on or after August 15, 2000, at a premium to face amount,
plus accrued interest, as follows: (a) August 15, 2000, at 106.5%; (b) August
15, 2001, at 104.332%; and (c) August 15, 2002 through maturity at 102.166%.
In December of 1998, the Company completed the post Casino Magic Merger change
of control purchase offer whereby $2,125,000 of principal amount of the Casino
Magic 13% Notes was tendered to the Company at a price of 101% of face value.
At December 31, 1999 $2,115,000 of contingent interest was accrued. This entire
amount was paid with the February 15, 2000 scheduled interest payment.
The indenture governing the Casino Magic 13% Notes contains certain covenants
limiting the subsidiaries that own Casino Magic Bossier City from engaging in
lines of business other than the current gaming operations at Bossier City and
incidental related activities, to borrow funds or otherwise become liable for
additional debt, to pay dividends, issue preferred stock, make investments and
certain types of payments, to grant liens on its property, enter into mergers or
consolidations, or to enter into certain specified transactions with affiliates.
HOLLYWOOD PARK-CASINO DEBT OBLIGATION In connection with the disposition of the
Hollywood Park-Casino to Churchill Downs (see Note 3), the Company recorded a
long-term lease finance obligation of $23,000,000. Annual lease payments to
Churchill Downs of $3,000,000 will be applied as principal and interest on the
finance debt. The debt is being amortized over 10 years (the initial lease term
with Churchill Downs).
76
<PAGE>
ANNUAL MATURITIES As of December 31, 1999, annual maturities of secured and
unsecured notes payable are as follows:
Year ending
December 31: (in thousands)
------------ --------------
2000 $6,782
2001 5,338
2002 5,655
2003 116,667
2004 2,329
Thereafter 488,709
---------------
$625,480
===============
NOTE 10 - INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 ACCOUNTING FOR INCOME TAXES, whereby deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases.
The composition of the Company's income tax expense (benefit) for the years
ended December 31, 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
Current Deferred Total
----------------- ---------------- ----------------
(in thousands)
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
U.S. Federal $10,986 $21,963 $32,949
State 2,392 3,137 5,529
Foreign 2,448 0 2,448
---------------- --------------- ---------------
$15,826 $25,100 $40,926
================ =============== ===============
YEAR ENDED DECEMBER 31, 1998:
U.S. Federal $5,793 $97 $5,890
State 2,511 41 2,552
---------------- --------------- ---------------
$8,304 $138 $8,442
================ =============== ===============
YEAR ENDED DECEMBER 31, 1997:
U.S. Federal ($1,616) $6,972 $5,356
State (698) 1,192 494
---------------- --------------- ---------------
($2,314) $8,164 $5,850
================ =============== ===============
</TABLE>
The following table reconciles the Company's income tax expense (based on its
effective tax rate) to the federal statutory tax rate of 35%:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------------------
1999 1998 1997
---------------- ----------------- ---------------
(in thousands)
<S> <C> <C> <C>
Income before income tax expense, at the
statutory rate $29,741 $7,348 $4,935
State income taxes, net of federal tax benefits 5,529 2,552 494
Non-deductible impairment write-down on
Hollywood Park-Casino (see Note 3) 7,157 0 0
Other non-deductible expenses (1,501) (1,458) 421
--------------- ---------------- ---------------
Income tax expense $40,926 $8,442 $5,850
=============== ================ ===============
</TABLE>
77
<PAGE>
At December 31, 1999, and 1998, the tax effects of temporary differences that
gave rise to significant portions of the deferred tax assets and deferred tax
liabilities were:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(in thousands)
<S> <C> <C>
CURRENT DEFERRED TAX ASSETS (LIABILITIES):
Workers' compensation insurance reserve $1,059 $1,029
General liability insurance reserve 1,463 1,430
Write off of investment in Kansas Race Track and
excess loss recapture 0 7,139
Vacation and sick pay accrual 1,584 1,709
Sale of Hollywood Race Track & Casino (22,000) 0
Other (1,648) 7,118
------------ ------------
Net current deferred tax assets (liabilities) ($19,542) $18,425
============ ============
NON-CURRENT DEFERRED TAX ASSETS (LIABILITIES):
Net operating loss carryforwards $24,615 $29,279
Excess tax basis over book value of acquired assets 11,736 11,736
Alternative minimum tax credits 8,395 7,207
Los Angeles revitalization zone tax credits 11,717 11,717
Less valuation allowance (23,490) (23,490)
Depreciation and amortization (30,160) (41,125)
Other (3,639) 4,276
------------ ------------
Net non-current deferred tax liabilities ($826) ($400)
============ ============
</TABLE>
Current income taxes payable of $8,773,000 and $9,935,000 at December 31, 1999
and 1998 respectively are included in other accrued liabilities in the
accompanying consolidated balance sheets.
Prior to 1999 the Company earned a substantial amount of California tax credits
related to the ownership of and operation of the Hollywood Park Race Track and
Hollywood Park-Casino as well as the Crystal Park Card Club Casino, which were
located in the Los Angeles Revitalization Tax Zone (LARZ). At December 31, 1999
the amount subject to carry forward of these unused California tax credits (net
of valuation allowance) was approximately $3,520,000, which can be used to
reduce certain future California tax liabilities. The LARZ credits will expire
between 2007 to 2012.
As of December 31, 1999, the Company had federal net operating loss ("NOL") and
capital loss ("CL") carryforwards of approximately $64,700,000, and $5,600,000,
respectively, comprised principally of NOL carryforwards acquired in the Casino
Magic and Boomtown Mergers, and CL carryforwards resulting from the disposition
of Boomtown's Las Vegas property. The NOL carryforwards expire on various dates
through 2018, and the CL carryforwards expire on various dates through 2002. In
addition, the Company has approximately $400,000 of foreign tax credits related
to Casino Magic Argentina operations, which expire in 2000, and approximately
$8,400,000 of alternative minimum tax credits, which do not expire. The
alternative minimum tax credits can reduce future federal income taxes but
generally cannot reduce federal income taxes paid below the amount of the
alternative minimum tax.
Under several provisions of the Internal Revenue Code (the "Code") and the
regulations promulgated there under, the utilization of NOL, CL and tax credit
carryforwards to reduce tax liability is restricted under certain circumstances.
Events, which cause such a limitation, include, but are not limited to, certain
changes in the ownership of a corporation. Both the Boomtown Merger and the
Casino Magic Merger caused such a change in ownership with respect to Boomtown
and Casino Magic. As a result, the Company's use of approximately $13,800,000
and $50,900,000 of Boomtown and Casino Magic's NOL carryforwards, respectively,
and $3,400,000 and $3,700,000 of Boomtown and Casino Magic's tax credit
carryforwards, respectively, is subject to certain limitations imposed by
Sections 382 and 383 of the Code. These various limitations restrict the amount
of NOL, CL and tax credit carryforwards that may be used by the Company in any
taxable year and, consequently, are expected to defer the Company's use of a
substantial portion of such carryforwards and may ultimately prevent the
Company's use of a portion thereof. Therefore, a valuation allowance has been
recorded related to the Boomtown and Casino Magic carryforwards.
78
<PAGE>
NOTE 11- STOCKHOLDERS' EQUITY
In September 1998, the Company granted 817,500 stock options (625,000 at an
exercise price of $10.1875 and 192,500 at an exercise price of $18.00) outside
of the Company's 1993 and 1996 Stock Option Plans (see Note 15) to four
executives hired on January 1, 1999. Of these grants, 613,125 (420,625 at an
exercise price of $10.1875 and 192,500 at an exercise price of $18.00) were made
subject to shareholder approval, which approval was granted at the shareholder
meeting held May 25, 1999 (the "Measurement Date") at which time the stock price
was $14.13. Accounting Principles Board Opinion No. 25 requires that
compensation be determined as of the Measurement Date based on the excess of the
quoted market price over the exercise price of the stock and charged over the
service period of the executives in their employment agreements or option
vesting period, whichever is shorter. Compensation related to these options for
the year ended December 31, 1999, was $828,000.
In August 1998, the Company announced its intention to repurchase and retire up
to 20% or approximately 5,256,000 shares of its then issued and outstanding
common stock on the open market or in negotiated transactions. As of December
31, 1999 and 1998, the Company had repurchased and retired 500,000 shares at a
total cost of approximately $5,540,000 (with the last purchase being made on
September 28, 1998). At December 31, 1999, under the most restrictive debt
agreement, the Company could spend a maximum of $15,000,000 to buy back its
common stock.
On June 30, 1997, the Company acquired Boomtown and each share of Boomtown
common stock was converted into the right to receive 0.625 of a share of the
Company's common stock. Approximately 5,362,850 net shares of the Company's
common stock were issued in connection with such transaction. In connection with
the Boomtown Merger, the Company purchased and retired 446,491 shares of its
common stock held by a former Boomtown shareholder.
NOTE 12- LEASE OBLIGATIONS
The Company leases certain equipment for use in gaming operations and general
office equipment. Minimum lease payments required under operating leases that
have initial terms in excess of one year as of December 31, 1999 are as follows:
Period (in thousands)
------ --------------
2000 $6,876
2001 5,954
2002 5,584
2003 5,181
2004 4,453
Thereafter 3,743
Total rent expense for these long-term lease obligations for the years ended
December 31, 1999, 1998 and 1997 was $6,481,000, $5,194,000 and $2,453,000,
respectively.
NOTE 13 - EMPLOYEE BENEFIT PLANS
The Company offers a 401(k) Investment Plan (the "401(k) Plan") which is subject
to the provisions of the Employee Retirement Income Security Act of 1994. The
401(k) Plan is available to all employees of the Company (except those covered
by collective bargaining agreements) who have completed a minimum of 500 hours
of service. Employees may contribute up to 18% (up to 15% through June 30, 1999)
of pretax income (subject to the legal limitation of $10,000 for 1999). The
Company offers discretionary matching, and for the years ended December 31,
1999, 1998 and 1997 matching contributions to the 401(k) Plan totaled
$1,437,000, $987,000 and $717,000, respectively.
79
<PAGE>
The Company merged the 401(k) plans of Boomtown and Casino Magic into the
Company's 401(k) Plan on July 1, 1998 and January 1, 1999, respectively.
Prior to the sale of the Hollywood Park Race Track in September of 1999, the
Company contributed to several collectively-bargained multi-employer pension and
retirement plans, which were administered by unions, and to a pension plan
covering non-union employees, administered by an association of race track
owners. Amounts charged to pension cost and contributed to these plans for the
years ended December 31, 1999, 1998 and 1997 totaled $948,000, $1,690,000 and
$1,842,000, respectively. Contributions to the collectively-bargained plans were
determined in accordance with the provisions of negotiated labor contracts and
generally based upon the number of employee hours or days worked. Contributions
to the non-union plans were based on the covered employees' compensation. It is
management's belief that no withdrawal liability existed for these plans at the
time of the sale of the race track.
On January 1, 2000, the Company instituted a nonqualified Executive Deferred
Compensation Plan (the "Deferred Plan") to permit certain key employees to defer
receipt of current compensation in order to provide retirement benefits on
behalf of such employees. The Company will not make matching contributions to
the Deferred Plan. As a nonqualified plan (as defined by the Internal Revenue
Service Code), all deferred compensation remains within the general assets of
the Company and would be subject to claims of general creditors in the unlikely
case of insolvency. The Company has the right to amend, modify or terminate the
Deferred Plan.
NOTE 14 - RELATED PARTY TRANSACTIONS
In June 1998, the Company and R.D. Hubbard Enterprises, Inc. ("Hubbard
Enterprises"), which is wholly owned by Mr. Hubbard, (the Company's Chairman and
Chief Executive Officer) entered into a new Aircraft Time Sharing Agreement. The
former agreement was entered into in November 1993. The June 1998 Aircraft Time
Sharing Agreement is identical to the former agreement in all respects, except
for the type of aircraft covered by the agreement. The Aircraft Time Sharing
Agreement expired on December 31, 1999, and now automatically renews each month
unless written notice of termination is given by either party at least two weeks
before a renewal date. The Company reimburses Hubbard Enterprises for expenses
incurred as a result of the Company's use of the aircraft, which totaled
approximately $176,000 in 1999, $72,000 in 1998 and $106,000 in 1997.
In August 1998, the Company received a promissory note for up to $3,500,000 from
Paul Alanis (effective January 1, 1999, Mr. Alanis became the Company's
President and Chief Operating Officer and in October 1999 became a director). At
December 31, 1998, the Company had loaned Mr. Alanis $3,232,000. Interest on the
promissory note was at the prime interest rate. The principal amount of the
promissory note, along with accrued interest, was paid in full in June 1999.
Timothy J. Parrott (a director and member of the Executive Committee of the
Company's Board of Directors) purchased 270,738 shares of Boomtown common stock
in connection with Boomtown's 1988 acquisition of Boomtown Hotel & Casino, Inc.
(which operates Boomtown Reno). Mr. Parrott paid an aggregate purchase price for
the common stock of $222,000, of which $1,000 was paid in cash and $221,000 was
paid by a promissory note secured by a pledge to Boomtown of all of the shares
owned by Mr. Parrott. As of October 31, 1998, Mr. Parrott resigned his position
as Chairman of Boomtown, and the Company retained him as a consultant to provide
services relating to gaming and other business issues. Mr. Parrott was retained
for a three year period, with an annual retainer of $350,000 with health and
disability benefits equivalent to those he received as Chairman of Boomtown. Mr.
Parrott's $221,000 note will be forgiven in three equal parts on each
anniversary of the consulting agreement.
Marlin Torguson, who beneficially owned approximately 21.5% of the then
outstanding common shares of Casino Magic, agreed, in connection with the Casino
Magic acquisition, to vote his Casino Magic shares in favor of the acquisition
by the Company. In addition, Mr. Torguson agreed to continue to serve as an
employee of Casino Magic for three years following the acquisition, and during
such three year period, not to
80
<PAGE>
compete with the Company or Casino Magic in any jurisdiction in which either the
Company or Casino Magic operates. The Company appointed Mr. Torguson to its
board of directors. The Company issued to Mr. Torguson 60,000 shares of the
Company's common stock as compensation for his three-year service as an
employee, and will pay him $300,000 for each year, during a three-year period,
for his non-compete agreement. In addition, the Company issued Mr. Torguson
30,000 options to acquire the Company's common stock as of the October 15, 1998,
acquisition of Casino Magic, priced at the closing price of the Company's common
stock on that date. The foregoing payments have been and will be made to Mr.
Torguson whether or not the Company or Casino Magic terminates Mr. Torguson's
employment, except for termination for cause.
NOTE 15 - STOCK OPTION PLANS
The Company has two stock option plans that provide for the granting of stock
options to officers and key employees. The objectives of these plans include
attracting and retaining the best personnel, providing for additional
performance incentives, and promoting the success of the Company.
In 1996, the shareholders of the Company adopted the 1996 Stock Option Plan (the
"1996 Plan"), which provides for the issuance of up to 900,000 shares. Except
for the provisions governing the number of shares issuable under the 1996 Plan
and except for provisions which reflect changes in tax and securities laws, the
provisions of the 1996 Plan are substantially similar to the provisions of the
prior plan adopted in 1993. The 1996 Plan is administered and terms of option
grants are established by the Board of Directors' Compensation Committee. Under
the terms of the 1996 Plan, options alone or coupled with stock appreciation
rights may be granted to selected key employees, directors, consultants and
advisors of the Company. Options become exercisable ratably over a vesting
period as determined by the Compensation Committee and expire over terms not
exceeding ten years from the date of grant, one month after termination of
employment, or six months after the death or permanent disability of the
optionee. The purchase price for all shares granted under the 1996 Plan shall be
determined by the Compensation Committee, but in the case of incentive stock
options, the price will not be less than the fair market value of the common
stock at the date of grant. On April 26, 1996, the Company amended the
non-qualified stock option agreements issued through this date, to lower the per
share price of the outstanding options to $10.00.
As of December 31, 1999, the 1996 Stock Option Plan is the only plan with stock
option awards available for grant; all of the 625,000 shares eligible for
issuance under the 1993 Stock Option Plan have been granted. Of the 900,000
shares eligible for issuance under the 1996 Stock Option Plan, 554,449 have been
granted. In addition, 721,077 shares (with a weighted average exercise price of
$9.98 per share) of Pinnacle Entertainment common stock are issuable upon
exercise of options granted under pre-merger stock option plans of Boomtown. Of
such Boomtown stock options, 711,742 (with a weighted average exercise price of
$9.99) are currently vested. In addition, 256,136 shares (with a weighted
average exercise price of $24.57 per share) of Pinnacle Entertainment common
stock are issuable upon exercise of options granted under pre-merger stock
options plans of Casino Magic. Of such Casino Magic stock options, 169,590 (with
a weighted average exercise price of $23.65 per share) are currently vested.
On September 10, 1998, the Company granted 817,500 options (625,000 at an
exercise price of $10.1875, and 192,500 at an exercise price of $18.00) outside
of the 1993 and 1996 Plans to the new executive management team hired as of
January 1, 1999. As of December 31, 1999, none of these options were exercised.
81
<PAGE>
The following table summarizes information related to shares under option and
shares available for grant under the Company's 1993 and 1996 Plans:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of Shares Price
------------- -------------
<S> <C> <C>
Options outstanding at December 31, 1996 622,500 $10.00
Granted 261,000 $14.75
Exercised, expired or forfeited (26,001) $10.00
------------------------------------------------------------------------------------
Options outstanding at December 31, 1997 857,499 $11.50
Granted 219,188 $12.66
Exercised, expired or forfeited (249,866) $10.00
------------------------------------------------------------------------------------
Options outstanding at December 31, 1998 826,821 $12.02
Granted 278,500 $11.73
Exercised, expired or forfeited (253,478) $11.72
------------------------------------------------------------------------------------
Options outstanding at December 31, 1999 851,843 $12.01
====================================================================================
Options exercisable at:
December 31, 1999 474,426 $11.86
December 31, 1998 584,846 $10.00
December 31, 1997 696,813 $10.00
====================================================================================
</TABLE>
The following table summarizes information about stock options under the 1993
and 1996 Plans outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------- ------------------------------
Weighted Weighted
Number of Average Number of Average
Range of Shares at Exercise Shares at Exercise
Exercise Price 12/31/99 Price 12/31/99 Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$8.63 to $10.00 457,633 $ 9.80 271,633 $ 9.94
$10.19 to $14.81 363,210 $ 14.34 197,460 $ 14.34
$16.50 to $18.19 31,000 $ 17.33 5,333 $ 17.31
- ---------------------------------------------------------------------------------------------------------------
$8.63 to $18.19 851,843 $ 12.01 474,426 $ 11.86
===============================================================================================================
</TABLE>
The weighted average remaining contractual life of the outstanding options under
the Company's 1993 and 1996 Plans as of December 31, 1999 is approximately 8.3
years.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company estimated the fair market value of stock options using an
option-pricing model taking into account, as of the date of grant, the exercise
price and expected life of the option, the then current price of the underlying
stock and its expected volatility, expected dividend on the stock, and the
risk-free interest rate for the expected term of the options.
In computing the stock-based compensation, the following assumptions were made:
<TABLE>
<CAPTION>
Risk-Free
Interest Expected Expected
Rate Expected Life Volatility Dividends
------------ ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Options granted in the following periods:
Third quarter 1997 5.0% 3 years 47.8% None
Third quarter 1998 4.5% 10 years 40.1% None
Fourth quarter 1998 4.5% 3 to 10 years 40.1% None
Fourth quarter 1999 4.6% 10 years 47.3% None
</TABLE>
82
<PAGE>
The following sets forth the pro forma financial results related to the
Company's employee stock-based compensation plans, with respect to the options
estimated fair value, based on the Company's stock price at the grant date:
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------------------------
1999 1998 1997
----------------- ---------------- -----------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income before stock-based compensation expense $44,047 $13,169 $8,670
Stock-based compensation expense 1,510 1,905 629
---------------- --------------- ----------------
Pro forma net income $42,537 $11,264 $8,041
================ =============== ================
Dividend requirements on convertible preferred stock $0 $0 $1,520
Pro forma net income attributed to common stockholders $42,537 $11,264 $6,521
================ =============== ================
Net income per common share:
Net income - basic $1.64 $0.43 $0.30
Net income - diluted $1.62 $0.43 $0.29
Number of shares - basic 25,966 26,115 22,010
Number of shares - diluted 26,329 26,115 22,340
</TABLE>
NOTE 16 - COMMITMENTS AND CONTINGENCIES
BELTERRA RESORT AND CASINO The Company plans to spend approximately $200,000,000
($30,635,000 of which has been spent as of December 31, 1999) in total costs
(including land, capitalized interest, pre-opening expenses, organizational
expenses and community grants) on the Belterra Resort and Casino, which will
feature a 15-story, 308-room hotel, a cruising riverboat casino with
approximately 1,800 gaming positions, an 18-hole championship golf course, a
1,500 seat entertainment facility, four restaurants, retail areas and other
amenities. As of December 31, 1999, the Company has contractual commitments of
$113,301,000 for construction contracts executed as of such date.
EMPLOYMENT AND SEVERANCE AGREEMENTS The Company has employment agreements with
five employees (including three officers) which grant these employees the right
to receive their annual salary for up to the balance of the contract period,
plus extension of certain benefits and the immediate vesting of certain stock
options, if the employee terminates the contract for good reason (as defined and
which definition includes a change in control), or if the Company terminates the
employee without cause (as defined). At December 31, 1999, the maximum
contingent liability for salary and incentive compensation under these
agreements was approximately $3,850,000.
In addition, the Company has severance agreements with three employees which
grant the employees the right to receive up to two and one-half times their
annual salary and two and one-half times their incentive compensation, as well
as the extension of certain benefits, if there is a change in control (as
defined). At December 31, 1999, the maximum contingent liability for salary and
incentive compensation under these agreements was approximately $1,574,000.
Eleven employees have the right to receive severance payments if their
employment is terminated. At December 31, 1999, the maximum contingent liability
for these severance payments was approximately $195,000. There are also three
former employees entitled to future compensation under severance agreements. At
December 31, 1999, the contingent liability for such compensation was
approximately $251,000.
The Company also has (i) a consulting agreement until October 31, 2001, with a
former employee (now a director) for which the contingent liability at December
31, 1999 was $788,000, and (ii) a non-compete agreement with a director for
which the contingent liability at December 31, 1999 was $550,000.
LEGAL POULOS LAWSUIT A class action lawsuit was filed on April 26, 1994, in the
United States District Court, Middle District of Florida (the "Poulos Lawsuit"),
naming as defendants 41 manufacturers, distributors and casino operators of
video poker and electronic slot machines, including Casino Magic. The lawsuit
alleges that the defendants have engaged in a course of fraudulent and
misleading conduct intended to induce
83
<PAGE>
people to play such games based on false beliefs concerning the operation of the
gaming machines and the extent to which there is an opportunity to win. The suit
alleges violations of the Racketeer Influenced and Corrupt Organization Act, as
well as claims of common law fraud, unjust enrichment and negligent
misrepresentation, and seeks damages in excess of $6 billion. On May 10, 1994, a
second class action lawsuit was filed in the United States District Court,
Middle District of Florida (the "Ahern Lawsuit"), naming as defendants the same
defendants who were named in the Poulos Lawsuit and adding as defendants the
owners of certain casino operations in Puerto Rico and the Bahamas, who were not
named as defendants in the Poulos Lawsuit. The claims in the Ahern Lawsuit are
identical to the claims in the Poulos Lawsuit. Because of the similarity of
parties and claims, the Poulos Lawsuit and Ahern Lawsuit were consolidated into
one case file in the United States District Court, Middle District of Florida.
On December 9, 1994 a motion by the defendants for change of venue was granted,
transferring the case to the United States District Court for the District of
Nevada, in Las Vegas. In an order dated April 17, 1996, the court granted
motions to dismiss filed by Casino Magic and other defendants and dismissed the
Complaint without prejudice. The plaintiffs then filed an amended Complaint on
May 31, 1996 seeking damages against Casino Magic and other defendants in excess
of $1 billion and punitive damages for violations of the Racketeer Influenced
and Corrupt Organizations Act and for state common law claims for fraud, unjust
enrichment and negligent misrepresentation. Casino Magic and other defendants
have moved to dismiss the amended Complaint. The Company believes that the
claims are without merit and does not expect that the lawsuit will have a
materially adverse effect on the financial condition or results of operations of
the Company.
CASINO AMERICA LITIGATION On or about September 6, 1996, Casino America, Inc.
commenced litigation in the Chancery Court of Harrison County, Mississippi,
Second Judicial District, against Casino Magic, and James Edward Ernst, its then
Chief Executive Officer, seeking injunctive relief and unspecified compensatory
damages in an amount to be proven at trial as well as punitive damages. The
plaintiff claims, among other things, that the defendants (i) breached the terms
of an agreement they had with the plaintiff, (ii) tortiously interfered with
certain of the plaintiff's business relations; and (iii) breached covenants of
good faith and fair dealing they allegedly owed to the plaintiff. On or about
October 8, 1996, the defendants interposed an answer, denying the allegations
contained in the Complaint. On June 26, 1998, defendants filed a motion for
summary judgment. Thereafter, plaintiffs, in July of 1998, filed a motion to
reopen discovery. Both of these motions are pending. On November 30, 1999, the
matter was transferred to the First Judicial District Court for Harrison County,
Mississippi. No trial date has been set. While the Company cannot predict the
outcome of this action, it believes plaintiff's claims are without merit and
intends to vigorously defend this action.
BUS LITIGATION On May 9, 1999, a bus owned and operated by Custom Bus Charters,
Inc. was involved in an accident in New Orleans, Louisiana while en route to
Casino Magic in Bay St. Louis, Mississippi. To date, multiple deaths and
numerous injuries are attributed to this accident and the Company's
subsidiaries, Casino Magic Corp. and / or Mardi Gras Casino Corp., together with
several other defendants, have been named in thirty-eight (38) lawsuits, each
seeking unspecified damages due to the deaths and injuries sustained in this
accident. While the Company cannot predict the outcome of the litigation, the
Company believes Casino Magic is not liable for any damages arising from this
accident and the Company and its insurers intend to vigorously defend these
actions.
SKRMETTA LAWSUIT A suit was filed on August 14, 1998 in the Circuit Court of
Harrison County, Mississippi by the ground lessor of property underlying
Boomtown Biloxi landbased improvements in Biloxi, Mississippi (the "Project").
The lawsuit alleges that the plaintiff agreed to exchange the first two years'
ground rentals for an equity position in the Project based upon defendants'
purported assurances that a hotel would be constructed as a component of the
Project. Plaintiff seeks recovery in excess of $4,000,000 plus punitive
damages. No substantive developments in the matter occurred prior to July 30,
1999 when the court denied the defendants' motions to arbitrate, and to stay,
the matter. Trial of the matter will commence on March 28, 2000. The Company
believes that the claims are without merit and intends to contest the matter
vigorously.
The Company is party to a number of other pending legal proceedings in the
ordinary course of business, though management does not expect that the outcome
of such proceedings, either individually or in the aggregate, will have a
material effect on the Company's financial condition or results of operations.
84
<PAGE>
NOTE 17 - UNAUDITED QUARTERLY INFORMATION; SUPPLEMENTARY FINANCIAL INFORMATION
The following is a summary of unaudited quarterly financial data for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------
Dec. 31, Sept. 30, June 30, Mar. 31,
------------- ------------ ------------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $150,675 $184,655 $199,529 $171,998
(Gain) loss on dispositions of assets, net $78 $(42,139) $0 $0
Pre opening costs $827 $684 $802 $707
Operating income $18,937 $70,246 $33,183 $21,838
Net income $3,971 $26,232 $9,711 $4,133
Net income per common share:
Net income - basic $0.15 $1.01 $0.38 $0.16
Net income - diluted $0.15 $0.98 $0.37 $0.16
<CAPTION>
1998
--------------------------------------------------------------
Dec. 31, Sept. 30, June 30, Mar. 31,
------------- ----------- ------------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $158,218 $87,467 $103,125 $78,157
(Gain) loss on dispositions of assets, net $635 $1,586 $0 $0
Pre opening costs $361 $367 $93 $0
Operating income $18,906 $6,337 $17,602 $1,658
Net income (loss) $4,302 $1,972 $8,129 ($1,234)
Net income (loss) per common share:
Net income (loss) - basic $0.17 $0.08 $0.31 ($0.05)
Net income (loss) - diluted $0.17 $0.08 $0.31 ($0.05)
</TABLE>
(a) No dividends were paid in 1999 or 1998.
(b) Net income per share calculations for each quarter are based on the
weighted average number of shares outstanding during the respective
periods; accordingly, the sum of the quarters may not equal the full year
income per share.
(c) The Company acquired Casino Magic on October 15, 1998, and accounted
for the acquisition under the purchase method of accounting for a business
combination, and therefore, Casino Magic's results of operations are not
included prior to its acquisition date.
(d) Hollywood Park Race Track and Casino were sold on September 10, 1999,
and accordingly, results of operations after that date are excluded.
NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Due to the short term maturity of financial instruments classified as current
assets and liabilities, the fair value approximates the carrying value. It is
not practical to estimate the fair value of long term receivables and long term
debt instruments, other than the 9.25% Notes, 9.5% Notes and the Casino Magic
13% Notes, because there are no quoted market prices for transactions of a
similar nature.
Based on quoted market values at December 31, 1999, the carrying values of the
9.25% Notes and the 9.5% Notes approximate fair value and the carrying value of
$119,800,000 for the Casino Magic 13% Notes is below the fair value by
approximately $3,500,000.
85
<PAGE>
NOTE 19 - CONSOLIDATING CONDENSED FINANCIAL INFORMATION
The Company's subsidiaries (excluding Casino Magic of Louisiana, Corp., Casino
Magic Argentina and certain non-material subsidiaries) have fully and
unconditionally guaranteed the payment of all obligations under the 9.25% Notes
and the 9.5% Notes. Separate financial statements and other disclosures
regarding the subsidiary guarantors are not included herein because management
has determined that such information is not material to investors. In lieu
thereof, the Company includes the following:
<TABLE>
<CAPTION>
Pinnacle Entertainment, Inc.
Consolidating Condensed Financial Information
As of and for the year ended December 31, 1999
(b)
(a) Wholly
Wholly Owned Consolidating Pinnacle
Pinnacle Owned Non- and Entertainment,
Entertainment, Guarantor Guarantor Eliminating Inc.
Inc. Subsidiaries Subsidiaries Entries Consolidated
----------- ------------ ------------ ------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
AS OF AND FOR THE YEAR
ENDED DEC. 31, 1999
BALANCE SHEET
Current assets $ 220,216 $ 188,330 $ 28,928 $ 0 $ 437,474
Property, plant and equipment, net 36,671 311,165 89,879 0 437,715
Other non-current assets 28,369 40,788 44,599 56,463 170,219
Investment in subsidiaries 340,840 86,215 0 (427,055) 0
Inter-company 239,469 173,002 31,493 (443,964) 0
----------- ----------- ----------- ----------- -----------
$ 865,565 $ 799,500 $ 194,899 ($ 814,556) $ 1,045,408
=========== =========== =========== =========== ===========
Current liabilities $ 75,933 $ 52,159 $ 16,916 $ 0 $ 145,008
Notes payable, long term 502,421 3,393 112,884 0 618,698
Other non-current liabilities (7,165) 83 20,114 (12,206) 826
Inter-company 13,500 406,437 24,031 (443,968) 0
Equity 280,876 337,428 20,954 (358,382) 280,876
----------- ----------- ----------- ----------- -----------
$ 865,565 $ 799,500 $ 194,899 ($ 814,556) $ 1,045,408
=========== =========== =========== =========== ===========
STATEMENT OF OPERATIONS
Revenues:
Gaming $ 33,638 $ 368,993 $ 154,895 $ 0 $ 557,526
Racing 39,714 15,495 0 0 55,209
Food and beverage 8,073 27,823 3,921 0 39,817
Equity in subsidiaries 78,679 42,974 0 (121,653) 0
Other 6,661 44,324 3,320 0 54,305
----------- ----------- ----------- ----------- -----------
166,765 499,609 162,136 (121,653) 706,857
----------- ----------- ----------- ----------- -----------
Expenses:
Gaming 18,241 200,594 90,673 0 309,508
Racing 15,843 6,851 0 0 22,694
Food and beverage 11,060 31,237 4,261 0 46,558
Administrative and other 34,124 114,633 25,273 0 174,030
(Gain) loss on disposition of assets (42,828) 767 0 0 (42,061)
Depreciation and amortization 5,295 35,480 9,664 1,485 51,924
----------- ----------- ----------- ----------- -----------
41,735 389,562 129,871 1,485 562,653
----------- ----------- ----------- ----------- -----------
Operating income (loss) 125,030 110,047 32,265 (123,138) 144,204
Interest expense, net 41,030 (1,460) 17,974 0 57,544
----------- ----------- ----------- ----------- -----------
Income (loss) before minority interests and taxes 84,000 111,507 14,291 (123,138) 86,660
Minority interests 0 1,687 0 0 1,687
Income tax expense 38,469 10 2,447 0 40,926
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 45,531 $ 109,810 $ 11,844 ($ 123,138) $ 44,047
=========== =========== =========== =========== ===========
STATEMENT OF CASH FLOWS
Net cash provided by (used in) operating $ 592 $ 56,861 $ 19,632 ($ 1,762) $ 75,323
Net cash provided by (used in) investing 897 (49,100) (2,860) 0 (51,063)
Net cash provided by (used in) financing 66,941 (3,149) (8,924) 0 54,868
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
Pinnacle Entertainment, Inc.
Consolidating Condensed Financial Information
As of and for the year ended December 31, 1998
Hollywood
Park
Pinnacle Operating (b) (c)
Entertainment, Co. (a) Wholly Non Wholly
Inc. (Co-Obligor Wholly Owned Owned Consolidating Pinnacle
Guarantor 9.5% Notes/ Owned Non- Non- And Entertainment,
(Parent Guarantor Guarantor Guarantor Guarantor Eliminating Inc.
Obligor) 9.25% Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------ ------------ ------------ -------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
AS OF AND FOR THE YEAR
ENDED DEC. 31, 1998
BALANCE SHEET
Current assets $ 14,820 $ 2,574 $ 69,790 $ 17,726 $ 15,046 ($ 19,808) $ 100,148
Property, plant and
equipment, net 85,870 1,953 421,380 92,218 1,491 0 602,912
Other non-current assets 41,365 4,196 31,275 53,452 7,591 50,400 188,279
Investment in subsidiaries 279,442 17,839 174,141 0 0 (471,422) 0
Inter-company 252,556 144,569 303,855 0 5,012 (705,992) 0
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 674,053 $ 171,131 $ 1,000,441 $ 163,396 $ 29,140 ($1,146,822) $ 891,339
=========== =========== =========== =========== =========== =========== ===========
Current liabilities $ 11,048 $ 12,547 $ 79,178 $ 29,266 $ 5,604 ($ 9,051) $ 128,592
Notes payable, long term 279,018 125,228 10,042 118,349 0 (5,018) 527,619
Other non-current
liabilities 5,889 0 9,747 2,727 7,532 (25,495) 400
Inter-company 147,122 23,323 564,207 0 21,549 (756,201) 0
Minority interest 0 0 4,366 0 0 (614) 3,752
Equity 230,976 10,033 332,901 13,054 (5,545) (350,443) 230,976
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 674,053 $ 171,131 $ 1,000,441 $ 163,396 $ 29,140 ($1,146,822) $ 891,339
=========== =========== =========== =========== =========== =========== ===========
STATEMENT OF OPERATIONS
Revenues:
Gaming $ 46,255 $ 0 $ 221,029 $ 21,985 $ 3,788 $ 0 $ 293,057
Racing 0 39,618 27,253 0 0 0 66,871
Food and beverage 4,881 0 25,008 381 240 0 30,510
Equity in subsidiaries 20,812 0 3,390 0 0 (24,202) 0
Inter-company 0 0 22,856 0 0 (22,856) 0
Other 3,797 1,983 30,487 214 48 0 36,529
----------- ----------- ----------- ----------- ----------- ----------- -----------
75,745 41,601 330,023 22,580 4,076 (47,058) 426,967
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Gaming 27,167 0 118,813 14,602 967 0 161,549
Racing 0 17,198 12,118 0 0 0 29,316
Food and beverage 9,613 0 28,490 566 191 0 38,860
Administrative and other 19,035 14,254 80,451 3,394 1,263 0 118,397
Loss on write off of
assets 1,586 0 635 0 0 0 2,221
Depreciation and
amortization 4,346 3,985 21,451 1,429 306 604 32,121
----------- ----------- ----------- ----------- ----------- ----------- -----------
61,747 35,437 261,958 19,991 2,727 604 382,464
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) 13,998 6,164 68,065 2,589 1,349 (47,662) 44,503
Interest expense 6,871 12,565 (226) 3,308 0 0 22,518
Inter-company interest 0 0 22,856 0 0 (22,856) 0
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
minority interests and
taxes 7,127 (6,401) 45,435 (719) 1,349 (24,806) 21,985
Minority interests 0 0 0 0 0 374 374
Income tax expense
(benefit) (6,213) 0 14,164 0 491 0 8,442
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 13,340 ($ 6,401) $ 31,271 ($ 719) $ 858 ($ 25,180) $ 13,169
=========== =========== =========== =========== =========== =========== ===========
STATEMENT OF CASH FLOWS
Net cash provided by
(used in) operating
activities ($ 153,372) $ 1,965 $ 203,874 $ 7,042 $ 1,055 ($ 22,452) $ 38,112
Net cash provided by
(used in) investing
activities (89,208) (2,132) (57,942) (5,844) (72) 18,666 (136,532)
Net cash provided by
(used in) financing
activities 261,682 (27) (140,773) 0 0 (2,384) 118,498
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
Pinnacle Entertainment, Inc.
Consolidating Condensed Financial Information
As of and for the year ended December 31, 1997
Hollywood
Park
Pinnacle Operating (b) (c)
Entertainment, Co. (a) Wholly Non Wholly
Inc. (Co-Obligor Wholly Owned Owned Consolidating Pinnacle
Guarantor 9.5% Notes/ Owned Non- Non- and Entertainment,
(Parent Guarantor Guarantor Guarantor Guarantor Eliminating Inc.
Obligor) 9.25% Notes) Subsidiaries Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------- ------------ ------------ ------- ------------
(in thousands)
AS OF AND FOR THE YEAR
ENDED DEC. 31, 1997
BALANCE SHEET
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets $19,844 $8,568 $25,074 $6,720 $0 $0 $60,206
Property, plant and
equipment, net 68,515 23,753 140,105 68,293 0 0 300,666
Other non-current assets 22,306 0 29,320 7,611 0 (1,080) 58,157
Investment in subsidiaries 126,121 15,132 116,020 0 0 (257,273) 0
Inter-company 125,210 148,380 122,035 0 0 (395,625) 0
-------- -------- -------- ------- - ---------- --------
$361,996 $195,833 $432,554 $82,624 $0 ($653,978) $419,029
======== ======== ======== ======= == ========== ========
Current liabilities $16,890 $14,232 $19,583 $6,612 $0 $0 $57,317
Notes payable, long term 2,406 125,256 1,936 2,504 0 0 132,102
Other non-current liabilities 4,753 5,202 83 0 0 (3,728) 6,310
Inter-company 146,145 21,589 178,448 49,443 0 (395,625) 0
Minority interest 0 0 0 0 0 1,946 1,946
Equity 191,802 29,554 232,504 24,065 0 (256,571) 221,354
-------- -------- -------- ------- - ---------- --------
$361,996 $195,833 $432,554 $82,624 $0 ($653,978) $419,029
======== ======== ======== ======= == ========== ========
STATEMENT OF OPERATIONS
Revenues:
Gaming $50,820 $0 $58,622 $28,217 $0 $0 $137,659
Racing 0 39,930 28,914 0 0 0 68,844
Food and beverage 4,659 0 13,483 1,752 0 0 19,894
Equity in subsidiaries 13,963 3,735 (43) 0 0 (17,655) 0
Inter-company 0 0 4,823 0 0 (4,823) 0
Other 4,601 1,808 13,789 1,533 0 0 21,731
-------- -------- -------- ------- - ---------- --------
74,043 45,473 119,588 31,502 0 (22,478) 248,128
-------- -------- -------- ------- - ---------- --------
Expenses:
Gaming 28,353 0 32,370 14,010 0 0 74,733
Racing 0 17,822 12,482 0 0 0 30,304
Food and beverage 9,658 0 13,784 2,303 0 0 25,745
Administrative and other 18,282 14,536 33,277 8,792 0 0 74,887
REIT restructuring 2,483 0 0 0 0 0 2,483
Depreciation and
amortization 4,632 3,804 6,229 3,459 0 33 18,157
-------- -------- -------- ------- - ---------- --------
63,408 36,162 98,142 28,564 0 33 226,309
-------- -------- -------- ------- - ---------- --------
Operating income (loss) 10,635 9,311 21,446 2,938 0 (22,511) 21,819
Interest expense 1,789 5,368 (37) 182 0 0 7,302
Inter-company interest 0 0 2,244 2,579 0 (4,823) 0
-------- -------- -------- ------- - ---------- --------
Income (loss) before
minority interests and
taxes 8,846 3,943 19,239 177 0 (17,688) 14,517
Minority interests 0 0 0 0 0 (3) (3)
Income tax expense 4,124 0 1,726 0 0 0 5,850
-------- -------- -------- ------- - ---------- --------
Net income (loss) $4,722 $3,943 $17,513 $177 $0 ($17,685) $8,670
======== ======== ======== ======= == ========== ========
STATEMENT OF CASH FLOWS
Net cash provided by
(used in) operating
activities $19,559 ($122,039) $129,260 $5,250 $0 ($17,665) $14,365
Net cash provided by
(used in) investing
activities 14,747 (3,139) (23,516) (4,328) 0 10 (16,226)
Net cash provided by
(used in) financing
activities 475 124,975 (114,345) (2,373) 0 877 9,609
</TABLE>
88
<PAGE>
- -----
(a) All of the subsidiaries mentioned in this footnote (a) became wholly owned
subsidiaries of the Company at different points in time, in some cases,
during the periods presented. All of such subsidiaries were guarantors on
both the 9.5% Notes and the 9.25% Notes. The following subsidiaries were
treated as guarantors for all periods presented: Turf Paradise, Inc.,
Hollywood Park Food Services, Inc. (through September 10, 1999), Hollywood
Park Fall Operating Company (through September 10, 1999) and, with respect
to the 9.25% Notes, Hollywood Park Operating Company (through September 10,
1999) (it was a co-obligor on the 9.5% Notes through September 10, 1999).
The following subsidiaries were treated as guarantors for periods beginning
on June 30, 1997, when the Boomtown Merger was consummated: Boomtown, Inc.,
Boomtown Hotel & Casino, Inc., Bay View Yacht Club, Inc., Louisiana - I
Gaming, Louisiana Gaming Enterprises, Inc., and Boomtown Hoosier, Inc. The
following subsidiaries were treated as guarantors for periods beginning on
October 15, 1998, when the Casino Magic Merger was consummated: Casino
Magic Corp., Mardi Gras Casino Corp., Biloxi Casino Corp., Bay St. Louis
Casino Corp., Casino Magic Finance Corp., Casino Magic American Corp., and
Casino One Corporation. HP Casino, Inc., HP Yakama, Inc., and HP
Consulting, Inc., were treated as guarantors beginning in 1997 when these
subsidiaries began operations. HP/Compton, Inc. was treated as a guarantor
beginning in October 1996 when this subsidiary began operations. Crystal
Park Hotel and Casino Development Company, LLC and Mississippi - I Gaming
L.P. were treated as wholly owned guarantors for periods beginning in
January 1998 and October 1998, respectively, when the Company acquired the
outstanding minority interests therein and they became wholly owned
subsidiaries.
(b) The following wholly owned subsidiaries were not guarantors on either the
9.5% Notes or the 9.25% Notes and became subsidiaries of the Company on
October 15, 1998, when the Casino Magic Merger was consummated: Jefferson
Casino Corporation, Casino Magic of Louisiana, Corp., and Casino Magic
Management Services, Corp. In October 1999, Casino Magic Neuquen S.A. and
its subsidiary Casino Magic Support Services, became wholly owned
subsidiaries of the Company but remain non-guarantors of the 9.5% Notes and
9.25% Notes.
(c) The following non-wholly owned subsidiaries were not guarantors on either
the 9.5% notes or the 9.25% Notes and became subsidiaries of the Company on
October 15, 1998, when the Casino Magic Merger was consummated: Casino
Magic Neuquen S.A. and its subsidiary, Casino Magic Support Services S.A.
NOTE 20 - SUBSEQUENT EVENTS
On March 8, 2000, the Company announced it had received a proposal pursuant to
which Harveys Casino Resorts ("Harveys") would acquire all of the outstanding
shares of common stock of Pinnacle Entertainment for cash at $25 per fully
diluted share (the "Acquisition Proposal"). The Acquisition Proposal is subject
to, among other things, the execution of a definitive agreement containing the
customary terms and conditions, including regulatory approval, the agreement of
Pinnacle Entertainment's senior management to retain an equity interest in the
combined company and the approval of a majority of Pinnacle Entertainment's
shareholders. The Company's Board of Directors, excluding management members,
agreed to evaluate the Acquisition Proposal and to negotiate on an exclusive
basis through the end of March 2000. Harveys Casino Resorts is majority owned by
Colony Capital, Inc., a private investment firm.
On March 14, 2000, Harbor Finance Partners filed a class action lawsuit in the
Chancery Court of the State of Delaware against the Company, and each of its
directors, claiming that the defendants have breached their fiduciary duty to
the stockholders of the Company by agreeing to negotiate exclusively with
Harveys Resorts Casinos, a majority owned company of Colony Capital, Inc. (see
Acquisition Proposal discussion above). On March 21, 2000, a similar class
action lawsuit was filed by Leta Hilliard in the Superior Court of the State of
California. The lawsuits claim that the Company and its directors have failed to
undertake an appropriate evaluation of the Company's worth and engage in an
auction of the Company with third parties, and that the price for the stock is
inadequate. The Company intends to vigorously defend these actions and believes
no basis exists for the plaintiffs' claims.
On March 17, 2000, the Company completed the sale of approximately 42 acres of
the 139 acres retained in the Churchill Downs transaction for $24,200,000 in
cash (see Note 4). The Company anticipates an after tax gain of approximately
$13,800,000 from this sale.
89
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR BAD DEBTS: (IN THOUSANDS)
--------------
Balance as of December 31, 1996 ($1,089)
Add Boomtown balance as of June 30, 1997 (a) (225)
Charges to expense (189)
Write offs 754
----------
Balance as of December 31, 1997 (749)
Add Casino Magic balance as of October 15, 1998 (b) (1,442)
Charges to expense (1,280)
Write offs 1,070
---------
Balance as of December 31, 1998 (2,401)
Charges to expense (2,456)
Write offs 2,993
---------
Balance as of December 31, 1999 ($1,864)
=========
-----
(a) The Company acquired Boomtown as of June 30, 1997.
(b) The Company acquired Casino Magic as of October 15, 1998.
90
<PAGE>
Pinnacle Entertainment, Inc.
Selected Financial Data by Property
<TABLE>
<CAPTION>
For the three months ended, For the year
-------------------------------------------------------- ended
December 31, September 30, June 30, March 31, December 31,
1999 1999 1999 1999 1999
------------ ------------ ------------ ----------- ------------
(unaudited) (audited)
--------------------------------------------------------
(in thousands, except per share total)
<S> <C> <C> <C> <C> <C>
Revenues:
Boomtown Reno $19,390 $25,558 $21,356 $14,142 $80,446
Boomtown New Orleans 24,588 28,548 27,167 25,721 106,024
Boomtown Biloxi 16,426 16,722 16,894 17,799 67,841
Casino Magic Bay St. Louis 20,415 22,798 22,719 22,963 88,895
Casino Magic Biloxi 21,293 24,280 23,067 24,631 93,271
Casino Magic Bossier City 35,085 36,064 35,139 33,852 140,140
Casino Magic Argentina 5,055 5,963 5,651 5,327 21,996
Hollywood Park Race Track 0 11,412 28,747 5,465 45,624
Turf Paradise, Inc. 5,945 1,414 3,499 6,786 17,644
Hollywood Park, Inc. - Casino Division 1,500 11,596 14,990 14,025 42,111
Crystal Park and HP Yokoma, Inc. 859 300 300 589 2,048
Hollywood Park, Inc. - Corporate 119 0 0 698 817
--------- --------- --------- --------- ---------
150,675 184,655 199,529 171,998 706,857
--------- --------- --------- --------- ---------
Expenses:
Boomtown Reno 16,417 18,781 16,818 13,198 65,214
Boomtown New Orleans 17,549 19,301 18,471 17,269 72,590
Boomtown Biloxi 13,241 13,533 13,685 14,086 54,545
Casino Magic Bay St. Louis 16,080 17,120 16,954 16,753 66,907
Casino Magic Biloxi 17,738 17,894 18,020 17,587 71,239
Casino Magic Bossier City 27,202 27,760 26,609 25,477 107,048
Casino Magic Argentina 3,261 3,409 3,334 3,155 13,159
Hollywood Park Race Track 0 9,118 16,043 7,184 32,345
Turf Paradise, Inc. 4,005 1,812 2,618 4,205 12,640
Hollywood Park, Inc. - Casino Division 0 10,086 12,273 11,839 34,198
Crystal Park and HP Yokoma, Inc. 148 (87) 669 26 756
Hollywood Park, Inc. - Corporate 3,617 3,990 6,215 5,307 19,129
--------- --------- --------- --------- ---------
119,258 142,717 151,709 136,086 549,770
--------- --------- --------- --------- ---------
Non-recurring income (expenses):
Gain (loss) on disposition of assets, net (78) 42,139 0 0 42,061
Pre-opening costs, Bellerra Resort and Casino (827) (684) (802) (707) (3,020)
Depreciation and amortization:
Boomtown Reno 1,343 1,840 1,858 1,659 6,700
Boomtown New Orleans 1,350 1,465 1,434 1,425 5,674
Boomtown Biloxi 860 973 1,020 993 3,846
Casino Magic Bay St. Louis 1,557 1,483 1,471 1,438 5,949
Casino Magic Biloxi 1,820 1,766 1,747 1,739 7,072
Casino Magic Bossier City 2,071 2,049 2,065 1,889 8,074
Casino Magic Argentina 415 408 395 372 1,590
Hollywood Park Race Track 0 739 1,086 1,090 2,915
Turf Paradise, Inc. 290 292 302 295 1,179
Hollywood Park, Inc. - Casino Division 630 559 671 665 2,525
Crystal Park and HP Yokoma, Inc. 404 484 485 485 1,858
Hollywood Park, Inc. - Corporate 835 1,089 1,301 1,317 4,542
--------- --------- --------- --------- ---------
11,575 13,147 13,835 13,367 51,924
--------- --------- --------- --------- ---------
Operating income (loss):
Boomtown Reno 1,630 4,937 2,680 (715) 8,532
Boomtown New Orleans 5,689 7,782 7,262 7,027 27,760
Boomtown Biloxi 2,325 2,216 2,189 2,720 9,450
Casino Magic Bay St. Louis 2,778 4,195 4,294 4,772 16,039
Casino Magic Biloxi 1,735 4,620 3,300 5,305 14,960
Casino Magic Bossier City 5,812 6,255 6,465 6,486 25,018
Casino Magic Argentina 1,379 2,146 1,922 1,800 7,247
Hollywood Park Race Track 0 1,555 11,618 (2,809) 10,364
Turf Paradise, Inc. 1,650 (690) 579 2,286 3,825
Hollywood Park, Inc. - Casino Division 870 951 2,046 1,521 5,388
Crystal Park and HP Yokoma, Inc. 307 (97) (854) 78 (566)
Hollywood Park, Inc. - Corporate (4,333) (5,079) (7,516) (5,926) (22,854)
Gain (loss) on disposition of assets, net (78) 42,139 0 0 42,061
Pre-opening costs, Bellerra Resort and Casino (827) (684) (802) (707) (3,020)
--------- --------- --------- --------- ---------
18,937 70,246 33,183 21,838 144,204
--------- --------- --------- --------- ---------
Interest expense, net 12,732 14,759 15,562 14,491 57,544
--------- --------- --------- --------- ---------
Income before minority interests and income taxes 6,205 55,487 17,621 7,347 86,660
Minority interests 0 550 679 458 1,687
Income tax expense 2,234 28,705 7,231 2,756 40,926
--------- --------- --------- --------- ---------
Net income $3,971 $26,232 $9,711 $4,133 $44,047
========= ========= ========= ========= =========
Per common share:
Net income - basic $0.15 $1.01 $0.33 $0.10 $1.70
Net income - diluted $0.15 $0.98 $0.37 $0.16 $1.67
Number of shares - basic 26,145 26,045 25,871 25,800 25,966
Number of shares - diluted 26,999 26,860 26,129 25,800 26,329
</TABLE>
91
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
PINNACLE ENTERTAINMENT, INC.
---------------------------
A DELAWARE CORPORATION
INTO
HOLLYWOOD PARK, INC.
-------------------
A DELAWARE CORPORATION
(Pursuant to Section 253 of the
Delaware General Corporation Law)
Hollywood Park, Inc., a corporation organized and existing under the
laws of the state of Delaware (the "CORPORATION"), does hereby certify that:
FIRST: The Corporation was incorporated on October 26, 1981,
pursuant to the Delaware General Corporation Law.
SECOND: The Corporation owns all of the outstanding shares of
each class of stock of Pinnacle Entertainment, Inc., a Delaware
corporation incorporated on February 3, 2000, pursuant to the Delaware
General Corporation Law.
THIRD: The Corporation, by the adoption of the following
resolutions of the Executive Committee of its Board of Directors duly
adopted by Unanimous Written Consent as of February 3, 2000, determined
to merge into itself said Pinnacle Entertainment, Inc., with the
Corporation being the surviving corporation, pursuant to the provisions
of Section 253 of the Delaware General Corporation Law:
RESOLVED, that Pinnacle Entertainment, Inc., a
Delaware corporation and wholly-owned subsidiary of the
Corporation, be merged with and into the Corporation, with the
Corporation being the surviving corporation (the "MERGER"),
pursuant to the provisions of Section 253 of the Delaware
General Corporation Law;
RESOLVED FURTHER, that the Merger be, and it hereby
is, authorized and approved;
RESOLVED FURTHER, that the Merger shall become
effective upon the effectiveness of the filing of a
Certificate of Ownership and Merger with the Secretary of
<PAGE>
State of the State of Delaware in accordance with the Delaware
General Corporation Law (the "EFFECTIVE DATE") and upon the
Effective Date, the separate existence and corporate
organization of Pinnacle Entertainment, Inc. shall cease and
the Corporation shall thereupon become the surviving
corporation and shall continue its existence under Delaware
law;
RESOLVED FURTHER, that upon the Effective Date, the
Corporation shall assume all of the obligations and
liabilities of Pinnacle Entertainment, Inc.;
RESOLVED FURTHER, that upon the Effective Date, the
name of the Corporation shall be changed to Pinnacle
Entertainment, Inc. and ARTICLE I of the Certificate of
Incorporation of the Corporation, as heretofore amended, shall
be amended to read as follows:
"ARTICLE I
The name of this corporation is Pinnacle
Entertainment, Inc."
RESOLVED FURTHER, that, except for the foregoing
amendment to ARTICLE I, the Certificate of Incorporation, as
previously amended, shall remain unchanged by the Merger and
in full force and effect until further amended in accordance
with the Delaware General Corporation Law;
RESOLVED FURTHER, that the issued and outstanding
shares of stock of Pinnacle Entertainment, Inc. shall not be
converted in any manner, but each said share of stock which is
issued as of the Effective Date shall be surrendered and
cancelled;
RESOLVED FURTHER, that the officers of the
Corporation be, and each of them acting alone hereby is,
authorized, empowered and directed for and on behalf of the
Corporation and in its name to prepare, or cause to be
prepared, and execute a Certificate of Ownership and Merger
setting forth a copy of the resolutions to so merge Pinnacle
Entertainment, Inc. into the Corporation and to assume its
obligations, and to so change the name of the Corporation, and
the date of adoption thereof, and to cause the same to be
filed with the Secretary of State of the State of Delaware and
to do all such other acts and things whatsoever, whether
within or
-2-
<PAGE>
without the State of Delaware, which may be necessary or
proper to effect the Merger and change of name; and
RESOLVED FURTHER, that the officers of the
Corporation be, and each of them acting alone hereby is,
authorized, empowered and directed for and on behalf of the
Corporation and in its name to execute any and all written
consents as the sole stockholder of Pinnacle Entertainment,
Inc. as such officers, or any of them, may deem necessary,
advisable or appropriate to effect the Merger and change of
name.
FOURTH: The Certificate of Ownership and Merger shall be filed
with the Secretary of State of the State of Delaware so as to become
effective on February 23, 2000 at 6:00 a.m. Eastern Standard Time.
-3-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by its duly authorized officer this 3rd day of February, 2000.
HOLLYWOOD PARK, INC.
By: /s/ BRUCE C. HINCKLEY
---------------------------------
Bruce C. Hinckley, Vice President
-4-
<PAGE>
EXHIBIT 10.48
================================================================================
THIS DOCUMENT IS PROVIDED TO ASSIST YOUR LEGAL COUNSEL IN DOCUMENTING YOUR
SPECIFIC ARRANGEMENT. IT IS NOT A FORM TO BE SIGNED, NOR IS IT TO BE CONSTRUED
AS LEGAL ADVICE. FAILURE TO ACCURATELY DOCUMENT YOUR ARRANGEMENT COULD RESULT IN
SIGNIFICANT LOSSES, WHETHER FROM CLAIMS OF THOSE PARTICIPATING IN THE
ARRANGEMENT, FROM THE HEIRS AND BENEFICIARIES OF PARTICIPANTS, OR FROM
REGULATORY AGENCIES SUCH AS THE INTERNAL REVENUE SERVICE AND THE DEPARTMENT OF
LABOR. LICENSE IS HEREBY GRANTED TO YOUR LEGAL COUNSEL TO USE THESE MATERIALS IN
DOCUMENTING SOLELY YOUR ARRANGEMENT.
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HOLLYWOOD PARK, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 2000
PURPOSE
This Plan is maintained for the purpose of providing Participants an
opportunity to defer compensation that would otherwise be currently payable to
such Participants. This Plan is intended to be an unfunded plan maintained
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees within the meaning of Title I of
the Employee Retirement Income Security Act of 1974, as amended.
ARTICLE 1
DEFINITIONS
For purposes of this Plan, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the meanings indicated:
1.1 "Account Balance" shall mean as of any given date called for under
the Plan the balance of the Participant's Deferral Contribution Account.
1.2 "Base Annual Salary" shall mean the base annual compensation
payable to a Participant by an Employer for services rendered during a Plan
Year, (i) excluding Bonus, director fees or other additional incentives or
awards payable to the Participant, but (ii) before reduction for any Elective
Deductions.
1.3 "Beneficiary" shall mean one or more persons, trusts, estates or
other entities, designated by the Participant in accordance with Article 11, to
receive the Participant's undistributed Account Balance, in the event of the
Participant's death.
1.4 "Beneficiary Designation Form" shall mean the document which shall
be used by the Participant to designate his Beneficiary for the Plan.
1.5 "Benefit Distribution Date" shall mean the date distribution of the
Participant's Account Balance is triggered and it shall be deemed to occur as of
the date on
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which the Participant's employment terminates for any reason whatsoever,
including but not limited to death, Disability or any other reason.
Notwithstanding the language of the prior sentence, if the Participant's
employment terminates due to his Retirement, his Benefit Distribution Date shall
be deemed to occur as of the January 1 following such Participant's Retirement.
In the event the Benefit Distribution Date is triggered due to: (i) a
Termination of Employment as such term is defined in Section 1.36, the
Participant's Account Balance shall be payable pursuant to Article 6; (ii) a
Retirement as such term is defined in Section 1.31, the Participant's Account
Balance shall be payable pursuant to Article 7; (iii) a pre-retirement death,
the Participant's Account Balance shall be payable pursuant to Article 8; and
(iv) a Disability as such term is defined in Section 1.16, the Participant's
Account Balance shall be payable pursuant to Article 9.
1.6 "Board" shall mean the board of directors of the Employer.
1.7 "Bonus" shall mean the amounts earned by a Participant for services
rendered during a Plan Year under any bonus or incentive plan or arrangement
sponsored by an Employer, before reduction for any Elective Deductions, but
excluding commissions, stock-related awards and other non-monetary incentives.
1.8 "Change in Control" shall mean the earliest to occur of the
following events:
(a) the consummation of any transaction or series of transactions
as a result of which any "Person" (as the term person is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) other than an "Excluded Person" (as hereinafter defined) has or
obtains ownership or control, directly or indirectly, of fifty percent (50%) or
more of the combined voting power of all securities of the Employer or any
successor or surviving corporation of any merger, consolidation or
reorganization involving the Employer (the "Voting Securities"). The term
"Excluded Person" means any one or more of the following: (i) the Employer or
any majority-owned subsidiary of the Employer, (ii) an employee benefit plan (or
a trust forming a part thereof) maintained by (A) the Employer or (B) any
majority-owned subsidiary of the Employer, (iii) any Person who as of the
initial effective date of this Plan owned or controlled, directly or indirectly,
ten percent (10%) or more of the then outstanding Voting Securities, or any
individual, entity or group that was part of such a Person;
(b) A merger, consolidation or reorganization involving the
Employer as a result of which the holders of Voting Securities immediately
before such merger, consolidation or reorganization do not immediately following
such merger, consolidation or reorganization own or control, directly or
indirectly, at least fifty percent (50%) of the Voting Securities in
substantially the same proportion as their ownership or control of the Voting
Securities immediately before such merger, consolidation or reorganization;
provided, however, that no such merger, consolidation or reorganization shall
constitute a Change of Control if Persons who were Excluded Persons immediately
before such merger, consolidation or reorganization own or control, directly or
indirectly, at least fifty percent (50%) of the Voting Securities after such
merger, consolidation or reorganization; or
(c) The individuals who, as of the date hereof, are members of the
Board of Directors of the Employer (the "Existing Directors"), cease, for any
reason, to constitute
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more than 50% of the number of authorized directors of the Employer as
determined in the manner prescribed in the Employer's Certificate of
Incorporation and Bylaws, provided, however ,that if the election, or nomination
for election, by the Employer's stockholders of any new director was approved by
a vote of at least 50% of the Existing Directors, such new director will be
considered an Existing Director; provided further however , that no individual
will be considered an Existing Director if such individual initially assumed
office as a result of either an actual or threatened "Election Contest' (as
described in Rule 14a-II promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies by or on behalf of anyone other than the
Board (a "Proxy Contest"), including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest.
(d) The sale or other disposition of all or substantially all of
the assets of the Employer to any Person (other than a transfer to a
majority-owned subsidiary of the Employer, to Excluded Persons, or to any Person
majority-owned or controlled by Excluded Persons) in a single transaction or in
a series of related transactions.
1.9 "Claimant" shall mean the person or persons described in Section
15.1 who apply for benefits or amounts that may be payable under the Plan.
1.10 "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the regulations and other authority issued thereunder by the appropriate
governmental authority. References to the Code shall include references to any
successor section or provision of the Code.
1.11 "Committee" shall mean the committee described in Article 13 which
shall administer the Plan.
1.12 "Contributions" shall collectively refer to any and all Deferrals
as such terms have been defined herein.
1.13 "Deferral Contribution" shall mean the aggregate amount of Base
Annual Salary or Bonus deferred by a Participant during a given Plan Year in
accordance with the terms of the Plan and the Participant's Election Form and
"credited" to the Participant's Deferral Contribution Account. Deferral
Contributions shall be deemed to be made to the Plan by the Participant on the
date the Participant would have received such compensation had it not been
deferred pursuant to the Plan.
1.14 "Deferral Contribution Account" shall mean a Participant's
aggregate Deferral Contributions, as well as any appreciation (or depreciation)
specifically attributable to such Deferral Contributions due to Investment
Adjustments, reduced to reflect all prior distributions and withdrawals. The
Deferral Contribution Account shall be utilized solely as a device for the
measurement of amounts to be paid to the Participant under the Plan. The
Deferral Contribution Account shall not constitute or be treated as an escrow,
trust fund, or any other type of funded account for Code or ERISA purposes and,
moreover, contingent amounts credited thereto shall not be considered "plan
assets" for ERISA purposes. The Deferral Contribution Account merely provides a
record of the bookkeeping entries relating to the contingent benefits that the
Employer intends to provide Participant and shall thus reflect a mere unsecured
promise to pay such amounts in the future.
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1.15 "Disability" shall mean a period of disability during which a
Participant qualifies for total permanent disability benefits under his
Employer's long-term disability plan, or, if a Participant does not participate
in such a plan, a period of disability during which the Participant would have
qualified for total permanent disability benefits had the Participant been a
participant in such a plan, as determined in the sole discretion of the
Committee. If the Participant's Employer does not sponsor such a plan, or
discontinues sponsorship of such a plan, Disability shall be determined by the
Committee in its sole discretion.
1.16 "Disability Benefit" shall mean the benefit set forth in Article
9.
1.17 "Election Form" shall mean the document required by the Committee
to be submitted by a Participant, on a timely basis, which specifies (i) the
amount of Base Annual Salary and/or Bonus the Participant has elected to defer
with respect to a given Plan Year and (ii) the portion (if any) of Deferral
Contributions which shall be distributable upon an Interim Distribution Date
rather than the Benefit Distribution Date. For all Plan Years (excluding any
partial Plan Year in which the Plan is implemented), the Election Form must be
submitted at least thirty (30) days prior to January 1, the effective date of
the Election Form, in order to be deemed timely. An Election Form shall only be
effective with respect to Base Annual Salary and/or Bonus which shall be earned
after the effective date of the Election Form. In the event a Participant fails
to submit an Election Form with respect to a Plan Year or fails to submit such
form on a timely basis, Participant shall not make Deferral Contributions during
the Plan Year nor be entitled to Matching Contributions or Discretionary
Contributions attributable to the Plan Year.
1.18 "Elective Deductions" shall mean those deductions from a
Participant's Base Annual Salary or Bonus for amounts voluntarily deferred or
contributed by the Participant pursuant to any qualified or non-qualified
deferred compensation plan, including, without limitation, amounts deferred
pursuant to Code Section 125, 402(e)(3) and 402(h), provided, however, that all
such amounts would have been payable to the Participant in cash had there been
no such deferral.
1.19 "Employer" or "Employers" shall mean Hollywood Park, Inc., a
Delaware corporation, and any of its adopting subsidiaries (now in existence or
hereafter formed or acquired) and any successor entity.
1.20 "Enrollment Forms" shall mean the Participation Agreement, the
initial Election Form, the Retirement Benefit Distribution Form and any other
forms or documents which may be required of a Participant by the Committee, in
its sole discretion, prior to and as a condition of participating in the Plan.
1.21 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the regulations and other authority issued thereunder by
the appropriate governmental authority. References herein to any section of
ERISA shall include references to any successor section or provision of ERISA.
1.22 "Financial Emergency" shall mean an unanticipated emergency and
severe financial hardship to the Participant resulting from a sudden and
unexpected illness or
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accident of the Participant or a dependent of the Participant, a loss of the
Participant's property due to casualty, or such other extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of
the Participant. The circumstances that will constitute an unforeseeable
emergency will be determined by the Committee in its sole discretion and will
depend upon the facts of each case, however, a Financial Emergency shall not be
deemed to exist to the extent that such hardship is or may be relieved
(i) through reimbursement or compensation by insurance or
otherwise,
(ii) by liquidation or the Participant's assets, to the
extent the liquidation of such assets would not itself cause severe financial
hardship, or
(iii) by cessation of Deferral Contributions under the
Plan.
By way of example, the need to send a Participant's child to college or
the desire to purchase a home would not be considered a Financial Emergency. As
a further example, a Financial Emergency that may be relieved by cessation of
Deferral Contributions will be considered to be a Financial Emergency until such
time as it is relieved by cessation of Deferral Contributions or by other means.
1.23 "Hypothetical Investment" shall mean an investment fund or
benchmark made available to Participants by the Committee for purposes of
valuing amounts contributed to the Plan.
1.24 "Interim Distribution Date" shall mean the first day of any
calendar year, selected by the Participant, upon which the designated portion of
Deferral (as well as any appreciation or depreciation of such amounts due to
Investment Adjustments) attributable to a given Plan Year shall be distributed
in a lump sum payment. Notwithstanding the prior sentence, in no event shall a
Participant be permitted to select a date which is less than three (3) years
from the end of the Plan Year to which the Election Form relates.
1.25 "Investment Adjustment(s)" shall mean any appreciation credited to
(as income or gains) or depreciation deducted from (as losses) a Participant's
Deferral Contribution Account in accordance with such Participant's selection of
Hypothetical Investments in the manner determined by the Committee.
1.26 "Investment Allocation Form" (i) shall apply with respect to those
Deferral Contributions made to the Plan after the effective date of the
Investment Allocation Form but prior to the timely filing of a subsequent
Investment Allocation Form and (ii) shall determine the manner in which such
Deferral Contributions shall be initially allocated by the Participant among the
various Hypothetical Investments within the Plan. A Participant may make changes
to his or her investment allocation choices in accordance with the guidelines,
timetable and manner set forth by the Committee.
1.27 "Participant" shall mean any employee (i) who is selected to
participate in the Plan in accordance with Section 2.1, (ii) who elects to
participate in the Plan, (iii) who signs the applicable Enrollment Forms (and
other forms required by the Committee) on a timely basis, and (iv) whose signed
Enrollment Forms (and other required forms) are accepted by the Committee.
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1.28 "Participation Agreement" shall mean the separate written
agreement entered into by and between the Employer and the Participant, which
shall indicate the Participant's intent to defer compensation subject to the
terms of the Plan and the Participation Agreement itself.
1.29 "Plan" shall mean the Hollywood Park, Inc. Executive Deferred
Compensation Plan, which shall be evidenced by this instrument, each
Participation Agreement and by each Enrollment Form, as they may be amended from
time to time.
1.30 "Plan Year" shall mean the initial period beginning on January 1,
2000 and ending on December 31, 2000. Thereafter, the term "Plan Year" shall
mean the period beginning on January 1 of each year and ending December 31.
Accordingly, Plan quarters shall commence on January 1, April 1, July 1 and
October 1 of each year.
1.31 "Retirement," "Retires" or "Retired" shall mean, with respect to
an Employee, severance from employment for any reason other than an authorized
leave of absence, Disability, death or for cause termination on or after the
earlier of the attainment of age fifty-five (55) with five (5) Years of Service
or reaching age 65.
1.32 "Retirement Benefit" shall mean the benefit set forth in Article
7.
1.33 "Retirement Benefit Distribution Form" shall mean the document,
executed by the Participant, which specifies the manner in which the Participant
shall have the balance of his accounts distributed in the event his Benefit
Distribution Date is triggered due to such Participant's Retirement from the
Employer. The Participant shall elect to receive the Retirement Benefit in a
lump sum or in annual payments over a period of 5, 10 or 15 years, except that
if the Participant's Account balance is less than $10,000 on his employment
termination date, his entire Account balance shall be paid in the form of a lump
sum payment. The Retirement Benefit Distribution Form must be provided to the
Committee along with all other Enrollment Forms, pursuant to Article 2, prior to
participating in the Plan. Notwithstanding the prior language of this Section,
the Participant may submit a subsequent Retirement Benefit Distribution Form in
order to change the form of distribution, or to delay commencement of the
payment of the Retirement Benefit until the Participant's 75th birthday;
provided however, such form shall be effective only if (i) it is submitted at
least thirteen (13) months prior the Participant's actual Benefit Distribution
Date and (ii) it is approved by the Committee, in its sole discretion.
1.34 "Subsidiary" means any corporation more than 50 percent of the
voting stock of which is directly or indirectly owned by the Employer. The
Employer and its Subsidiaries that adopt the Plan are referred to herein
collectively as the "Employers" and individually as an "Employer".
1.35 "Termination Benefit" shall mean the benefit set forth in Article
6.
1.36 "Termination of Employment" shall mean the voluntary or
involuntary severing of employment, with any and all Employers, for any reason
other than Retirement, Disability, or death.
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1.37 "Trust" shall mean a grantor trust of the type commonly referred
to as "rabbi trust" created to "informally fund" contingent benefits payable
under the Plan.
1.38 "Years of Service" shall mean the total number of twelve (12)
month periods during which a Participant has been continuously employed by one
or more Employers.
ARTICLE 2
ELIGIBILITY, SELECTION, ENROLLMENT
2.1 ELIGIBILITY, SELECTION BY COMMITTEE. Those employees who are (i)
determined by the Employer to be includable in a select group of management or
highly compensated employees of the Employer, (ii) specifically chosen by the
Employer to participate in the Plan, and (iii) approved for such participation
by the Committee, in its sole discretion, shall be eligible to defer
compensation into the Plan subject to the enrollment requirements described in
Section 2.2.
2.2 ENROLLMENT REQUIREMENTS. Each employee deemed eligible to defer
compensation into the Plan pursuant to Section 2.1, shall, as a condition to
participating in the Plan, complete and return to the Committee all of the
required Enrollment Forms, on a timely basis. In addition, the Committee shall
in its sole discretion, establish such other enrollment requirements necessary
for continued participation in the Plan.
2.3 COMMENCEMENT OF PARTICIPATION. Provided a Participant has met all
enrollment requirements set forth in this Plan and required by the Committee,
including returning the Enrollment Forms and other required documents to the
Committee within the specified time period, the Participant's participation
shall commence as of the date established by the Committee in its sole
discretion. If a Participant fails to meet all such requirements within the
specified time period with respect to any Plan Year, the Participant shall not
be eligible to defer compensation during that Plan Year.
ARTICLE 3
DEFERRAL CONTRIBUTIONS, MATCHING CONTRIBUTIONS, DISCRETIONARY CONTRIBUTIONS
INVESTMENT ADJUSTMENTS, TAXES AND VESTING
(3.1) DEFERRAL CONTRIBUTIONS.
(a) ELECTION TO DEFER. A Participant may make an election to defer
the receipt of amounts payable to the Participant, in the form of Base Annual
Salary or Bonus, during any Plan Year. The Participant's intent to defer shall
be evidenced by a Participation Agreement and annual Election Form, both
completed and submitted to the Committee in accordance with such procedures and
time frames as may be established by the Committee in its sole discretion, but
in the every case in compliance with the requirement of Section 1.17. Amounts
deferred by a Participant with respect to a given Plan Year shall be referred to
collectively as a Deferral Contribution and shall be credited to a Deferral
Contribution Account established in the name of the Participant.
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(b) COMPONENTS OF DEFERRAL CONTRIBUTIONS.
(i) BASE ANNUAL SALARY. A Participant may designate a
fixed dollar amount to be deducted from his Base Annual Salary. Such amount
shall be withheld, in substantially equal installments, from each regularly
scheduled payment of Base Annual Salary.
(ii) BONUS. A Participant may designate a fixed dollar
amount or a percentage to be deducted from his Bonus. If a fixed dollar amount
is designated by the Participant to be deducted from any Bonus payment and such
fixed dollar amount exceeds the Bonus actually payable to the Participant, the
entire amount of such Bonus shall be withheld.
(c) MINIMUM DEFERRAL.
MINIMUM. During any Plan Year the Committee may permit a
Participant to elect to defer, pursuant to an Election Form, his Salary and any
applicable Bonus (whether an annual or monthly bonus) provided that the total
deferral in the aggregate of his Salary and Bonus amounts to a minimum of at
least Three Thousand Dollars ($3,000) in any given Plan year.
If an Election Form is submitted which would yield less
than the stated minimum amounts, the amount deferred shall be zero.
(ii) SHORT PLAN YEAR. If an Employee first becomes a
Participant after the first day of any Plan Year, the minimum deferral of each
of the Participant's Base Annual Salary or Bonus shall be an amount equal to the
minimum set forth above, multiplied by a fraction, the numerator of which is the
number of complete months remaining in the Plan Year and the denominator of
which is 12:
(d) MAXIMUM DEFERRAL. For any given Plan Year the Committee may
permit a Participant to defer, pursuant to an Election Form, one or more of the
following forms of compensation up to the following maximum percentages:
MAXIMUM
DEFERRAL PERCENTAGE
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Base Annual Salary 75%
Bonus 90%
3.2 SELECTION OF HYPOTHETICAL INVESTMENTS. The Participant shall, via
his initial Investment Allocation Form(s) and through whatever other means the
Committee may determine, as more fully described in Section 1.26, select one or
more Hypothetical Investments among which his various contributions shall be
distributed. At the beginning of each Plan Year, the Committee shall provide the
Participant with a list of Hypothetical Investments available. From time to
time, in the sole discretion of the Committee, the Hypothetical Investments
available within the Plan may be revised. All Hypothetical Investment selections
must be denominated in whole percentages unless the Committee determines that
lower increments are acceptable. A Participant may make changes in his
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selected Hypothetical Investments on a basis and in a manner set forth by the
Committee, as described in and subject to the language of Section 1.26.
3.3 ADJUSTMENT OF PARTICIPANT ACCOUNTS. While a Participant's accounts
do not represent the Participant's ownership of, or any ownership interest in,
any particular assets, the Participant's accounts shall be adjusted in
accordance with the Hypothetical Investment(s) chosen by the Participant on his
(i) initial Investment Allocation Form or (ii) in whatever other means the
Committee provides for a participant to make investment reallocation choices,
subject to the conditions and procedures set forth herein or established by the
Committee from time to time. Any cash earnings generated under an Hypothetical
Investment (such as interest and cash dividends and distributions) shall, at the
Committee's sole discretion, either be deemed to be reinvested in that
Hypothetical Investment or reinvested in one or more other Hypothetical
Investment(s) designated by the Committee. All notional acquisitions and
dispositions of Hypothetical Investments which occur within a Participant's
accounts, pursuant to the terms of the Plan, shall be deemed to occur at such
times as the Committee shall determine to be administratively feasible in its
sole discretion and the Participant's accounts shall be adjusted accordingly.
Accordingly, if a distribution or re-allocation must occur pursuant to the terms
of the Plan and all or some portion of the Account Balance must be valued in
connection such distribution or re-allocation (to reflect Investment
Adjustments), the Committee may in its sole discretion, unless otherwise
provided for in the Plan, select a date or dates which shall be used for
valuation purposes. Notwithstanding anything to the contrary, any Investment
Adjustments made to any Participants' accounts following a Change in Control
shall be made in a manner no less favorable to Participants than the practices
and procedures employed under the Plan, or as otherwise in effect, as of the
date of the Change in Control.
3.4 WITHHOLDING OF TAXES.
(a) ANNUAL WITHHOLDING FROM COMPENSATION. For any Plan Year in
which Deferral Contributions are made to or the Plan (as applicable), the
Employer shall withhold the Participant's share of FICA and other employment
taxes from the portion of the Participant's Base Annual Salary and/or Bonus or
other compensation not deferred. If deemed appropriate by the Committee, the
Participant's Election Form may be reduced in certain instances where necessary
to facilitate compliance with applicable withholding requirements.
(b) WITHHOLDING FROM BENEFIT DISTRIBUTIONS. The Participant's
Employer (or the trustee of the Trust, as applicable), shall withhold from any
payments made to a Participant under this Plan all federal, state and local
income, employment and other taxes required to be withheld by the Employer (or
the trustee of the Trust, as applicable), in connection with such payments, in
amounts and in a manner to be determined in the sole discretion of the Employer
(or the trustee of the Trust, as applicable).
VESTING. The Participant shall at all times be one hundred percent
(100%) vested in his Deferral Contributions, as well as in any appreciation (or
depreciation) specifically attributable to such Deferral Contributions due to
Investment Adjustments.
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ARTICLE 4
SUSPENSION OF DEFERRALS
4.1 FINANCIAL EMERGENCIES. If a Participant experiences a Financial
Emergency, the Participant may petition the Committee to suspend any deferrals
required to be made by the Participant pursuant to his current Election Form.
The Committee shall determine, in its sole discretion, whether to approve the
Participant's petition. If the petition for a suspension is approved, suspension
shall commence upon the date of approval and shall continue until the earlier of
(i) the end of the Plan Year or (ii) the date the Financial Emergency ceases to
exist, as determined by the Committee in its sole discretion.
4.2 DISABILITY. From and after the date that a Participant is deemed to
have suffered a Disability, any current Election Form of the Participant shall
automatically be suspended and no further deferrals shall be required to be made
by the Participant pursuant to his current Election Form.
4.3 LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of absence from
the employment of the Employer, the Participant's deferrals shall be suspended
until the earlier of the date the leave of absence expires or the Participant
returns to a paid employment status. Upon such expiration or return, deferrals
shall resume for the remaining portion of the Plan Year in which the expiration
or return occurs, based on the Election Form, if any, made for that Plan Year.
If no election was made for that Plan Year, no deferral shall be withheld. If a
Participant is authorized by the Participant's Employer for any reason to take a
paid leave of absence from the employment of the Employer, the Participant shall
continue to be considered employed by the Employer and the appropriate amounts
shall continue to be withheld from the Participant's compensation pursuant to
the Participant's then current Election Form.
ARTICLE 5
INTERIM AND HARDSHIP DISTRIBUTIONS
5.1 INTERIM DISTRIBUTIONS. A Participant may make an advance election,
at the time he files any Election Form for a given Plan Year, to have certain
amounts payable from his Deferral Contribution Account at an Interim
Distribution Date designated by the Participant, instead of payable at the
Participant's Benefit Distribution Date. Such amount(s) shall be measured on the
applicable Interim Distribution Date and shall be payable within thirty (30)
days of such Interim Distribution Date. The Participant's selection of an
Interim Distribution Date must comply with the language of Section 1.24.
Notwithstanding a Participant's advance election to designate an Interim
Distribution Date or Dates, the amounts which would otherwise be subject to such
Interim Distribution Date or Dates shall be distributable upon the Participant's
Benefit Distribution Date (pursuant to Article 6, 7, 8 or 9 as applicable), if
such date occurs prior to any Interim Distribution Date.
5.2 WITHDRAWAL IN THE EVENT OF A FINANCIAL EMERGENCY. A Participant who
believes he has experienced a Financial Emergency may request in writing a
withdrawal of a portion of his accounts necessary to satisfy the emergency. The
Committee shall determine, in its sole discretion, (i) whether a Financial
Emergency has occurred, (ii) the amount
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reasonably required to satisfy the Financial Emergency as well as (iii) the
accounts from which the withdrawal shall be made; provided, however, that the
withdrawal shall not exceed the Participant's Account Balance. In making any
determinations under this Section 5.2, the Committee shall be guided by the
prevailing authorities under the Code. If, subject to the sole discretion of the
Committee, the petition for a withdrawal is approved, the distribution shall be
made within thirty (30) days of the date of approval by the Committee.
ARTICLE 6
TERMINATION BENEFIT
6.1 TERMINATION BENEFIT. In the event the Participant's Benefit
Distribution Date is triggered due to his Termination of Employment (as such
term is defined in Section 1.36), the Participant shall receive a Termination
Benefit and no other benefits shall be payable under the Plan.
6.2 PAYMENT OF TERMINATION BENEFIT. The Termination Benefit shall be
equal the Participant's Account Balance, and shall be paid (a) if the
Participant's Account Balance is less than $10,000 on the date of his or her
Termination of Employment, in one lump sum not later than thirty (30) days after
the Participant's Benefit Distribution Date, or (b) if the Participant's Account
Balance is $10,000 or more on the date of his or her Termination of Employment,
in five (5) annual installments beginning not later than thirty (30) days after
the Participant's Benefit Distribution Date. The initial installment shall be
the product of the value of the Participant's Account Balance, measured on his
Benefit Distribution Date, multiplied by 1/n (where `n' is equal to the total
number of annual benefit payments not yet distributed). Subsequent installment
payments shall be computed in a consistent fashion, and shall equal the product
of the value of the Participant's Account Balance, measured on the applicable
anniversary of his Benefit Distribution Date, multiplied by 1/n. Notwithstanding
the previous sentence, a Participant may submit a written form requesting that
any Termination Benefit be paid in the form of one lump sum; provided however,
such form shall be effective only if (i) it is submitted at least thirteen (13)
months prior the Participant's actual Benefit Distribution Date and (ii) it is
approved by the Committee, in its sole discretion.
6.3 DEATH PRIOR TO PAYMENT OF TERMINATION BENEFIT. If a Participant
dies after his Termination of Employment but before the Termination Benefit is
paid to him, the Participant's unpaid Termination Benefit shall be paid to the
Participant's Beneficiary in the form determined under Section 6.2.
ARTICLE 7
RETIREMENT BENEFIT
7.1 RETIREMENT BENEFIT. In the event the Participant's Benefit
Distribution Date is triggered due to his Retirement (as such term is defined in
Section 1.31, the Participant shall receive the Retirement Benefit and no other
benefit shall be payable under the Plan.
7.2 PAYMENT OF RETIREMENT BENEFIT. The Retirement Benefit shall be
payable in the form previously selected by the Participant, pursuant to his
Retirement Benefit
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Distribution Form, and shall commence (or be fully paid, in the event a lump sum
form of distribution was selected) no later than thirty (30) days after the
occurrence of the Participant's Benefit Distribution Date.
The initial installment shall be the product of the value of the
Participant's Account Balance, measured on his Benefit Distribution Date,
multiplied by 1/n (where `n' is equal to the total number of annual benefit
payments not yet distributed). Subsequent installment payments shall be computed
in a consistent fashion, and shall equal the product of the value of the
Participant's Account Balance, measured on the applicable anniversary of his
Benefit Distribution Date, multiplied by 1/n.
7.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant
dies after Retirement but before the Retirement Benefit has commenced or been
paid in full, the Participant's unpaid Retirement Benefit payments shall be paid
to the Participant's beneficiary in a lump sum, equal to the Participant's
remaining Account Balance. Such lump sum payment shall be made within thirty
(30) days of the date of the Participant's death.
ARTICLE 8
PRE-RETIREMENT DEATH BENEFIT
8.1 PRE-RETIREMENT DEATH BENEFIT. In the event the Participant's
Benefit Distribution Date is triggered due to his death during employment, the
Participant's Beneficiary shall receive the pre-retirement death benefit
described below and no other benefits shall be payable under the Plan.
8.2 PAYMENT OF PRE-RETIREMENT DEATH BENEFIT. The pre-retirement death
benefit shall be equal the Participant's Account Balance, and shall be paid (a)
if the Participant's Account Balance is less than $10,000 on the date of his or
her death, in one lump sum not later than thirty (30) days after the
Participant's Benefit Distribution Date, or (b) if the Participant's Account
Balance is $10,000 or more on the date of his or her death, in five (5) annual
installments beginning not later than thirty (30) days after the Participant's
Benefit Distribution Date. The initial installment shall be the product of the
value of the Participant's Account Balance, measured on his Benefit Distribution
Date, multiplied by 1/n (where `n' is equal to the total number of annual
benefit payments not yet distributed). Subsequent installment payments shall be
computed in a consistent fashion, and shall equal the product of the value of
the Participant's Account Balance, measured on the applicable anniversary of his
Benefit Distribution Date, multiplied by 1/n. Notwithstanding the previous
sentence, a Participant may submit a written form requesting that any
pre-retirement death benefit be paid in the form of one lump sum; provided
however, such form shall be effective only if (i) it is submitted at least
thirteen (13) months prior the Participant's actual Benefit Distribution Date
and (ii) it is approved by the Committee, in its sole discretion.
ARTICLE 9
DISABILITY BENEFIT
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9.1 DISABILITY BENEFIT. In the event the Participant's Benefit
Distribution Date is triggered due to his Disability (as such term is defined in
Section 1.15), the Participant shall receive a Disability Benefit and no other
benefits shall be payable under the Plan; provided, however, that should a
Disabled Participant otherwise have been eligible to Retire, he or she shall
receive a Retirement Benefit in accordance with Article 7 rather than a
Disability Benefit under this Article 9.
9.2 PAYMENT OF DISABILITY BENEFIT. The Disability Benefit shall be
equal the Participant's Account Balance, and shall be paid (a) if the
Participant's Account Balance is less than $10,000 on the date of his or her
Disability, in one lump sum not later than thirty (30) days after the
Participant's Benefit Distribution Date, or (b) if the Participant's Account
Balance is $10,000 or more on the date of his or her Disability, in five (5)
annual installments beginning not later than thirty (30) days after the
Participant's Benefit Distribution Date. The initial installment shall be the
product of the value of the Participant's Account Balance, measured on his
Benefit Distribution Date, multiplied by 1/n (where `n' is equal to the total
number of annual benefit payments not yet distributed). Subsequent installment
payments shall be computed in a consistent fashion, and shall equal the product
of the value of the Participant's Account Balance, measured on the applicable
anniversary of his Benefit Distribution Date, multiplied by 1/n. Notwithstanding
the previous sentence, a Participant may submit a written form requesting that
any Disability Benefit be paid in the form of one lump sum; provided however,
such form shall be effective only if (i) it is submitted at least thirteen (13)
months prior the Participant's actual Benefit Distribution Date and (ii) it is
approved by the Committee, in its sole discretion.
9.3 DEATH PRIOR TO PAYMENT OF DISABILITY BENEFIT. If a Participant dies
after his Disability but before the Disability Benefit is paid to him, the
Participant's unpaid Disability Benefit shall be paid to the Participant's
Beneficiary in the form determined under Section 9.2.
ARTICLE 10
ELECTIVE BENEFIT
10.1 ELECTION TO RECEIVE ACCOUNT BALANCE. A Participant may request,
through submission of an executed writing, to receive distribution of his entire
Account Balance without regard to (i) whether payment of benefits under the Plan
are due or (ii) whether a Financial Emergency has occurred. Any distribution so
requested shall be made as soon as practical following the Participant's
submission of the executed writing and shall be subject to (i) forfeiture of ten
percent (10%) of his entire Account Balance and (ii) suspension of his
participation in the Plan for the balance of the Plan Year in which the
distribution is requested as well as the subsequent Plan Year.
10.2 ELECTION TO RECEIVE ACCOUNT BALANCE FOLLOWING A CHANGE OF CONTROL.
Following a Change in Control, a Participant may request, through submission of
an executed writing, to receive a distribution of his entire Account Balance, or
a portion thereof, without regard to (i) whether payment of benefits under the
Plan are due or (ii) whether a Financial Emergency has occurred. The request for
a distribution of his Account balance, or a part thereof, following a Change of
Control shall not be subject to a
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forfeiture of any part of his Account Balance; the Participant, however, shall
be subject to suspension of his participation in the Plan for the balance of the
Plan Year in which the distribution is requested as well as the subsequent Plan
Year. A distribution pursuant to this Article 10.2 shall be made as soon as
possible following the submission of the executed writing and shall be available
in lump sum or in installment payments over up to five years. The right to
request a distribution of one's Account balance, or a portion thereof, following
a Change in Control without having to forfeit any part of the Account balance
shall be limited to the ninety (90) days following a Change in Control.
ARTICLE 11
BENEFICIARY DESIGNATION
11.1 BENEFICIARY. Each Participant shall have the right, at any time,
to designate a Beneficiary or Beneficiaries to receive, in the event of the
Participant's death, those benefits payable under the Plan. The Beneficiary(ies)
designated under this Plan may be the same as or different from the Beneficiary
designation made under any other plan of the Employer.
11.2 BENEFICIARY DESIGNATION, CHANGE, SPOUSAL CONSENT. A Participant
shall designate his Beneficiary by completing and signing a Beneficiary
Designation Form, and returning it to the Committee or its designated agent. A
Participant shall have the right to change his Beneficiary by completing,
signing and submitting to the Committee a revised Beneficiary Designation Form
in accordance with the Committee's rules and procedures, as in effect from time
to time. If the Participant names someone other than his spouse as a
Beneficiary, a spousal consent, in the form designated by the Committee, must be
signed by that Participant's spouse and returned to the Committee. Upon
acknowledgement by the Committee of a revised Beneficiary Designation Form, all
Beneficiary designations previously filed shall be deemed canceled. The
Committee shall be entitled to rely on the last Beneficiary Designation Form
both (i) filed by the Participant and (ii) acknowledged by the Committee, prior
to his death.
11.3 ACKNOWLEDGMENT. No designation or change in designation of a
Beneficiary shall be effective until received, accepted and acknowledged in
writing by the Committee or its designated agent.
11.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
Beneficiary as provided above or, if all designated Beneficiaries predecease the
Participant or die prior to complete distribution of the Participant's benefits,
then the Participant's designated Beneficiary shall be deemed to be his
surviving spouse. If the Participant has no surviving spouse, the benefits
remaining under the Plan shall be payable to the executor or personal
representative of the Participant's estate.
11.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the
proper Beneficiary to receive payments pursuant to this Plan, the Committee
shall have the right, exercisable in its discretion, to cause the Participant's
Employer to withhold such payments until this matter is resolved to the
Committee's satisfaction.
11.6 DEATH OF SPOUSE OR DISSOLUTION OF MARRIAGE. A Participant's
Beneficiary designation shall be deemed automatically revoked if the Participant
names a spouse as
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Beneficiary and the marriage is later dissolved. Without limiting the generality
of the preceding sentence, the interest in benefits of a spouse of a Participant
who has predeceased the Participant or whose marriage has been dissolved shall
automatically pass to the Participant, and shall not be transferable by such
spouse in any manner, including but not limited to such spouse's will, nor shall
such interest pass under the laws of intestate succession.
11.7 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan
to a Beneficiary shall fully and completely discharge the Employers and the
Committee from all further obligations under this Plan with respect to the
Participant, and the Participant's Participation Agreement shall terminate upon
such full payment of benefits.
ARTICLE 12
TERMINATION, AMENDMENT OR MODIFICATION
12.1 TERMINATION. Although the Employer anticipates that they will
continue the Plan for an indefinite period of time, there is no guarantee that
any Employer will continue the Plan or will not terminate the Plan at any time
in the future. Accordingly, each Employer reserves the right to discontinue its
sponsorship of the Plan and to terminate the Plan, at any time, with respect to
its participating Employees by action of its board of directors. Upon the
termination of the Plan with respect to any Employer, all amounts credited to
the Participant Account of each affected Participant shall be paid to the
Participant or, in the case of the Participant's death, to the Participant's
Beneficiary, in a lump sum and the Participation Agreements relating to each of
the Participants shall terminate upon full payment of such Account Balance.
12.2 AMENDMENT. The Employer may, at any time, amend or modify the Plan
in whole or in part with respect to any or all Employers by the actions of the
Board; provided, however, that (i) no amendment (including a Plan termination)
or modification (including a Plan termination) shall be effective to decrease or
restrict the value of a Participant's Account Balance in existence at the time
the amendment or modification is made, calculated as if the Participant had
experienced a Termination of Employment as of the effective date of the
amendment or modification, or, if the amendment or modification occurs after the
date upon which the Participant was eligible to Retire, calculated as if the
Participant had Retired as of the effective date of the amendment or
modification, and (ii) except as specifically provided in Section 12.1, no
amendment or modification shall be made after a Change in Control which
adversely affects the vesting, calculation or payment of benefits hereunder or
diminishes any other rights (including the right to take a distribution option
provided in the Plan prior to the Change in Control) or protections any
Participant or Beneficiary would have had, but for such amendment or
modification, unless each affected Participant or Beneficiary consents in
writing to such amendment.
12.3 EFFECT OF PAYMENT. The full payment of the applicable benefit
under the provisions of the Plan shall completely discharge all obligations to a
Participant and his designated Beneficiaries under this Plan and each of the
Participant's Participation Agreement shall terminate.
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ARTICLE 13
ADMINISTRATION
13.1 COMMITTEE DUTIES. This Plan shall be administered by a Committee
which shall consist of the Board, or such committee as the Board shall appoint.
Members of the Committee may be Participants under this Plan. The Committee
shall also have the discretion and authority to (i) make, amend, interpret, and
enforce all appropriate rules and regulations for the administration of this
Plan and (ii) decide or resolve any and all questions including interpretations
of this Plan, as may arise in connection with the Plan. Any individual serving
on the Committee who is a Participant shall not vote or act on any matter
relating solely to himself or herself. When making a determination or
calculation, the Committee shall be entitled to rely on information furnished by
Participant or the Employer.
13.2 AGENTS. In the administration of this Plan, the Committee may,
from time to time, employ agents and delegate to them such administrative duties
as it sees fit (including acting through a duly appointed representative) and
may from time to time consult with counsel who may be counsel to any Employer.
13.3 BINDING EFFECT OF DECISIONS. The decision or action of the
Committee with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and rules and
regulations promulgated hereunder shall be final and conclusive and binding upon
all persons having any interest in the Plan.
13.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold
harmless the members of the Committee, and any Employee to whom duties of the
Committee may be delegated, against any and all claims, losses, damages,
expenses or liabilities arising from any action or failure to act with respect
to this Plan, except in case of willful misconduct by the Committee or any of
its members or any such employee.
13.5 EMPLOYER INFORMATION. To enable the Committee to perform its
functions, each Employer shall supply full and timely information to the
Committee on all matters relating to the compensation of its Participants, the
date and circumstances of the Retirement, Disability, death or Termination of
Employment of its Participants, and such other pertinent information as the
Committee may reasonably require.
ARTICLE 14
OTHER BENEFITS AND AGREEMENTS
The benefits provided for a Participant and Participant's Beneficiary
under the Plan are in addition to any other benefits available to such
Participant under any other plan or program for employees of the Participant's
Employer. The Plan shall supplement and shall not supersede, modify or amend any
other such plan or programs except as may otherwise be expressly provided.
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ARTICLE 15
CLAIMS PROCEDURES
15.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a
deceased Participant (such Participant or Beneficiary being referred to below as
a "Claimant") may deliver to the Committee a written claim for a determination
with respect to the amounts distributable to such Claimant from the Plan. If
such a claim relates to the contents of a notice received by the Claimant, the
claim must be made within sixty (60) days after such notice was received by the
Claimant. The claim must state with particularity the determination desired by
the Claimant. All other claims must be made within one hundred eighty (180) days
of the date on which the event that caused the claim to arise occurred. The
claim must state with particularity the determination desired by the Claimant.
15.2 NOTIFICATION OF DECISION. The Committee shall consider a
Claimant's claim within a reasonable time, and shall notify the Claimant in
writing:
(a) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole
or in part, to the Claimant's requested determination, and such notice must set
forth in a manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the claim,
or any part of it;
(ii) specific reference(s) to pertinent provisions of the
Plan upon which such denial was based;
(iii) a description of any additional material or
information necessary for the Claimant to perfect the claim, and an explanation
of why such material or information is necessary; and
(iv) an explanation of the claim review procedure set
forth in Section 15.3 below.
15.3 REVIEW OF A DENIED CLAIM. Within sixty (60) days after receiving a
notice from the Committee that a claim has been denied, in whole or in part, a
Claimant (or the Claimant's duly authorized representative) may file with the
Committee a written request for a review of the denial of the claim. Thereafter,
but not later than thirty (30) days after the review procedure began, the
Claimant (or the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
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15.4 DECISION ON REVIEW. The Committee shall render its decision on
review promptly, and not later than sixty (60) days after the
filing of a written request for review of the denial, unless a hearing is held
or other special circumstances require additional time, in which case the
Committee's decision must be rendered within one hundred twenty (120) days after
such date. Such decision must be written in a manner calculated to be understood
by the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon
which the decision was based; and
(c) such other matters as the Committee deems relevant.
ARTICLE 16
TRUST
16.1 ESTABLISHMENT OF THE TRUST. The Employer may establish one or more
Trusts to which the Employers may transfer such assets as the Employers
determine in their sole discretion to assist in meeting their obligations under
the Plan.
16.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the
Plan and the Participation Agreement shall govern the rights of a Participant to
receive distributions pursuant to the Plan. The provisions of the Trust shall
govern the rights of the Employers, Participants and the creditors of the
Employers to the assets transferred to the Trust.
16.3 DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations under
the Plan may be satisfied with Trust assets distributed pursuant to the terms of
the Trust, and any such distribution shall reduce the Employer's obligations
under this Agreement.
ARTICLE 17
ARBITRATION
17.1 Any controversy, dispute, or claim not resolved under the claims
procedure set forth in Article 15, including any claim arising out of, in
connection with, or in relation to the formation, interpretation, performance or
breach of this Plan or any action of the Committee, shall be settled exclusively
by arbitration, before a single arbitrator, in accordance with this Article 17
and the then most applicable rules of the American Arbitration Association.
Judgment upon any award rendered by the arbitrator may be entered by any state
or federal court having jurisdiction thereof. Such arbitration shall be
administered by the American Arbitration Association only if one (or both) of
the parties requests such administration. Arbitration shall be the exclusive
remedy for determining any such dispute, regardless of its nature.
Notwithstanding the foregoing, either party may in an appropriate matter apply
to a court pursuant to California Code of Civil Procedure Section 1281.8, or any
comparable provision, for provisional relief, including a temporary restraining
order or a preliminary injunction, on the ground that the award to which the
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applicant may be entitled in arbitration may be rendered ineffectual without
provisional relief.
17.2 In the event the parties are unable to agree upon an arbitrator,
the parties shall select a single arbitrator from a list of nine arbitrators
drawn by the parties at random from the "Independent" (or "Gold Card") list of
retired judges. If the parties are unable to agree upon an arbitrator from the
list so drawn, then the parties shall each strike names alternately from the
list, with the first to strike being determined by lot. After each party has
used four strikes, the remaining name on the list shall be the arbitrator. If
such person is unable to serve for any reason, the parties shall repeat this
process until an arbitrator is selected.
17.3 This agreement to resolve any disputes by binding arbitration
shall extend to claims against any parent, subsidiary or affiliate of each
party, and, when acting within such capacity, any officer, director,
shareholder, employee or agent of each party, or of any of the above, and shall
apply as well to claims arising out of state and federal statutes and local
ordinances as well as to claims arising under the common law. In the event of a
dispute subject to this Article 17, the parties shall be entitled to reasonable
discovery subject to the discretion of the arbitrator. The remedial authority of
the arbitrator shall be the same as, but no greater than, would be the remedial
power of a court having jurisdiction over the parties and their dispute. The
arbitrator shall, upon an appropriate motion, dismiss any claim without an
evidentiary hearing if the party bringing the motion establishes that he or it
would be entitled to summary judgement if the matter had been pursued in court
litigation. In the event of a conflict between the applicable rules of the
American Arbitration Association and these procedures, the provisions of these
procedures shall govern.
17.4 Any filing or administrative fees shall be borne initially by the
party requesting administration by the American Arbitration Association. If both
parties request such administration, the fees shall be borne initially by the
party incurring such fees as provided by the rules of the American Arbitration
Association. To the extent permitted by taw, the initial fees and costs of the
arbitrator shall be borne equally by the parties, with the Employer being
responsible for the costs and fees of the arbitration to the extent it is
determined that such costs and fees may not initially be borne equally. The
prevailing party in such arbitration, as determined by the arbitrator, and in
any enforcement or other court proceedings, shall be entitled, to the extent
permitted by law, to reimbursement from the other party for all of the
prevailing party's costs (including but not limited to the arbitrator's
compensation), expenses, and attorneys' fees.
17.5 The arbitrator shall render an award and written opinion, and the
award shall be final and binding upon the parties. If any of the provisions of
this Article 17, or of this Plan, are determined to be unlawful or otherwise
unenforceable, in whole or in part, such determination shall not affect the
validity of the remainder of this Plan, and this Plan shall be reformed to the
extent necessary to carry out its provisions to the greatest extent possible and
to insure that the resolution of all conflicts between the parties, including
those arising out of statutory claims, shall be resolved by neutral, binding
arbitration. If a court should find that this section's arbitration provisions
are not absolutely binding, then the parties intend any arbitration decision and
award to be fully admissible in evidence in any subsequent action, given great
weight by any finder of fact, and treated as determinative to the maximum extent
permitted by law.
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17.6 Unless mutually agreed by the parties otherwise, any arbitration
shall take place in the City of Los Angeles, California.
ARTICLE 18
MISCELLANEOUS
18.1 STATUS OF PLAN. The Plan is intended to be a plan that is not
qualified within the meaning of Code Section 401(a) and that "is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employee"
within the meaning of ERISA. The Plan shall be administered and interpreted to
the extent possible in a manner consistent with that intent. All Participant
accounts and all credits and other adjustments to such Participant accounts
shall be bookkeeping entries only and shall be utilized solely as a device for
the measurement and determination of amounts to be paid under the Plan. No
Participant accounts, credits or other adjustments under the Plan shall be
interpreted as an indication that any benefits under the Plan are in any way
funded.
18.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries,
heirs, successors and assigns shall have no legal or equitable rights, interests
or claims in any property or assets of an Employer. For purposes of the payment
of benefits under this Plan, any and all of an Employer's assets, shall be, and
remain, the general, unpledged unrestricted assets of the Employer. Any
Employer's obligation under the Plan shall be merely that of an unfunded and
unsecured promise to pay money in the future.
18.3 EMPLOYER'S LIABILITY. An Employer's liability for the payment of
benefits shall be defined only by the Plan and the Participation Agreement, as
entered into between the Employer and a Participant. An Employer shall have no
obligation to a Participant under the Plan except as expressly provided in the
Plan and his Participation Agreement.
18.4 NONASSIGNABILITY. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate, alienate or convey in actual
receipt, the amount, if any, payable hereunder, or any part thereof, which are,
and all rights to which are expressly declared to be, unassignable and
non-transferable. No part of the amounts payable shall, prior to actual payment,
be subject to seizure, attachment, garnishment or sequestration for the payment
of any debts, judgments, alimony or separate maintenance owned by a Participant
or any other person, be transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency or be transferable
to a spouse as a result of a property settlement or otherwise.
18.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this
Plan and the Participation Agreement, this Plan shall not be deemed to
constitute a contract of employment between any Employer and the Participant.
Such employment is hereby acknowledged to be an "at will" employment
relationship that can be terminated at any time for any reason, or no reason,
with or without cause, and with or without notice, except as otherwise provided
in a written employment agreement. Nothing in this Plan or any Participation
Agreement shall be deemed to give a Participant the right to be retained in the
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service of any Employer as an Employee or to interfere with the right of any
Employer to discipline or discharge the Participant at any time.
18.6 FURNISHING INFORMATION. A Participant or his Beneficiary will
cooperate with the Committee by furnishing any and all information requested by
the Committee and take such other actions as may be requested in order to
facilitate the administration of the Plan and the payments of benefits
hereunder, including but not limited to taking such physical examinations as the
Committee may deem necessary.
18.7 TERMS. Whenever any words are used herein in the masculine, they
shall be construed as though they were in the feminine in all cases where they
would so apply; and whenever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural or the
singular, as the case may be, in all cases where they would so apply.
18.8 CAPTIONS. The captions of the articles, sections or paragraphs of
this Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
18.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall
be construed and interpreted according to the internal laws of the State of
California without regard to its conflicts of law principles.
18.10 NOTICE. Any notice or filing required or permitted to be given to
the Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the address below:
Hollywood Park, Inc.
330 N. Brand Blvd., Suite 1100
Glendale, CA 91203
Attn: General Counsel
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark or the receipt
for registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered, or sent by
mail, to the last known address of the Participant.
18.11 SUCCESSORS. The provisions of this Plan shall bind and inure to
the benefit of the Participant's Employer and its successors and assigns and the
Participant and the Participant's designated Beneficiaries.
18.12 VALIDITY. In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be construed and enforced as if such
illegal or invalid provision had never been inserted herein.
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18.13 INCOMPETENT. If the Committee determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared incompetent
or to a person incapable of handling the disposition of that person's property,
the Committee may direct payment of such benefit to the guardian, legal
representative or person having the care and custody of such minor, incompetent
or incapable person. The Committee may require proof of minority, incompetence,
incapacity or guardianship, as it may deem appropriate prior to distribution of
the benefit. Any payment of a benefit shall be a payment for the account of the
Participant and the Participant's Beneficiary, as the case may be, and shall be
a complete discharge of any liability under the Plan for such payment amount.
18.14 DISTRIBUTION IN THE EVENT OF TAXATION. If, for any reason, all or
any portion of a Participant's benefit under this Plan becomes taxable to the
Participant prior to a receipt, a Participant may petition the Committee or the
trustee of the Trust, as applicable, for a distribution of that portion of his
benefit that has become taxable. Upon the grant of such a petition, which grant
shall not be unreasonably withheld, a Participant's Employer shall distribute to
the Participant immediately, funds in an amount equal to the taxable portion of
his benefit (which amount shall not exceed a Participant's unpaid Account
Balance under the Plan). If the petition is granted, the tax liability
distribution shall be made within ninety (90) days of the date when the
Participant's petition is granted. Such a distribution shall affect and reduce
the benefits to be paid under this Plan.
18.15 INSURANCE. The Employers, on their own behalf or on behalf of the
trustee of the Trust, and, in their sole discretion, may apply for and procure
insurance on the life of the Participant, in such amounts and in such forms as
the Trust may choose. The Employers or the trustee of the Trust, as the case may
be, shall be the sole owner and beneficiary of any such insurance. The
Participant shall have no interest whatsoever in any such policy or policies,
and at the request of the Employers the Participant shall submit to medical
examinations and supply such information and execute such documents as may be
required by the insurance company or companies to whom the Employers have
applied for insurance.
18.16 EMPLOYER. Each Subsidiary of the Employer can become an adopting
Employer in accordance with the terms of the Plan. With the consent of the
Employer, the Plan may be adopted in accordance with the provisions of Section
17.17 by any other Subsidiary of the Employer for the benefit of its Eligible
Employees.
18.17 ADDITIONAL EMPLOYERS. Any Subsidiary of the Employer may adopt
the Plan and become an Employer hereunder by filing with the Committee a
certified copy of a resolution of the Board of Directors of the Subsidiary
providing for its adoption of the Plan and a certified copy of a resolution of
the Board of Directors of the Employer consenting to such adoption.
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IN WITNESS WHEREOF, the Employer has signed this Plan document as of
January 1, 2000.
Hollywood Park, Inc.
A Delaware Corporation
By: /s/ Loren Ostrow
_______________________________
Name: Loren Ostrow
_______________________________
(printed name)
Title: Senior Vice President/General
Counsel
______________________________
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EXHIBIT 10.49
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
THIS AGREEMENT FOR PURCHASE AND SALE OF ASSETS (the "Agreement") is
executed and delivered as of February 24, 2000, between JERRY SIMMS ("Buyer");
and PINNACLE ENTERTAINMENT, INC. (formerly known as Hollywood Park, Inc.), a
Delaware corporation ("Seller").
RECITALS
A. Seller, through its wholly owned subsidiary, Turf Paradise, Inc., an
Arizona corporation ("Company"), operates the Turf Paradise Race Track in
Phoenix, Arizona and certain off-track wagering facilities related thereto (the
"Business").
B. Buyer desires to purchase and acquire substantially all of Seller's
(or Company's) assets, properties and contractual rights used in connection with
the Business and to assume certain liabilities in connection therewith, and
Seller desires to sell such assets, properties and contractual rights to Buyer,
on the terms and conditions set forth herein.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 CERTAIN DEFINED TERMS. Capitalized terms shall have meanings
assigned to them in EXHIBIT 1.1.
ARTICLE 2
DESCRIPTION OF ASSETS
2.1 DESCRIPTION OF ASSETS. Upon the terms and subject to the conditions
set forth in this Agreement, and subject to the exclusions set forth in Section
2.2, Seller shall, on the Closing Date, sell to Buyer the following assets,
properties and contractual rights (the "Assets"), free and clear of all
Encumbrances other than Permitted Encumbrances:
2.1.1 the real property described on SCHEDULE 2.1.1 and all of
Seller's and Company's interest, if any, in all easements, rights, interests and
appurtenances thereto (the "Real Property").
2.1.2 all buildings, structures, fixtures and other improvements
located upon the Real Property, including the horse racing track and related
facilities and including the heating, ventilation, air conditioning, elevator
and escalator equipment, if any, within the Real Property (the "Improvements")
2.1.3 all equipment and machinery located on the Real Property
and/or used by Company for and in the Business which is owned and leased by
Seller or Company,
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including motor vehicles, all telephone and communication equipment, all audio
equipment, all video equipment and all computer hardware (the "Equipment"),
including that listed on SCHEDULE 2.1.3, with such schedule listing all lease
agreements with respect to any leased Equipment.
2.1.4 all furniture, furnishings, decorative items, tools, and
other tangible personal property (other than Equipment and Inventory and
Supplies) which is owned or leased by Seller or Company and located on the Real
Property or used by Company in the Business (the "Other Tangible Personal
Property"), including that described on SCHEDULE 2.1.4.
2.1.5 all inventories and supplies of any type required to be used
by Company in its operation of the Business existing as of the Closing Date (the
"Inventory and Supplies").
2.1.6 subject to obtaining any required consents to the transfer
to Buyer, all contractual rights of Seller or Company required for the operation
of the Business, including service agreements, supply agreements, employment
agreements, all agreements relating to all off-track wagering facilities,
wherever located worldwide, and all rights with respect thereto, any collective
bargaining agreements, any leases with Seller as lessee, all leases (including
with respect to the 147-space recreational vehicle park located on the Real
Property) in which Seller is lessor, warranty agreements and any other
agreements of Seller relating to the Business or the Real Property,
Improvements, Equipment, Inventory and Supplies, Other Tangible Personal
Property, Permits, Systems, the Intellectual Property Rights and other Assets
(the "Contracts and Agreements"). A complete listing of the Contracts and
Agreements is attached hereto as SCHEDULE 2.1.6, which SCHEDULE 2.1.6 denotes
each of the Contracts and Agreements which is material to the operation of the
Business ("Material Contracts and Agreements").
2.1.7 all of Seller's and Company's interest in all transferable
permits, licenses, franchises, consents and approvals of every kind (including
liquor licenses and permits for the operation of the off-track wagering
facilities) required to be used by Seller or Company to operate the Business
including, without limitation, all liquor licenses and permits, restaurant
licenses, gaming licenses and permits and licenses and permits relating to the
off-track wagering facilities (the "Permits"), attached as SCHEDULE 2.1.7 is a
list of all such permits and licenses whether or not transferable;
2.1.8 all transferable manual and automated computer, billing and
accounting systems and components thereof, including all assignable software and
programs required to be used by Company in the Business and owned by Seller or
Company (the "Systems"); attached as SCHEDULE 2.1.8 is a list of such systems
whether or not transferable.
2.1.9 all of the goodwill of the Business;
2.1.10 all the right, title and interest of Seller or Company in,
to and under all trademarks, trade names, service marks, copyrights and all
applications, registrations, renewals and other rights relating to the foregoing
(whether or not any registration or filing
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has been made with respect thereto) required to be used by Company for the
operation of the Business, including the name "Turf Paradise" (the "Intellectual
Property Rights");
2.1.11 all of Seller's or Company's interest, if any, in and
control of the Horsemen's Account.
2.1.12 all of the other transferable assets, properties and
contractual rights required for the operation of the Business by Company and
owned or leased by or licensed to Seller or Company.
2.2 EXCLUDED ASSETS. There shall be excluded from the Assets the
following which are not being sold to Buyer pursuant to this Agreement (the
"Excluded Assets"):
2.2.1 except as provided in Section 3.3.2, cash and cash
equivalents, including but not limited to bank accounts, temporary cash
investments, payroll accounts, and petty cash banks;
2.2.2 all Accounts Receivable of Seller or Company;
2.2.3 any accounts payable of Seller or Company and any
contractual obligations of Seller or Company other than the Assumed Liabilities
or those otherwise specifically assumed by Buyer pursuant to this Agreement;
2.2.4 rights to or claims for refunds of taxes and other
governmental charges to the extent attributable to any time or periods ending on
or prior to the Closing Date and the benefit of net operating loss
carry-forwards or other credits of Seller or Company, whether or not
attributable to the Business;
2.2.5 claims or rights against third parties, except those arising
with respect to events or breaches occurring after the Closing Date under the
Contracts and Agreements; provided however, that any rights of indemnification,
contribution or reimbursement that may exist under the Contracts and Agreements
in respect of liabilities or obligations retained by Seller hereunder shall be
Excluded Assets;
2.2.6 all insurance policies and rights and receivables thereunder
including but not limited to rights in any cancellation value as of the Closing
Date;
2.2.7 proprietary business information, records and policies that
relate generally to Seller or any Affiliate of Seller and are not required for
the operation of the Business, including but not limited to management
procedures and guidelines, proprietary financial reporting formats, accounting
procedures, personnel records relating to or containing performance reviews or
similar evaluations, instructions, organization manuals and strategic plans;
2.2.8 all real property and other rights pertinent thereto and
real property improvements owned or leased by Seller and its subsidiaries other
than the Real Property and Improvements;
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2.2.9 all other assets of Seller and its subsidiaries (other than
Company) not specifically included in the Assets including, but not limited to,
(a) assets which are not located on the Real Property and (b) all of Seller's
right, title and interest in and to that certain Investment Agreement dated July
30, 1997, between ODS Technologies and Seller, as amended;
2.2.10 Seller's corporate charter, taxpayer and other
identification numbers, seals, minute books and stock transfer books and
Seller's ownership of stock in its various subsidiaries;
2.2.11 the rights of Seller and its subsidiaries under any
Contract or Agreement regarding any (a) non transferable license for computer
software (so long as such non-transferable licenses which are used in the
operation of the Business as conducted on the date of this Agreement are listed
on SCHEDULE 2.2.11) and other Intellectual Property Rights (so long as such
non-transferable Intellectual Property Rights which are used in the operation of
the Business as conducted on the date of this Agreement are listed on SCHEDULE
2.2.11) and (b) any Contract or Agreement that requires the consent of a party
thereto to the assignment thereof and for which such consent has not been
obtained prior to the Closing;
2.2.12 All non transferable Permits and all governmental business
licenses, permits and equivalent documents used by Seller in the operation of
its businesses other than the Business;
2.2.13 other than the Intellectual Property Rights, all trademark
and service mark registrations and applications and trade name license
agreements to which Seller or any of its subsidiaries is a party, except as
required in the operation of the Business, trade secrets (including customer
lists and customer databases) except as required in the operation of the
Business, copyrights, patents, licenses, know hows, and other proprietary
intellectual property rights as are necessary in connection with the businesses
of Seller and its subsidiaries, except as required in the operation of the
Business, and computer software owned or licensed by Seller and its
subsidiaries, except as required in the operation of the Business during the
last five (5) years and as may be transferable; and
2.2.14 All prepaid items and deposits paid by Seller and its
subsidiaries, other than those transferred for the benefit of Buyer pursuant to
the transfer of the Contracts and Agreements, including without limitation,
prepaid insurance.
ARTICLE 3
PURCHASE PRICE
3.1 PURCHASE PRICE AND ASSUMPTION OF LIABILITIES. Buyer shall at the
Closing assume and become responsible for the Assumed Liabilities defined in
Section 13.2 and, subject to adjustment pursuant to Section 3.3, pay to Seller
$53,000,000 (the "Purchase Price") for the Assets. The Purchase Price shall be
payable as follows:
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3.1.1 $250,000 cash or certified funds as "Earnest Money" to be
deposited with First American Title Insurance Company, Phoenix, Arizona as
"Escrow Agent", and delivered to Seller at the Closing.
3.1.2 $52,750,000 cash or certified funds at the Closing.
3.2 EARNEST MONEY. The Earnest Money shall be deposited by Escrow Agent
in an interest bearing account with interest to be accrued for the benefit of
the party entitled to the Earnest Money hereunder and the term "Earnest Money"
shall include such interest. Buyer shall promptly provide Escrow Agent with a
completed W-9 form.
3.3 PURCHASE PRICE ADJUSTMENT.
3.3.1 DAILY CASH. The Purchase Price shall be increased, at the
Closing, on a dollar-for-dollar basis, by the amount (approximately $680,000) of
cash to be retained in the Business and acquired by Buyer hereunder, which
represents the beginning daily cash on hand in the off-track wagering facilities
and in the concessions.
3.3.2 CONDITION OF ASSETS. The Purchase Price may be reduced, at
Seller's option, as provided in Section 4.2.3.
3.4 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Assets as follows:
Real Property $ 28,000,000.00
Equipment $ 5,000,000.00
Improvements $ 8,500,000.00
Goodwill and Intellectual Property $ 8,327,000.00
Covenant not to Compete $ 3,000,000.00
Inventory and Supplies $ 108,000.00
Liquor License $ 65,000.00
Each of the parties agrees to report the Transactions for Tax purposes
in accordance with such allocation of the Purchase Price. The parties agree to
adjust the amounts set forth above to account for any change in the book value
of the Inventory and Supplies between the date of this Agreement and the
Closing. Buyer shall also furnish Seller with a form of reseller certificate
that complies with the requirements of applicable state taxation laws.
3.5 PRE-CLOSING TICKET CLAIMS. Buyer, subsequent to Closing, shall pay
the holders of those winning parimutuel tickets for races held prior to the
Closing which have not been redeemed as of Closing, but Seller shall immediately
reimburse Buyer for the amounts paid by Buyer with respect thereto.
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ARTICLE 4
SELLER DELIVERIES, REVIEW PERIOD, LICENSING CONTINGENCY
4.1 SELLER DELIVERIES. Within five days of the execution of this
Agreement (or with respect to Section 4.1.1 immediately upon the same becoming
available) Seller shall deliver (or make available as provided in Sections 4.1.4
and 4.1.5 subject to the conditions in Section 4.5) the following to Buyer:
4.1.1 At Seller's expense, a title commitment prepared by the
Escrow Agent or its affiliated title insurer (the "Title Company") with respect
to the Real Property and legible (if available) copies of all exceptions to
title appearing in such report (the "Title Report").
4.1.2 The latest survey, if any, in the possession of Seller or
Company relating to the Real Property and Improvements or such portions thereof
as may be contained in any such survey, with Buyer, at its cost, to obtain any
update thereof or a new survey of the Real Property and Improvements and provide
a copy thereof to Seller.
4.1.3 Copies of all the Contracts and Agreements listed on
SCHEDULE 2.1.6.
4.1.4 Audited financial statements for the Business for the fiscal
years 1997 and 1998 and, as soon as available, for fiscal year 1999, plus
unaudited financial statements for fiscal year 1999 and year-to-date financial
statements for the Business through the month of January, 2000 (the "Financial
Statements"), with the back-up reports, documents and materials relating to such
Financial Statements to be assembled by Seller for review by Buyer at the
Business location.
4.1.5 Copies of all plans, specifications and engineering drawings
in Seller's possession relating to the Improvements and Equipment, all material
written warranties in Seller's, or Company's possession relating to the
Improvements, Equipment and Other Tangible Personal Property and all maintenance
records in Seller's or Company's possession with respect thereto (with the
foregoing to be assembled and made available at the Business, in lieu of being
delivered to Buyer).
4.1.6 Copies of all environmental reports or assessments in
Seller's, or Company's possession or under Seller's or Company's control
relating to the Real Property, Improvements or any of the other Assets.
4.1.7 A list of all Employees of Company together with a statement
of the wages, salaries and benefits paid or owing to each, including all
obligations of any type owed to any Employee.
4.1.8 Copies of all the Permits listed on SCHEDULE 2.1.7.
4.1.9 All trademark, trade name, and copyright registration
numbers and copies of pending applications, filings and other documentation with
respect to the Intellectual Property Rights.
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4.1.10 Copies of documents describing all health plans, medical
plans, dental plans, cafeteria health plans, flexible spending plans, vacation
policies, sick pay policies, bonus policies and other similar plans and policies
maintained by Seller or Company with respect to Employees. If any Employees of
the Business are covered by a Plan maintained or sponsored by Seller or Company,
or to which Seller or Company is obligated to contribute, a copy of the Plan, if
a formal document exists.
4.1.11 A Rent Roll with respect to the recreational vehicle park
on the Real Property listing each tenant by name and specifying the rent and
other charges paid by each, the commencement and termination date of each lease,
the amount of any security deposit and the amount of any delinquent payments.
4.1.12 All documents in Seller's or Company's possession with
respect to the zoning at the Property, including any applications of Seller or
Company for obtaining any rezoning or zoning variances with respect to any of
the Real Property.
4.1.13 Copies of all insurance policies carried by Company for the
Business and the Assets as listed on SCHEDULE 4.1.13 and an accurate list of all
insurance loss runs and workers' compensation claims in Company's possession for
up to the past three policy years, and a complete and correct copy of Company's
most recent filing with the state agency responsible for administering, handling
or overseeing unemployment claims.
If any of the items specified in this Section 4.1 is not timely
delivered (or made available, as the case may be) and such item is material to
the operation of the Business, and there is less than ten (10) business days
remaining in the Review Period, the Review Period may be extended so that there
are ten (10) business days remaining in the extended Review Period, by Buyer
providing Seller written notice of such extension within two business days after
Buyer's receipt of such material item.
4.2 REVIEW PERIOD. Subject to the provision of Section 4.5, Buyer shall
have a time period expiring ninety (90) days from the date of this Agreement to
conduct its review and inspection of the Assets and the documents and
instruments delivered pursuant to this Agreement or provided for Buyer's
inspection pursuant to this Agreement and to determine, in its sole discretion,
the feasibility and desirability of acquiring the Assets pursuant to the terms
hereof (the "Review Period"). During the Review Period, Buyer shall be permitted
to examine and seek information from Employees of the Business provided that
Buyer shall first notify Randy Fozzard ("Fozzard"), Seller's representative, and
Seller may designate Fozzard or another representative to be present during such
examination or inquiry by Buyer, provided that Seller shall not unreasonably
delay Buyer's examination or inquiry. In addition, during the Review Period,
Buyer shall take steps necessary for satisfaction of the Licensing Contingency
(defined in Section 4.3). Buyer may, at any time within the Review Period, elect
to terminate or continue this Agreement by written notice to Seller and Escrow
Agent prior to the end of the Review Period and if Buyer fails to provide such
notice, Buyer shall be deemed to terminate this Agreement. In the event Buyer
provides a conditional notice to continue this Agreement, such notice shall be
deemed a notice of termination unless Seller provides written notice to Buyer
within five (5) business days, of Seller's acceptance, in its sole discretion,
of such conditions. In the event of termination pursuant to
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this Section 4.2,all but $100 of the Earnest Money shall be returned to Buyer
with such $100 to be retained by Seller as consideration for this Agreement.
4.2.1 CONDITION OF ASSETS. In the event Buyer discovers that the
Real Property, Improvements, Equipment or Other Tangible Personal Property is
not in "Operating Condition", Buyer shall immediately so advise Seller in
writing and shall promptly provide Seller a copy of any report, study or written
opinion of Buyer's independent expert ("Buyer's Expert") describing the defect
in the Operating Condition and the estimated cost to repair such defect
(collectively, "Defect Notice"). If Seller receives the Defect Notice prior to
the date sixty (60) days after the date of this Agreement, Seller shall evaluate
the Defect Notice and may engage an expert ("Seller's Expert") to give an
opinion on whether or not such Asset is in Operating Condition, and if not in
Operating Condition, Seller's estimate of the cost to repair such defect
("Seller's Response"). Seller shall provide a copy of Seller's Response to Buyer
within 20 days of receipt of the Defect Notice. If thereafter Buyer and Seller
do not agree on whether such Asset is in Operating Condition or if they do agree
that such Asset is not in Operating Condition, but cannot agree on the cost of
repair, Buyer's Expert and Sellers' Expert shall select a third expert ("Neutral
Expert") who shall determine, as the case may be, (a) whether such Asset is in
Operating Condition; and/or (b) if such Asset is not in Operating Condition, the
cost to repair such Asset so it is in Operating Condition.
4.2.2 OPERATING CONDITION. "Operating Condition" shall mean that
the Asset is operable for the purposes for which it is intended to be used in
the normal operation of the Business, as has been the Company's practice during
the one-year period prior to the date of this Agreement, without regard to
whether the Asset in question has outlived its useful life. Buyer represents and
warrants that as of the date of this Agreement, Buyer is aware of certain facts
relating to the condition of the Assets as described in SCHEDULE 4.2.2, and none
of those facts is a defect in the Operating Condition. Seller has disclosed to
Buyer certain facts relating to the condition of the Assets as described in
SCHEDULE 7.6.2, which Seller does not believe constitute defects in the
Operating Condition of the Assets; however, Seller acknowledges that Buyer has
reserved its rights to determine whether or not such Assets are in Operating
Condition during the Review Period, as provided herein.
4.2.3 REMEDY. In the event any Asset is determined, pursuant to
Section 4.2.1, not to be in Operating Condition and the cost to repair such
Asset(s) exceeds $25,000 in the aggregate, (a) such Asset(s) shall either be
repaired by Seller to Operating Condition or, at Seller's option, replaced (with
comparable new or used equipment in Operating Condition) or (b) at Seller's
option, Buyer shall receive a credit against the Purchase Price for the cost of
repair or replacement (in order to cause such Asset(s) to be in Operating
Condition as determined pursuant to Section 4.2.1), in excess of $25,000. If
Seller elects to repair or replace such Assets(s), the Closing shall not be
delayed for such repair or replacement and Seller shall use commercially
reasonable efforts to complete such repair or replacement within a reasonable
period of time following Closing. Notwithstanding the foregoing, or anything
herein to the contrary, Seller shall have no obligation to repair any Asset, or
to give Buyer a credit against the Purchase Price, if the aggregate cost to
repair such Assets would exceed $2,650,000; in such event, Buyer's sole remedy
shall be to terminate this Agreement as provided in Section 4.2. Notwithstanding
the foregoing, if Seller does not receive a Defect Notice prior to the date
sixty (60) days after the date of this
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Agreement and prior to Buyer giving a Closing Notice, Seller shall have no
obligation to remedy the condition of the Assets pursuant to this Section 4.2.3
or otherwise.
4.3 LICENSING CONTINGENCY. Buyer's acquisition of the Assets is
contingent upon the transfer at the Closing to Buyer or the issuance to Buyer at
Closing of all "Material Permits," consisting of the liquor licenses, restaurant
licenses, gaming licenses, gaming permits, licenses and permits relating to the
off-track wagering facilities and other Permits used in the operation of the
Assets or Business without which the Business could not be operated as it has
been operated by Company as of the date of this Agreement (the "Licensing
Contingency"). Buyer shall be entitled, during the Review Period, to determine
to its satisfaction that the Licensing Contingency will be satisfied at the
Closing (i.e., that the Material Permits can be obtained by Buyer as of the
Closing). In the event Buyer is not so satisfied within the Review Period, Buyer
may continue to pursue the Licensing Contingency for a period of 30 days after
expiration of the Review Period, provided that Buyer has not previously
terminated this Agreement and that Buyer provides written notice to Seller and
Escrow Agent prior to the end of the Review Period of Buyer's election to pursue
the Licensing Contingency for an additional thirty days. Buyer shall not
thereafter have any further right to terminate this Agreement under the
provisions of Section 4.2. If during such additional thirty days, the Licensing
Contingency is not satisfied, Buyer may terminate this Agreement only by written
notice to Seller and Escrow Agent prior to the end of such additional thirty
days that in Buyer's good faith judgment, the Licensing Contingency cannot be
satisfied by the Closing. In the event of such termination all but $100 of the
Earnest Money shall be returned to Buyer which $100 shall be retained by Seller
as consideration for this Agreement. Buyer's failure to timely provide such
notice of termination shall be a waiver of Buyer's right to terminate this
Agreement pursuant to the provisions of this Section 4.3.
4.4 TERMINATION. In the event of any termination of this Agreement
pursuant to the provisions of this Article 4, the parties shall have no further
rights or liabilities or obligations hereunder except for any provisions hereof
which by their terms specifically survive termination of this Agreement.
4.5 ACCESS TO REAL PROPERTY. Buyer and its representative shall have
the right to enter the Real Property during the Review Period upon the following
terms and conditions. Buyer may conduct any inspections or investigations during
business hours provided that Buyer shall not interfere with the operations of
the Business. Seller shall be entitled to a copy of any final (or most recent
draft if not finalized) reports, studies or assessments regarding the physical
or environmental condition of the Real Property or Improvements or other Assets,
without any cost or expense to Seller. Buyer shall always obtain Seller's
express prior permission to enter the Real Property and Seller shall at all
times have a right to have its representative present, provided that Seller
shall not unreasonably delay Buyer's access. Without Seller's prior written
consent, which shall not be unreasonably withheld or delayed, Buyer shall not be
entitled or permitted to perform or cause to be performed any invasive actions
or drilling of the Real Property, Improvements, Equipment or Systems. Buyer
shall indemnify, defend and hold Seller and Company harmless from and against
any Losses which directly or indirectly arise out of Buyer's activities at the
Real Property or the Business before Closing, including without limitation any
costs, expenses and reasonable attorneys' fees incurred by Seller in connection
with defending against or clearing Seller's or
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Company's title to the Real Property of such claims, liens, Actions or
obligations. The foregoing indemnity shall survive the expiration or termination
of this Agreement and the Closing. Buyer covenants that it shall have and shall
determine that its agents and consultants who come on to the Real Property have
workers compensation insurance with satisfactory limits of coverage and
commercial general liability insurance with limits of not less than $2 million
for personal injury including bodily injury and death and property damage.
4.6 TITLE REVIEW. Prior the end of the Review Period, Buyer shall, at
its cost, provide the Title Company and Seller with a current ALTA Survey
sufficient to issue the Title Policy and determine in its sole discretion
whether the endorsements that Buyer desires to be issued in connection with the
Title Policy as described in Section 5.4 will be issued to Buyer's satisfaction.
In the event Buyer gives its unconditional notice of continuation of the
Agreement prior to the end of the Review Period as provided in Section 4.2, such
notice shall be a waiver of Buyer's right to require such endorsements, unless
prior to the end of the Review Period, Buyer has provided Seller with a written
acknowledgment from the Title Company confirming that such endorsements will be
issued by the Title Company as part of the Title Policy.
ARTICLE 5
CLOSING
5.1 TIME AND PLACE OF CLOSING. Unless otherwise agreed to by the
parties, the Transactions shall be closed within 30 days following the
completion of the Review Period or the thirty day extension period provided for
in Section 4.3 for satisfying the Licensing Contingency, if timely elected,
whichever is later but no later than five (5) months from the date of this
Agreement (the "Closing"), at the offices of Escrow Agent at 10:00 a.m. Phoenix
Arizona Time. The date on which the Closing occurs is referred to as the
"Closing Date." Buyer may, at Buyer's option and even though the Review Period,
including any extension of the Review Period for satisfaction of the Licensing
Contingency, has not expired, elect to close the Transactions at any time (on a
business day) by giving written notice ("Closing Notice") to Seller and Escrow
Agent at least fourteen (14) days prior to Buyer's designated date for Closing,
and the Closing Notice shall be deemed to be Buyer's unconditional notice,
pursuant to Section 4.2, of Buyer's election to continue this Agreement and
Buyer's waiver of any rights to have Seller remedy any defect in the Operating
Condition of the Assets, unless prior to Buyer giving the Closing Notice, Seller
has received Buyer's Defect Notice relating thereto, pursuant to Section 4.2.1.
5.2 DELIVERIES BY SELLER. At the Closing, Seller shall deliver to
Buyer, all duly executed:
5.2.1 the Deed in the form attached as EXHIBIT 5.2.1(A) conveying
the Real Property and Improvements to Buyer and a General Conveyance, Assignment
and Bill of Sale in the form of EXHIBIT 5.2.1(B) (the "Bill of Sale");
5.2.2 certified copies of resolutions of the Executive Committee
of the Board of Directors of Seller authorizing the execution of this Agreement,
the sale of the
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Assets to Buyer, and the consummation of the Transactions, along with the bylaws
and an incumbency certificate of Seller, and a resolution of the Board of
Directors of Company authorizing the transfer of the Assets to the Seller.
5.2.3 an opinion of counsel for Seller and Company in
substantially the form of EXHIBIT 5.2.3;
5.2.4 a Covenant not to Compete Agreement for Seller in the form
of EXHIBIT 5.2.4 (the "Noncompetition Agreement");
5.2.5 a closing certificate in the form of EXHIBIT 5.2.5 signed by
a duly authorized officer of Seller;
5.2.6 all original, executed Consents which Seller has obtained
prior to Closing;
5.2.7 a marked-up bringdown of the Title Report evidencing the
Title Company's commitment to issue the Title Policy;
5.2.8 a Certificate in the form of EXHIBIT 5.2.8 stating, under
penalty of perjury, that Seller is not a "foreign person" as defined under the
Code or other appropriate evidence that Buyer is not required to withhold Taxes
under Section 1445(a) of the Code;
5.2.9 copies of all documents conveying (or having the legal
effect of conveying) all of the Assets owned, leased or licensed by Company from
Company to Seller prior to Closing, including, without limitation, the
conveyance of any transferable Material Permits from Company to Seller, if such
transfer is necessary in order for Buyer to obtain such Material Permit, and all
Consents of Governmental Authorities obtained in connection therewith; and
5.2.10 any instruments necessary to transfer to Buyer any of
Seller's or Company's interest in and control of the Horsemen's Account.
5.2.11 such other documents or instruments as Escrow Agent or
Buyer may reasonably request.
5.3 DELIVERIES BY BUYER. At the Closing, Buyer shall deliver to Seller,
all duly executed (where applicable):
5.3.1 the portion of the Purchase Price set forth in Section
3.1.2, as adjusted pursuant to Section 3.3;
5.3.2 the Bill of Sale;
5.3.3 an opinion of counsel for Buyer in substantially the form of
EXHIBIT 5.3.3;
5.3.4 the Non-Competition Agreement;
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5.3.5 a closing certificate in the form of EXHIBIT 5.3.5;
5.3.6 certified copies of resolutions of the appropriate governing
body of Buyer authorizing the execution of this Agreement, the purchase of the
Assets by Buyer and the consummation of the Transactions, along with a copy of
Buyer's Certificate of Limited Partnership and Agreement of Limited Partnership
or any other applicable governing documents;
5.3.7 In the case where the original Buyer's rights under this
Agreement are assigned in accordance with and not in violation of this
Agreement, an original assignment document executed by the original Buyer and
the transferee, reflecting the assignment of all the Buyer's right, title and
interest in this Agreement, pursuant to the provisions of Section 17.1;
5.3.8 copies of any and all consents, waivers or approvals
obtained from governmental authorities or other third parties with respect to
the transfer of the Assets, the consummation of the Transactions or the
operation of the Business by Buyer, including but not limited to evidence of the
satisfaction of the Licensing Contingency; and
5.3.9 such other documents or instruments as Escrow Agent or
Seller may reasonably request.
5.4 TITLE POLICY. Subject to the provisions of Section 4.6, Seller
shall cause the Title Company to furnish to Buyer an ALTA extended Owner's
Policy of Title Insurance in an amount equal to the portion of the Purchase
Price allocated to the Real Property and Improvements as determined pursuant to
Section 3.4, insuring marketable fee simple title to the Real Property subject
only to Permitted Encumbrances (a) through (e) (the "Title Policy"), including,
at Buyer's cost, (a) an endorsement insuring Buyer that there are no violations
of any restrictive covenants, conditions or restrictions affecting the Real
Property; (b) an endorsement insuring there are no encroachments by any
improvement onto the Real Property, any easements, or any building lines or
setbacks affecting the Real Property, or onto any adjacent property other than
those shown on the Survey; (c) if applicable, survey, patent, and water rights
endorsements; (d) an access endorsement insuring that the Real Property has
direct access to a public road or highway; (e) an endorsement that all parcels
of the Property form one contiguous parcel; (f) a zoning endorsement and (g) any
other endorsements that Buyer shall reasonably request.
5.5 INTENTIONALLY OMITTED.
5.6 PRORATIONS.
5.6.1 TAXES AND RENT. The parties shall prorate and apportion, on
a calendar year basis, as of the close of business on the Closing Date, the real
estate taxes and assessments, both general and special, for the Real Property
and personal property taxes based upon the last available tax statement. Seller
shall be responsible for all such taxes and assessments relating to periods
prior to and including the Closing Date and Buyer shall be responsible for all
such taxes and assessments relating to periods after the Closing Date. In the
event that the actual property taxes payable are not ascertainable as of the
Closing Date, then the parties will prorate such taxes on the basis of the
latest available tax bill and will
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make such post-closing adjustment as may be necessary when the actual taxes are
determined. With respect to the leases of spaces in the recreational vehicle
park located upon the Real Property, the parties shall prorate rent, rent taxes
and any other amounts due under the applicable lease. Seller shall receive all
rent for periods prior to and through the Closing Date and Buyer shall receive
all rent for the periods after the Closing Date. If rents relating to the period
prior to and through the Closing Date are received by Buyer, Buyer shall
promptly remit them to Seller.
5.6.2 UTILITIES. All utilities including gas, water, sewer,
electricity, telephone and other utilities supplied to the real property and
used in the Business shall be prorated as of the Closing Date, with Seller being
responsible for the period prior to and including the Closing Date and Buyer
being responsible for the period after the Closing Date. To the extent possible,
Buyer and Seller will make arrangements for all utilities serving the Business
or any of the Assets to be transferred to Buyer's name as of Closing, any
transfer fees shall be shared equally by Buyer and Seller, and Seller shall
receive any deposits or a credit at Closing for an amount equal to such
deposits. All meters shall be read as of the Closing Date.
5.6.3 PREPAID REVENUES AND EXPENSES. Prior to the Closing Date,
Seller shall prepare and deliver to Buyer a calculation of the income and
expense prorations for the Business based on a balance sheet of the relevant
items (the "Closing Balance Sheet") dated as of the last day of the month
immediately preceding the month in which the Closing occurs. The Closing Balance
Sheet shall be prepared in accordance with generally accepted accounting
principles consistently applied and shall reflect Seller's good faith and fair
estimate of the specific data as of the date indicated. The Closing Balance
Sheet shall be used to make a proration of income and expense items on the
Closing Date. If requested by Buyer, Seller shall also deliver the supporting
schedules for such calculation. Seller shall be deemed the owner of the Business
and the Assets for purpose of such prorations through the Closing Date. Any
prepaid revenues relating to the period after the Closing Date shall be credited
to Buyer.
5.6.4 OTHER PRORATIONS AND ADJUSTMENTS. In addition to the
prorations and adjustments provided elsewhere in the Agreement, at the Closing
Buyer and Seller shall prorate all amounts due under the Contracts and
Agreements not dealt with elsewhere in this Agreement so that Seller shall be
responsible for amounts prorated through the Closing Date and Buyer shall be
responsible for all amounts after the Closing Date. Seller shall pay the
standard coverage portion of the premium for the Title Policy and Buyer shall
pay the balance including the cost of the extended ALTA coverage, the survey and
endorsements. Each party shall pay one-half of the fees of Escrow Agent and
other Closing costs not specified herein shall be allocated in the customary
manner in Maricopa County, Arizona, as determined by Escrow Agent.
5.6.5 POST-CLOSING REPRORATION. Promptly after the Closing Date,
Seller will prepare and within sixty (60) days after the Closing Date deliver to
Buyer a calculation of the final income and expenses of the Business based on a
balance sheet of the relevant items as of the Closing Date (the "Final Balance
Sheet") together with any supporting schedules for such calculations as
requested by Buyer. Seller shall pay Buyer an amount equal to the decrease, if
any, between the net amount reflected on the Final Balance Sheet as
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compared with that reflected on the Closing Balance Sheet or Buyer shall pay
Seller an amount equal to the increase, if any, between the net amount reflected
on the Final Balance Sheet as compared to that reflected on the Closing Balance
Sheet. Any such payment shall be made by wire transfer or certified or bank
cashier's check within ten days after delivery of the Final Balance Sheet.
5.6.6 HIRED EMPLOYEE WAGES. Pursuant to Section 10.2.3, Buyer
shall receive a credit in the amount of all accrued bonuses, all earned but
unused vacation and all Social Security Taxes, Medicare Taxes, FICA, and payroll
expenses in respect of the same.
5.6.7 DISPUTE. If Buyer in good faith reasonably disputes any
amount specified on the Closing Balance Sheet or the Final Balance Sheet, Buyer
shall in the case of the Closing Balance Sheet, prior to Closing and in the case
of the Final Balance Sheet, within five (5) business days following receipt of
the Final Balance Sheet, give Seller notice of its objection to the Closing
Balance Sheet or Final Balance Sheet, as the case may be, specifying in
reasonable detail the nature and extent of the objection. If the parties are
unable to resolve the dispute within fifteen (15) business days after Buyer's
receipt of the Final Balance Sheet, then the issues in dispute will be submitted
for resolution to a "Big Five" Accounting firm mutually acceptable to Buyer and
Seller ("Accounting Firm"). If the issues in dispute are submitted to the
Accounting Firm for resolution, each party will furnish to the Accounting Firm
such workpapers and other documents and information relating to the disputed
issues as the Accounting Firm may request and are available to that party (or
its independent public accountants), and will be afforded the opportunity to
present to the Accounting Firm any material relating to the determination and to
discuss the determination with the Accounting Firm. The Accounting Firm shall
make the final determination of the Closing Balance Sheet and Final Balance
Sheet, as the case may be, and such determination will be binding and conclusive
on the parties, and Seller and Buyer will each bear fifty percent (50%) of the
fees of the Accounting Firm for such determination.
5.7 TAX COMPLIANCE CERTIFICATE. Seller shall obtain, prior to Closing
(and as a condition to Closing) pursuant to Arizona Revised Statutes ss.
42-1110B, a certificate from the Arizona Department of Revenue that Seller has
paid all sales taxes due under Titles 42 and 43 of the Arizona Revised Statutes
and provide the same to Buyer.
ARTICLE 6
CERTAIN COVENANTS
6.1 FURTHER ASSURANCE. From time to time from and after the date of
this Agreement and without further consideration, the parties to this Agreement
shall each deliver or cause to be delivered to any other party, at such times
and places as shall reasonably be requested, such additional instruments as any
of the others may reasonably request for the purpose of carrying out this
Agreement and the Transactions. Buyer and Seller agree, without further
consideration, to cooperate and to use reasonable efforts to have their
respective officers and employees cooperate from and after the date of this
Agreement in connection with obtaining all necessary permits and approvals and
in connection with any actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods before Closing.
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6.2 TRANSITION. Seller shall not take any action that is designed or
intended to have the effect of (a) discouraging any customer or business
associate of Company from maintaining the same business relationships with Buyer
after the Closing that such customer or business associate maintained with
Company before the Closing, or (b) interfering with Buyer's operation of the
Business after the Closing. Seller shall refer all customer inquiries relating
to the Business to Buyer from and after the Closing. Further, Seller agrees that
for a period of 90 days following the Closing Date, it will, without additional
consideration, consult with Buyer for the orderly transition of the operations
of the Business from Seller to Buyer. Seller shall not, for a period of 24
months after Closing, hire or attempt to hire any Hired Employee (excluding any
Hired Employee who has not been employed in the Business for three months or
more) without the prior written consent of Buyer.
6.3 CONTACT WITH GOVERNMENT OFFICIALS. Seller shall use its reasonable
commercial efforts to cooperate with Buyer in making contact with (a) the
appropriate Governmental Authorities and officials having information about or
jurisdiction over Seller, the Business, or the Assets, including with respect to
Permits, to assist Buyer in completing its regulatory evaluation of the Business
and the Assets and securing any consents necessary with respect to the Permits
or in securing new permits; and (b) the other parties under the Contracts and
Agreements to secure any Consents necessary with respect thereto. Seller shall
use its reasonable commercial efforts to obtain all Consents necessary with
respect to the Contracts and Agreements before the Closing.
6.4 CONSUMMATION OF TRANSACTIONS. Buyer shall use its reasonable
commercial efforts to take all actions necessary to consummate the Transactions,
including but not limited to obtaining satisfaction of the Licensing Contingency
(as described in Section 4.3), making all regulatory filings, and assisting
Seller in obtaining any Consents.
6.5 EXCHANGE COOPERATION. Buyer and Seller each acknowledge that the
other may transfer or acquire certain of the Assets as part of a tax-deferred
exchange pursuant to Section 1031 of the Internal Revenue Code, and that either
party has the right to restructure all or a part of the within Transaction as
provided in Internal Revenue Code ss. 1031 as a concurrent or delayed
(non-simultaneous) tax deferred exchange for its benefit. Each party agrees to
cooperate, and if requested by the other, to accommodate the other in any such
exchange, provided that (i) such cooperation and/or accommodation shall be at no
further cost or liability to the other party and such exchanging party shall
hereby indemnify the other in connection therewith; and (ii) the restructuring
of the within Transaction shall not prevent nor delay the Closing beyond the
Closing Date. Either party, in electing to structure the sale as an exchange,
shall have the right to substitute another entity or person, who will be such
party's accommodator in such party's place and stead. Buyer and Seller
acknowledge and agree that such substitution will not relieve the herein named
Buyer and Seller of any liability or obligation hereunder, and each shall have
the right to look solely to said herein named Buyer and Seller, as the case may
be, with respect to the obligations of such party under this Agreement.
6.5.1 LOT SPLIT. In the event Buyer desires to modify the legal
description of the Real Property in order to divide the existing parcels to
create the parcels described in SCHEDULE 6.5.1 Seller agrees to cooperate with
Buyer, at Buyer's expense, in preparing and processing a lot split application
provided that Seller shall not incur any liability or expense
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therefor or arising therefrom and that, prior to Closing, the Real Property
shall not become subject to any requirements or impositions resulting therefrom
without Seller's prior written consent, which may be withheld in Seller's sole
discretion. Notwithstanding any provisions of this Agreement, if Buyer's
investigations or inquiries with Governmental Authorities in connection with a
proposed lot split result in any notice of violation, Seller shall have no
obligation or liability therefor.
6.6 TAX COOPERATION. After the Closing, the parties shall, and shall
cause their respective Affiliates to, cooperate with each other in the
preparation of all tax returns and shall provide, or cause to be provided, to
such other party any records and other information reasonably requested by such
party in connection therewith as well as access to, and the cooperation of, the
auditors of such other party and its Affiliates. After the Closing, the parties
shall, and shall cause their respective Affiliates to, cooperate with the other
party in connection with any tax investigation, tax audit or other tax
proceeding relating to the Business, including Buyer making its employees
available to testify on the behalf of Seller or Company in connection with any
such investigation, audit or other proceeding. Any information obtained pursuant
to this Section relating to taxes shall be kept confidential by the other party.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that the statements contained
in this Article 7, except as set forth in the Disclosure Schedules, are correct
and complete as of the date of this Agreement. The representations and
warranties contained in this Article 7 shall survive Closing for the period
described in Section 14.1.
Wherever a representation or warranty in this Agreement is qualified as
having been made "to the best of Seller's knowledge," or based on the knowledge
of Seller such phrase or equivalent phrase shall mean the actual knowledge
(without any duty to investigate or inquire) of R.D. Hubbard, G. Michael
Finnigan, Randy Fozzard and Carl Edward Prince.
7.1 ORGANIZATION; AUTHORITY; NAME.
7.1.1 Seller and Company is each a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation. Company is, and at Closing, Seller will be, duly authorized,
qualified and licensed under all applicable Laws, regulations, ordinances and
orders of public authorities to carry on the Business in the places and in the
manner as presently conducted, except for where the failure to be so authorized,
qualified or licensed would not have a Material Adverse Effect.
7.1.2 Seller has the full legal right, power and authority to
enter into this Agreement and to consummate the Transactions, subject to
obtaining the Consents. All corporate action of Seller necessary to approve the
Transactions has been taken.
7.2 NO CONFLICT. The execution, delivery and performance of this
Agreement by Seller and the consummation of the Transactions do not and will
not: (a) violate, conflict with or result in the breach of any provision of
Seller's Certificate of Incorporation or
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Bylaws; (b) provided that (i) all Consents to the transfer of the Permits are
obtained, as described in SCHEDULE 7.15.1, (ii) all Material Permits are
obtained by Buyer and (iii) all requirements under the Hart-Scott-Rodino Act, if
applicable, are complied with, conflict with or violate any Law or Governmental
Order applicable to the Assets, the Business, or Seller, or any of their
respective assets, properties or businesses which conflict or violation would
have a Material Adverse Effect; or (c) except as set forth in SCHEDULE 7.2(C) or
SCHEDULE 7.15.1, conflict with, result in any breach of, constitute a default
(or event which with the giving of notice or lapse of time would become a
default) which would have a Material Adverse Effect under, require any Consent
which if not obtained would have a Material Adverse Effect under, or give to any
other Person any rights of termination, amendment, acceleration, suspension,
revocation or cancellation which would have a Material Adverse Effect of, or
result in the creation of any Encumbrance on the Assets which would have a
Material Adverse Effect pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, sublease, license, permit, authorization, franchise
or other instrument or arrangement relating to the Business to which Seller or
Company is a party or by which any of the Assets are bound.
7.3 FINANCIAL STATEMENTS; BOOKS AND RECORDS. The Financial Statements:
(a) were prepared in accordance with Company's books of account and other
financial records; (b) present fairly in all material respects the Business'
financial condition and results of operations and cash flows as of the dates
thereof or for the periods covered thereby, subject in the case of the unaudited
Financial Statements to normal recurring year-end adjustments (the effect of
which will not, individually or in the aggregate, have a Material Adverse
Effect); and (c) have been prepared in accordance with generally accepted
accounting principles consistently applied, except, (1) in the case of the
unaudited Financial Statements, for the lack of explanatory footnote disclosures
and (2) no income Taxes have been reflected thereon.
7.4 INVENTORIES AND SUPPLIES. The Inventories and Supplies are in good
and usable condition and are suitable and usable for the purposes for which they
are intended in the Business, in all material respects.
7.5 INTELLECTUAL PROPERTY RIGHTS.
7.5.1 SCHEDULE 7.5.1 sets forth: (a) all registrations for
Intellectual Property Rights and all pending registrations and applications
therefor, that Seller or Company has owned, used or licensed in connection with
the operation of the Business during the last five (5) years, indicating which
are owned and which are licensed; (b) all contracts, agreements or other
arrangements under which Seller has granted, or is obligated to grant, rights to
others to use, reproduce, market or exploit any Intellectual Property Rights;
and (c) all names, assumed or otherwise, under which Seller has conducted the
Business in the last three (3) years.
7.5.2 To the best of Seller's knowledge, Seller is not infringing
upon or otherwise acting adversely to the right or claimed right, of any Person
under or with respect to any Intellectual Property Rights which would have a
Material Adverse Effect, nor has Seller received written notice of any such
claim which has not been resolved.
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7.6 TANGIBLE PERSONAL PROPERTY.
7.6.1 SCHEDULE 2.1.3 is a complete and accurate list in all
material respects of all Equipment required in the operation of the Business and
SCHEDULE 2.1.4 is a complete and accurate list in all material respects of all
Other Tangible Personal Property required in the operation of the Business.
7.6.2 Except as provided on SCHEDULE 4.2.2 and SCHEDULE 7.6.2, the
Equipment, Other Tangible Personal Property and other of the Assets constituting
tangible personal property which are used in the operation of the Business (and
excluding such items as non-operating motor vehicles not currently used in the
Business and other items of Equipment which have been replaced and are no longer
used in the Business) are in Operating Condition.
7.6.3 Company or Seller either owns all of the Assets constituting
tangible personal property or leases them under an agreement, which lease
agreement is indicated on SCHEDULE 2.1.6. Seller has not: (a) received any
written notice of cancellation or termination under such lease; or (b) received
any written notice of a breach or default under such lease, which breach or
default has not been cured. To the best of Seller's knowledge, neither Seller
nor any other party to such lease, is in breach or default in any material
respect, and no event has occurred that, with notice or lapse of time would
constitute such a material breach or default or permit termination, modification
or acceleration under such lease.
7.7 REAL PROPERTY.
7.7.1 SCHEDULE 2.1.1 sets forth a complete and accurate legal
description of the Real Property. At Closing, Seller will have good and
marketable fee simple title to the Real Property free and clear of any and all
Encumbrances, other than Permitted Encumbrances and other Encumbrances that do
not adversely affect the use of such Real Property in the Business.
7.7.2 Except as provided on SCHEDULE 4.2.2 and SCHEDULE 7.6.2, the
Real Property and Improvements are in Operating Condition.
7.7.3 Company presently enjoys peaceful and quiet possession of
the Real Property and Improvements and to the best of Seller's knowledge, there
is no condemnation or eminent domain proceeding pending or threatened against
any of the Real Property or Improvements.
7.7.4 To the best of Seller's knowledge, except for Laws, the
Permitted Encumbrances, the matters disclosed in this Agreement and the
Disclosure Schedules, there are no unrecorded contracts, leases or other
agreements affecting the title, occupancy or development of the Real Property
and Improvements, and no Person has any right of first refusal, option or the
right to acquire all or any part of the Real Property.
7.7.5 Seller is not a "foreign person" as the term is defined in
Section 1445 of the Code.
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7.8 CONTRACTS.
7.8.1 SCHEDULE 2.1.6 is a complete and accurate list of the
Contracts and Agreements as of the date of this Agreement, true and complete
copies of which will be made available to Buyer under Section 4.1.3. None of the
Contracts and Agreements listed on SCHEDULE 2.1.6 has been amended, except as
provided in SCHEDULE 2.1.6. To the best of Seller's knowledge, all Contracts and
Agreements are in full force and effect and are valid, binding and enforceable
against the respective parties thereto in accordance with their respective
terms, and to the best of Seller's knowledge, Seller is not in default in, nor
has there occurred an event or condition (other than Seller's execution and
delivery of or performance under this Agreement) which, with the passage of time
or the giving of notice, would constitute a default with regard to the payment
or performance of any obligation under any Contract or Agreement, which default
would have a Material Adverse Effect.
7.8.2 Except as set forth on SCHEDULE 7.2(C), none of the Material
Contracts and Agreements requires the Consent of any Person for such Contract
and Agreement to be assigned to Buyer under this Agreement.
7.9 INSURANCE POLICIES. All insurance policies described in SCHEDULE
4.1.13 are in full force and effect and shall remain (or be replaced by similar
coverage) in full force and effect through the Closing Date.
7.10 EMPLOYEES; EMPLOYEE BENEFITS. SCHEDULE 7.10 is a complete and
accurate list of all Employees, their date of hire and their rate of
compensation as of the date of this Agreement (including a breakdown of the
portion thereof attributable to salary, bonus and other compensation,
respectively). Neither Seller nor Company maintains a Plan with respect to the
Employees except as disclosed on SCHEDULE 7.10 (a true, correct and complete
copy of which is to be delivered to Buyer as required under Section 4.1.10) and
to the best of Seller's knowledge, Seller and Company are in compliance with all
Laws with respect to such Plans.
7.11 LABOR MATTERS. No collective bargaining or other labor union
contracts apply to Company's Employees. To the best of Seller's knowledge, there
are no union organized activities with respect to the Business undertaken during
the prior five years.
7.12 COMPLIANCE WITH LAW. Except as disclosed in SCHEDULE 7.12 and
SCHEDULE 7.15.2, (a) to the best of Seller's knowledge, Company has conducted
and continues to conduct the Business in accordance with and in compliance with
all applicable Laws, Permits and Governmental Orders in effect on the date of
this Agreement, (b) there is no violation of any applicable Law, Permit or
Governmental Order in effect on the date of this Agreement which will result in
a Governmental Authority ordering (i) that horse racing cease at the Real
Property within one (1) year after the Closing, or (ii) that such violation be
cured as a condition to such Governmental Authority not requiring that horse
racing cease at the Real Property within one (1) year after the Closing, and (c)
neither Seller nor Company has received any current written citation or written
notice that (1) Seller or Company is under investigation or (2) subject to other
form of Action relating to the Assets or the Business with respect to any
applicable Law. Notwithstanding the foregoing, Seller shall have no liability
hereunder if a Governmental Authority shall require that horse racing cease
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at the Property, conditionally or unconditionally, if such requirement is a
result of Buyer's or any other Person's operation of the Business or the Real
Property in a manner other than as operated by Company or Seller within the year
prior to the Closing. To the best of Seller's knowledge, all Employees required
to hold licenses or permits for the operation of the Business are so licensed or
permitted and qualified to hold such licenses.
7.13 TAXES. Seller (i) has filed or will file in true and correct form
all Tax returns required to be filed by it, and (ii) has timely paid or has made
appropriate provision for on its balance sheet (in accordance with generally
accepted accounting principles) all material Taxes whether or not shown to be
due on or with respect to such Tax returns or claimed to be due from it by any
governmental authority with respect to any liability for Taxes, except in the
case of clauses (i) or (ii) for failures which would not reasonably be expected
to result in a Material Adverse Effect. There are no Tax liens upon any of the
Assets, except for current taxes not yet due.
7.14 LITIGATION. Except as set forth on SCHEDULE 7.14, no Action as to
which legal process has been served on Seller or Company is pending and, to the
best of Seller's knowledge, no Action has been threatened against Seller or
Company relating to the Assets or the Business, at law or in equity, which is
reasonably likely to result in a Material Adverse Effect. Also listed on
SCHEDULE 7.14 are all instances where Seller or Company is the plaintiff, or
complaining or moving party, in any Action related to the Assets or the
Business.
7.15 PERMITS; HAZARDOUS MATERIALS.
7.15.1 SCHEDULE 7.15.1 identifies all Material Permits that will
require the Consent of any Governmental Authority to consummate the
Transactions. To the best of Seller's knowledge, Company currently holds all
Permits, including Environmental Permits, necessary for the current use,
occupancy and operation of each Asset and the conduct of the Business, and all
such Permits are in full force and effect, except where the failure to have such
Permit in full force and effect would not have a Material Adverse Effect.
Neither Seller nor Company has received any written notice from any Governmental
Authority revoking, canceling, rescinding, materially modifying or refusing to
renew any Material Permit or providing written notice of violations under any
Environmental Law which notice has not been satisfactorily resolved.
7.15.2 Except as disclosed on SCHEDULE 7.15.2, to the best of
Seller's knowledge, there have been no Releases into the Environment or onto or
under the Real Property or any other real property now or in the past owned,
leased or used by Seller of any Hazardous Materials in violation of any law,
rule or regulation. Except as disclosed on SCHEDULE 7.15.2, no Encumbrance has
been imposed against Seller or any of the Assets under any Environmental Law
and, to the best of Seller's knowledge, no facts or circumstances exist which
could reasonably be expected to give rise to the imposition of any such
Encumbrance. Except as disclosed on SCHEDULE 7.15.2, to the best of Seller's
knowledge, no portion of the Real Property is listed on the CERCLIS list or the
National Priorities List of Hazardous Waste Sites. Seller has not received
written notice that it is listed as a potentially responsible party with respect
to the Assets or Business or as a result of the operation of the Assets or
Business under any Environmental Law.
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7.15.3 Except as disclosed on SCHEDULE 7.15.2, to the best of
Seller's knowledge, any underground or above-ground storage tanks, and piping
associated with such tanks, containing Hazardous Materials, petroleum products
or wastes or other hazardous substances regulated by 40 CFR 280 or other
Environmental Law located on the Real Property now or in the past owned, leased
or used by Seller or Company, have been used and maintained in material
compliance with all Environmental Laws. To the best of Seller's knowledge,
SCHEDULE 7.15.2 also designates the location of each underground and above
ground storage tank and the location of documentation concerning each such tank.
7.16 TOTALITY OF ASSETS. Except as disclosed in SCHEDULE 7.16,
Company has, and at the Closing Seller will have, good and marketable title to
the Assets, or, in the case of leased or subleased Assets, valid and subsisting
leasehold interests in all such Assets, free and clear of all Encumbrances other
than Encumbrances which will be removed at Closing, Permitted Encumbrances and
other Encumbrances that do not adversely affect the use of such Assets in the
Business. The Assets (other than the Excluded Assets) constitute all the assets
and rights forming a part of, used in or held for use in the conduct of, the
Business.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants that the statements contained in this
Article 8: (a) are correct and complete as of the date of this Agreement; and
(b) will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this Article 8). The representations and warranties contained in this
Article 8 shall survive Closing for the period described in Section 14.1.
8.1 AUTHORITY. Buyer has the full legal right, power and authority to
enter into this Agreement and to consummate the Transactions. All action of
Buyer necessary to approve the Transactions has been taken.
8.2 GOVERNMENTAL CONSENTS AND APPROVALS. Except for Hart-Scott-Rodino
Act approval, if applicable, the execution, delivery and performance of this
Agreement by Buyer do not and will not require any Consent or other action by,
filing with, or notification to, any Governmental Authority.
8.3 BINDING AGREEMENT. Buyer has duly executed and delivered this
Agreement, and (assuming due authorization, execution and delivery by Seller)
this Agreement constitutes a legal, valid and binding obligation of Buyer
enforceable against Buyer in accordance with its terms.
8.4 EFFECT OF AGREEMENT. The execution, delivery and performance by
Buyer of this Agreement, and the consummation by it of the Transactions, will
not violate any governing documents of Buyer or any law, regulation, order,
judgment, award or decree of any Governmental Authority or any material
indenture, material agreement or other material instrument to which Buyer is a
party, or by which Buyer or its properties or assets are bound, or conflict
with, result in a breach of or constitute (with due notice or lapse of time or
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both) a default under, any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge, security interest or
encumbrance of any nature whatsoever upon any of the properties or assets of
Buyer, except to the extent the effect of any such violation, breach or default
will not be materially adverse to Buyer's ability to fulfill its obligations
under this Agreement.
8.5 FINANCING. Buyer has $25 million (through cash on hand and/or
existing credit arrangements) committed as equity and has an acceptable proposal
dated February 10, 2000 from Bank One Arizona N.A. to provide sufficient
financing to consummate the Transactions. Buyer agrees to accept the Bank One
financing proposal if Buyer does not accept any other financing proposal
sufficient to consummate the Transactions. This Agreement and Buyer's
obligations hereunder are not contingent upon Buyer obtaining financing.
8.6 INVESTIGATION OF THE ASSETS AND BUSINESS. Except as expressly
provided in this Agreement, Buyer is purchasing the Assets without any
warranties, representations or guaranties, either express or implied, from or on
behalf of Seller, including, but in no way limited to, any warranty of
condition, merchantability, habitability or fitness for a particular use or
purpose, marketability, prospects for future development or compliance with Law,
and Buyer hereby expressly waives any implied warranties or representations
relating to the Assets or any matter affecting the Assets or the Business other
than those expressly provided in this Agreement. Buyer has heretofore undertaken
and will as of the Closing Date have made all such inquiries and investigations
regarding the Assets and all matters relating thereto and to the Business as
Buyer deems necessary or appropriate under the circumstances, without waiving,
except as otherwise provided in this Agreement, its right to rely on the
representations and warranties of Seller expressly set forth in this Agreement.
All material prepared by third parties and delivered to Buyer by Seller,
Company, the agents of either, or any other Person acting for or on behalf of
Seller, whether in the form of maps, surveys, reports, studies, and all other
review matters have been furnished by Seller to Buyer solely as a courtesy, and
neither Seller nor its agents has verified the accuracy of such information or
the qualifications of the Persons preparing such information.
8.7 LICENSING. Buyer knows of no facts, which, if known to any
applicable regulator, including but not limited to the Arizona Racing
Commission, Arizona Gaming Commission and Nevada Gaming Board, could reasonably
be expected to disqualify Buyer (or any of its officers, directors,
shareholders, partners, members, employees or other personnel, that may be
required to be licensed) from licensing under any applicable Law, including but
not limited to Arizona and Nevada gaming and/or racing laws, or which would
prevent or materially delay the grant of licenses or approvals which are the
subject of the Licensing Contingency or necessary for Buyer to consummate the
Transactions. Buyer knows of no reason why Buyer (or any of its officers,
directors, shareholders, partners, members, employees or other personnel, that
may be required to be licensed) would be denied any license or approval
necessary to consummate the Transactions or of any reason why such licensing or
approval would be materially delayed.
8.8 CONDITION OF ASSETS. Except as set forth in SCHEDULE 4.4.2,
SCHEDULE 7.12, SCHEDULE 7.6.2 and SCHEDULE 7.15.2, Buyer knows of no fact or
circumstance which would
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make the representations and warranties in Section 7.6.2, Section 7.7.2 and
Section 7.12 untrue or incorrect.
ARTICLE 9
COVENANTS OF SELLER BEFORE CLOSING
9.1 ACCESS TO LAND AND RECORDS. Between the date of this Agreement and
the Closing Date, subject to Buyer's compliance with the terms and conditions
set forth in Section 4.5, Seller shall: (a) at reasonable times and upon
reasonable notice, grant Buyer and its representatives access to the Real
Property (including for the purpose of performing testing, inspections and other
procedures considered desirable by Buyer), the Assets and the books and records
of Company, (b) furnish Buyer with such additional financial and operating data
and other information as to the Assets and the Business as Buyer may reasonably
request, including audited financial statements for the Business as they become
available in the ordinary course of the Business, (c) if to Seller's knowledge,
there exists a fact or circumstance which would make a representation or
warranty of Seller in this Agreement untrue at the Closing, promptly give notice
of such fact or circumstance to Buyer; and (d) cooperate with Buyer and its
representatives in the preparation of any documents or other material which may
be required by any Governmental Authority in connection with the consummation of
the Transactions.
9.2 ACTIVITIES OF SELLER BEFORE CLOSING. Until the Closing, Seller
shall:
9.2.1 maintain the Assets in all material respects in the same
working order and condition (ordinary wear and tear excepted), subject to the
provisions of Section 17.17, as the Assets are in as of the date of this
Agreement;
9.2.2 timely perform all of its obligations under the Contracts
and Agreements;
9.2.3 keep in full force and effect present (or reasonably
comparable) insurance policies, bonds, letters of credit or other insurance
coverage for the Real Property, Improvements, other Assets and the operation of
the Business;
9.2.4 use its commercially reasonable efforts consistent with its
past practices to preserve intact the Assets, subject to the provisions of
Section 17.17, and to keep available the services of its Employees and maintain
good relationships with suppliers, customers and others having business
relationships with Company;
9.2.5 cooperate with Buyer to promptly prepare the necessary
documents so that the Transactions may be closed on or before the Closing Date;
9.2.6 maintain the amounts of Inventory and Supplies, consistent
with the prior practices of Seller with respect to inventory and supplies
maintained during periods when the Business is running (i.e. during the time of
year when races are held at the Turf Paradise facility).
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9.2.7 provide reasonable assistance to Buyer to provide for an
orderly transfer of the Assets from Seller to Buyer, without incurring any
liability by reason thereof.
9.2.8 Otherwise conduct Business as it is currently being
conducted and consistent with past practices.
9.3 PROHIBITED ACTIVITIES BEFORE CLOSING. Until the Closing, Seller
shall not, other than in the ordinary course of operation of the Business,
without the prior written consent of Buyer:
9.3.1 cause any new Encumbrance upon any Asset which will not be
released at Closing;
9.3.2 breach, amend or terminate any of its material Contracts and
Agreements in any material manner or fail to maintain the Business, the Assets
or the quality of customer service consistent with past practice which failure
would have a Material Adverse Effect; or
9.3.3 enter into any transaction outside the ordinary course of
the Business or otherwise prohibited under this Agreement.
9.4 STANDSTILL AGREEMENT. Seller shall not, directly or indirectly,
solicit offers for the Real Property or the Business (including the Assets in
the aggregate). In the event Seller receives an unsolicited offer, Seller may
indicate that it will not respond to such offer because of the existence of this
Agreement.
ARTICLE 10
ADDITIONAL AGREEMENTS OF PARTIES
10.1 HART-SCOTT-RODINO ACT. If applicable, each of Buyer and Seller
undertake and agree to file as soon as practicable, and in any event within 15
days after the date of this Agreement, a Notification and Report Form with the
United States Federal Trade Commission (the "FTC") and the Antitrust Division of
the United States Department of Justice (the "DOJ") that complies with the
provisions of the Hart-Scott Rodino Act. Each of Buyer and Seller shall respond
as promptly as practicable to any requests received from the FTC or the DOJ for
additional information or documentation and to all inquiries and requests
received from any state attorney general or other Governmental Authority in
connection with antitrust matters.
10.2 EMPLOYMENT MATTERS.
10.2.1 OFFERS OF EMPLOYMENT. Buyer agrees that it will offer
employment to all active Employees, and all Employees on approved leaves of
absence of 90 days or less, currently working exclusively for the Business on
the Closing Date. Subject to applicable Law, such employment by Buyer for each
Hired Employee will be at will, with rights of termination at any time without
cause. Each Hired Employee shall be a new employee of Buyer, with no
continuation of the prior employment relationship with Seller and with no
assumption by Buyer of any promises, agreements, contracts or policies of Seller
relating to
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Employees; in particular, Buyer shall not be obligated to provide or maintain
any employee benefit plans or programs whatsoever. Notwithstanding the preceding
sentence, Buyer agrees, for one year following the Closing Date, to provide a
group health Plan (within the meaning of Section 4980B(f)(2)(B)(iv)(I))
("Buyer's Medical Plan") and a profit sharing Plan qualified under Sections
401(a) and 401(k) of the Code ("Buyer's 401(k) Plan"), both containing such
terms and provisions as Buyer may determine in its sole discretion, except as
provided herein. Each Hired Employee's period of service with Seller or Company
shall be counted for purposes of determining eligibility for and vesting of
benefits under Buyer's 401(k) Plan, as if such period of service had been with
Buyer. Each Hired Employee's service with Seller or Company shall also be
credited toward any waiting period under Buyer's Medical Plan, as if such
service had been with Buyer. As of the Closing Date, or as soon as practicable
thereafter, Seller shall make all required contributions to Seller's 40l(k)
Investment Plan and all other Plans sponsored or maintained by Seller ("Seller's
401(k) Plans") for the Employees for all periods before the Closing Date. Buyer
shall allow, after the Closing Date, a "direct rollover" (but no "plan to plan
transfer") of Hired Employee accounts (including loans to participants) from
Seller's 401(k) Plans to Buyer's 401(k) Plan, within a reasonable period after
Seller provides assurances and documentation to Buyer's reasonable satisfaction
that Seller's 401(k) Plans are qualified under Section 401(a) of the Code, that
the amounts to be direct rollovers are "eligible rollover distributions," within
the meaning of the Code, and that the participant loans to be directly rolled
over comply in form and operation with the Code, ERISA, and the terms of
Seller's 401(k) Plans. Seller shall be responsible for offering COBRA
continuation coverage for Seller's current and former Employees who are entitled
to elect such coverage, subject to the foregoing regarding Buyer providing
Buyer's Medical Plan for Hired Employees.
10.2.2 PERSONNEL RECORDS. After the expiration of the Review
Period and any thirty day extension of the Licensing Contingency period as
provided in Section 4.3 but prior to the Closing Date, Buyer and Seller shall
issue a joint letter notifying all Employees that Buyer is purchasing the
Business and intends to make offers of employment to all Employees. The letter
may indicate, at Buyer's request, that all Employees interested in being
eligible to receive an employment offer from Buyer must consent to the release
of his or her personnel and other employment related files to Buyer prior to
Closing. Prior to Closing, Seller shall transfer to Buyer personnel and other
employment related records of each Employee who has consented to the transfer of
such records. Notwithstanding the foregoing, Buyer shall not have access to
personnel and other employment related records of Seller or Company relating to
individual performance or evaluation records, medical histories or other
information which in Seller's or Company's reasonably good faith opinion is
prohibited by Law. Buyer shall have no obligation under this Agreement to make
an offer of employment to any Employee who does not consent to the release of
his or her personnel and other employment related files to Buyer prior to
Closing. Prior to the Closing Date, Seller shall transfer to Buyer compensation
and service history of each Hired Employee.
10.2.3 PAYMENT OF ACCRUED WAGES, BONUS AND EXPENSES. Seller or
Company shall pay all accrued but unpaid wages (and all Social Security Taxes,
Medicare Taxes, FICA and payroll expenses relating thereto) and earned but
unused vacation, in each case as of the Closing Date, to any Employee who does
not accept Buyer's offer of employment. To the extent any Hired Employee has
accrued but unpaid wages as of the Closing Date, Seller or Company shall pay to
such Hired Employee such amounts as such
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Hired Employee is entitled to receive as of the Closing Date, and shall pay all
Social Security Taxes, Medicare Taxes, FICA, and payroll expenses in respect of
such wages. To the extent any Hired Employee has accrued bonuses or earned but
unused vacation as of the Closing Date, Seller shall pay to Buyer (in the form
of a proration pursuant to Section 5.6.6) the collective amount of such accrued
bonuses (and the amount of Social Security Taxes, Medicare Taxes, FICA and
payroll expenses with respect thereto) and earned but unused vacation.
10.3 POST-CLOSING. If additional assets or rights owned by Seller or
Company forming a part of, used primarily in, intended to be used primarily in,
or necessary in the conduct of, the Business, other than Excluded Assets, are
identified post-Closing as not having been adequately transferred to Buyer,
Seller shall promptly transfer and assign to Buyer such assets or rights without
additional consideration. Similarly, if, after the Closing Date, Excluded
Assets, including, but not limited to, proprietary information of Seller, shall
remain on the Real Property, then Buyer shall take reasonable efforts to deliver
such Excluded Assets to Seller at the expense of Seller and, so long as such
information shall remain on the Real Property, Buyer shall exercise the same
reasonable degree of care with respect thereto as it does with respect to its
own property.
ARTICLE 11
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are subject to the
completion and satisfaction, on or before the Closing Date of the following
conditions (unless and to the extent waived by Seller):
11.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer contained in Article 8 of this Agreement shall be accurate on and as of
the Closing Date. The Closing shall not result in the waiver of any claim on a
representation or warranty made by Buyer hereunder, unless prior to Closing,
Seller had knowledge that such representation or warranty was incorrect or
untrue.
11.2 COVENANTS. Buyer shall have duly complied with or performed each
of the material covenants of this Agreement to be complied with or performed by
Buyer on or before the Closing Date.
11.3 NO ADVERSE INJUNCTION. No injunction (preliminary, temporary or
permanent) shall have been issued by a Governmental Authority restraining or
prohibiting any of the Transactions.
11.4 GOVERNMENTAL APPROVALS. Buyer and Seller shall have obtained all
Consents of Governmental Authorities required for consummation of the
Transactions, including but not limited to those required under the
Hart-Scott-Rodino Act, if applicable, and Buyer shall have obtained all Material
Permits and all applicable waiting periods shall have expired.
11.5 MATERIAL CONSENTS. The Consents for the Material Contracts and
Agreements shall have been obtained.
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11.6 CLOSING DELIVERIES. Buyer shall have timely delivered (if required
to be delivered before the Closing) or shall be prepared to deliver the items
set forth in Section 5.3.
ARTICLE 12
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to the
completion and satisfaction on or before the Closing Date of the following
conditions (unless and to the extent waived by Buyer):
12.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Seller contained in Article 7 (other than Sections 7.6.2 and 7.7.2, which
shall expire at the expiration of the Review Period) of this Agreement shall be
accurate on and as of the Closing Date (except where such representation and
warranty is made as of a date specifically set forth therein), except where the
failure to be accurate relates to matters which could not reasonably be expected
to have a Material Adverse Effect. Except as provided otherwise in this
Agreement, the Closing shall not result in the waiver of any claim on a
representation or warranty made by Seller hereunder, unless prior to Closing,
Buyer had knowledge that such representation or warranty was incorrect or
untrue.
12.2 COVENANTS. Seller shall have duly complied with or performed in
all material respects each of the material covenants of this Agreement to be
complied with or performed by Seller on or before the Closing Date.
12.3 NO ADVERSE INJUNCTION. No injunction (preliminary, temporary or
permanent) shall have been issued by a Governmental Authority restraining or
prohibiting any of the Transactions.
12.4 NO ADVERSE CHANGE OR MATERIAL ADVERSE EFFECT. No change in the
results of operations, financial condition of the Business shall have occurred
since the date hereof which would have a Material Adverse Effect. Company shall
not have suffered any loss or damage to any of the Assets, which loss or damage
would result in a Material Adverse Effect or would materially impair Buyer's
ability to operate the Business after the Closing Date.
12.5 PERMITS, ETC. The Licensing Contingency shall have been satisfied.
12.6 GOVERNMENTAL APPROVALS. Seller and Buyer shall have received all
Consents of Governmental Authorities required for consummation of the
Transactions, including but not limited to those required under the
Hart-Scott-Rodino Act, if applicable, and all waiting periods shall have
expired.
12.7 MATERIAL CONSENTS. The Consents for the Material Contracts and
Agreements shall have been obtained.
12.8 TITLE POLICY. The Title Company shall be in a position to issue
the Title Policy, and such endorsements as Buyer may have obtained pursuant to
Section 4.6.
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12.9 ENCUMBRANCES. No Encumbrance or encroachment whatsoever shall be
of record as of the Closing,except for Permitted Encumbrances.
ARTICLE 13
LIABILITIES
13.1 NON-ASSUMPTION OF LIABILITIES. Except for the Assumed Liabilities
and as explicitly set forth in this Agreement, Buyer shall not, by the execution
and performance of this Agreement or otherwise (including under theories of
successor liability), assume, become responsible for or incur any Liability of
any nature of Seller or any other Person, including any Liability arising out of
or relating to: (a) any occurrence or circumstance (whether known or unknown)
which occurs or exists before the Closing Date and which constitutes, or which
by the lapse of time or giving notice would constitute, a breach or default
under any lease, contract, or other instrument or agreement (whether written or
oral) including the Permits and the Contracts and Agreements; (b) injury to or
death of any Person or damage to or destruction of any property, subject to the
provisions of Section 17.17, occurring before the Closing Date, whether based on
negligence, breach of warranty, or any other theory, against which Seller
indemnifies Buyer pursuant to Section 14.2; (c) violation of the requirements of
any applicable Law or Governmental Authority or of the rights of any third
Person, including any requirements relating to the reporting and payment of
Taxes, against which Seller indemnifies Buyer pursuant to Section 14.2; (d) the
Release of Hazardous Materials by the Company occurring prior to the Closing
Date, against which Seller indemnifies Buyer pursuant to Section 14.2.1; (e) any
Liabilities arising prior to the Closing Date under any agreement or arrangement
between Seller and the Employees of Seller or any labor or collective bargaining
unit representing any such Employees; (f) any Plan of Seller; (g) any severance
pay obligation of Seller or of any Plan or any other fringe benefit program
maintained or sponsored by Seller or to which Seller contributes or any
contributions, benefits or Liabilities therefor or any Liability for the
withdrawal or partial withdrawal from or termination of any such Plan or program
by Seller; (h) any obligations related to any of the Excluded Assets; (i) any
Liability resulting from non-compliance with any applicable plant-closing or
bulk sales Laws; and (j) any Liabilities of Seller not specifically assumed by
Buyer under this Agreement.
13.2 ASSUMPTION OF LIABILITIES. On the terms and subject to the
conditions set forth in this Agreement, at the Closing Buyer shall assume and
become responsible for all of the following liabilities and obligations whether
absolute, contingent, accrued or otherwise (the "Assumed Liabilities") (a) any
and all liabilities, obligations and commitments arising or occurring on or
after the Closing Date under the transferred Permits and Contracts and
Agreements; (b) all Liabilities and Obligations arising out of events or
transactions on or after the Closing in connection with the operation of the
Business by Buyer; (c) any and all liabilities, obligations and commitments of
Seller or Company specifically undertaken by Buyer pursuant to any other
provision of this Agreement, including but not limited to Section 3.5; (d) any
and all obligations of the lessor arising under the leases relating to the
recreational vehicle park arising or relating to events or for performance on or
after the Closing; (e) all liabilities arising as a consequence of the physical,
seismic or environmental condition of the Assets (other than the Excluded
Assets) on and after the Closing Date, except to the extent that Seller is
obligated to indemnify Buyer therefor or otherwise is liable
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with respect thereto under Section 14.2 or 14.2.1 of this Agreement; (f) accrued
liabilities relating to accrued bonuses and earned but unused vacation of
Company's Employee benefits policy in effect as of the date hereof associated
with the Employees of Company who accept Buyer's offer of employment as provided
in Section 10.2.1 ("Hired Employees") and related Social Security Taxes,
Medicare Taxes, FICA and payroll expenses, provided that Seller or Company has
paid such bonuses, vacation pay and payroll expenses to Buyer pursuant to
Section 10.2.3.
ARTICLE 14
INDEMNIFICATION
14.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties set forth in Section 7.6.2 and Section 7.7.2
shall expire at the end of the Review Period, without regard to any extension
for the Licensing Contingency. Any representation or warranty of Seller or Buyer
which the other party has knowledge is incorrect or untrue prior to the Closing,
shall expire upon Closing. The other representations and warranties set forth in
Article 7 and Article 8 in this Agreement shall survive the Closing for one (1)
year and shall then expire. Upon the expiration of a representation or warranty
which expires after the Closing pursuant to this Section 14.1, unless written
notice of a claim based on such representation or warranty specifying in
reasonable detail the facts on which the claim is based shall have been
delivered to the Indemnifying Party prior to the expiration of such
representation or warranty, such representation or warranty shall be deemed to
be of no further force or effect, as if never made, and no action may be brought
based on the same, whether for breach of contract, tort or under any other legal
or equitable theory.
14.2 INDEMNIFICATION BY SELLER. Subject to the terms and conditions of
this Article 14, Seller agrees to indemnify, defend (as to third party claims
only), protect and hold harmless Buyer, its partners, officers, directors,
divisions, subdivisions, Affiliates, shareholders, agents, employees, successors
and permitted assigns at all times from and after the Closing Date from and
against any and all Liabilities, claims, damages, Actions, demands, assessments,
adjustments, penalties, losses, costs and expenses whatsoever (including court
costs, reasonable attorneys' fees and expenses of investigation), whether
equitable or legal, matured or contingent, known or unknown, foreseen or
unforeseen, ordinary or extraordinary, patent or latent ("Losses"), that arise
as a result of or incident to: (a) any Action with respect to the Business
pending or overtly threatened against Seller or Company to the extent arising
from or based on an injury or damage occurring before the Closing Date; (b) any
breach of, misrepresentation in, untruth in or inaccuracy in the representations
and warranties by Seller set forth in this Agreement or in the Disclosure
Schedules, provided that such representation or warranty survives the Closing as
provided in Section 14.1; (c) nonperformance of any agreement or covenant on the
part of Seller made in this Agreement or in any other document delivered
pursuant to this Agreement in consummation of the Transactions, including the
Noncompetition Agreement; or (d) any of the excluded Liabilities set forth in
Section 13.1. The foregoing indemnification obligations shall not extend to
Seller's indemnification of Buyer for Losses or Actions relating to or
associated with Environmental Laws or Hazardous Substances, which shall be
governed exclusively by Section 14.2.1. Notwithstanding anything to the contrary
contained herein,
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Seller shall not be in breach of any representation or warranty made in this
Agreement, if prior to Closing, Buyer had knowledge that such representation or
warranty was incorrect or untrue.
14.2.1 INDEMNIFICATION BY SELLER FOR ENVIRONMENTAL ACTIONS.
Subject to the terms and conditions of this Article 14, Seller agrees to
indemnify, defend (as to third party claims only), protect and hold harmless
Buyer, its partners, officers, directors, divisions, subdivisions, Affiliates,
shareholders, agents, employees, successors and permitted assigns at all times
from and after the Closing Date from and against any and all Actions asserted by
any Governmental Authority or third party (including court costs, reasonable
attorneys' fees, reasonable environmental consultant fees and expenses of
investigation), whether equitable or legal, matured or contingent, known or
unknown, foreseen or unforeseen, ordinary or extraordinary, patent or latent
that arise as a result of or incident to: (a) any Release of Hazardous Material
by Seller occurring before the Closing Date and (b) any violation of any
Environmental Law in effect as of the date hereof, occurring before the Closing
Date, provided, however, that Seller's indemnification of Buyer pursuant to this
Section 14.2.1 shall not extend to any Losses or Actions that result from any
voluntary act, omission, transaction or agreement of Buyer or any subsequent
owner of the Real Property, including any such actions in furtherance of
discontinuance of horse racing operations, or a material construction project,
or a material change in the nature of the use of the Real Property or
Improvements, or the implementation of a material new or different use of the
Real Property or Improvements, other than a Loss or an Action which arose out of
a violation described in clause (b) above which, notwithstanding Buyer's
actions, would have been such a violation based on Seller's operation of the
Real Property prior to Closing.
14.3 INDEMNIFICATION BY BUYER. Subject to the terms and conditions of
this Article 14, Buyer agrees that it will indemnify, defend (as to third party
claims only), protect and hold harmless Seller, Company and their respective
partners, officers, directors, divisions, subdivisions, Affiliates,
shareholders, agents, employees, successors and assigns at all times from and
after the Closing Date from and against all Losses that arise as a result of or
incident to: (a) any breach of, misrepresentation in, untruth in or inaccuracy
in the representations and warranties by Buyer set forth in this Agreement
provided that such representation or warranty survives the Closing as provided
in Section 14.1; (b) nonperformance of any agreement or covenant on the part of
Buyer made in this Agreement (subject to Section 15.2 below) or in any other
document delivered pursuant to this Agreement in consummation of the
Transactions; (c) the failure of Buyer to pay, perform and discharge when due
the Assumed Liabilities; and (d) the conduct of the Business after the Closing.
The foregoing indemnification obligations shall not extend to Buyer's
indemnification of Seller for Losses or Actions relating to or associated with
Environmental Laws or Hazardous Substances, which shall be governed exclusively
by Section 14.3.1. Notwithstanding anything to the contrary contained herein,
Buyer shall not be in breach of any representation or warranty made in this
Agreement, if prior to Closing, Seller had knowledge that such representation or
warranty was incorrect or untrue.
14.3.1 INDEMNIFICATION BY BUYER FOR ENVIRONMENTAL ACTIONS. Subject
to the terms and conditions of this Article 14, Buyer agrees to indemnify,
defend (as to third party claims only), protect and hold harmless Seller, its
partners, officers, directors, divisions, subdivisions, Affiliates,
shareholders, agents, employees, successors and permitted assigns
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at all times from and after the Closing Date from and against any and all
Actions asserted by any Governmental Authority or third party (including court
costs, reasonable attorneys' fees, reasonable environmental consultant fees and
expenses of investigation), whether equitable or legal, matured or contingent,
known or unknown, foreseen or unforeseen, ordinary or extraordinary, patent or
latent that arise as a result of or incident to: (a) any Release of Hazardous
Material by Buyer occurring after the Closing Date; (b) any violation of any
Environmental Law occurring after the Closing Date; (c) the seismic, structural
and other physical condition of the Real Property and the Assets, except to the
extent Seller is obligated to indemnify Buyer therefor pursuant to Section 14.2
or 14.2.1; and (d) any actual, alleged or proposed requirement or necessity that
building or construction materials or equipment lawfully present at the Real
Property or Improvements as of the Closing Date (including without limitation
asbestos containing materials and lead based paint) be removed, abated or
mitigated.
14.4 INDEMNIFICATION THRESHOLD AND LIMIT. No claim for indemnification
under Section 14.2(b) or Section 14.3(a) hereof will be made by either party
hereunder unless the aggregate of all Losses incurred by any such party
otherwise indemnified against hereunder exceeds $250,000 (the "Threshold") and
only to the extent of any such Losses in excess of the Threshold, provided
however, in the case of a claim for indemnification based upon the breach of a
representation or warranty which is qualified or limited based upon materiality
or Material Adverse Effect, there shall be no Threshold applicable to such
claim. Notwithstanding any other provisions of this Agreement, the obligations
of Seller under the indemnity provisions set forth in Section 14.2(b) and
Section 14.2.1 hereof, shall not exceed, in the aggregate, $2,650,000, except
that there shall be no limit in the case of Seller's fraud or intentional breach
of this Agreement. Notwithstanding any other provisions of this Agreement,
Seller's sole obligation and Buyer's sole remedy with respect to a breach, if
any, of the representations and warranties in Section 7.6.2 and Section 7.7.2
are set forth in Section 4.2.3.
14.5 SUBROGATION. If the Indemnifying Party makes any payment under
this Article 14 in respect of any Losses, the Indemnifying Party shall be
subrogated, to the extent of such payment, to the rights of the Indemnified
Party against any insurer or third party with respect to such Losses; provided,
however, that the Indemnifying Party shall not have any rights of subrogation
with respect to the other party hereto or any of its Affiliates or any of its or
its Affiliates' officers, directors, agents or employees.
14.6 CONDITIONS OF INDEMNIFICATION AS TO THIRD PARTY CLAIMS. The
respective obligations and liabilities of the Indemnifying Party to the
Indemnified Party under this Article 14 relating to third party claims shall be
subject to the following terms and conditions:
14.6.1 NOTICE. Within 15 days after receipt of notice of
commencement of any action or the assertion of any claim by a third party (but
in any event at least ten days preceding the date on which an answer or other
pleading must be served in order to prevent a judgment by default in favor of
the party asserting the claim), the Indemnified Party shall give the
Indemnifying Party written notice thereof together with a copy of such claim,
process or other legal pleading, and the Indemnifying Party shall have the right
to undertake the defense thereof by representatives of its own choosing that are
reasonably satisfactory to
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the Indemnified Party. Notwithstanding the Indemnifying Party's undertaking of
such defense, the Indemnified Party shall have the right to engage its own
counsel, at its own expense, and participate in the defense of the claim;
provided, however, that the Indemnifying Party shall retain the right in its
sole and absolute discretion to make all decisions with respect to the defense,
settlement or compromise of such claim, provided that the Indemnifying Party
remains liable for any payments due under any such settlement or compromise.
14.6.2 FAILURE TO ASSUME DEFENSE. If the Indemnifying Party, by
the fifteenth day after receipt of notice of any such claim (or, if earlier, by
the fifth day preceding the day on which an answer or other pleading must be
served in order to prevent judgment by default in favor of the person asserting
such claim), does not elect to defend against such claim, the Indemnified Party
will (upon further notice to the Indemnifying Party) have the right to undertake
the defense, compromise or settlement of such claim on behalf of and for the
account and risk of the Indemnifying Party; provided, however, that the
Indemnified Party shall not settle or compromise such claim without the
Indemnifying Party's consent, which consent shall not be unreasonably withheld;
and provided further that, the Indemnifying Party shall have the right to assume
the defense of such claim with counsel of its own choosing at any time prior to
settlement, compromise or final determination thereof.
14.6.3 CLAIM ADVERSE TO INDEMNIFYING PARTY. Notwithstanding
anything to the contrary in this Section 14.6, if there is a reasonable
probability that a claim may materially adversely affect the Indemnifying Party
other than as a result of money damages or other money payments, the
Indemnifying Party shall have the right, at its own cost and expense, to
compromise or settle such claim, but the Indemnifying Party shall not, without
the prior written consent of the Indemnified Party, settle or compromise any
claim or consent to the entry of any judgment which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to the
Indemnified Party a release from all liability in respect of such claim.
14.6.4 COOPERATION. In connection with any such indemnification,
the Indemnified Party will cooperate in all reasonable requests of the
Indemnifying Party.
14.7 REMEDIES EXCLUSIVE. Except as specifically provided elsewhere in
this Agreement, including but not limited to the provisions of Section 15.1 and
Section 15.2, the remedies provided in this Article 14 shall be the exclusive
remedy (whether at law or in equity). None of either party's (or their
Affiliates") officers, employees, agents, stockholders, consultants, investment
bankers, legal advisers or representatives shall have any personal liability or
obligation to the other party (or its Affiliates) in connection with the
Transactions contemplated by this Agreement or in respect of any statement,
representation, warranty or assurance of any kind made by such party, its
representatives or any other person.
14.8 DAMAGES. Notwithstanding anything to the contrary elsewhere in
this Agreement or any other Transaction document, no party (or its Affiliates)
shall, be liable to the other party (or its Affiliates) for any consequential
damages, including, but not limited to, loss of revenue or income, cost of
capital, or loss of business reputation or opportunity
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relating to the breach or alleged breach of this Agreement, other than in the
case of fraud or intentional breach of this Agreement. Each party agrees that it
will not seek punitive damages as to any matter under, relating to or arising
out of the Transactions, other than for fraud or intentional breach of this
Agreement.
ARTICLE 15
TERMINATION OF AGREEMENT / REMEDIES
15.1 TERMINATION BY BUYER / REMEDIES OF BUYER. Buyer, by notice in the
manner provided in Section 17.6 on or before the Closing Date, may terminate
this Agreement if any of the conditions set forth in Article 12 shall not have
been satisfied on the Closing Date (other than as a result of Buyer's actions or
omissions) or in the event of a material breach by Seller of any of the
agreements or covenants in this Agreement, and such failure of a condition or
material breach shall not have been cured within ten (10) business days after
written notice to Seller of Buyer's intention to terminate this Agreement
pursuant to this Section 15.1 and specifying the unsatisfied condition; or if
such cure cannot be effected within such ten business day period, then such
extended period of time reasonably necessary to cure, but not more than 30 days,
provided that Seller promptly commences the cure and diligently pursues its
completion. In the event of such a termination, the Earnest Money shall be
returned to Buyer. In addition to or in lieu of such termination, in the event
of a breach of this Agreement by Seller, subject to the limitations contained in
this Agreement, Buyer may pursue all remedies available at law and equity,
including, without limitation, specific performance.
15.2 TERMINATION BY SELLER / REMEDIES OF SELLER. Seller, by notice in
the manner provided in Section 17.6 on or before the Closing Date, may terminate
this Agreement if any of the conditions set forth in Article 11 shall not have
been satisfied on the Closing Date (other than as a result of Seller's actions
or omissions) or in the event of a material breach by Buyer of any of the
agreements or covenants in this Agreement, and such failure of a condition or
material breach shall not have been cured within ten business days after written
notice to Buyer of Seller's intention to terminate this Agreement pursuant to
this Section 15.1 and specifying the unsatisfied condition; or if such cure
cannot be effected within such ten business day period, then such extended
period of time reasonably necessary to cure, but not more than 30 days, provided
that Buyer promptly commences the cure and diligently pursues its completion. IN
THE EVENT OF SUCH A TERMINATION, BUYER AND SELLER AGREE THAT IT WOULD BE
IMPRACTICAL OR EXTREMELY DIFFICULT TO FIX ACTUAL DAMAGES, AND THAT THE EARNEST
MONEY PAID BY BUYER PLUS ACCRUED INTEREST THEREON ("LIQUIDATED DAMAGES") IS A
REASONABLE ESTIMATE OF SELLER'S DAMAGES IN SUCH EVENT. RECEIPT OF SAID
LIQUIDATED DAMAGES SHALL BE SELLER'S SOLE AND EXCLUSIVE REMEDY IN THE EVENT
CLOSING DOES NOT OCCUR AS PROVIDED IN THIS SECTION 15.2. SELLER AND BUYER
ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE PROVISIONS OF THIS SECTION
AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS. IN NO
EVENT SHALL SELLER'S ACCEPTANCE OF THE LIQUIDATED DAMAGES BE A
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LIMIT OF ANY KIND ON BUYER'S INDEMNITY AND DEFENSE OBLIGATIONS IN THIS
AGREEMENT.
----------------- ----------------
Seller's Initials Buyer's Initials
ARTICLE 16
ANNOUNCEMENTS AND NONDISCLOSURE OF
CONFIDENTIAL INFORMATION
16.1 ANNOUNCEMENTS. Each party agrees not to make, nor cause to be
made, any news releases or other public announcements pertaining to the
Transactions without first consulting the other party and attempting to
formulate a mutually satisfactory arrangement for such disclosure, and in any
case will not make an announcement thereafter without the consent of the other,
which consent shall not be unreasonably withheld, unless and to the extent it
believes in good faith that disclosure is required by applicable law or by
obligations pursuant to any rules of or listing agreement with any national
securities exchange or the Nasdaq National Market System. The commencement of
litigation relating to this Agreement or any proceedings in connection therewith
shall not be deemed a violation of this Section 16.1.
16.2 CONFIDENTIALITY - SELLER. Seller acknowledges that it has had and
may in the future have access to certain confidential information of Company and
of the Business, including operational policies and methods, marketing plans,
and other confidential information with respect to Buyer, Seller, Company, the
Assets or the Business (the "Buyer Confidential Information"), that will as of
the Closing be valuable, special and unique assets of Buyer. Seller agrees, at
all times from and after the Closing, to, and shall cause their Affiliates,
officers, directors, employees and agents to: (a) treat and hold as confidential
(and not disclose or provide access to any Person to or use) any Buyer
Confidential Information; (b) if Seller, or any such Affiliate, officer,
director, employee or agent becomes legally compelled to disclose any such Buyer
Confidential Information, provide Buyer with prompt written notice of such
requirement so that Buyer may seek a protective order or other remedy; and (c)
promptly furnish (prior to, at, or as soon as practicable after the Closing) to
Buyer any and all copies (in whatever form or medium) of all such Buyer
Confidential Information then in the possession of Seller, or any such
Affiliate, officer, director, employee or agent and destroy any additional
copies then in their possession of such information and of analyses,
compilations, studies or other documents prepared, in whole or in part, on the
basis thereof. This Section 16.2, however, shall not apply to: (i) any
information that, at the time of disclosure, is available publicly and not as a
result of a disclosure in breach of this Agreement by Seller or Company, or any
of their Affiliates, officers, directors, employees or agents; (ii) any
information which is or relates to an Excluded Asset or relates to the
Liabilities retained by Seller under this Agreement (iii) any disclosure made by
Seller or Company that it believes in good faith is required by Law or by
obligation pursuant to any rules of or listing agreement with any national
securities exchange or the Nasdaq National Market System; or (iv) any disclosure
in litigation relating
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to this Agreement or any proceeding in connection therewith. Seller acknowledges
and agrees that Buyer's remedies at Law for any breach or threatened breach of
this Section 16.2 are inadequate, and that in addition to such remedies, Buyer
shall be entitled to equitable relief, including injunctive relief and specific
performance, in the event of any such breach or threatened breach without the
need to demonstrate that monetary damages are inadequate.
16.3 CONFIDENTIALITY - BUYER. Buyer acknowledges that it may have
access to certain confidential information of Seller, Company and of the
Business, including operational policies and methods, marketing plans, and other
confidential information with respect to Seller, Company, the Assets or the
Business (the "Seller Confidential Information"), that are valuable, special and
unique assets of Seller and Company. Buyer agrees, at all times before and after
the Closing, to, and shall cause its Affiliates, officers, directors, employees
and agents to: (a) treat and hold as confidential (and not disclose or provide
access to any Person to or use) any Seller Confidential Information; (b) if
Buyer, or any such Affiliate, officer, director, employee or agent becomes
legally compelled to disclose any such Seller Confidential Information, provide
Seller with prompt written notice of such requirement so that Seller may seek a
protective order or other remedy; and (c) if the Closing does not occur,
promptly furnish to Seller any and all copies (in whatever form or medium) of
all such Seller Confidential Information then in the possession of Buyer, or any
such Affiliate, officer, director, employee or agent and destroy any additional
copies then in their possession of such information and of analyses,
compilations, studies or other documents prepared, in whole or in part, on the
basis thereof. This Section 16.3, however, shall not apply to: (i) any
information that, at the time of disclosure, is available publicly and not as a
result of a disclosure in breach of this Agreement by Buyer, or any of its
Affiliates, officers, directors, employees or agents; (ii) any disclosure
(together with an admonishment to the recipient to observe the provisions of
this Section 16.3) reasonably necessary to Buyer's consummation of the
Transactions; (iii) any disclosure made by Buyer that it believes in good faith
is required by Law; (iv) any disclosure in litigation relating to this Agreement
or any proceeding in connection therewith; or (v) any disclosure made by Buyer
after Closing which relates only to the Assets acquired by Buyer and does not
relate to any operational policies or methods, marketing plans or other Seller
Confidential Information relating to the Excluded Assets or other assets
retained by Seller after Closing.. Buyer acknowledges and agrees that Seller's
or Company's remedies at Law for any breach or threatened breach of this Section
16.3 are inadequate, and that in addition to such remedies, Seller shall be
entitled to equitable relief, including injunctive relief and specific
performance, in the event of any such breach or threatened breach without the
need to demonstrate that monetary damages are inadequate.
16.4 CONFIDENTIALITY - GENERAL. If the Transactions are not
consummated, each party shall treat all information obtained in its
investigation of another party or any Affiliate thereof, and not otherwise known
to them or already in the public domain, as confidential and shall return to
such other party or Affiliate all copies made by it or its representatives of
Confidential Information provided by such other party or Affiliate.
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ARTICLE 17
GENERAL PROVISIONS
17.1 ASSIGNMENT. This Agreement may not be assigned or otherwise
transferred without the express written consent of Seller and Buyer (which may
be granted or withheld in the sole and absolute discretion of Seller or Buyer);
provided, however, that Buyer may assign this Agreement to one or more
Pre-Approved Assignees, provided that (a) Buyer discloses the identity of such
Person to Seller, (b) the transfer to such Transferee will not impair any
Consent obtained hereunder or require any other Consent (or if it does, Buyer
shall be deemed to have waived the condition, if any, that such Consent be
obtained prior to Closing), (c) Buyer does not receive (directly or indirectly)
any compensation for such assignment, other than the transferee's agreement to
assume Buyer's obligations hereunder and reimbursement of the Earnest Money, and
(d) Buyer provides Seller and Escrow Agent at least fourteen (14) days prior to
the Closing, written notice of such assignment and a copy of all documentation
evidencing such assignment and required by Section 5.3.5. In the event Buyer
elects to assign its rights hereunder to more than one assignee, subject to the
provisions of this Section 17.1, such that there will be more than one Person
acquiring the Assets as Buyer hereunder (individually, "Transferee"), each
Transferee shall be a Buyer hereunder, shall be subject to all of the terms and
conditions of this Agreement, shall be imputed with all of the knowledge of
Buyer, shall assume all of the obligations of Buyer hereunder relating to the
Asset(s) being acquired by Transferee at the Closing, and shall only have the
rights of Buyer hereunder as they relate solely to the Asset(s) being acquired
by Transferee at the Closing.
17.2 BINDING EFFECT; NO THIRD PARTY BENEFICIARIES. This Agreement shall
be binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns. Nothing in this Agreement is intended to or shall confer upon
any other Person, including any employee or former employee of Seller, any legal
or equitable right, benefit or remedy of any nature whatsoever, including any
rights of employment for any specified period.
17.3 AMENDMENT. This Agreement may not be amended except by a written
instrument executed by each party to this Agreement.
17.4 ENTIRE AGREEMENT. This Agreement (together with the other
agreements contemplated by this Agreement) is the final, complete and exclusive
statement of the agreement among the parties with relation to the subject matter
of this Agreement. There are no oral representations, understandings or
agreements covering the same subject matter as this Agreement. This Agreement
supersedes and cannot be varied, contradicted or supplemented by evidence of,
any prior or contemporaneous discussions, correspondence, or oral or written
agreements or arrangements of any kind. The Exhibits and Disclosure Schedules
attached to this Agreement shall be a part hereof and all terms used therein
which are not defined therein shall have the meanings ascribed to them in this
Agreement.
17.5 COUNTERPARTS. This Agreement may be executed in two or more
original or facsimile counterparts, each of which shall be deemed an original
and all of which together shall constitute but one and the same instrument.
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17.6 NOTICES. All notices or other communications required or permitted
under this Agreement shall be in writing and may be given by depositing the same
in the United States mail, addressed to the party to be notified, postage
prepaid and registered or certified with return receipt requested, by overnight
courier or by delivering the same in person to such party, addressed as follows:
If to Seller, addressed to it at:
Pinnacle Entertainment, Inc.
4400 MacArthur Boulevard, Suite 380
Newport Beach, CA 92660
Attn: G. Michael Finnigan
With a copy to:
Irell & Manella, LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90067
Attn: Sandra G. Kanengiser
If to Buyer, addressed to:
Jerry Simms
5344 North 31st Place
Phoenix, AZ 85016
with a copy to:
Fennemore Craig, P.C.
3003 North Central Avenue
Suite 2600
Phoenix, AZ 85012
Attn: Ronald L. Ballard
Notice shall be deemed given and effective the day personally delivered, the
next business day after being sent by overnight courier, subject to signature
verification, and three business days after the deposit in the U.S. mail of a
writing addressed and sent as provided above or when actually received, if
earlier. Any party may change the address for notice by notifying the other
parties of such change in accordance with this Section.
17.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Arizona, without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Arizona or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Arizona.
17.8 WAIVER. At any time before the Closing, Buyer may by written
notice to Seller (a) extend the time for the performance of any of the
obligations or other acts of Seller, (b) waive any inaccuracies in the
representations and warranties of Seller contained
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in this Agreement or (c) waive compliance with any of the agreements or
conditions of the Seller contained in this Agreement. At any time before the
Closing, Seller may (by written notice to Buyer) (a) extend the time of
performance of any of the obligations or other acts of Buyer, (b) waive any
inaccuracies in the representations and warranties of Buyer contained in this
Agreement or (c) waive compliance with any of the agreements or conditions of
Buyer contained in this Agreement. Except as provided otherwise in this
Agreement, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
or in any similar breach or default occurring later. No waiver of any single
breach or default shall be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.9 SEVERABILITY. If any provision of this Agreement shall be invalid,
illegal or unenforceable, it shall, to the extent possible, be modified in such
manner as to be valid, legal and enforceable but so as most nearly to retain the
intent of the parties. If such modification is not possible, such provision
shall be severed from this Agreement. In either case the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
17.10 CONSTRUCTION. The headings in this Agreement are inserted for
convenience only, and shall not constitute a part of this Agreement or be used
to construe or interpret any of its provisions. The parties have participated
jointly in negotiating and drafting this Agreement. If a question of
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provision of this
Agreement.
17.11 ATTORNEYS' FEES. If any legal action or any other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default, or misrepresentation in connection with any of the provisions
of this Agreement, the prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
17.12 EXPENSES OF TRANSACTION; RELIANCE ON ADVISORS. Whether or not the
Transactions are consummated: (a) Buyer will pay the fees, expenses and
disbursements of Buyer and its advisors, consultants, experts and
representatives incurred in connection with this Agreement and the Transactions;
and (b) Seller will pay the fees, expenses and disbursements of Seller, and its
advisors, consultants, experts and representatives incurred in connection with
this Agreement and the Transactions.
17.13 NO BROKERS. Seller represents and warrants to Buyer and Buyer
represents and warrants to Seller that the warranting party has had no dealings
with any broker, agent or other Person so as to entitle such Person to a
commission or fee in connection with the Transactions. If for any reason a
commission or fee becomes or is claimed to be due with respect to dealings by
Buyer, Buyer shall indemnify and hold harmless Seller from all Losses relating
to such claim. If for any reason a commission or fee becomes or is claimed
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to be due with respect to dealings by Seller, Seller shall indemnify and hold
harmless Buyer from all Losses relating to such claim.
17.14 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
17.15 BULK TRANSFER LAWS. Buyer hereby waives compliance by Seller with
any applicable bulk transfer laws, including, without limitation, the bulk
transfer provisions of the Uniform Commercial Code of any state, or any similar
statute, with respect to the transaction contemplated by this Agreement;
provided, however, that Seller hereby indemnifies Buyer against any Losses that
Buyer may incur that Buyer would not have incurred if Seller had complied with
such bulk sales laws.
17.16 DISCLOSURE/REPRESENTATIONS AND WARRANTIES. Notwithstanding
anything in this Agreement to the contrary, the disclosure of any information on
any schedule to this Agreement shall be deemed to constitute the disclosure of
such information on all other schedules to this Agreement applicable to such
information so long as it is reasonably apparent that such disclosure would
apply to such other schedules. At any time and from time to time prior to the
Closing, Buyer or Seller may amend or supplement any of the schedules delivered
by them in connection with this Agreement to reflect any matters arising between
the date of this Agreement and the Closing Date and any applicable
representation or warranty shall be deemed modified ab initio by such amendment
or supplement, provided however if such amendment or supplement discloses a
matter which would reasonably be expected to result in a Material Adverse
Effect, then such disclosure shall be deemed to cause a failure of the Closing
condition which would not have been satisfied without such amendment or
supplement; however, there shall be no breach of the corresponding
representation or warranty or covenant, unless the failure to disclose such
matter in the initial schedule was intentional. Notwithstanding the foregoing,
no such amendment or supplement shall relieve Seller of its obligations, if any,
pursuant to Sections 4.2.1 and 4.2.3, relating to the Operable Condition of the
Assets.
17.17 RISK OF LOSS. The risk of any loss, damage, impairment,
confiscation or condemnation of the Assets, or any part thereof (an "Asset
Loss"), shall be upon the Seller at all times prior to the Closing. In the event
of any such Asset Loss, the proceeds of, or any claim for any loss payable
under, Seller's insurance policies, or any judgment or award with respect
thereto shall be payable to Seller, as the case may be. Thereafter, and subject
to the next sentence, Seller shall either (i) repair, replace (with comparable
used equipment) or restore any Asset (other than Excluded Assets) as soon as
possible after the Asset Loss, in which case the Closing, at Seller's option,
may be extended for such period of time as is reasonably necessary to complete
such repair, replacement or restoration, or (ii) if insurance proceeds are
sufficient to repair, replace or restore the Asset (other than Excluded Assets),
pay such proceeds to Buyer (it being understood that the cost for comparable
used replacement equipment ("Replacement Cost") shall be "sufficient"). If
Seller fails to either repair, replace or restore any Asset (other than Excluded
Assets) or pay over the Replacement Cost for any Asset Loss and the amount of
any uncured, uninsured Asset Loss exceeds $2,650,000, Buyer may terminate this
Agreement without any liability on the part of either Buyer or Seller, except as
otherwise provided herein.
[SIGNATURES APPEAR ON NEXT PAGE]
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IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
BUYER:
/s/ Jerry Simms
--------------------------------
JERRY SIMMS
SELLER:
PINNACLE ENTERTAINMENT, INC.
By: /s/ G. Michael Finnigan
-----------------------------
G. Michael Finnigan,
President
Realty Investment Group, Inc.
Authorized Signatory
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INDEX OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit 1.1 Definitions
Exhibit 5.2.1(a) Deed
Exhibit 5.2.1(b) General Conveyance, Assignment and Bill of Sale
Exhibit 5.2.3 Form of Opinion of Seller's Counsel
Exhibit 5.2.4 Covenant Not to Compete Agreement
Exhibit 5.2.5 Seller's Closing Certificate
Exhibit 5.2.8 Non-Foreign Certification
Exhibit 5.3.3 Form of Opinion of Buyer's Counsel
Exhibit 5.3.5 Buyer's Closing Certificate
SCHEDULES
Schedule 2.1.1 Legal Description of the Real Property
Schedule 2.1.3 List of Equipment
Schedule 2.1.4 List of Other Tangible Personal Property
Schedule 2.1.6 List of Contracts and Agreements and Material
Contracts and Agreements
Schedule 2.1.7 List of Permits and Material Permits
Schedule 2.1.8 List of Systems
Schedule 2.2.11 List of Non-transferable Licenses and Intellectual
Property Rights
Schedule 4.1.13 List of Insurance Policies
Schedule 4.2.2 Condition of Certain Assets Known to Buyer
Schedule 6.5.1 Descriptions of Lot Split Parcels
Schedule 7.2(c) List of Any Contracts and Agreements
Which Cannot Be Transferred Without Consent
Schedule 7.5.1 List of All Registrations and Pending Registrations
and Applications for Intellectual Property Rights,
and Names Used in Conducting the Business
Schedule 7.6.2 Seller Disclosure of Condition of Certain Assets
Schedule 7.10 List of Employees and Plans
Schedule 7.12 Compliance with Laws
Schedule 7.14 List of Litigation and Proceedings
Schedule 7.15.1 Consents Required for Material Permits
Schedule 7.15.2 Environmental Disclosure
Schedule 7.16 List of Exceptions to Good and Marketable Title to
the Assets
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EXHIBIT 1.1
"ACCOUNTING FIRM" has the meaning specified in Section 5.6.7.
"ACCOUNTS RECEIVABLE" means all contracts receivable, accounts
receivable, notes receivable and other amounts receivable whether or not related
to the operation of the Business.
"ACTION" means any claim, action, suit, formal or informal, arbitration
or mediation, inquiry, proceeding or investigation by or before any Governmental
Authority or private authority.
"AFFILIATE" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person. The term "control" as used in the preceding sentence includes the
ownership of 5% or more of the equity interests in any Person.
"AGREEMENT" means this Purchase and Sale of Assets Agreement among
Buyer and Seller (including the Exhibits and the Disclosure Schedules), and all
amendments to this Agreement made in accordance with Section 17.3.
"ASSET LOSS" has the meaning specified in Section 17.17.
"ASSUMED LIABILITIES" has the meaning specified in Section 13.2.
"BILL OF SALE" has the meaning specified in Section 5.2.1
"BUSINESS" has the meaning specified in Recital A.
"BUYER" has the meaning specified in the introductory paragraph of the
Agreement.
"BUYER CONFIDENTIAL INFORMATION" has the meaning specified in Section
16.1.
"BUYER'S EXPERT" has the meaning specified in Section 4.2.1.
"BUYER'S MEDICAL PLAN" has the meaning specified in Section 10.2.1.
"BUYER'S 401(K) PLAN" has the meaning specified in Section 10.2.1.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended as of the date of this Agreement.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
and Liability Information System, as updated through the date of this Agreement.
"CLOSING" and "CLOSING DATE" have the meanings specified in Section
5.1.
"CLOSING BALANCE SHEET" has the meaning specified in Section 5.6.3.
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"CLOSING NOTICE" has the meaning specified in Section 5.1.
"COBRA" means the requirements of Section 4980 B of the Code and
Sections 601 through 608 of ERISA.
"CODE" means the Internal Revenue Code of 1986.
"COMPANY" has the meaning specified in Recital A.
"CONSENTS" means those authorizations, consents, waivers, orders,
approvals and clearances of Governmental Authorities and officials and other
Persons which are necessary for the sale and transfer to Buyer of the Assets or
the consummation of the Transactions (including the continuation of the
Contracts and Agreements).
"CONTRACTS AND AGREEMENTS" has the meaning specified in Section 2.1.6.
"DEFECT NOTICE" has the meaning specified in Section 4.2.1.
"DISCLOSURE SCHEDULES" means the Schedules which are attached to the
Agreement.
"DOJ" has the meaning specified in Section 10.2.
"EARNEST MONEY" has the meaning specified in Section 3.1.1.
"EMPLOYEES" means any current employee employed by Seller or Company
exclusively in connection with the operation of the Business.
"ENCUMBRANCE" means any security interest, pledge, mortgage, lien
(including Environmental and Tax liens), charge, judgment, encumbrance, adverse
claim, preferential arrangement, or restriction of any kind, including any
restriction (other than those imposed by Law) on the use, transfer, receipt of
income or other exercise of any attributes of ownership.
"ENVIRONMENT" or "ENVIRONMENTAL" means matters relating to surface
waters, groundwaters, soil, subsurface strata and ambient air.
"ENVIRONMENTAL LAWS" means any Law and any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent
decree or judgment, relating to the Environment, health, safety or Hazardous
Materials, including CERCLA; the Resource Conservation and Recovery Act; the
Hazardous Materials Transportation Act; the Clean Water Act; the Toxic
Substances Control Act; the Clean Air Act; the Safe Drinking Water Act; the
Atomic Energy Act; the Federal Insecticide, Fungicide and Rodenticide Act; and
the Federal Food, Drug and Cosmetic Act; and the state or local equivalents of
these laws.
"ENVIRONMENTAL PERMITS" means all Permits and identification numbers
required under any applicable Environmental Law.
"EQUIPMENT" has the meaning specified in Section 2.13.
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"ERISA" means the Employee Retirement Income Security Act of 1974.
"ESCROW AGENT" has the meaning specified in Section 3.1.1.
"EXCLUDED ASSETS" has the meaning specified in Section 2.2.
"FINAL BALANCE SHEET" has the meaning specified in Section 5.6.5.
"FINANCIAL STATEMENTS" has the meanings specified in Section 4.1.4.
"FTC" has the meaning specified in Section 10.2.
"GOVERNMENTAL AUTHORITY" means the FTC or the DOJ or any other United
States federal, state or local or any foreign government, governmental,
regulatory or administrative authority, agency or commission or any court,
tribunal, or judicial or arbitral body.
"GOVERNMENTAL ORDER" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Authority.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"HAZARDOUS MATERIALS" means: (a) petroleum and petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
polychlorinated biphenyls, and radon gas; or (b) any other chemicals, materials
or substances defined as or included in the definition of "hazardous materials,"
"hazardous wastes," "hazardous substances," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic wastes," "toxic
pollutants," "contaminants," "pollutants," "infectious wastes," "medical
wastes," "radioactive wastes," "sewage sludges" or words of similar import under
any applicable Environmental Law.
"HIRED EMPLOYEES" has the meaning specified in Section 13.2(f).
"HORSEMEN'S ACCOUNT" means that certain trust account for the payment
of purse amounts, known as "The Horsemen at Turf Paradise Account" or the
horsemen's bookkeeper account.
"INTELLECTUAL PROPERTY RIGHTS" has the meaning specified in Section
2.1.10.
"INVENTORY AND SUPPLIES" has the meaning specified in Section 2.1.5.
"IRS" means the Internal Revenue Service of the United States.
"LAW" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, Governmental Order, requirement or rule of
common law, including any Environmental Law.
"LIABILITIES" means all debts, liabilities and obligations, whether
legal or equitable, accrued or fixed, absolute or contingent, matured or
unmatured, determined or determinable,
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foreseen or unforeseen, ordinary or extraordinary, patent or latent, including
those arising under any Law (including any Environmental Law) or Action and
those arising under any contract, agreement, arrangement, commitment or
undertaking.
"LICENSING CONTINGENCY" has the meaning specified in Section 4.3.
"LOSSES" has the meaning specified in Section 14.2.
"MATERIAL ADVERSE EFFECT" means any circumstance, change in, or effect
on, the Assets or the Business that, individually or in the aggregate with any
other circumstances, changes in, or effects thereon: (i) is or could reasonably
be expected to be materially adverse to the Assets or to the business, financial
condition, or Liabilities (including contingent Liabilities), or results of
operations of the Business; or (ii) could reasonably be expected to materially
adversely affect the ability of Buyer to use the Assets or operate the Business
in the manner in which they are currently used or operated by Seller or Company.
"MATERIAL CONTRACTS AND AGREEMENTS" has the meaning specified in
Section 2.1.6.
"MATERIAL PERMITS" has the meaning specified in Section 4.3.
"NEUTRAL EXPERT" has the meaning specified in Section 4.2.1.
"NONCOMPETITION AGREEMENT" has the meaning specified in Section 5.2.4.
"OPERATING CONDITION" has the meaning specified in Section 4.2.2.
"PERMITS" has the meaning specified in Section 2.1.7.
"PERMITTED ENCUMBRANCES" on the Real Property and Improvements means
(a) zoning and land use ordinances and regulations and conditional use permits,
if any; (b) real estate Taxes and assessments, both general and special, which
are a lien but are not yet due and payable at the Closing Date; (c) easements,
covenants, conditions, reservations, restrictions of record and all other
matters shown in the Title Report; (d) the leases and rights of possession of
the occupants of the recreational vehicle park; (e) matters created by or with
the written consent of Buyer; (f) matters which would be reflected in a current
survey; and (g) matters affecting title which would be disclosed by physical
inspection of the Real Property. Permitted Encumbrances on the other Assets
shall mean liens disclosed in this Agreement or the Disclosure Schedules, liens
for Taxes not yet due, imperfections in title, if any, not material in amount
and which do not materially interfere with the conduct of the Business or use of
the Assets.
"PERSON" means any individual, partnership, firm, corporation, limited
liability company, association, trust, unincorporated organization, Governmental
Authority or other entity.
"PLAN" means: (i) any employee benefit plan, employee welfare benefit
plan, employee benefit pension plan, multi-employer plan or multiple-employer
welfare arrangement (within the meaning of Section 3 of ERISA) and all bonus,
stock option, stock purchase, restricted stock, incentive, deferred
compensation, retiree medical, dental or life
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insurance, supplemental retirement, severance or other benefit plans, programs
or arrangements, and all employment, termination, severance, "golden parachute"
or other contracts or agreements, formal or informal, legally binding or not,
with respect to which Seller or Buyer, as the case may be, is a party, with
respect to which Seller or Buyer, as the case may be, has or could have any
obligation (whether primary or secondary) or which are maintained, contributed
to or sponsored by Seller or Buyer, as the case may be, or any member of its
controlled group of organizations within the meaning of Section 414 of the Code
for the benefit of any current or former employee, officer or director of Seller
or Buyer, as the case may be, ; and (ii) each employee benefit plan for which
Seller or Buyer, as the case may be, could incur Liability under Section 4069 of
ERISA if such plan were terminated, or under Section 4212(c) of ERISA, or in
respect of which Seller or Buyer, as the case may be, remains secondarily liable
under Section 4204 of ERISA.
"PRE-APPROVED ASSIGNEE" means any Person who is, or will be at Closing,
licensed and approved for all Permits required for that Person to own and
operate the Assets being acquired by such Person and is (a) in the case of a
proposed Transferee of the Business (other than the recreational vehicle park)
and related Assets a limited partnership of which the general partner is an
entity in which Jerry Simms owns fifty percent (50%) or more of the ownership
and voting interests; or (b) in the case of any other proposed Transferee of a
portion of the Real Property and related Improvements (but not any portion of
the horse racing or off-track wagering business or related Assets), Ronald Simms
and/or his spouse or an entity of which Ronald Simms and/or his spouse or Jerry
Simms owns 50% or more of the ownership and voting interests.
"PURCHASE PRICE" has the meaning specified in Section 3.1.
"REAL PROPERTY" has the meaning specified in Section 2.1.1.
"RELEASE" means disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing or otherwise
releasing into, upon or under any land, water or air or otherwise entering into
the Environment.
"REMEDIATION" or "REMEDIATE" means actions to respond to, investigate,
clean-up, move, and otherwise remediate Hazardous Materials.
"REPLACEMENT COST" has the meaning specified in Section 17.17.
"SELLER" has the meaning specified in the introductory paragraph of the
Agreement.
"SELLER CONFIDENTIAL INFORMATION" has the meaning specified in Section
16.3.
"SELLER'S EXPERT" has the meaning specified in Section 4.2.1.
"SELLER'S 401(K) PLANS" has the meaning specified in Section 10.2.1.
"SELLER'S RESPONSE" has the meaning specified in Section 4.2.1.
"TAX" or "TAXES" means any and all taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and
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additional amounts imposed with respect thereto) imposed by any Governmental
Authority or taxing authority, including: taxes or other charges on or with
respect to income, franchises, windfall or other profits, gross receipts,
property, minimum, alternative minimum, estimated, sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation, or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value added, or gains taxes; license,
registration and documentation fees; and customs duties, tariffs, and similar
charges.
"THRESHOLD" has the meaning specified in Section 14.4.
"TITLE COMPANY," "TITLE POLICY" and "TITLE REPORT" have the meanings
specified in Section 4.1.1 and 5.4.
"TO THE BEST OF SELLER'S KNOWLEDGE" or "to Seller's knowledge" or
similar variations thereof have the meaning specified in Article 7.
"TRANSACTIONS" means the transactions contemplated by this Agreement.
"TRANSFEREE" has the meaning specified in Section 17.1.
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EXHIBIT 5.2.1(a)
WHEN RECORDED MAIL TO:
______________________
______________________
______________________
______________________
SPECIAL WARRANTY DEED
FOR THE CONSIDERATION OF Ten Dollars ($10.00) and other valuable
consideration, Pinnacle Entertainment, Inc., a Delaware corporation ("Grantor"),
does hereby convey to _____________________, a(n) _______________________
("Grantee"), the following real property located in Maricopa County, Arizona:
See Exhibit "A" attached hereto and incorporated herein by
this reference.
Including all of Grantor's right, title and interest, if any, in and to
all tenements, hereditaments, easements, rights-of-way, appurtenances, passages,
water rights, water courses, riparian rights, drainage rights and mineral and
other rights thereon or in any way appertaining thereto, including all of the
right, title and interest of Grantor in and to all public and private streets,
roads, avenues, alleys, passageways (before and after vacation thereof) in front
of or abutting said real property or any portion thereof.
Subject to those matters set forth in Exhibit "B" attached hereto and
made a part hereof, Grantor warrants the title to the real property against all
persons claiming through Grantor.
Dated: __________________
PINNACLE ENTERTAINMENT, INC.,
a Delaware corporation
By ____________________________
Its ___________________________
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STATE OF ___________________ )
)SS:
COUNTY OF _________________ )
On _________________________ before me, ___________________________, a
Notary Public in and for said County and State, personally appeared
__________________ ______________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he executed
the same in his authorized capacity, and that by his signature on the instrument
the entities upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal
--------------------------------
Notary Public
My commission expires:
[SEAL]
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EXHIBIT 5.2.1(B)
GENERAL CONVEYANCE, ASSIGNMENT AND BILL OF SALE
("BILL OF SALE")
Effective as of ________, Pinnacle Entertainment, Inc., a Delaware
corporation ("Grantor"), for good and valuable consideration and pursuant to
that certain Agreement for Purchase and Sale of Assets dated as of ________ (the
"Purchase Agreement"), among Grantor and Jerry Simms, an individual, and
assigned by Jerry Simms to ______________, a(n) ________ ________ ("Grantee"),
hereby sells, assigns, transfers, conveys and delivers to Grantee all of
Grantor's right, title and interest in all of the "Assets" (other than the
"Excluded Assets") to have and to hold such Assets (other than the Excluded
Assets) unto Grantee and its successors and assigns forever.
Grantee, in consideration of this assignment, hereby assumes and
undertakes to discharge all of the Assumed Liabilities, except as otherwise set
forth in the Purchase Agreement.
Grantor and Grantee agree to execute and deliver at the request of the
other, such further instruments and shall take or cause to be taken such other
or further actions as shall reasonably be requested for purposes of carrying out
the within assignment and assumption.
This Bill of Sale is delivered pursuant to Section 5.2.1 of the
Purchase Agreement and shall be construed consistently with the Purchase
Agreement. Capitalized terms used in this instrument shall have the meanings
given them in the Purchase Agreement.
This Bill of Sale may be executed in one or more counterparts and by
facsimile, each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Grantor has executed and delivered this General
Conveyance, Assignment and Bill of Sale effective as of the date first above
written.
GRANTOR:
_____________________________
By:__________________________
Name:________________________
Its:_________________________
GRANTEE:
_____________________________
By:__________________________
Name:________________________
Its:_________________________
<PAGE>
EXHIBIT 5.2.3
OPINION OF SELLER'S COUNSEL
____________________ [date]
_____________________________
_____________________________
_____________________________
Ladies and Gentlemen:
We have acted as counsel to Pinnacle Entertainment, Inc., a Delaware
corporation (the "Seller"), in connection with the sale by Seller of certain of
its assets to ____________________________ ("Purchaser"), pursuant to that
certain Agreement for Purchase and Sale of Assets dated as of ______________, by
and between Seller and Jerry Simms, an individual, and assigned by Jerry Simms
to ______________, a(n) ________ ________ (the "Purchase Agreement"). Turf
Paradise, Inc., formerly an Arizona corporation ("TPI"), was a wholly-owned
subsidiary of Seller prior to the merger of TPI with and into Seller on
______________. This opinion letter is furnished to you pursuant to Section
5.2.3 of the Purchase Agreement. Capitalized terms used but not defined herein
shall have the meanings ascribed to them in the Purchase Agreement.
For purposes of rendering this opinion, we have examined such questions
of law and fact as we deemed relevant. We have also assumed that the Purchase
Agreement and Transaction Documents (as hereinafter defined) have been duly
authorized, executed and delivered by, and constitute valid, binding and
enforceable obligations of, Purchaser, that all signatories of Purchaser are
duly authorized, that Purchaser is duly organized and validly existing and/or
has the power and authority to execute, deliver and perform the Transaction
Documents to the extent that Purchaser is a party thereto, that all of the
signature and acknowledgements of all parties to the Transaction Documents are
genuine, that all of the Transaction Documents submitted to us as executed
counterparts are authentic and that all of the Transaction Documents submitted
to us as copies conform to the executed originals of such documents. As to
various questions of fact relevant to this opinion, we have been furnished with,
and have relied without independent verification upon, the representations and
warranties of the Seller contained in the Transaction Documents, including the
Purchase Agreement, the certificates of good standing issued by the Secretaries
of State of Delaware and Arizona with respect to the existence, good standing
and qualification to transact business of the entities referenced therein,
certificates of ownership and merger issued by the Secretaries of the State of
Delaware and the State of Arizona relating to the merger of TPI with and into
Seller, and a certificate provided to us by an officer of Seller. We have also
assumed the absence of any agreement or understanding that would modify,
supplement or amend any of the documents reviewed by us.
<PAGE>
We do not express any opinion as to any laws other than the laws of the
State of California, and, to the extent applicable, the laws of the United
States of America and the General Corporation Law of the State of Delaware.
Certain Transaction Documents (defined below) and the Purchase Agreement provide
that each is to be governed by the laws of the State of Arizona and it is our
understanding that Purchaser is relying on the advice of its own counsel with
respect to all matters of Arizona law. Further, we have not examined the
question of what law would govern the interpretation or enforcement of the
Purchase Agreement and our opinion is based on the assumption that the internal
laws of the State of Arizona would govern the provisions of such agreement and
the transactions contemplated thereby, and that the result of the application of
Arizona law will not be contrary to a fundamental policy of the law of any other
state with which the parties may be in contact in connection with the
transactions contemplated thereby and that the laws of the State of Arizona are
identical in all respects to the laws of the State of California.
Based upon the foregoing and on the assumptions herein set forth, and
subject to the limitations, qualifications and exceptions set forth herein, we
are of the opinion that:
1. Seller is a corporation incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to carry on its business as now conducted. Seller is duly
qualified to transact business in the State of Arizona.
2. The execution, delivery and performance by Seller of the Purchase
Agreement and any other instruments and agreements executed and delivered by
Seller to Purchaser pursuant to the Purchase Agreement (the "Transaction
Documents") and the consummation by Seller of the transactions contemplated
thereby (the "Transactions") are within Seller's corporate powers, have been
duly authorized by all necessary action on the part of Seller and do not
contravene the provisions of the certificate of incorporation or bylaws of the
Seller. The Purchase Agreement and the Transaction Documents have been duly and
validly executed by Seller.
3. Each of the Purchase Agreement and the Transaction Documents (other
than the Covenant Not To Compete Agreement, as to which we express no opinion)
is the legal, valid and binding obligation of the Seller, enforceable against
the Seller in accordance with its terms, except as may be limited by the effect
of bankruptcy, insolvency, reorganization, moratorium and other laws and court
decisions or other legal or equitable principles relating to, limiting or
affecting the enforcement of creditors' rights generally including, without
limitation, preferences and fraudulent conveyances and distributions by a
corporation to its stockholders, and subject to the discretion of any court of
competent jurisdiction in awarding equitable remedies (regardless of whether
considered in a proceeding in equity or at law), including, but not limited to,
specific performance or injunctive relief.
4. The merger of TPI with and into Seller is effective and as a result
of the merger, all property, real, personal and mixed, of TPI has become vested
in Seller.
This opinion is rendered as of the date hereof, and we undertake no
obligations to update this opinion in respect of any changes of circumstances,
events, laws or judicial decisions. This opinion is rendered to you solely for
your benefit in connection with the
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transactions contemplated above. This opinion may not be relied upon by any
other person for any purpose.
Very truly yours,
Irell & Manella LLP
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EXHIBIT 5.2.4
COVENANT NOT TO COMPETE AGREEMENT
THIS COVENANT NOT TO COMPETE AGREEMENT (the "Agreement") is made and
entered into as of ________, by and among Pinnacle Entertainment, Inc., a
Delaware corporation ("Seller") and _______________, a ________ ________
("Buyer").
RECITALS
A. Seller and Buyer are parties to that certain Agreement for
Purchase and Sale of Assets (the "Purchase Agreement") dated
as of ________, among Seller and Jerry Simms, an individual,
and assigned by Jerry Simms to ______________, a(n)
___________ ("Buyer"), which provides for the sale of certain
of the assets used in that certain parimutuel race track
business known as Turf Paradise Race Track, located at 1501 W.
Ball Road, Phoenix, Maricopa County, Arizona (the "Track"),
including those assets related to off-track wagering
facilities.
B. To induce Buyer to enter into the Purchase Agreement, Seller
has agreed to forego certain rights to compete with Buyer, on
the terms and subject to the conditions set forth in this
Agreement.
C. All capitalized terms not otherwise defined herein shall have
the meanings assigned them in the Purchase Agreement.
ACCORDINGLY, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
1. NONCOMPETE DEFINITIONS. For purposes of this Agreement, the terms
listed below shall have the following meanings:
(a) "Area" means the area within a 100-mile radius from the
Track.
(b) "Time Period" means the period beginning as of the
effective date of this Agreement and ending five years thereafter; provided,
however, that if a court of competent jurisdiction determines that such period
is unenforceable, Time Period shall mean the period beginning as of the date of
this Agreement and ending four years thereafter; provided, however, that if a
court of competent jurisdiction determines that such period is unenforceable,
Time Period shall mean the period beginning as of the date of this Agreement and
ending three years thereafter; provided, however, that if a court of competent
jurisdiction determines that such period is unenforceable, Time Period shall
mean the period beginning as of the date of this Agreement and ending two years
thereafter; provided, however, that if a court of competent jurisdiction
determines that such period is unenforceable, Time Period shall mean the period
beginning as of the date of this Agreement and ending one year thereafter, or
such other period as the court shall determine to be reasonable. The Time Period
shall be extended by the number of days in any period in which Seller is in
default or breach of this Agreement.
<PAGE>
2. PAYMENT. The consideration for Seller entering into this Agreement
is a portion of the Purchase Price described in and payable under the Purchase
Agreement.
3. COVENANTS. Seller covenants and agrees that, during the Time Period,
it shall not, directly or indirectly, for or otherwise on behalf of or in
conjunction with any Person:
(a) NONCOMPETITION. Engage or have any interest, direct or
indirect, in a thoroughbred racetrack or related off-track wagering business
located within the Area.
(b) NONSOLICITATION OF EMPLOYEES. For a period of 24 months
from the effective date of this Agreement, hire, employ, solicit, or otherwise
encourage or entice to leave their employment with Buyer, any of Buyer's
employees who were formerly Employees of Seller (excluding any former Employee
who has not been employed by Buyer for three months or more).
4. ENFORCEABILITY. Seller represents and warrants to and covenants with
Buyer as follows:
(a) The covenants in this Agreement are reasonably necessary
for the protection of the interests of Buyer, are reasonable as to duration,
scope and territory, and are not unreasonably restrictive of Seller.
(b) If Seller breaches any covenants set forth in this
Agreement, such breach could cause irreparable harm to Buyer and, in the event
of such breach, Buyer shall be entitled, in addition to monetary damages and to
any other remedies available to Buyer under this Agreement and at law, to
equitable relief, including injunctive relief.
(c) Notwithstanding subsection (a), should any court of
competent jurisdiction determine that any covenants in this Agreement are
unreasonable as to duration, scope, or territory, the covenants shall be
enforceable as provided in this Agreement with respect to the maximum duration,
scope and territory as the court determines to be reasonable.
5. ASSIGNMENT; BINDING EFFECT; AMENDMENT. This Agreement and the rights
of the parties under it may not be assigned (except by operation of law and
except that they may be assigned by Buyer or to any successor of Buyer to the
Business without the consent of Seller) and shall be binding upon and shall
inure to the benefit of the parties. This Agreement constitutes a valid and
binding agreement of the parties enforceable in accordance with its terms and
may be modified or amended only by a written instrument executed by each party.
6. ENTIRE AGREEMENT. This Agreement and any documents referred to
herein or executed contemporaneously herewith, constitute the final, complete
and exclusive statement of the agreement among the parties with relation to the
subject matter of this Agreement. There are no oral representations,
understandings or agreements covering the same subject matter as this Agreement.
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7. COUNTERPARTS. This Agreement may be executed in two or more original
or facsimile counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
8. NOTICES. All notices or other communications required or permitted
under this Agreement shall be in writing and may be given by depositing the same
in United States mail, addressed to the party to be notified, postage prepaid
and registered or certified with return receipt requested, by overnight courier
or by delivering the same in person to such party, addressed as follows:
(a) If to Seller, addressed to it at:
Pinnacle Entertainment, Inc.
Realty Investment Group, Inc.
4400 MacArthur Boulevard, Suite 380
Newport Beach, CA 92660
Attn.: G. Michael Finnigan
and a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90067-4276
Attn.: Sandra G. Kanengiser
(b) If to Buyer, addressed to it at:
---------------------
and a copy to:
Fennemore Craig, P.C.
3003 North Central Avenue
Suite 2600
Phoenix, AZ 85012
Attn: Ronald L. Ballard
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier, subject to signature verification, and
three business days after the deposit in the U.S. mail of a writing addressed
and sent as above or when actually received, if earlier. Any party may change
the address for notice by notifying the other party of such change in accordance
with this Section.
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Arizona, without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Arizona or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Arizona.
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10. NO WAIVER. No delay of or omission in the exercise of any right,
power or remedy accruing to any party as a result of any breach or default by
any other party under this Agreement shall impair any such right, power or
remedy, nor shall it be construed as a waiver of or acquiescence in any such
breach or default, or of or in any similar breach or default occurring later. No
waiver of any single breach or default shall be deemed a waiver of any other
breach or default occurring before or after that waiver.
11. SEVERABILITY. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, it shall, to the extent possible, be modified
in such manner as to be valid, legal and enforceable but so as most nearly to
retain the intent of the parties. If such modification is not possible, such
provision shall be severed from this Agreement. In either case the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired thereby.
12. CONSTRUCTION. The headings in this Agreement are inserted for
convenience only, and shall not constitute a part of this Agreement or be used
to construe or interpret any of its provisions. The parties have participated
jointly in the negotiation and drafting of this Agreement. If a question of
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provision of this
Agreement. The word "include" or "including" means include or including, without
limitation.
13. ATTORNEYS' FEES. If any legal action or any other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default, or misrepresentation in connection with any provision of this
Agreement, the prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
[SIGNATURES ON FOLLOWING PAGE]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
SELLER:
___________________________
By: _______________________
Name:______________________
Title:_____________________
BUYER:
___________________________
By: _______________________
Name:______________________
Title:_____________________
-5-
<PAGE>
EXHIBIT 5.2.5
SELLER'S CLOSING CERTIFICATE
This Certificate is executed and delivered by the undersigned in his
capacity as an officer of Pinnacle Entertainment, Inc., a Delaware corporation
("Seller") pursuant to Sections 12.1 and 12.2 of that certain Agreement for
Purchase and Sale of Assets (the "Agreement") dated as of ________, among Seller
and Jerry Simms, an individual, and assigned by Jerry Simms to ______________,
a(n) ___________ ("Buyer").
The undersigned officer of Seller, in his capacity as such, hereby
certifies that:
i) Seller has performed in all material respects its
material covenants contained in the Agreement required to be performed on or
before the Closing.
ii) The representations and warranties of Seller set
forth in Article 7 of the Agreement (other than Sections 7.6.2 and 7.7.2, which
have expired), as amended, if amended as provided in Section 17.16, are accurate
as of the date hereof (except where such representation or warranty was made as
of a date specifically set forth therein), except where the failure to be
accurate relates to matters which could not reasonably be expected to have a
Material Adverse Effect.
Capitalized terms used in this Certificate but not otherwise defined
herein shall have the meanings assigned to them in the Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
this ___ day of ________, ____.
Seller:
______________________________
By: __________________________
Name:_________________________
Title:________________________
<PAGE>
EXHIBIT 5.2.8
NON-FOREIGN CERTIFICATION
The undersigned, as authorized agent of Pinnacle Entertainment, Inc., a Delaware
corporation ("Transferor"), certifies that:
Section 1445 of the Internal Revenue Code provides that a transferee of a U.S.
real property interest must withhold tax if the transferor is a foreign person.
To inform ______________, a(n) ________ ________ ("Transferee"), that
withholding of tax is not required upon the disposition of Transferor's interest
in the real property described on Exhibit "A" attached hereto and by this
reference included herein, the undersigned hereby certifies as follows:
1. Transferor is not a non-resident alien, foreign corporation,
foreign partnership, foreign trust, foreign estate, or other
foreign person within the meaning of ss.1445 and [ss.7701] of
the Internal Revenue Code and the treasury regulations
promulgated thereunder;
2. Transferor's U.S. taxpayer identification number is:_______;.
3. Transferor's business address is:___________________________.
Transferor understands that this certification may be disclosed to the Internal
Revenue Service by Transferee and that any false statement contained herein
could be punished by fine, imprisonment, or both.
Under penalties of perjury Transferor declares that it has examined this
Affidavit and to the best of its knowledge and belief this certification is
true, correct and complete. The undersigned agent declares that he has the
authority to sign this document on behalf of Transferor.
_______________________,
a(n) __________________
By: _________________________
Name:________________________
Its:_________________________
<PAGE>
EXHIBIT 5.3.3
OPINION OF BUYER'S COUNSEL
[TO BE DELIVERED FOR AND ADAPTED TO EACH BUYER ENTITY AT CLOSING.]
____________________ [date]
____________________________
____________________________
____________________________
Ladies and Gentlemen:
We have acted as counsel to _____________________________, an Arizona
limited partnership (the "Buyer"), in connection with the purchase by Buyer of
certain assets of Pinnacle Entertainment, Inc., a Delaware corporation (the
"Seller"), pursuant to that certain Agreement for Purchase and Sale of Assets
dated as of ______________, by and between Seller and Jerry Simms, an
individual, and assigned by Jerry Simms to the Buyer (the "Purchase Agreement").
This opinion letter is furnished to you pursuant to Section 5.3.3 of the
Purchase Agreement. Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Purchase Agreement.
For purposes of rendering this opinion, we have examined such questions
of law and fact as we deemed relevant. We have also assumed that the Purchase
Agreement and Transaction Documents (as hereinafter defined) have been duly
authorized, executed and delivered by, and constitute valid, binding and
enforceable obligations of, Seller, that all signatories of Seller are duly
authorized, that Seller is duly organized and validly existing and/or has the
power and authority to execute, deliver and perform the Transaction Documents to
the extent that Seller is a party thereto, that all of the signature and
acknowledgements of all parties to the Transaction Documents are genuine, that
all of the Transaction Documents submitted to us as executed counterparts are
authentic and that all of the Transaction Documents submitted to us as copies
conform to the executed originals of such documents. As to various questions of
fact relevant to this opinion, we have been furnished with, and have relied
without independent verification upon, the representations and warranties of the
Buyer contained in the Transaction Documents, including the Purchase Agreement,
the certificates of good standing issued by the Secretary of State of Arizona
with respect to the existence, good standing and qualification to transact
business of the entities referenced therein and a certificate provided to us by
[an officer of the general partner] of the Buyer. We have also assumed the
absence of any agreement or understanding that would modify, supplement or amend
any of the documents reviewed by us.
We do not express any opinion as to any laws other than the laws of the
State of Arizona and the laws of the United States of America.
<PAGE>
Based upon the foregoing and on the assumptions herein set forth, and
subject to the limitations, qualifications and exceptions set forth herein, we
are of the opinion that:
1. The Buyer is a limited partnership formed, validly existing and in
good standing under the laws of the State of Arizona and has all requisite power
and authority to carry on its business as now conducted, and is duly qualified
to transact business in the State of Arizona.
2. The execution, delivery and performance by the Buyer of the Purchase
Agreement and any other instruments and agreements executed and delivered by the
Buyer to Seller pursuant to the Purchase Agreement (the "Transaction Documents")
and the consummation by the Buyer of the transactions contemplated thereby (the
"Transactions"), including but not limited to the assumption by Buyer of the
Assumed Liabilities pursuant to the Purchase Agreement, are within the Buyer's
partnership powers, have been duly authorized by all necessary action of the
partners of Buyer and do not contravene the provisions of the certificate of
limited partnership or the limited partnership agreement of the Buyer. The
Purchase Agreement and the Transaction Documents have been duly and validly
executed by the Buyer.
3. Each of the Transaction Documents is the legal, valid and binding
obligation of the Buyer, enforceable against the Buyer in accordance with its
terms, except as may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium and other laws and court decisions or other legal or
equitable principles relating to, limiting or affecting the enforcement of
creditors' rights generally including, without limitation, preferences and
fraudulent conveyances, and subject to the discretion of any court of competent
jurisdiction in awarding equitable remedies (regardless of whether considered in
a proceeding in equity or at law), including, but not limited to, specific
performance or injunctive relief.
4. The consummation of the Transactions does not require any filing
with any Governmental Authority pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (15 U.S.C.ss.18a), as amended.
This opinion is rendered as of the date hereof, and we undertake no
obligations to update this opinion in respect of any changes of circumstances,
events, laws or judicial decisions. This opinion is rendered to you solely for
your benefit in connection with the transactions contemplated above. This
opinion may not be relied upon by any other person for any purpose.
Very truly yours,
Fennemore Craig, P.C.
-2-
<PAGE>
EXHIBIT 5.3.5
BUYER'S CLOSING CERTIFICATE
This Certificate is executed and delivered by the undersigned in his
capacity as ____________________ of ________________________, a
_____________________ ("Buyer") pursuant to Sections 11.1 and 11.2 of that
certain Agreement for Purchase and Sale of Assets (the "Agreement") dated as of
________, among Pinnacle Entertainment, Inc., a Delaware corporation, and Jerry
Simms, an individual, and assigned by Jerry Simms to ______________, a(n)
___________ ("Buyer").
The undersigned [officer] of Buyer, in his capacity as such, hereby
certifies that:
i) Buyer has performed in all material respects its
material covenants contained in the Agreement required to be performed on or
before the Closing.
ii) The representations and warranties of Buyer set forth
in Article 8 of the Agreement, as amended, if amended as provided in Section
17.16, are true and correct in all material respects on and as of the date
hereof (except where such representation or warranty was made as of a date
specifically set forth therein).
Capitalized terms used in this Certificate but not otherwise defined
herein shall have the meanings assigned to them in the Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
this ___ day of ________, ____.
Buyer:
____________________________________
By:_________________________________
Name:_______________________________
Title:______________________________
<PAGE>
Exhibit 11.1
- -------------
Pinnacle Entertainment, Inc.
Calculation of Earnings Per Share
<TABLE>
<CAPTION>
For the three months ended December 31,
----------------------------------------------------------------------
Basic Diluted
-------------------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- ---------
(In thousands, except per share data-unaudited)
<S> <C> <C> <C> <C> <C> <C>
Average number of common shares outstanding 26,145 25,800 26,209 26,145 25,800 26,705
Average common shares due to assumed conversion
of convertible preferred shares (b) 0 0 0 0 0 0
Average common shares due to assumed conversion of
stock options 0 0 0 854 0 0
------- --------- -------- -------- -------- --------
Total shares 26,145 25,800 26,209 26,999 25,800 26,705
======= ========= ======== ======== ======== ========
Net income $3,971 $4,302 $1,551 $3,971 $4,302 $1,551
Less divided requirements on convertible preferred shares 0 0 0 0 0 0
------- --------- -------- -------- -------- --------
Net income available to common shareholders $3,971 $4,302 $1,551 $3,971 $4,302 $1,551
======= ========= ======== ======== ======== ========
Net income per share $0.15 $0.17 $ 0.06 $0.15 $0.17 $0.06
======= ========= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------------------------------------------
Basic Diluted
------------------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- ---------
(In thousands except per share data-unaudited)
<S> <C> <C> <C> <C> <C> <C>
Average number of common shares outstanding 25,966 26,115 $22,010 25,966 26,115 22,340
Average common shares due to assumed conversion
of convertible preferred shares (b) 0 0 0 0 0 0
Average common shares due to assumed conversion of
stock options 0 0 0 363 0 0
------- --------- -------- -------- -------- --------
Total shares 25,966 26,115 22,010 26,329 26,115 22,340
======= ========= ======== ======== ======== ========
Net income $44,047 $13,169 $8,670 $44,047 $13,169 $8,670
Less dividend requirements on convertible preferred shares 0 0 1,520 0 0 1,520
------- --------- -------- -------- -------- --------
Net income (loss) available to (allocated to) common
shareholders $44,047 $13,169 $7,150 $44,047 $13,169 $7,150
======= ========= ======== ======== ======== ========
Net income per share $ 1.70 $ 0.50 $ 0.33 $ 1.67 $ 0.50 $ 0.32
======= ========= ======== ======== ======== ========
</TABLE>
____
(a) When the computed diluted values are anti-dilutive, the basic per share
values are presented on the face of the consolidated statements of operations.
(b) As of August 28, 1997, the Company's 2,749,000 outstanding depositary
shares were converted into 2,291,492 shares of the Company's common stock.
<PAGE>
EXHIBIT 23.1
Consent of Independent Public Accountants
We consent to the incorporation by reference in the registration
statements on Form S-8 with respect to (A) the registration of shares issued (i)
upon exercise of options granted pursuant to the 1996 Stock Option Plan of
Hollywood Park, Inc., and (ii) upon exercise of options to purchase an aggregate
of 20,000 shares of Common Stock granted to certain directors of Hollywood Park,
Inc.; (B) the registration of shares issued upon exercise of options granted
pursuant to the 1990 Stock Option Plan and the 1992 Director Option Plan of
Boomtown, Inc.; (C) the registration of shares issued (i) upon exercise of
options granted pursuant to the 1992 Incentive Stock Option Plan of Casino Magic
Corp. and (ii) upon exercise of options granted to certain employees and
directors of Casino Magic Corp.; (D) the registration of (i) options and stock
appreciation rights granted under the 1993 Stock Option Plan of Hollywood Park,
Inc. and (ii) shares issued upon exercise of such options and/or stock
appreciation rights; (E) the registration of shares issued (i) pursuant to the
Amended and Restated Directors Deferred Compensation Plan and (ii) upon exercise
of options to purchase an aggregate of 822,500 shares of Common Stock granted to
certain directors and officers of Hollywood Park, Inc.; and (F) the registration
of Deferred Compensation Obligations issued pursuant to the Executive Deferred
Compensation Plan of Hollywood Park, Inc., of our report dated February 8, 2000
(except with respect to the matters discussed in Note 20, as to which the date
is March 21, 2000) on the financial statements of Pinnacle Entertainment, Inc.,
which report appears in the Annual Report on Form 10-K of Pinnacle
Entertainment, Inc., for the fiscal year ended December 31, 1999.
Arthur Andersen LLP
Los Angeles, California
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 123,362,000
<SECURITIES> 123,428,000
<RECEIVABLES> 31,829,000
<ALLOWANCES> 1,863,000
<INVENTORY> 0
<CURRENT-ASSETS> 437,474,000
<PP&E> 557,271,000
<DEPRECIATION> (119,556,000)
<TOTAL-ASSETS> 1,045,408,000
<CURRENT-LIABILITIES> 145,008,000
<BONDS> 625,480,000
0
0
<COMMON> 2,624,000
<OTHER-SE> 278,252,000
<TOTAL-LIABILITY-AND-EQUITY> 1,045,408,000
<SALES> 57,461,000
<TOTAL-REVENUES> 706,857,000
<CGS> 62,854,000
<TOTAL-COSTS> 562,653,000
<OTHER-EXPENSES> 1,687,000
<LOSS-PROVISION> 2,456,000
<INTEREST-EXPENSE> 57,544,000
<INCOME-PRETAX> 84,973,000
<INCOME-TAX> 40,926,000
<INCOME-CONTINUING> 44,047,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,047,000
<EPS-BASIC> 1.70
<EPS-DILUTED> 1.67
</TABLE>
