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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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: Commission file number:
APRIL 30, 1996 0-14939
CROWN CASINO CORPORATION
(Exact name of registrant as specified in its charter)
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TEXAS 63-0851141
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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4040 N. MACARTHUR BLVD., SUITE 100, IRVING, TEXAS
(Address of principal executive office)
75038
(Zip Code)
(214) 717-3423
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 par share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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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 the 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. [ ]
Based on the average of the closing bid and asked prices of the Registrant's
common stock on August 8, 1996 the aggregate market value of the voting stock
held by non-affiliates (all persons other than executive officers, directors
and holder's of 5% or more of the Registrant's common stock) of the Registrant
(8,830,486 shares) was $20,420,499.
As of August 8, 1996 there were 11,450,759 shares of the Registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Annual Report to Stockholders for the year ended
April 30, 1996 are incorporated by reference into Part II of this report, and
portions of the Registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held in 1996 are incorporated by reference into Part III
of this report, with the exception of information regarding executive officers
required under Item 10 of Part III, which information is included in Part I,
Item 1.
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PART I
ITEM 1. BUSINESS
GENERAL AND HISTORY
Crown Casino Corporation and subsidiaries (the "Company") owns an 18.6 acre
tract of land in the gaming district of Las Vegas, Nevada which may be used in
the development of a hotel and casino, and in June 1996 the Company entered
into a definitive asset purchase agreement to acquire the Mississippi Belle II,
Inc. ("MBII") riverboat casino located in Clinton, Iowa. The Company is also
actively pursuing other gaming opportunities in these and other jurisdictions.
Since its inception in 1983 through February 1994 the Company had been engaged
in various facets of the cable and related programming businesses. During the
fiscal year ended April 30, 1992 it became apparent to management that the
Company's Free-to-Guest ("FTG") programming business had become increasingly
competitive from a profit margin standpoint and that future growth in the FTG
programming business was limited. As a result, in late fiscal 1992 the Company
sold the majority of its FTG programming business for a pretax gain of $5.7
million. During fiscal 1993 the Company reviewed the status of its remaining
cable operations and began exploring new business opportunities. In early
fiscal 1994 the Company made the decision to enter the gaming business, and, as
a result, proceeded to sell the balance of its cable assets. The disposition
of the Company's remaining cable assets was completed in February 1994.
GAMING DEVELOPMENT
In June 1993 the Company completed the acquisition of 100% of the outstanding
common stock of St. Charles Gaming Company, Inc. ("SCGC"), a Louisiana
corporation, which had received preliminary approval from the Louisiana
Riverboat Gaming Commission to construct and operate a riverboat gaming casino.
In March 1994 SCGC received a license from the Louisiana Riverboat Gaming
Enforcement Division of the Office of State Police. In January 1995 SCGC made
the strategic decision to relocate the site for its planned Louisiana riverboat
casino from St. Charles Parish (near New Orleans) to Calcasieu Parish in the
southwest part of the state near the Texas border.
In June 1995 the Company sold a 50% interest in SCGC to Louisiana Riverboat
Gaming Partnership ("LRGP"), a joint venture owned 50% by Casino America, Inc.
("Casino America") and 50% by Louisiana Downs, Inc. LRGP owns the Isle of
Capri(SM) dockside riverboat casino in Bossier City, Louisiana. The purchase
price consisted of (i) a five-year $20 million note (the "LRGP Note"), (ii) $1
million cash, and (iii) a warrant (which may only be exercised by converting a
portion of the LRGP Note) to purchase 416,667 shares of Casino America common
stock at $12 per share. In connection with this transaction the Company
recorded a pretax gain of approximately $21.5 million. In July 1995 SCGC's
riverboat casino opened for business in Calcasieu Parish, Louisiana, as an Isle
of Capri(SM) themed property.
In May 1996 the Company sold its remaining 50% interest in SCGC to Casino
America for (i) 1,850,000 shares of Casino America common stock, (ii) the
exchange of the $20 million LRGP Note for LRGP Note A ("Note A") and LRGP Note
B ("Note B"), each in the principal amount of $10 million and bearing interest
at 11.5% per annum, and (iii) an additional five- year warrant to purchase up
to another 416,667 shares of Casino America common stock (bringing the total
number of shares purchasable pursuant to warrants by the Company to 833,334 )
at an exercise price of $12 per share. In connection with this transaction, in
May 1996, the Company recorded a gain before income taxes of approximately
$14.9 million.
The Company's decisions to sell the first 50% interest in SCGC and then the
remaining 50% interest in SCGC were unrelated and based upon differing
considerations. The Company decided to sell the first 50% interest because it
needed additional financing to complete the development of the Louisiana
project but desired to retain an interest in the project due to management's
belief that the value of the Company's remaining 50% interest would appreciate,
over the amount received by the Company for the sale of the first 50% interest,
once the casino became operational. The Company's decision to sell the
remaining 50% interest in SCGC resulted from management's belief that SCGC
needed a second riverboat casino at the site to effectively compete in the Lake
Charles market, and the Company and the other 50% shareholder, LRGP, as well as
LRGP's beneficial owners (Casino America and Louisiana Downs), were unable to
reach an agreement with respect to the ownership structure of the second
riverboat. The value of SCGC declined from June 1995 (when the Company sold
the first 50% interest
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in SCGC for a pretax gain of approximately $21.5 million) to May 1996 (when the
Company sold the remaining 50% interest in SCGC for a pretax gain of
approximately $14.9 million) because SCGC's operating results upon opening in
July 1995 were less than its projected results.
In December 1993 the Company acquired 100% of the outstanding common stock of
Gaming Entertainment Management Services, Inc. ("GEMS"), a Nevada corporation,
which was organized for the purpose of developing a hotel and casino in Las
Vegas, Nevada. GEMS' primary asset was its option to purchase an 18.6 acre
tract of land in the gaming district of Las Vegas. In June 1994 the option was
exercised and the land was purchased. The Company may develop such property by
itself or on a joint venture basis, or, if not developed, may sell the land.
In June 1996 the Company entered into a definitive asset purchase agreement to
acquire the assets and operations of the MBII riverboat casino located in
Clinton, Iowa, for a purchase price of $40 million. The MBII riverboat casino
contains approximately 485 slot machines, 20 table games and has on-board
dining and entertainment facilities. For the year ended December 31, 1995 MBII
had revenues and pretax profits of $30.5 million and $9.5 million,
respectively.
ACQUISITION OF MBII
General
On June 11, 1996 the Company entered into a definitive asset purchase agreement
with MBII and all the shareholders thereof to acquire substantially all the
assets and operations of MBII for a purchase price of $40 million. The MBII
riverboat casino located in Clinton, Iowa, has been operated by the Kehl family
(including Robert Kehl, who is a director of the Company) since its opening in
June 1991. In connection with the agreement, the Company will enter into
employment agreements with certain members of the Kehl family whereby the
majority of MBII's existing management will continue to operate the facility.
Closing of the transaction is subject to the satisfaction of certain conditions
including obtaining (i) $20 million of bank debt financing satisfactory to the
Company, (ii) the approval of the Iowa Racing and Gaming Commission (the "Iowa
Gaming Commission"), and (iii) a license to operate the purchased assets. The
Company has commenced the regulatory approval process with the filing of
certain corporate information and personal histories of its officers and
directors.
Location, Facilities and Operations
The MBII riverboat casino ("Casino") is a four deck riverboat measuring
approximately 228 feet in length by 64 feet in width. The Casino offers
approximately 37,700 square feet of floor space including 10,600 square feet
which is used for actual gaming operations. The Casino contains approximately
485 slot machines (the majority of which are equipped with IGT's computerized
player tracking system, which allows the building of a data base of customer
playing habits) and 20 table games (including black jack, craps, Caribbean stud
and roulette) on two levels for a total of approximately 625 gaming positions.
The third deck includes a buffet restaurant seating 320 persons, the Captains
Deli which serves hot and cold sandwiches, kitchen facilities, a gift shop, and
an entertainment stage. The fourth level of the riverboat contains
approximately 500 square feet of office space and 7,000 square feet of open
space which has been used for site- seeing, relaxation and light dining. The
Casino has a U.S. Coast Guard capacity of 1,000 passengers (excluding crew) and
has been designed to create a comfortable and spacious atmosphere.
The Casino's adjacent barge based support facilities include approximately
7,000 square feet of general office, guest service and storage areas. In
addition, located approximately four miles inland is MBII's 14,000 square foot
kitchen and warehouse facility. Parking for a total of approximately 750
vehicles is available on (i) Riverview Drive adjacent to the project, (ii) a
400 space public parking lot approximately 1/4 mile away for which MBII
provides shuttle services, and (iii) a nearby public swimming facility
providing an additional 100 spaces. While substantially all the operations are
conducted on the riverboat and supporting barge facilities, MBII leases
approximately three acres of riverfront land from the City of Clinton which is
used for docking the riverboat on the Mississippi River. The lease expires in
2000, however, the Company anticipates in connection with the MBII acquisition
it will enter into a new agreement with the City of Clinton for an extended
period.
Pursuant to Iowa law the license to conduct gaming is held by a qualified
non-profit sponsoring organization, in this case Clinton County Gaming
Association, Ltd. ("CCGA"). MBII in turn has an operating agreement with CCGA
(the "CCGA Gaming Agreement") to conduct gaming operations and is licensed to
operate a gaming excursion vessel. Under the current CCGA Gaming Agreement
MBII pays CCGA an admission fee for each adult passenger boarding the vessel
calculated on an
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annual basis equal to (i) $.54 for each of the first 50,000 passengers, (ii)
$1.08 for each of the next 50,000 passengers, and (iii) $1.35 for each
passenger thereafter. During 1995 approximately 704,000 passengers boarded the
Casino. The admission fees are subject to periodic increase equal to the same
percentage increase in the Consumer Price Index. The CCGA Gaming Agreement
expires in 2000, however, the Company anticipates in connection with the MBII
acquisition it will enter into a new agreement with CCGA for an extended
period.
The Casino operates seven days a week, 365 days a year from 9:00 a.m. to 2:00
a.m. on weekdays, and from 9:00 a.m. to 4:00 a.m. on weekends. While on board
passengers are offered a variety of slot machines and table games. The
majority of gaming operations are conducted dockside, except for the
requirement to conduct a total of at least one 2-hour excursion per day for an
aggregate of 100 days during the excursion season which runs from April 1 to
October 31 of each year. The majority of food is prepared off-site at MBII's
kitchen facilities and is transported periodically in insulated food containers
to the riverboat. MBII serves approximately 5,000 meals a week.
Market
Clinton County has a population of approximately 45,000, including
approximately 35,000 in the City of Clinton. Clinton County is a rural
community approximately 40 miles north of the Quad Cities of Davenport and
Bettendorf, Iowa and Moline and Rock Island, Illinois. Clinton is the home to
a number of large manufacturing facilities including International Paper,
Archer Daniels Midland, Ralston Purina, Custom-Pak and Quantum which with
others provide approximately 5,000 manufacturing jobs.
MBII believes more than half of its customers originate from cities and towns
in the State of Illinois as Clinton is located on the border of the states of
Iowa and Illinois. The Casino is located approximately 1/2 mile north of the
Highway 30 Mississippi River Bridge and 1 1/2 miles south of the Lyons/Fulton
Bridge which permit vehicular traffic between Iowa and Illinois. Aside from
these two bridges, the nearest bridge to the south is approximately 35 miles
away and the nearest bridge to the north is approximately 20 miles away. These
two bridges tend to funnel a certain portion of the east/west traffic through
the City of Clinton. In addition, many of the Casino's patrons are residents
of Clinton County, and other cities and towns in Iowa.
Marketing Strategy
The Company's marketing strategy is to attract customers to the Casino by
designing and implementing various marketing programs catering to specific
groups within MBII's overall target market. The Company believes many of
MBII's customers are attracted to its convenient location, accessible parking,
friendly atmosphere and the convenience and quality of its food operation. The
Company believes MBII's food operation is superior to other riverboat gaming
casinos in the area. MBII encourages participation in the "Players Club", of
which members can accumulate points that can be exchanged for cash, or other
prizes and food. Periodically, MBII sponsors events and trips exclusively for
its Players Club members.
In addition to marketing directly to members of its Players Club, MBII uses
newspaper, radio, outdoor and print media to promote its services and to
achieve greater recognition. Oftentimes MBII utilizes its highly regarded food
operation to attract and retain customers. In particular, MBII places a number
of complimentary food and other coupons in newspapers of towns and cities in
the vicinity of the Casino to encourage patronage. MBII also has an active bus
program with local and out of state bus tour operators.
COMPETITION
General
The casino gaming industry includes casinos which are either land-based in
jurisdictions such as Nevada and New Jersey, dockside casinos, riverboat
casinos and land-based casinos on Indian reservations. The gaming industry is
highly competitive and is composed of a large number of companies, many of
which have significantly greater resources than the Company. Numerous states
have legalized gaming and several other states are considering the legalization
of gaming in designated areas. As a result of the proliferation of gaming in
new jurisdictional areas as well as the proliferation of Indian gaming on
tribal land, the Company's proposed and future operations could be adversely
affected, particularly in instances where such other gaming operations are
conducted close to properties operated by the Company.
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Clinton, Iowa
The Company believes a majority of MBII's customers reside within a 75 mile
radius of the Casino. Within this radius MBII currently competes with (i)
three riverboat casinos in the Quad Cities area approximately 40 miles to the
south (two in Iowa and one in Illinois), (ii) a riverboat casino in DuBuque,
Iowa approximately 65 miles to the north, (iii) a riverboat casino in Galena,
Illinois approximately 65 miles to the north, and (iv) a land-based slots-only
casino which opened in November 1995 located within a dog racing facility in
DuBuque, Iowa. In November 1995, the riverboat casino located in Galena,
Illinois closed, but re-opened again in May 1996.
Iowa law does not limit the number of gaming licenses that may be granted
within the state, and accordingly other casinos may be subsequently authorized
within MBII's primary market area. Furthermore, the Company is aware that
recently a group of investors have expressed an interest in locating a casino
in Cedar Rapids, Iowa, approximately 85 miles west of the Casino. Prior to
gaming being authorized in Cedar Rapids, a referendum must be approved by the
residents of Linn County and the Iowa Gaming Commission must issue a license to
the proposed non-profit organization and casino operator.
Currently Illinois law limits the number of riverboat gaming licenses to ten.
All of such licenses have been granted, and all of the respective casinos are
currently in operation. Illinois law requires regular excursions, except when
cruising is unsafe due to inclement weather, mechanical or structural problems,
or river icing. Over the last two years a number of proposals have been
introduced in the Illinois legislature seeking to expand the number of gaming
licenses that may be granted, and to reduce the cruising requirements for
riverboats. The Company cannot predict the likelihood whether gaming
legislation in Illinois will be modified, and, if so, what impact it may have
on MBII's operations.
Las Vegas, Nevada
A hotel and casino on the Company's property located on Flamingo Road
approximately 3/4 of a mile west of the Las Vegas Strip, if developed, would
face competition from other casinos and hotels in the Las Vegas area,
particularly those located on or near the Las Vegas Strip. Currently, there
are approximately 27 major hotel-casinos located on or near the Las Vegas
Strip, nine major hotel-casinos located in the downtown area and several major
facilities located elsewhere in the Las Vegas area. As of July 1, 1996 there
were approximately 94,000 hotel and motel rooms in Las Vegas. Las Vegas room
capacity is expected to increase significantly during the next three years upon
the completion and opening of several new hotel-casinos and expansion projects.
Many of the proposed facilities have themes and attractions which are expected
to draw significant numbers of visitors. However, future additions and
expansions could result in a decrease in the number of casino patrons compared
to gaming square footage, and/or decrease the hotel occupancy levels in the Las
Vegas market. There can be no assurance that the Company would be able to
successfully compete in the Las Vegas market should it decide to enter that
market.
DEVELOPMENT OPPORTUNITY
In December 1993 the Company acquired all of the outstanding stock of GEMS,
which had an option to purchase an 18.6 acre tract of land in the gaming
district of Las Vegas located at the intersection of Flamingo Road and Arville
Street and across the street from the Gold Coast Hotel and Casino. GEMS
exercised the option and purchased the land on June 8, 1994. The land has
received zoning approval for the construction of a 12-story, 400-room hotel and
casino. The Company may develop a hotel and casino project on the property
either independently or through a joint venture. In connection with the stock
purchase agreement with LRGP, the Company granted LRGP a right of first
refusal, which expires in June 1998, to jointly develop a hotel and casino
project on the Company's Las Vegas property in the event the Company chooses to
develop such project on a joint venture basis. The Company is currently
pursuing potential opportunities to joint venture the development of a hotel
and casino project on such property, although no agreement has been reached
with any person in that regard. In addition to seeking an acceptable joint
venture arrangement, the Company has considered selling the property and has
had discussions with certain parties in that regard, although no agreement has
been reached with any party respecting such a sale.
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REGULATORY MATTERS
Iowa Gaming Legislation
In 1989 the State of Iowa legalized riverboat gaming on the Mississippi and
Missouri Rivers and certain other waterways located in Iowa. The Excursion
Gambling Act grants the Iowa Gaming Commission jurisdiction over all gaming
operations.
The legislation authorized the granting of licenses to conduct riverboat gaming
to not-for-profit corporations which, in turn, are permitted to enter into
operating agreements with persons who are licensed by the Iowa Gaming
Commission to operate riverboat casinos. The legislation gives each county the
opportunity to hold a referendum on whether to allow casino gaming within its
boundaries. Such a referendum was passed in Clinton County on May 10, 1994
with 85.2% voting in favor of passage, thereby authorizing casino gaming in
Clinton County for a period of nine years from May 1994. Another referendum
cannot be held until 2002 and if approved, subsequent referenda will occur at
eight year intervals. The number of licenses which may be granted in the
state is not limited by statute or regulation.
In 1994 Iowa amended its gaming legislation to remove several previous
restrictions including loss and wager limits and restrictions on the amount of
space on a vessel that may be utilized for gaming. Current law permits gaming
licensees to offer unlimited stakes gaming on games approved by the Iowa Gaming
Commission on a 24-hour basis. Gaming is permitted only on riverboats which
recreate, as nearly as practicable, Iowa's riverboat history and have a
capacity for at least 250 patrons. In addition the licensee must utilize Iowa
resources, goods and services in the operation of the riverboat. An excursion
gaming boat must operate at least one excursion each day for 100 days during
the excursion season which is from April 1 through October 31 of each year.
Excursions consist of a minimum of two hours. While an excursion gaming boat
is docked, passengers may embark or disembark at any time during its business
hours. If during the excursion season it is determined that it would be unsafe
to complete any portion of an excursion, or if mechanical problems prevent the
completion of any portion of an excursion, the boat may be allowed to remain
dockside. The legal age for gaming in Iowa is 21.
Gaming licenses are issued for not more than three years and are subject to
annual renewal thereafter. The Iowa Gaming Commission has broad discretion
with regard to such renewals. The annual license fee to operate an excursion
gaming boat is based on the passenger carrying capacity, including crew, for
which the excursion gaming boat is registered. The annual fee is five dollars
per person capacity. Licenses issued by the Iowa Gaming Commission may not be
transferred to another person or entity.
Minimum and maximum wagers on games are set by the licensee. Wagering may only
be conducted with chips, wagering debit cards or coins. Wagers may only be
made by persons 21 years of age and older. A licensee may not accept a credit
card to purchase coins, tokens or other forms of credit to be wagered.
The legislation imposes a graduated tax based on annual adjusted gross receipts
at a rate of 5% on the first $1 million, 10% on the next $2 million and 20% on
any amount over $3 million. Taxes are due from the licensee within 10 days
after the close of business of the day when the wagers were made. The
legislation also permits the Iowa Gaming Commission to impose an admission fee
for each person embarking on an excursion vessel, and the city or county in
which gaming is conducted is permitted to impose an admission fee per patron of
not greater than $.50.
Pursuant to its rulemaking authority, the Iowa Gaming Commission requires
officers, directors and certain key employees of the Company to be licensed by
the Iowa Gaming Commission. In addition, anyone having a material relationship
or involvement with the Company may be required to be found suitable or to be
licensed, in which case those persons would be required to pay the costs and
fees of the Iowa Gaming Commission. The Iowa Gaming Commission has
jurisdiction to disapprove a change in position by such officers or key
employees, or sever relationships with other persons who refuse to file
appropriate applications or whom the Iowa Gaming Commission finds unsuitable to
act in such capacities. Any contract in excess of $50,000 must be submitted to
and approved by the Iowa Gaming Commission.
The Iowa Gaming Commission may also require any individual who has a material
relationship with the Company to be investigated and licensed or found
suitable. Any person who acquires 5% or more of the Company's equity
securities must be approved by the Iowa Gaming Commission prior to such
acquisition. The applicant stockholder is required to pay all costs of such
investigation.
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The ownership and operation of gaming facilities in Iowa are subject to
extensive state laws, regulations of the Iowa Gaming Commission and various
county and municipal ordinances (collectively, the "Iowa Gaming Laws"),
concerning, among other things, the responsibility, financial stability and
character of gaming operators and persons financially interested or involved in
gaming operations. Iowa Gaming Laws seek to (i) prevent unsavory or unsuitable
persons from having 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 the establishment of minimum procedures for internal
affairs, the safeguarding of assets and revenues, the provision of reliable
record keeping and the filing of periodic financial and operating reports with
the Iowa Gaming Commission); (iv) prevent cheating and fraudulent practices;
and (v) provide a source of state and local revenues through taxation and
licensing fees.
The Iowa Gaming Commission may revoke a gaming license if, among other
conditions, the licensee: (i) has been suspended from operating a gaming
operation in another jurisdiction by a board or commission of that
jurisdiction; (ii) has failed to demonstrate financial responsibility
sufficient to adequately meet the requirements of the gaming enterprise; (iii)
is not the true owner of the enterprise; (iv) has failed to disclose ownership
of other persons in the enterprise; (v) is a corporation 10% of the stock of
which is subject to a contract or option to purchase at any time during the
period for which the license was issued, unless the contract or option was
disclosed to the Iowa Gaming Commission and the Iowa Gaming Commission approved
the sale or transfer during the period of the license; (vi) knowingly makes a
false statement of a material fact to the Iowa Gaming Commission; (vii) fails
to meet a monetary obligation in connection with an excursion gaming boat;
(viii) pleads guilty to, or is convicted of a felony; (ix) loans to any person,
money or other thing of value for the purpose of permitting that person to
wager on any game of chance; (x) is delinquent in the payment of property taxes
or other taxes, or fees or a payment of any other contractual obligation or
debt due or owed to a city or county; or (xi) assigns, grants or turns over to
another person the operation of a licensed excursion boat (this provision does
not prohibit assignment of a management contract approved by the Iowa Gaming
Commission), or permits another person to have a share of the money received
for admission to the excursion boat. If it were determined that gaming laws
were violated by a licensee, the gaming license held by such licensee could be
limited, made conditional, suspended or revoked. In addition, the Company and
the persons involved could be subject to substantial fines for each separate
violation of the Iowa Gaming Laws at the discretion of the Iowa Gaming
Commission.
Nevada Gaming Regulation
The Company is not currently seeking a Nevada gaming license. However, should
the Company finalize development plans for a hotel and casino project on its
Las Vegas land or otherwise acquire casino operations in Nevada, it will apply
for such a license and will be subject to the following regulations.
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, the "Nevada Act"); and (ii) various local ordinances
and regulations. Gaming operations in Nevada are subject to the licensing and
regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the
Nevada State Gaming Control Board ("Nevada Board") and various other county and
city regulatory agencies, including the City of Las Vegas, 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 the Company's
proposed gaming operations.
The Company, upon application for a Nevada gaming license, will be required to
be registered with the Nevada Commission as a publicly traded corporation (a
"Registered Corporation") and to be found suitable to own the stock of any
entity which owns or operates a casino. A casino is generally licensed by the
Nevada Gaming Authorities as a corporate licensee ( a "Corporate Licensee")
under the terms of the Nevada Act.
As a Registered Corporation, the Company will be required periodically to
submit detailed financial and operating reports to
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the Nevada Commission and furnish any other information which the Nevada
Commission may require. No person may become a stockholder of, or receive, any
percentage of profits from a Corporate Licensee without first obtaining
licenses and approvals from the Nevada Gaming Authorities.
The Nevada Gaming Authorities may investigate any individual who has a material
relationship to, or material involvement with, the Company or the Corporate
Licensee in order to determine whether such individual is suitable or should be
licensed as a business associate of the Corporate Licensee. Officers,
directors and certain key employees of the Corporate Licensee will be required
to file applications with the Nevada Gaming Authorities and may be required to
be licensed or found suitable by the Nevada Gaming Authorities. Officers,
directors and key employees of the Company who are actively and directly
involved in the activities of the Corporate Licensee may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an application for 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 or the Corporate Licensee, the companies involved
would have to sever all relationships with such person. In addition, the
Nevada Commission may require the Company or the Corporate Licensee to
terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or resolutions of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company and the Corporate Licensee will be required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, liens, sales of securities and similar financing transactions
by the Corporate Licensee will be required to be reported to or approved by the
Nevada Commission.
If it were determined that the Nevada Act was violated by the Corporate
Licensee, the licenses it holds could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory
procedures. In addition, the Company, the Corporate Licensee 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. Limitation,
conditioning or suspension of the licenses of the Corporate Licensee could (and
revocation of any license of the Corporate Licensee would) materially adversely
affect the Company.
Any beneficial holder of a Registered Corporation's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated and have its suitability as a beneficial holder of
the Registered Corporation's voting securities determined if the Nevada
Commission has reason to believe that such ownership would otherwise be
inconsistent with the declared policies of the State of Nevada. The applicant
must pay all costs of investigation incurred by the Nevada Gaming Authorities
in conducting any such investigation.
The Nevada Act requires any person who acquires 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, 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 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 the 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 the consistent with such investment intent. If the beneficial
holder of
7
<PAGE> 9
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 voting
securities of the Company beyond such period of time as may be prescribed by
the Nevada Commission may be guilty of a criminal offense. The Company will be
subject to disciplinary action if, after it receives a notice that a person is
unsuitableto be a stockholder or to have any other relationship with it, it (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
remunerations 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 remunerations 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 will be 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 will also be required to
render maximum assistance in determining the identity of the beneficial owner.
The Company will also be required to disclose to the Nevada Commission, upon
its request, the identities of any of its security holders. The Nevada
Commission has the power to require the stock certificates of the Company to
bear a legend indicating that the securities are subject to the Nevada Act.
After becoming a Registered Corporation, the Company may not make a public
offering of its securities without the prior approval of the Nevada Commission
if the securities or 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.
The regulations of the Nevada Board and the Nevada Commission also provide that
any entity which is not an "affiliated company," as such term is defined in the
Nevada Act, or which is not otherwise subject to the provisions of the Nevada
Act or such regulations, such as the Company, which plans to make a public
offering of securities intending to use such securities, or the proceeds from
the sale thereof for the construction or operation of gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes, may
apply to the Nevada Commission for prior approval of such offering. The Nevada
Commission may find an applicant unsuitable to be a holding company if it did
not submit such an application.
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
8
<PAGE> 10
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 the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license to manufacture or distribute gaming devices also
pay certain fees and taxes to the State of Nevada.
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 their participation in such foreign
gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act.
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 that are harmful to the State of Nevada
or its ability to collect gaming taxes and fees, or employ a person in the
foreign operation who was denied a license or finding of suitability in Nevada
on the grounds of personal unsuitability.
Other Gaming Regulations
In connection with the Company's ownership of more than 5% of the outstanding
common stock of Casino America (as of August 6, 1996 the Company held
approximately 10.9%), the Company must be found suitable as a 5% or greater
shareholder in any jurisdiction where Casino America has gaming operations.
Currently Casino America has gaming operations in Louisiana and Mississippi.
The Company believes it is currently authorized to be a 5% or greater
shareholder of Casino America in Louisiana and has made application to the
Mississippi gaming authorities to be approved as such.
Non-Gaming Regulations
The Company is subject to certain federal, state and local safety and health
laws, regulations and ordinances that apply to non-gaming businesses generally,
such as the Clean Air Act, Clean Water Act, Occupational Safety and Health Act,
Resource Conservation Recovery Act, and the Comprehensive Environmental
Response, Compensation and Liability Act. The Company has not made, and does
not anticipate making, material expenditures with respect to such environmental
laws and regulations. However, the coverage and attendant compliance costs
associated with such laws, regulations and ordinances may result in future
additional costs to the Company's operations.
In order for any vessel owned by the Company to have United States flag
registry, the Company must maintain "United States citizenship" as defined in
the Shipping Act of 1916, as amended (the "Shipping Act"), and other applicable
statutes. A corporation operating any vessel in the coastwise trade, such as
the Company, is not considered a United States citizen unless, among other
things, United States citizens own 75% of its outstanding capital stock.
All navigable vessels must comply with U.S. Coast Guard requirements as to boat
design, on-board facilities, equipment, personnel (including requirements that
each vessel be operated by a minimum complement of personnel) and safety. Each
vessel must hold a Certificate of Inspection from the Coast Guard. The Coast
Guard requirements establish design standards, set limits on the operation of
the vessels and require individual licensing of certain personnel involved with
the operation of the vessel. MBII's riverboat is subject to periodic
inspections by the Coast Guard and every five years the riverboat must be dry
docked for hull and other inspections, which will result in a loss of service
that can have an adverse effect on the Company.
9
<PAGE> 11
Failure to hold a Certificate of Inspection would preclude the use of the
riverboat as a floating casino.
All shipboard employees of MBII, even those not involved in the actual
operation of the vessel, such as dealers, cocktail hostesses and security
personnel, may be subject to the Jones Act which, among other things, exempts
those employees from state limits on workers' compensation awards.
Required Divestiture of Common Stock
There are various state and federal regulations that may affect the ownership
of the Company's common stock. The Articles of Incorporation of the Company
provide that any shareholder of the Company who is found to be unsuitable by
any gaming regulatory authority with jurisdiction over the Company's
operations, may, in the discretion of the Board of Directors, be required to
divest the shares of Company stock owned by such person within forty-five (45)
days from the date on which the Company notifies the disqualified holder of the
regulatory authority's determination of unsuitability, or the Company will have
the right to purchase such stock at a price equal to its fair market value, as
defined in the Articles of Incorporation, less twenty-five percent (25%).
In addition, the Articles of Incorporation require that the Company maintain
compliance under the federal Merchant Marine Act of 1936 and the federal
Shipping Act of 1916, as amended, restricting the amount of shares of Company
common stock which may be held by non-U.S. citizens. The Company may require
foreign persons to divest their shares of Company common stock in accordance
with the provisions of the Articles of Incorporation in the event that the
Company determines that it is in violation of either of these Acts.
EMPLOYEES
As of July 1, 1996 the Company employed nine persons full time. None of the
Company's employees are covered by a collective bargaining agreement and the
Company believes that its employee relations are satisfactory. MBII currently
employs approximately 400 persons.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Form 10-K
and other materials filed or to be filed by the Company with the Securities and
Exchange Commission (as well as information included in oral statements or
other written statements made or to be made by the Company) contains statements
that are forward-looking, such as statements relating to plans for future
expansion and other business development activities as well as other capital
spending, financing sources and the effects of regulation (including gaming and
tax regulations) and competition. Such forward-looking information involves
important risks and uncertainties that could significantly affect anticipated
results in the future and, accordingly, such results may differ from those
expressed in any forward-looking statements made by or on behalf of the
Company. These risks and uncertainties include, but are not limited to, those
relating to development and construction activities, dependence on existing
management, leverage and debt service (including sensitivity to fluctuations in
interest rates), domestic or global economic conditions, changes in federal or
state tax laws or the administration of such laws and changes in gaming laws or
regulations (including the legalization of gaming in certain jurisdictions).
10
<PAGE> 12
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Edward R. McMurphy . . . . . . . . . . . . . . . 45 Chairman of the Board,
President and Chief Executive Officer
Tilman J. Falgout, III . . . . . . . . . . . . . 47 Executive Vice President,
General Counsel and Director
Mark D. Slusser . . . . . . . . . . . . . . . . . 38 Chief Financial Officer,
Vice President Finance and Secretary
Edward J. Preuss, Jr. . . . . . . . . . . . . . . 63 Vice President Project Development
</TABLE>
EDWARD R. MCMURPHY, has served as President of the Company since July 1984 and
as Chief Executive Officer since January 1988. He has been a director of the
Company since its inception in April 1983. Prior to and during his involvement
with the Company, Mr. McMurphy served as President of Marion Properties, Inc.,
a real estate investment and development company, from 1979 to 1986.
TILMAN J. FALGOUT, III, has served as Executive Vice President and General
Counsel of the Company since March 1995 and as a director of the Company since
September 1992. From 1978 through June 1995, Mr. Falgout was a partner in the
law firm of Stumpf & Falgout, Houston, Texas.
MARK D. SLUSSER, has served as Chief Financial Officer of the Company since
October 1989 and as Secretary since April 1990. From 1981 until joining the
Company, Mr. Slusser was employed by Ernst & Young LLP, where he held various
positions in the Audit Department including Senior Manager. Mr. Slusser is a
Certified Public Accountant.
EDWARD J. PREUSS, JR., has served as Vice President Project Development since
April 1994. He was self employed as a general business consultant for 11 years
prior to joining the Company. Prior to his self-employment, Mr. Preuss worked
at Marion Corporation as Vice President of Corporate Communications from 1976
to 1983.
ITEM 2. PROPERTIES
The Company leases approximately 6,000 square feet of office space in Irving,
Texas which is used for the Company's executive offices. The lease expires in
February 2001, and is subject to two three-year renewal options thereafter.
The Company owns 18.6 acres of land at the southeast corner of the intersection
of Flamingo Road and Arville Street in Las Vegas, Nevada.
The Company has entered into a definitive asset purchase agreement to acquire
the assets and operations of MBII. Upon consummation of the transaction the
Company will:
(i) own a 228 foot four deck riverboat casino with approximately
37,700 square feet of floor space including 10,600 square feet
of casino space,
(ii) own an approximately 14,000 square foot kitchen and warehouse
facility situated on approximately 1 acre of land in Clinton,
Iowa,
(iii) lease approximately three acres of waterfront land adjacent to
the Mississippi River in Clinton, Iowa which is used as a
docking site for MBII's riverboat casino. The current lease
expires in April 2000, however, in connection with the
proposed acquisition of MBII, the Company expects to extend
the term of such lease.
11
<PAGE> 13
It is anticipated that the above properties pertaining to MBII's operation will
be collateral for bank indebtedness in the amount of $20 million.
ITEM 3. LEGAL PROCEEDINGS
On September 21, 1994, an action was filed against the Company and SCGC in the
24th Judicial District Court for the Parish of Jefferson, Louisiana by Avondale
Industries, Inc. ("Avondale"). In this action, Avondale alleges that the
Company was contractually obligated to Avondale for the construction of SCGC's
riverboat vessel based upon a letter of intent (allegedly reaffirming a
previous agreement entered into between Avondale and SCGC). Avondale alleges
that the Company breached a duty to negotiate in good faith toward the
execution of a definitive vessel construction contract. Alternatively,
Avondale alleges that a separate, oral contract for the construction of the
vessel existed and that the Company committed unspecified unfair trade
practices and misrepresentations. Avondale seeks unspecified damages including
"all lost profits and lost overhead" and attorneys fees. Avondale has claimed
its lost profits and lost overhead amount to approximately $2.5 million. The
Company intends to vigorously contest liability in this matter. While no
assurance can be given as to the ultimate outcome of this litigation,
management believes that this litigation will not have a material adverse
effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company during
the fourth quarter ended April 30, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is included in the Company's 1996 Annual
Report to Stockholders ("1996 Annual Report") on page 26 under the heading
"Common Stock Information, Dividends and Related Stockholder Matters" and such
information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in the Company's 1996 Annual
Report on page 27 under the heading "Selected Financial Data" and such
information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is included in the Company's 1996 Annual
Report on pages 4 through 6 under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and such information
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements on pages 7 through 25 of the Company's 1996 Annual
Report are incorporated herein by reference.
The financial statements of St. Charles Gaming Company, Inc., a
non-consolidated 50% owned subsidiary of the Company as of April 30, 1996, are
as follows:
12
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
St. Charles Gaming Company, Inc.:
We have audited the accompanying balance sheets of St. Charles Gaming Company,
Inc. as of April 30, 1996 and 1995, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years ended April 30,
1996 and 1995 and the period from June 25, 1993 (acquisition date) to April 30,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of St. Charles Gaming Company,
Inc. as of April 30, 1996 and 1995, and the results of its operations and its
cash flows for the years ended April 30, 1996 and 1995 and the period from June
25, 1993 (acquisition date) to April 30, 1994, in conformity with generally
accepted accounting principles.
Dallas, Texas Coopers & Lybrand L.L.P.
June 14, 1996
13
<PAGE> 15
BALANCE SHEETS ST. CHARLES GAMING COMPANY, INC.
<TABLE>
<CAPTION>
April 30,
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,807,940 $ 9,522
Accounts receivable:
Gaming, net of allowance for uncollectible
accounts of $92,649 in 1996 496,827
Related parties 84,907
Inventories 393,940
Prepaid expenses 592,370 769,527
Debt issuance costs, net of accumulated amortization 766,242 345,963
------------ -----------
Total current assets 7,142,226 1,125,012
------------ -----------
Property and equipment:
Building 248,232
Land and land improvements 2,659,280
Leasehold improvements 14,026,531
Furniture, fixtures and equipment 11,705,940 7,618,268
Construction in progress 26,324,321 1,539,627
Riverboat and barges 17,868,033 15,256,140
------------ -----------
72,832,337 24,414,035
Less accumulated depreciation (2,913,496) (14,563)
------------ -----------
69,918,841 24,399,472
------------ -----------
Other assets:
License costs, net of accumulated amortization 8,835,374 9,125,000
Noncompete agreement, net of accumulated amortization 216,678 316,674
Other 18,171
Deferred tax asset 1,055,968
------------ -----------
10,126,191 9,441,674
------------ -----------
$ 87,187,258 $34,966,158
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Progressive and casino liability $ 620,806
Accounts payable:
Related parties 2,370,284
Trade 2,864,538 $ 738,861
Accrued liabilities 7,862,979 768,834
Capital lease obligations 2,814,749 2,871,104
Advances from Crown 3,076,887
Notes payable:
Related parties 46,416,273 6,779,083
Other 30,194,608 21,811,603
------------ -----------
Total current liabilities 93,144,237 36,046,372
------------ -----------
Capital lease obligations, less current portion 637,107 2,265,641
Commitments and contingencies
Stockholders' deficit:
Common stock, no par value, 100,000 shares authorized,
issued and outstanding 5,600,000 5,600,000
Additional paid-in capital 13,985,388 10,900,000
Accumulated deficit (26,179,474) (19,845,855)
------------ -----------
Total stockholders' deficit (6,594,086) (3,345,855)
------------ -----------
$ 87,187,258 $ 34,966,158
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 16
STATEMENTS OF OPERATIONS ST. CHARLES GAMING COMPANY, INC.
<TABLE>
<CAPTION>
Period From
June 25, 1993
(Acquisition Date)
Year Ended Year Ended to
April 30, 1996 April 30, 1995 April 30,1994
------------ ------------ -------------
<S> <C> <C> <C>
Revenues:
Casino $ 56,588,560
Food, beverage and other 674,371
------------
Total revenue 57,262,931
------------
Operating expenses:
Pre-opening and development 4,195,653 $ 7,676,762 $ 1,181,551
Buy out of management contract 4,000,000
St. Charles Parish site abandonment 3,131,359
Casino 10,152,749
Gaming taxes 13,742,267
Food, beverage and other 2,423,471
Marine and facilities 3,224,484
Marketing and administrative 19,812,648
Management fees to related party 1,602,482
Depreciation and amortization 3,288,555 111,326 334,329
------------ ------------ -------------
Total operating expenses 58,442,309 14,919,447 1,515,880
------------ ------------ -------------
Operating loss (1,179,378) (14,919,447) (1,515,880)
Interest expense 6,210,209 6,810,357 171
------------ ------------ -------------
Loss before income taxes (7,389,587) (21,729,804) (1,516,051)
Income tax benefit (1,055,968) (2,827,483) (572,517)
------------ ------------ -------------
Net loss $ (6,333,619) $(18,902,321) $ (943,534)
============ ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE> 17
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) ST. CHARLES GAMING COMPANY, INC.
For the Period from June 25, 1993 (Acquistion Date) to April 30, 1994 and for
the Years Ended April 30, 1995 and 1996
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity (Deficit)
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Balance at June 25, 1993 $ 5,600,000 $ 500,000 $ 6,100,000
Capital contribution 3,500,000 3,500,000
Net loss $ (943,534) (943,534)
------------ ------------ ------------- ------------
Balance at April 30, 1994 5,600,000 4,000,000 (943,534) 8,656,466
Capital contribution 6,900,000 6,900,000
Net loss (18,902,321) (18,902,321)
------------ ------------ ------------- ------------
Balance at April 30, 1995 5,600,000 10,900,000 (19,845,855) (3,345,855)
Capital contribution 3,085,388 3,085,388
Net loss (6,333,619) (6,333,619)
------------ ------------ ------------- ------------
Balance at April 30, 1996 $ 5,600,000 $ 13,985,388 $ (26,179,474) $ (6,594,086)
============ ============ ============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 18
STATEMENTS OF CASH FLOWS ST. CHARLES GAMING COMPANY, INC.
For the Period from June 25, 1993 (Acquisition Date) to April 30, 1994 and for
the Years Ended April 30, 1995 and 1996
<TABLE>
<CAPTION>
Period From
June 25, 1993
(Acquisition Date)
Year Ended Year Ended to
April 30, 1996 April 30, 1995 April 30, 1994
----------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (6,333,619) $ (18,902,321) $ (943,534)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,288,555 111,326 336,564
Provision for bad debts 92,649
Amortization of debt issuance costs/discount 832,680 3,376,392
Write-down of assets 3,131,359
Deferred income taxes (1,055,968) (2,827,483) (572,517)
(Increase) decrease in:
Accounts receivable (674,383)
Inventories (393,940)
Prepaid expenses 177,157 (838,971) (55,962)
Other assets (18,171)
Increase (decrease) in:
Accounts payable and accrued liabilities 11,590,106 1,416,151 (49,246)
Progressive and casino liability 620,806
----------- ------------- ------------
Net cash provided by (used in) operating activities 8,125,872 (14,533,547) (1,284,695)
----------- ------------- ------------
Cash flows from investing activities:
Purchase of property and equipment (48,290,177) (8,795,064) (11,196,868)
Purchase of assets (350,000)
----------- ------------- ------------
Net cash used in investing activities (48,290,177) (8,795,064) (11,546,868)
----------- ------------- ------------
Cash flows from financing activities:
Capital contributions from Crown 3,522,655 3,500,000
Advances from Crown 8,501 9,304,590
Payments to Crown (6,227,703)
Advances from LRGP 39,637,190 2,079,083
Issuance of debt 30,194,608 32,700,000
Debt issuance costs (1,252,959) (1,633,407)
Payments of debt and capital lease obligations (23,624,617) (7,125,522)
----------- ------------- ------------
Net cash provided by financing activities 44,962,723 23,315,106 12,804,590
----------- ------------- ------------
Increase (decrease) in cash and cash equivalents 4,798,418 (13,505) (26,973)
Cash and cash equivalents, beginning of period 9,522 23,027 50,000
----------- ------------- ------------
Cash and cash equivalents, end of period $ 4,807,940 $ 9,522 $ 23,027
=========== ============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 19
ST. CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Description of Business:
St. Charles Gaming Company, Inc., a Louisiana corporation (the "Company"), was
incorporated on January 18, 1993 for the purpose of operating a riverboat
gaming casino to be based in St. Charles Parish, Louisiana (near New Orleans).
In January 1995, the Company changed its riverboat berthing site from St.
Charles Parish to Calcasieu Parish, Louisiana (near Lake Charles).
Effective June 25, 1993, the Company was acquired by Crown Casino Corporation
("Crown"). Effective June 9, 1995, Crown sold a 50% interest in the Company to
Louisiana Riverboat Gaming Partnership ("LRGP"), a joint venture owned 50% by
Casino America, Inc. ("Casino America") and 50% by Louisiana Downs, Inc. LRGP
owns the Isle of Capri dockside riverboat casino in Bossier City, Louisiana.
Effective May 3, 1996, Crown sold its remaining 50% interest in the Company to
Casino America (see Note 11).
The Company commenced operations effective July 29, 1995. Prior to that time,
the Company's activities were focused on the pursuit of a riverboat gaming
license and other regulatory approvals, the raising of capital, the
construction of the riverboat casino and land based facilities, and the
development of the project in general. In previous financial statements, the
Company reported as a development stage enterprise.
2. Summary of Significant Accounting Policies:
Cash and Cash Equivalents
The Company considers cash and all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
The Company is required to maintain cash or cash equivalents in sufficient
amount to protect patrons against defaults in gaming debts owed by the Company.
The Company's requirements are computed in accordance with Section 2713 of the
regulations of the Louisiana State Police, Riverboat Gaming Enforcement
Division. At April 30, 1996, approximately $4,807,940 of cash and cash
equivalents was available to satisfy this requirement. Additionally, at April
30, 1996, the Company had cash deposits concentrated primarily in two financial
institutions. The Company believes risk associated with these concentrations
is minimal.
Inventories
Inventories, which consist primarily of food, beverage, and gift shop items,
are stated at the lower of cost (determined by the first-in, first-out method)
or market.
Debt Issuance Costs
In conjunction with the issuance of the "New Notes" in August 1995 and
subsequent amendments to the agreement governing the "New Notes" (see Note 4),
the Company incurred debt issuance costs of approximately $1,500,000. These
costs are being amortized over the term of the New Notes using the effective
interest method.
In connection with the issuance of the "Senior Note" (see Note 4) and
subsequent amendments to the agreement governing the Senior Note, the Company
incurred debt issuance costs of $2,569,717. These costs were amortized over
the term of the Senior Note using the effective interest method and were fully
amortized upon the retirement of the Senior Note.
Property and Equipment
Property and equipment are stated at cost. Expenditures for additions,
renewals and improvements are capitalized. During periods of construction,
interest costs associated with borrowings utilized to fund construction are
capitalized. The capitalized interest is recorded as part of the asset to
which it relates and is depreciated over the asset's estimated useful life.
Interest capitalized during the year ended April 30, 1996 and 1995 was
approximately $2,400,000 and $10,000, respectively. Costs
18
<PAGE> 20
of repairs and maintenance are expensed as incurred. Effective July 29, 1995,
the Company began depreciating gaming related equipment and facilities.
Included in furniture, fixtures and equipment is approximately $5,900,000 of
equipment acquired under capital leases. Substantially all equipment acquired
under capital leases is gaming related.
In conjunction with the sale of 50% of the Company to LRGP, management changed
the estimated useful lives of certain assets from those previously reported to
match the estimated useful lives used at LRGP's other Louisiana riverboat
casino. As the Company had not commenced operations at the time of the sale,
no depreciation had been recorded on those assets. Accordingly, this change in
estimated useful lives had no significant impact on financial statement
amounts. Depreciation is computed using the straight-line method over the
following estimated useful lives:
Leasehold improvements 25 years
Building 25 years
Furniture, fixtures and equipment 5 years
Riverboat and barges 25 years
Depreciation expense was $2,898,933, $11,330 and $250,991, respectively, in
fiscal years 1996 and 1995 and the period from June 25, 1993 (acquisition date)
to April 30, 1994.
Included in leasehold improvements is approximately $3,600,000 of costs
incurred during the year ended April 30, 1996 for upgrades made to improve
access to the riverboat casino location. These costs arose from widening and
paving public roads and installing traffic signals. Such areas are not owned
or leased by the Company. In management's opinion, these costs do, and will
continue to contribute to the operating results of the casino and, as such,
have been capitalized.
Noncompete Agreement
In connection with the acquisition of the Company by Crown, the Company's
former owner agreed with Crown not to compete with the Company in the Louisiana
market for a period of five years. The noncompete agreement is stated at the
cost allocated to the agreement by Crown, at the time of its acquisition, net
of accumulated amortization. Amortization is recorded using the straight-line
method over a period of five years. The Company incurred amortization expense
of $99,996 for the years ended April 30, 1996 and 1995 and $83,330 for the
period from June 25, 1993 (acquisition date) to April 30, 1994.
License Costs
License costs principally represent the excess purchase price Crown paid in
acquiring the Company's net identifiable assets. In conjunction with the sale
of 50% of the Company to LRGP, management of the Company changed the estimated
useful life of the license, as previously reported, to match the estimated
useful lives utilized on other long-lived gaming related assets. The Company
began amortizing these costs effective July 29, 1995 (commencement of
operations) over a twenty-five-year period using the straight-line method.
Twenty-five years is management's best estimate of the useful life of the
license costs. The Louisiana license was issued on March 29, 1994 and has a
five-year initial term, which is subject to renewal.
Income Taxes
Through June 8, 1995, the Company was included in Crown's consolidated federal
income tax return. As a result of the sale of 50% of SCGC to LRGP, the Company
will file a separate return. The provision for income taxes in the
accompanying financial statements is computed on a separate return basis for
all periods presented.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between book bases and tax bases of
assets and liabilities. 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.
Revenue and Promotional Allowances
Casino revenue is the net win from gaming activities which is the difference
between gaming wins and losses. Casino revenues are net of accruals for
anticipated payouts of progressive electronic gaming device jackpots.
Revenue does not include the retail amount of food, beverages, and other items
provided gratuitously to customers. These amounts totaled $3,331,070 for the
year ended April 30, 1996. The cost of sales in providing such complementary
services was approximately $1,220,683 of which approximately $297,429 has been
classified as food, beverage and other and the
19
<PAGE> 21
remainder has been classified as casino expense.
Casino Pre-Opening and Development Costs
All casino pre-opening and development costs are expensed as incurred.
Pre-opening and development costs consist principally of personnel costs,
advertising, insurance, travel, consulting and professional fees.
Reclassifications
The accompanying financial statements for the period ended April 30, 1995
reflect certain reclassifications made to conform the presentation with
classifications presented as of April 30, 1996.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Other Accounting Issues
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of."
This statement requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
circumstances indicate that the carrying amount of an asset may not be
recoverable. The impact of this standard, which the Company will adopt
effective May 1, 1996, has been assessed by management and should not have a
material effect on the Company's financial statements.
3. Operating Environment:
The Company operates in a highly regulated and competitive environment which is
currently facing political uncertainty. The Louisiana Riverboat Gaming
Commission and the Enforcement Division oversee virtually every aspect of
riverboat gaming in the State of Louisiana including the issuance and renewal
of riverboat gaming licenses. Management believes the Company's license will
be renewed at the end of the initial term. The gaming industry in the State of
Louisiana has recently received national media attention primarily as a result
of the commencement of a federal investigation of certain legislative members
and the recent bankruptcy of a gaming company in the Louisiana market. In
response to these and other incidents, the Louisiana governor called a special
session of the State legislature to consider the gaming statutes governing
riverboat gaming, video-poker and the New Orleans' land-based casino. The
outcome of this session resulted in a local option vote to be conducted on a
parish by parish basis in November 1996, with separate votes for riverboat
gaming, video poker and the New Orleans land-based casino. Based on recent
published polls, management of the Company believes that the riverboat gaming
operations in Calcasieu Parish will not be negatively impacted.
4. Debt:
At April 30, 1996 and 1995, the Company had the following debt outstanding:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Senior Secured Increasing Rate Note, net of unamortized
discount of $118,397 ("Senior Note" $28,000,000) $ 21,811,603
Senior Secured Increasing Rate Notes ("New Notes" $38,400,000) $30,021,313
Note payable to LRGP 15,000,000 2,079,083
Note payable to LRGP 26,716,273
Notes payable to Casino America (the "Casino America Notes") 4,700,000 4,700,000
Other 173,295
----------- -----------
$76,610,881 $28,590,686
=========== ===========
</TABLE>
20
<PAGE> 22
In June 1994, the Company issued a $28,000,000 Senior Secured Increasing Rate
Note (the "Senior Note") to an institutional investor. The Senior Note was
initially due on June 3, 1995, but was subsequently extended to August 31, 1995
and carried a 12% coupon increasing 67 basis points each quarter up to a
maximum interest rate of 14%. The Senior Note was issued with a warrant to
purchase 508,414 shares of Crown's common stock. The proceeds from the private
placement were allocated between the Senior Note ($26,728,965) and the warrant
($1,271,035) based upon the relative fair value of each of the securities at
the time of issuance. The amount allocated to the warrant was recorded as an
increase to advances from Crown. The resulting original issue discount was
amortized over the life of the Senior Note using the effective interest method.
On August 7, 1995, the Company and LRGP (collectively, the "Issuers") jointly
issued $38,400,000 of Senior Secured Increasing Rate Notes (the "New Notes"),
the proceeds of which were used to retire the Senior Note ($21,900,000) and
certain LRGP obligations ($8,400,000). The balance of the proceeds were used
in the development of the Calcasieu Parish project. The New Notes initially
become due on July 27, 1996, but can be extended up to an additional twelve
months at the option of the Issuers provided no event of default has occurred
and is continuing, carry a 12% coupon which increases 25 basis points each
quarter until maturity, and provide for contingent interest beginning in June
1996 equal to 7.5% of the Issuers' consolidated cash flow, as defined. The New
Notes are collateralized by substantially all the assets of the Issuers and
contain covenants relating to certain business, operational and financial
matters including limitations on (i) incurring additional debt, (ii) paying
dividends, (iii) merging or consolidating with others, (iv) changes in control,
(v) capital expenditures, (vi) investments and joint ventures, and (vii) the
sale of assets, and financial covenants pertaining to (a) minimum cash flow,
(b) minimum fixed charge ratio, (c) maximum leverage ratio, and (d) minimum net
worth.
As of April 30, 1996, the Issuers were not in compliance with certain financial
covenants provided for in the Note Purchase Agreement pertaining to the New
Notes. However, effective May 3, 1996 the Company obtained waivers from the
institutional lender for the lack of compliance. The violations were waived
through the effective date of the waivers. Additionally, in conjunction with
the Company obtaining these waivers, the New Note Agreement was amended to
reflect less stringent financial covenants going forward and to allow the
Company to enter into and modify certain agreements in conjunction with Casino
America's purchase of Crown's remaining 50% interest in the Company and the
Grand Palais Riverboat transaction. Management believes the Company will be
able to comply with the terms of the amended agreement.
In the event the Company fails to comply with these amended covenants, the Note
Purchase Agreement provides that the lender has the right, upon the giving of
notice, to (among other things) cause an acceleration of the maturity date of
all amounts outstanding under the Note Purchase Agreement. Management believes
that the Company will be able to comply with these amended covenants and as
such acceleration of the repayment obligations is not expected to occur.
However, in the event the Company does fail to comply with the amended and
restated Note Purchase Agreement, and such repayment obligations are
accelerated, SCGC and LRGP will need to locate other sources of capital in
order to meet such repayment obligations, and there can be no assurance that
such sources will be available, or be available on terms acceptable to LRGP and
SCGC.
In May 1995, the Company issued a promissory note to LRGP to facilitate
advances of up to $15,000,000. The note bears interest at 11.5% per annum, and
is due three business days after the New Notes are paid in full. The proceeds
from the issuance of the note have been used to develop the Calcasieu Parish
project.
In October 1995, the Company issued a promissory note to LRGP to facilitate
additional advances of up to $25,000,000. The note bears interest at 11.5% per
annum and is due in four equal quarterly installments beginning three months
after retirement of the New Notes. However, the Company shall only be
obligated to make principal and interest payments to the extent the Company has
cash available to make such payments. The proceeds are currently being
utilized to develop the Calcasieu project.
In March 1995, the Company issued promissory notes aggregating $4,700,000 to
Casino America (the "Casino America Notes"). The Casino America Notes bear
interest at 11.5% per annum and are due three business days after the New Notes
are paid in full.
As noted above and in the accompanying balance sheet, the Company has current
debt obligations that significantly exceed its available cash resources. As
stated previously, management does not anticipate future events of
noncompliance and as such, does not believe payment of the New Notes will be
accelerated by the lender. Further, the related party notes payable are
subordinate to the New Notes. Management is currently pursuing a restructuring
of existing debt obligations. While management believes such restructuring can
be completed, there can be no assurance that restructuring options will be
available.
At April 30, 1996, based on the interest rates and the short-term duration of
the notes, management believes the carrying value
21
<PAGE> 23
of all notes payable approximates the estimated fair value.
5. Income Taxes:
The components of the Company's income tax benefit for the years ended April
30, 1996 and 1995 and the period from June 25, 1993 (acquisition date) to April
30, 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Current $ - $ - $ -
Deferred (1,055,968) (2,827,483) (572,517)
----------- ----------- ----------
$(1,055,968) $(2,827,483) $ (572,517)
=========== =========== ==========
</TABLE>
The benefit for income taxes is different from the amount computed by applying
the federal income tax rate to the loss before income taxes for the years ended
April 30, 1996 and 1995 and the period from June 25, 1993 (acquisition date) to
April 30, 1994 for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate (34)% (34)% (34)%
Valuation allowance 23 26
State income tax, net of federal benefit (5) (5) (3)
Other 2 (1)
----- ----- -----
(14)% (13)% (38)%
===== ===== =====
</TABLE>
Significant components of the Company's deferred tax liabilities and assets as
of April 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
License costs $ 3,436,716 $ 3,442,030
Other 1,807
------------ ------------
Total deferred tax liabilities 3,436,716 3,443,837
------------ ------------
Deferred tax assets:
Pre-opening expenses 6,538,935 6,149,255
Net operating loss carryforwards 4,906,000 2,719,000
Other 410,782 272,571
------------ ------------
Total deferred tax assets 11,855,717 9,140,826
------------ ------------
Less valuation allowance 7,363,033 5,696,989
------------ ------------
Net deferred tax asset $ 1,055,968 $ -
============ ============
</TABLE>
At April 30, 1996 and 1995, valuation allowances totaling $7,363,033 and
$5,696,989, respectively, were provided against the Company's deferred tax
assets to reflect the uncertainties surrounding the realization of such
deferred tax assets. Realization of the net deferred tax asset at April 30,
1996 is dependent on the Company generating sufficient future taxable income.
Although realization is not assured, management believes it is more likely than
not that the amount of the deferred tax asset recorded for financial statement
purposes will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced. At April 30, 1996 the Company had net operating
loss carryforwards for federal income tax purposes of approximately $12,483,000
which expire in 2009 through 2011. These operating loss carryforwards are
subject to certain limitations due to the transaction discussed in Note 11.
22
<PAGE> 24
6. Leases:
In March and July 1995, the Company entered into agreements to lease the two
parcels of land that comprise the Calcasieu Parish riverboat casino site. The
leases have an initial term of five years with seven five-year renewal options.
During the initial term, the leases require annual aggregate rental payments of
$850,000 in years one through four, and $1,000,000 in year five, payable
monthly. During the first renewal term, the rent will be increased annually by
the greater of (i) 5%, or (ii) the percentage increase in the average consumer
price index for Calcasieu Parish, Louisiana for the previous twelve-month
period. During the second through seventh renewal terms, the lessor and the
Company will attempt to set the rent equal to 100% of the rent paid by other
riverboat gaming operators in Louisiana and Mississippi for comparable property
usage, or if no agreement can be made, then the parties will appoint real
estate appraisers to set the rent for such renewal term. However, in no event
shall the annual rent be less than $1,600,000 during the fourth and all
subsequent renewal terms. In addition, the Company will pay all real estate
taxes, except for taxes due on the unimproved value of the property.
In addition to the Calcasieu Parish site leases, the Company has entered into
various operating leases for equipment and office facilities. At April 30,
1996, future minimum lease payments to be made under these lease agreements are
as follows:
<TABLE>
<S> <C>
1997 $ 232,797
1998 109,409
1999 31,926
2000 26,605
---------
$ 400,737
=========
</TABLE>
Rent expense for the years ended April 30, 1996 and 1995 and the period from
June 25, 1993 (acquisition date) to April 30, 1994 was $991,181, $61,539 and
$15,483, respectively.
The Company has also entered into various capital leases for equipment. As of
April 30, 1996 future minimum lease payments under capital leases were as
follows:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------------
<S> <C>
1997 $ 3,040,197
1998 613,531
1999 51,587
2000 614
------------
Total minimum lease payments 3,705,929
Less amount representing interest 254,073
------------
Present value of future minimum lease payments 3,451,856
Less current portion 2,814,749
------------
Capital lease obligations, less current portion $ 637,107
============
</TABLE>
7. Commitments and Contingencies:
Commitments to Calcasieu Parish
In January 1995, the Company made a commitment to Calcasieu Parish to provide
certain payments to the Parish above and beyond the statutory admissions tax.
The Company committed to a $1,000,000 initial payment, which was paid upon the
opening of the casino, and a $1,000,000 annual payment for as long as the
casino is operating at its site in the Parish, but in no event less than six
years. In June 1995, the Company and the Parish entered into a definitive
development agreement whereby, in consideration for the payments to be made by
the Company to the Parish, the Parish is required to cooperate with and provide
assistance to the Company in obtaining and maintaining necessary permits and
approvals to operate its riverboat gaming casino.
23
<PAGE> 25
Litigation
On September 21, 1994, an action was filed against Crown and the Company in the
24th Judicial District Court for the Parish of Jefferson, Louisiana by Avondale
Industries, Inc. ("Avondale"). In this action, Avondale alleges that Crown was
contractually obligated to Avondale for the construction of the Company's
riverboat vessel based upon a letter of intent (allegedly reaffirming a
previous agreement entered into between Avondale and the Company). Avondale
alleges that Crown breached a duty to negotiate in good faith toward the
execution of a definitive vessel construction contract. Alternatively,
Avondale alleges that a separate, oral contract for the construction of the
vessel existed and that Crown committed unspecified unfair trade practices and
made certain misrepresentations. Avondale has specified damages of
approximately $2,500,000. In conjunction with the sale of 50% of the Company
to LRGP, Crown indemnified LRGP against future losses arising from this
litigation, and as such, even though no assurance can be given as to the
ultimate outcome of this litigation, the Company believes this litigation will
not have a material adverse effect on the financial position or results of
operations of the Company.
8. Site Change and Buy Out of Management Contract:
In January 1995, the Company made the decision to abandon its site in St.
Charles Parish, Louisiana in favor of the site currently occupied in Calcasieu
Parish, Louisiana. As a result of this decision the Company recorded a charge
of approximately $3,100,000 for the year ended April 30, 1995, which represents
the write-off of previously capitalized costs specific to the St. Charles
Parish site.
In March 1995, in connection with Crown's sale of a 50% interest in the
Company's common stock to LRGP, the Company bought out its existing casino
management agreement for $4,000,000.
9. Related Party Transactions:
The Company entered into a management agreement with Riverboat Services, Inc.
("RSI") a subsidiary of Casino America which has a term of 99 years and
provides for a management fee of (i) 2% of "Revenues," as defined in the
agreement (generally net gaming revenues less gaming and admission taxes plus
all other operating revenues), plus (ii) 10% of "Net Operating Income," as
defined in the agreement, provided however, the total management fee shall not
exceed 4% of "Revenues." Additionally, in accordance with the agreement, key
employees of the riverboat are employees of RSI who pays the salaries of these
employees and is reimbursed by the Company. As of April 30, 1996, the Company
had incurred management fee costs of approximately $1,602,482 and had incurred
salary costs and other charges associated with these key employees of
approximately $1,400,000. No amounts were due or accrued to RSI at April 30,
1995.
Debartolo Properties Management, Inc., a wholly-owned subsidiary of Debartolo,
Inc. which owns 50% of LRGP is the general contractor for the construction of
the riverboat gaming site. For the year ended April 30, 1996, approximately
$300,000 was paid to Debartolo Properties Management, Inc. and other Debartolo
related companies for construction services provided.
The Company had net advances from Crown of $3,076,887 as of April 30, 1995.
Advances from Crown were used to fund the construction of the riverboat and
support pre-opening and development activities. Included in net advances from
Crown at April 30, 1995 is $1,500,000 relating to Crown common stock issued as
payment for expenses of the Company. In June 1995, in connection with Crown's
sale of a 50% interest in the Company's common stock to LRGP, Crown contributed
the balance in its advance account ($3,085,388) to the Company.
24
<PAGE> 26
10. Supplemental Cash Flow Information:
Supplemental cash flow disclosures for the years ended April 30, 1996 and 1995
and the period from June 25, 1993 (acquisition date) to April 30, 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Interest paid, net of amounts capitalized $ 2,461,299 $ 6,115,878 $ 171
Noncash financing and investing activities:
Capital contribution from Crown 3,085,388 3,377,345
Equipment acquired under capital leases 128,175 5,762,267
</TABLE>
11. Subsequent Events:
In May 1996, Crown sold its remaining 50% interest in the Company to Casino
America.
Also in May 1996, Casino America obtained all necessary approvals for the
acquisition and relocation of Grand Palais Riverboat, Inc. ("GPRI") from
bankruptcy. The relocation of the riverboat to the Company's current site in
Calcasieu Parish occurred in June 1996. The Company anticipates the GPRI
riverboat to be operational by July 1996. In conjunction with this relocation
of GPRI to Calcasieu Parish, the Company and GPRI entered into a joint
operating agreement whereby GPRI will pay to the Company a monthly docking fee
of $250,000 for the use of the existing facilities. Additionally, the Company
and GPRI will share certain administrative services and the taxable income/loss
will be allocated to the respective entities based on the terms of the
agreement.
25
<PAGE> 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Except as to information with respect to executive officers which is contained
in a separate heading under Item 1 to this Form 10-K, the information required
by Part III of Form 10-K is, pursuant to General Instruction G(3) of Form 10-K,
incorporated by reference from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A for the Company's Annual Meeting of
Stockholders to be held on October 4, 1996. The Company will, within 120 days
of the end of its fiscal year, file with the Securities and Exchange Commission
a definitive proxy statement pursuant to Regulation 14A.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors and executive officers of the registrant
is set forth in the Proxy Statement to be delivered to stockholders in
connection with the Company's Annual Meeting of Stockholders to be held on
October 4, 1996 (the "Proxy Statement") under the headings "Election of
Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934," which information is incorporated herein by reference. The name, age
and position of each executive officer of the Company is set forth under the
heading "Executive Officers" in Item 1 of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners and
management is set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management," which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning certain relationships and related transactions is
set forth in the Proxy Statement under the heading "Certain Transactions,"
which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1). FINANCIAL STATEMENTS AND ACCOUNTANT'S REPORT
The following financial statements and accountant's report included in
the Company's 1996 Annual Report are incorporated herein by reference
in Item 8 of this report:
Report of Independent Accountants
Consolidated Balance Sheets as of April 30, 1995 and 1996
Consolidated Statements of Operations for the fiscal years
ended April 30, 1994, 1995 and 1996
Consolidated Statements of Cash Flows for the fiscal years
ended April 30, 1994, 1995 and 1996
26
<PAGE> 28
Consolidated Statements of Stockholders' Equity for the fiscal
years ended April 30, 1994, 1995 and 1996
Notes to Consolidated Financial Statements
The following financial statements and accountant's report of St.
Charles Gaming Company, Inc., a non- consolidated 50% owned subsidiary
of the Company as of April 30, 1996, are included in Item 8 of this
report:
Report of Independent Accountants
Balance Sheets as of April 30, 1995 and 1996
Statements of Operations for the period from June 25, 1993
(acquisition date) to April 30, 1994 and for the years ended
April 30, 1995 and 1996
Statements of Stockholders' Equity (Deficit) for the period
from June 25, 1993 (acquisition date) to April 30, 1994 and
for the years ended April 30, 1995 and 1996
Statements of Cash Flows for the period from June 25, 1993
(acquisition date) to April 30, 1994 and for the years ended
April 30, 1995 and 1996
Notes to Financial Statements
(a)(2). FINANCIAL STATEMENT SCHEDULES
The following supporting financial statement schedule for the three
years ended April 30, 1994, 1995 and 1996 is filed with this report:
II - Valuation and Qualifying Accounts
All other schedules are omitted since the required information is not
present, or is not present in amounts sufficient to require submission
of the schedules, or because the information required is included in
the consolidated financial statements and notes thereto.
(a)(3). EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
2.1 Amended Stock Purchase Agreement dated June 2, 1995 between the
Company and Louisiana Riverboat Gaming Partnership ("LRGP"). (10)
2.2 Stock Purchase Agreement dated January 18, 1996 by and between the
Company and Casino America, Inc., including form of Registration
Agreement, Promissory Notes and Warrants issued in favor of the
Company to purchase common stock of Casino America, Inc. (8)
2.3 Asset Purchase Agreement dated June 11, 1996 by and between the
Company, Mississippi Belle II, Inc., Roberts River Rides, Inc.,
Kenneth J. Bonnet, Christina M. Kehl, Daniel J. Kehl, Kevin A. Kehl,
Robert A. Kehl and Cynthia A. Winter, including Guarantee
Agreement.(1)
3.1 Articles of Incorporation of the Company (formerly SKAI, Inc.). (3)
3.1.1 Articles of Merger of the Company and SKAI, Inc. filed with the
Secretary of State of the State of Alabama on September 29, 1989. (3)
3.1.2 Articles of Merger of the Company and SKAI, Inc. filed with the
Secretary of State of the State of Texas on October 10, 1989. (3)
3.1.3 Articles of Amendment filed with the Secretary of State of the State
of Texas on October 7, 1993. (8)
27
<PAGE> 29
3.1.4 Articles of Amendment filed with the Secretary of State of the State
of Texas on October 5, 1994. (8)
3.2 By-Laws dated August 24, 1989. (4)
4.1 Specimen stock certificate. (9)
4.2 Form of Registration Rights Agreement dated January 5, 1994 by and
between the Company and Dabney-Resnick, Inc. (8)
4.2.1 Form of Stock Purchase Warrant dated January 5, 1994 allowing
Dabney-Resnick, Inc. to purchase shares of common stock of the
Company. (8)
4.3 Form of Registration Rights Agreement dated January 5, 1994 by and
between the Company and Sun Life Insurance Company of America, Inc.
(8)
4.3.1 Form of Stock Purchase Warrant dated January 5, 1994 allowing Sun Life
Insurance Company of America, Inc. to purchase shares of common stock
of the Company. (8)
4.4 Stock Purchase Warrant dated June 3, 1994, allowing Nomura Holding
America, Inc. ("Nomura") to purchase shares of Common Stock of the
Company. (9)
4.4.1 Amendment to Stock Purchase Warrant dated as of December 3, 1994. (8)
4.5 Form of Stock Purchase Warrant dated as of April 15, 1994 allowing the
following parties to purchase shares of Common Stock of the Company:
Daniel G. Goggin (38,990 shares), Gerard M. Jacobs (77,981 shares),
and The Hubbard Company, Inc. (77,981 shares). (9)
4.6 Form of Stock Purchase Warrant dated March 18, 1994 granting
Dabney-Resnick, Inc. the right to purchase 120,000 shares of Common
Stock of the Company. (8)
4.7 Stock Purchase Warrant dated July 8, 1994 granting Kehl River Boats,
Inc. the right to purchase 100,000 shares of Common Stock of the
Company. (8)
4.8 Stock Purchase Warrant dated October 6, 1994 granting Don Farris the
right to purchase 50,000 shares of Common Stock of the Company. (8)
4.9 Stock Purchase Warrant dated June 2, 1994 granting Gerard M. Jacobs
the right to purchase 50,000 shares of Common Stock of the Company.
(8)
4.10 Subordination Agreement dated as of July 20, 1995, among the Company,
LRGP, Nomura and First National Bank of Commerce, as agent for Nomura.
(11)
10.1 1986 Incentive Stock Option Plan. (2)
10.1.1 Amendment to 1986 Incentive Stock Option Plan adopted September 27,
1990. (5)
10.2 1991 Non-Qualified Stock Option Plan. (6)
10.3 Form of Indemnification Agreement between the Company and Edward R.
McMurphy, Mark D. Slusser, T.J. Falgout, III, David J. Douglas, J.
David Simmons, Gerald L. Adams, Robert J. Kehl, Gerard M. Jacobs and
Michael B. Cloud. (7)
10.4 Severance Agreement dated March 26, 1992 between the Company and Mark
D. Slusser. (6)
10.5 Shareholders Agreement dated June 9, 1995 by and between the Company
and LRGP. (10)
10.6 Teaming Agreement dated June 2, 1994 between the Company and Gerard M.
Jacobs. (8)
28
<PAGE> 30
10.7 Compromise Agreement dated January 27, 1995 among the Company, SCGC
and Century Casinos Management, Inc. (8)
10.8 Lease (South Tract) dated March 24, 1995 by and among Port Resources,
Inc. and CRU, Inc. (collectively, "Landlord"), SCGC and the Company.
(10)
10.8.1 Amendment to Lease (South Tract) dated May 3, 1995 by and among
Landlord, SCGC, the Company and LRGP. (10)
10.8.2 Second Amendment to Lease (South Tract) dated May 16, 1995 by and
among Landlord, SCGC, the Company and LRGP. (10)
10.9 Lease (North Tract) dated July 17, 1995 by and among Landlord, SCGC
and the Company. (11)
10.9.1 Amendment to Lease (North Tract) dated July 17, 1995 by and among
Landlord, SCGC, the Company and LRGP. (11)
10.9.2 Second Amendment to Lease (North Tract) dated July 25, 1995 by and
among Landlord, SCGC, the Company and LRGP. (11)
10.10 Lease Agreement dated May 20, 1994 by and between IGT-North America
and SCGC. (9)
10.10.1 Modification of Lease Agreement dated December 23, 1994 by and between
IGT-North America and SCGC. (8)
13.1 Annual Report to Stockholders for the fiscal year ended April 30,
1996. (1)
21.1 Subsidiaries of the Company. (1)
23.1 Consent of Coopers & Lybrand L.L.P. (1)
23.2 Opinion of Coopers & Lybrand L.L.P. on financial statement schedule.
(1)
24.1 Power of Attorney of Edward R. McMurphy. (1)
24.2 Power of Attorney of Tilman J. Falgout, III. (1)
24.3 Power of Attorney of David J. Douglas. (1)
24.4 Power of Attorney of J. David Simmons. (1)
24.5 Power of Attorney of Gerald L. Adams. (1)
24.6 Power of Attorney of Gerard M. Jacobs. (1)
24.7 Power of Attorney of Robert J. Kehl. (1)
27.1 Financial Data Schedule. (1)
______________________
(1) Filed herewith.
(2) Previously filed as an Exhibit to the Company's Registration Statement
on Form 10, as amended (No. 0-14939) and incorporated herein by
reference.
(3) Previously filed as an Exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended October 31, 1989 and incorporated herein by
reference.
29
<PAGE> 31
(4) Previously filed as an Exhibit to the Company's Annual Report on Form
10-K for the year ended April 30, 1990 and incorporated herein by
reference.
(5) Previously filed as an Exhibit to the Company's Annual Report on Form
10-K for the year ended April 30, 1991 and incorporated herein by
reference.
(6) Previously filed as an Exhibit to the Company's Annual Report on Form
10-K for the year ended April 30, 1992 and incorporated herein by
reference.
(7) Previously filed as an Exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended July 31, 1993 and incorporated herein by
reference.
(8) Previously filed as an Exhibit to the Company's Registration Statement
on Form S-1, as amended, initially filed with the Securities and
Exchange Commission on May 31, 1994 (No. 33-79484) and incorporated
herein by reference.
(9) Previously filed as an Exhibit to the Company's Annual Report on Form
10-K for the year ended April 30, 1994 and incorporated herein by
reference.
(10) Previously filed as an Exhibit to the Company's Annual Report on Form
10-K for the year ended April 30, 1995 and incorporated herein by
reference.
(11) Previously filed as an Exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended July 31, 1995 and incorporated herein by
reference.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth fiscal quarter ended
April 30, 1996.
30
<PAGE> 32
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.
CROWN CASINO CORPORATION
Dated: August 9, 1996 By: /s/ Edward R. McMurphy
-------------------------------
Edward R. McMurphy
President and Chief Executive Officer
(principal executive officer)
Dated: August 9, 1996 By: /s/ Mark D. Slusser
------------------------------------
Mark D. Slusser
Vice President Finance and Chief
Financial Officer
(principal financial and accounting
officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board, President August 9, 1996
- -------------------------------------
Edward R. McMurphy and Chief Executive Officer
* Executive Vice President, August 9, 1996
- --------------------------------------
Tilman J. Falgout, III General Counsel and Director
* Director August 9, 1996
- --------------------------------------
David J. Douglas
* Director August 9, 1996
- --------------------------------------
John David Simmons
* Director August 9, 1996
- --------------------------------------
Gerald L. Adams
* Director August 9, 1996
- --------------------------------------
Gerard M. Jacobs
* Director August 9, 1996
- --------------------------------------
Robert J. Kehl
* By/s/ Mark D. Slusser August 9, 1996
--------------------------
Mark D. Slusser
As Attorney-in-Fact
Pursuant to Powers of
Attorney filed herewith
</TABLE>
31
<PAGE> 33
CROWN CASINO CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning of Costs and Charged to End of
Description Period Expenses Other Accounts Deductions (1) Period
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended April 30, 1996:
Allowance for doubtful accounts $139,371 $(58,856) $80,515 $ -
Year ended April 30, 1995:
Allowance for doubtful accounts $200,000 $60,629 $139,371
Year ended April 30, 1994:
Allowance for doubtful accounts $38,500 $218,510 $57,010 $200,000
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
32
<PAGE> 34
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
2.3 Asset Purchase Agreement dated June 11, 1996 by and
between the Company, Mississippi Belle II, Inc.,
Roberts River Rides, Inc., Kenneth J. Bonnet,
Christina M. Kehl, Daniel J. Kehl, Kevin A. Kehl,
Robert A. Kehl and Cynthia A. Winter, including
Guarantee Agreement.
13.1 Annual Report to Stockholders for the fiscal year
ended April 30, 1996.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Opinion of Coopers & Lybrand L.L.P. on financial
statement schedule.
24.1 Power of Attorney of Edward R. McMurphy.
24.2 Power of Attorney of Tilman J. Falgout, III.
24.3 Power of Attorney of David J. Douglas.
24.4 Power of Attorney of J. David Simmons.
24.5 Power of Attorney of Gerald L. Adams.
24.6 Power of Attorney of Gerard M. Jacobs.
24.7 Power of Attorney of Robert J. Kehl.
27.1 Financial Data Schedule.
<PAGE> 1
EXHIBIT 2.3
ASSET PURCHASE AGREEMENT
MISSISSIPPI BELLE II, INC.
AS SELLER
AND
CROWN-MISSISSIPPI BELLE II, INC.
AS BUYER
JUNE 11, 1996
<PAGE> 2
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") dated on or as of
June 11, 1996, by and between CROWN-MISSISSIPPI BELLE II, INC., an Iowa
corporation (the "Purchaser"), CROWN CASINO CORPORATION, a Texas corporation
("Crown"), ROBERTS RIVER RIDES, INC., an Iowa corporation ("RRR, Inc."),
MISSISSIPPI BELLE II, INC., an Iowa corporation (the "Seller"), and the
shareholders of the Seller listed on Table I attached hereto (collectively, the
"Shareholders").
WITNESSETH:
WHEREAS, the Seller is engaged in the riverboat gaming business on the
Mississippi River in Clinton, Iowa (the "Seller's Gaming Operation"), and in
furtherance of such business owns and/or operates certain assets including the
excursion gaming riverboat known as the M/V Mississippi Belle II;
WHEREAS, a company related to Seller known as RRR, Inc., an Iowa
corporation, owns the M/V Mississippi Belle II, certain vehicles, and certain
kitchen equipment and leases same to Seller and will be merged into Seller or
will otherwise transfer said Vessel, vehicles and equipment to Seller prior to
the Closing of the transaction between Seller and Purchaser;
WHEREAS, the Purchaser desires to purchase, and the Seller desires to
sell, the Purchased Assets (as hereinafter defined) used in connection with the
Seller's Gaming Operation at the price and on the terms and conditions set
forth herein; and
WHEREAS, the Shareholders are the owners of one hundred percent (100%)
of the issued and outstanding shares of capital stock of the Seller.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings herein contained, and subject to the terms and conditions set
forth herein, the Purchaser, the Seller and the Shareholders hereby agree as
follows:
1. Acquisition.
(a) Purchased Assets. Subject to and upon the terms and
conditions hereof and the representations and warranties herein set forth, on
the Closing Date (as hereinafter defined), the Seller agrees to sell, assign,
transfer and deliver to the Purchaser, and the Purchaser agrees to purchase
from the Seller, free and clear of all liens, claims and encumbrances
whatsoever, all of the Seller's assets employed in the Seller's Gaming
Operation (collectively, the "Purchased Assets"). The Purchased Assets shall
include, without limitation:
<PAGE> 3
(i) The riverboat gaming vessel known as the M/V
Mississippi Belle II, Official Number 1026746 (the
"Vessel");
(ii) The Seller's barges and improvements thereon, upon
which the Seller's offices and other facilities
relating to the Seller's Gaming Operation are located
(specifically, Belle's Landing Barge, Guest Services
Barge, Utility Barge, Work Barge, and one (1) flat
Barge, collectively the "Barges");
(iii) All furniture, fixtures and equipment (including
computer equipment, walkways and awnings) owned or
leased by the Seller or which the Seller otherwise
has the right to use in connection with the Seller's
Gaining Operation, including without limitation,
those assets listed on Schedule l(a)(iii) hereto
(collectively, the "FF&E");
(iv) The automobiles and other vehicles listed on Schedule
1(a)(iv) hereto;
(v) All customer lists, sales records, files, supplier
lists, credit information, business records and
plans, sales and promotional literature and other
selling material, and computer software used in the
Seller's Gaming Operation;
(vi) All rights for public utility connection access, if
any, including water, electrical, telephone, waste
water, sewage and drainage "hook-ups" with state or
local government agencies or public utilities, and
all transferable licenses, permits, certificates or
similar governmental approvals or authorizations,
including occupancy, life-safety, and elevator
operation permits issued by state or local government
agencies;
(vii) The name and service mark "Mississippi Belle II" and
any other names and service marks used in connection
with the Seller's Gaming Operation;
(viii) All coin operated gaming devices and associated
equipment ("Slot Machines") table games and
money-handling/counting equipment, including those
listed on Schedule 1(a)(viii) hereto;
(ix) The stock-in-trade and inventory used in the Seller's
Gaming Operation, including, without limitation, all
dice, playing cards, forms and casino chips and
tokens; Purchaser acknowledges that the use of said
items by Purchaser is subject to Purchaser obtaining
prior approval from the Iowa Racing and Gaming
Commission authorizing such use;
(x) All of the Seller's dishes, servers, glassware,
utensils, cooking equipment, and related food and
beverage preparation, cooking and service items,
including kitchen equipment currently owned by RRR,
Inc. which will be conveyed to the Seller on or
before the Closing by merger or otherwise;
(xi) All rights of the Seller under that certain Lease
Agreement dated January 24, 1991 (the "CCGA Lease"),
between the City of Clinton, Iowa and Clinton County
Gaming Association, Ltd. ("CCGA, Ltd."), covering a
certain riverfront dock site and the first level of
the City of Clinton, Iowa Showboat, Clinton, Iowa
(the "City of Clinton Property"), which Lease was
assigned to Seller by CCGA, Ltd. by written
assignment dated February 6, 1991;
(xii) Those certain agreements entered into by the Seller
which relate to the operation of the Purchased Assets
listed on Schedule l(a)(xii) (the "Operating
Agreements") including, without limitation, service
agreements and personal property leases, including
all Operating Agreements (if any) entered into by the
Seller after the date hereof which are approved by
the Purchaser, subject to the limitation set forth in
Section l(b) hereof;
2
<PAGE> 4
(xiii) All transferable governmental licenses, permits and
approvals relating to the Purchased Assets;
(xiv) All of the Seller's leasehold improvements including
those listed on Schedule l(a)(xiv) attached hereto;
(xv) The casino bankroll in an amount equal to the
liabilities assumed by Purchaser under Paragraph
1(b)(ii) below (the "Bankroll Amount");
(xvi) All rights of the Seller under that certain agreement
dated December 12, 1990, as amended on January 13,
1991, June 6, 1991, and April 30, 1993 (the "CCGA
Gaming Agreement") with the CCGA, Ltd.;
(xvii) The telephone numbers 319-243-9000 and
1-800-457-9975;
(xviii) The kitchen equipment listed on Schedule 1(a)(xviii);
(xix) The real estate and improvements thereon situated in
Clinton County, Iowa legally described as shown on
Schedule 1(a)(xix) (the "Real Estate");
(xx) Seller's inventories of food, beverages, gift shop
items, plastic cups, wet wipes, napkins, matches,
garbage bags, and table covers existing as of the
Closing; and
(xxi) All utility security deposits made by Seller and
being held by any utility in connection with Seller's
Clinton, Iowa operations.
(b) Assumption of the Operating Agreements, the CCGA Lease, Etc.
The Purchaser shall assume the Seller's (i) obligations under the Operating
Agreements, the CCGA Lease and the CCGA Gaming Agreement arising on or after
the Closing Date; and (ii) progressive Caribbean stud liability, progressive
slot liability, players club liability as shown on Schedule 1(b), and fifty
percent (50%) of gaming chip liability (collectively, the "Gaming Liabilities")
existing on the Closing Date in an amount equal to the Bankroll Amount.
(c) Excluded Assets. The Purchased Assets shall not include the
following assets which will be retained by the Seller:
(i) All cash in excess of the Bankroll Amount, all cash
equivalents, all notes, accounts receivable, security
deposits (except utility security deposits), unbilled
receivables and any other current assets of Seller
not specifically listed in Section 1(a) above;
(ii) All notes receivable from RRR, Inc., affiliated
entities, and shareholders of RRR, Inc. and
affiliated entities;
(iii) All federal, state and local income tax or franchise
tax credits, refunds claims and federal tax benefits;
(iv) The Seller's corporate stock and minute book(s) and
other records related exclusively to the structure of
the Seller, and such files, papers and records of the
Seller as consist of its federal, state and local
income tax returns and related documents and records;
provided, however, the Seller shall provide to the
Purchaser copies of personnel records relating to
personnel hired by Purchaser and such other records
of Seller referenced above, upon request made within
one year after Closing; further provided, however,
such personnel
3
<PAGE> 5
records will not be provided by Seller to Purchaser
without an authorization executed by the employee
involved;
(v) All rights of Seller under, and all funds of property
held in trust pursuant to, any pension,
profit-sharing or retirement plan, any other employee
benefit plan or any deposits or payments made by
Seller or its insurance carriers with respect to any
workers' compensation or other employee protection
scheme that is applicable to employees of the Seller;
(vi) All insurance policies of Seller relating to the
Purchased Assets and all rights of Seller to
insurance claims and proceeds arising from or
relating to the operation of Seller's businesses
prior to or on the Closing Date except to the extent
any such insurance policies are purchased by or
assigned to Purchaser hereunder;
(vii) Two (2) 1992 Cadillacs owned by RRR, Inc.;
(viii) Tools, equipment, and personal property (including
pictures and paintings) owned by employees; and
(ix) One (1) 1996 Cadillac leased by Seller.
All of the aforementioned assets are hereinafter referred to as the "Excluded
Assets".
(d) Instruments of Transfer; Further Assurances. At Closing, the
Seller shall execute and deliver to the Purchaser such instruments of
conveyance, transfer and assignment as shall be necessary or appropriate to
transfer to the Purchaser all of the Seller's right, title and interest in and
to the Purchased Assets, the CCGA Lease, the CCGA Gaming Agreement and the
Operating Agreements. The form of Assignment and Assumption of Operating
Agreements, the form of Assignment and Assumption of the CCGA Lease, the form
of Assignment and Assumption of the CCGA Gaming Agreement, and the form of Bill
of Sale are attached hereto as Exhibits "A", "B", "C" and "D", respectively.
Subsequent to Closing, the Seller shall execute and deliver, upon the request
of the Purchaser, all such further instruments of conveyance, transfer and
assignment as may be reasonably requested by the Purchaser to transfer to and
vest in the Purchaser all of the Seller's right, title and interest in and to
all of the Purchased Assets, the CCGA Lease, the CCGA Gaming Agreement and the
Operating Agreements in accordance with the terms of this Agreement.
2. Purchase Price, Allocation and Non-Assumption of Liabilities.
(a) Purchase Price. The total purchase price for the Purchased
Assets shall be Forty Million Dollars ($40,000,000.00) (the "Purchase Price"),
plus the value of pre-payments and deposits relating to certain contracts
referred to in Paragraph 2(d) below, which shall be paid by the Purchaser to
the Seller as follows:
(i) Within five (5) days of the full execution of this
Agreement, Purchaser will deposit with Seller
marketable securities (the "Deposit Shares") in the
form of common stock of Casino America, Inc., a
Delaware corporation ("Casino America"), having a
Value (as hereinafter
4
<PAGE> 6
defined) of not less than $750,000.00 and an
appropriate assignment of same to Seller. The
Deposit Shares shall be retained by Seller or
returned to Purchaser, in whole or in part, as
follows:
(A) The Deposit Shares shall be retained by and
become the property of Seller if the
condition to Closing specified in Paragraph
6(k) has not been satisfied or waived and the
transaction contemplated herein has not
closed by 11:59 p.m. on November 15, 1996
through no fault of the Seller and the
Shareholders. In such event, Seller shall
retain as its own only such Deposit Shares as
shall then have a Value of $750,000.00 and
shall return to Purchaser all such Deposit
Shares in excess of $750,000.00 in value; or
(B) Deposit Shares as shall then have a Value of
$500,000.00 shall be retained by and become
the property of Seller if any or all of the
conditions of Closing specified in Paragraphs
6(c), 6(d), 6(f), 6(g), and/or 6(h) have not
been satisfied or waived by 11:59 p.m. on
November 15, 1996, and the Purchaser fails to
close the transaction contemplated hereunder
through no fault of the Seller and the
Shareholders. In such event, Seller shall
retain as its own only such Deposit Shares as
shall then have a Value of $500,000.00 and
shall return to Purchaser all such Deposit
Shares in excess of $500,000.00 in Value; or
(C) The Deposit Shares and the assignment shall
be returned to Purchaser if (i) any or all of
the conditions of Closing specified in
Paragraphs 6(a), 6(b), 6(e), 6(i), and/or
6(j) have not been satisfied or waived and
the transaction contemplated herein is not
closed by 11:59 p.m. on November 15, 1996,
or (ii) upon the Closing of the transaction
which is the subject of this Agreement.
(D) The term "Value" shall be the price per share
of stock represented by the average of the
closing bid and asked prices of Casino
America common stock, as quoted by the
National Association of Securities Dealers,
Inc. Automated Quotations System (NASDAQ) (or
such other securities association, quotation
system or securities exchange on which the
Casino America common stock is then listed or
authorized for quotation), for the ten (10)
trading days prior to the date of the
Agreement, or in the event the Deposit Shares
(or a portion thereof) are retained by the
Seller pursuant to subparagraphs (A) or (B)
above, the Value shall be based upon the
average of the closing bid and asked prices
of Casino America common stock for the ten
(10) trading days prior to November 15, 1996.
Seller and Purchaser agree that it is their
intention that if on the date Seller is
entitled to retain all or a portion of the
Deposit Shares as its own (the "Retention
Date"), the Value of the Deposit Shares is
less than the amount specified ($750,000.00
or $500,000.00 as the case may be), Purchaser
shall promptly pay to Seller in cash or
additional Deposit Shares the difference
between the Value and the amount specified,
to the end that Seller will have received a
total of $750,000.00 or $500,000.00 as the
case may be in Deposit Shares and/or cash on
the Retention Date.
(ii) The Purchase Price shall be paid by Purchaser to
Seller by certified or cashier's check or wire
transfer of immediately available funds to Seller's
account at Dubuque Bank and Trust Company, Dubuque,
Iowa on the Closing Date.
(b) Allocation of Purchase Price. The Purchase Price shall be
allocated among the Purchased Assets as described in Schedule 2(b) hereto. The
parties hereto acknowledge that such allocation is based on the fair market
5
<PAGE> 7
values of the Purchased Assets and the parties agree to reflect the sale and
purchase of the Purchased Assets for all purposes, including income tax
purposes, in a manner wholly consistent with the foregoing.
(c) Non-Assumption of Liabilities. Except for the obligation to
fulfill the Operating Agreements, the CCGA Lease, the CCGA Gaming Agreement and
the Gaming Liabilities and other liabilities specifically assumed by Purchaser
as set forth herein (collectively, the "Assumed Liabilities"), the Purchaser
does not and will not assume any debts, obligations or liabilities of the
Seller whatsoever, and the Seller covenants to timely pay and discharge all of
its debts, obligations and liabilities.
(d) Reimbursement for Pre-Payments and Deposits. In addition to
payment of the Purchase Price, the Purchaser shall reimburse the Seller for the
remaining balance of any pre-paid contracts or deposits, including, but not
limited to, any pre-payments or deposits made by Seller relating to
maintenance, entertainment, and insurance, but only to the extent Purchaser
receives or is entitled to receive the remaining goods, services, or value of
said prepaid maintenance, entertainment, or insurance.
3. Representations and Warranties of the Seller and the
Shareholders. The Seller and the Shareholders, jointly and severally,
represent and warrant to and agree with the Purchaser that:
(a) Organization and Standing of the Seller. The Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Iowa. The Seller has full corporate power and authority
to conduct its business as it is now being conducted and to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transaction contemplated hereby.
(b) Authorization. The execution, delivery and performance of
this Agreement by the Seller have been duly authorized by all necessary
corporate proceedings on the part of the Seller and this Agreement constitutes
the valid and legally binding obligation of the Seller, enforceable in
accordance with its terms.
(c) Financial Statements. The Seller has delivered to the
Purchaser (i) the Seller's unaudited balance sheet as of April 30, 1996 and the
related statements of operations for the four (4) month period then ended, as
certified by the Chief Financial Officer of the Seller at April 30, 1996, (ii)
audited balance sheets of the Seller as of December 31, 1993, 1994 and 1995,
and the related statements of operations, cash flows and stockholders' equity
for the fiscal years then ended, together with the related notes and schedules
thereto, as certified by Honkamp Krueger & Co., certified public accountants.
The Seller will also deliver to the Purchaser between the date hereof and
Closing monthly unaudited balance sheets and statements of operations. All of
such financial statements referred to in the
6
<PAGE> 8
immediately preceding sentences are hereinafter referred to as the "Seller's
Financial Statements". The Seller's Financial Statements (A) reflect all
transactions at fair value (including transactions with related or affiliated
parties), (B) reflect all costs and expenses associated with operating the
Vessel as if the Vessel had been owned by the Seller for all periods presented
(except deducting rent and adding in depreciation), (C) are in accordance with
the books of account and records of the Seller and fairly present the financial
position of the Seller at the dates indicated, (D) contain and reflect reserves
for all material liabilities and (E) were prepared in accordance with generally
accepted accounting principles applied on a basis consistent with prior
accounting periods. Except to the extent reflected or reserved against in the
Seller's Financial Statements, the notes thereto, or any Schedule provided for
in this Section 3, neither the Seller nor the Purchased Assets are subject to
any liabilities (whether accrued, absolute, contingent or otherwise) or adverse
obligations, whether or not such liabilities or obligations are normally shown
or reflected on a balance sheet, other than liabilities and obligations arising
in the ordinary course of business since the date of the Seller's Financial
Statements. none of which are material and adverse.
(d) Absence of Certain Changes or Events. Except as set forth in
any Schedule delivered to the Purchaser pursuant to this Section 3 or except as
contemplated by this Agreement, since December 31, 1995, the Seller and the
Purchased Assets have been operated in the ordinary course of business and
there has not been:
(i) Any material damage, destruction or loss (whether or
not covered by insurance) adversely affecting the
Purchased Assets (the Purchaser is aware of the May
10, 1996 storm damage to the Vessel, Belle's Landing
Barge, Guest Services Barge, and Utility Barge which
will be repaired by Seller by December 31, 1996) and
shall be done in a good and workmanlike manner;
(ii) Any strike, work stoppages or other material labor
disputes adversely affecting the Purchased Assets or
their operation;
(iii) Any sale, transfer, pledge, mortgage or other
disposition of any tangible (real or personal) or
intangible assets of the Seller relating to the
Purchased Assets, except (a) in the ordinary course
of business and (b) for an amount less than
$1,000.00; provided, that Seller may dispose of
storm-damaged items which are replaced;
(iv) Any termination, waiver or cancellation of rights or
claims under any of the CCGA Lease, the CCGA Gaming
Agreement or the Operating Agreements;
(v) Any agreement or commitment by the Seller to take any
of the actions described in Sections 3(d)(ii), (iii)
or (iv) above;
(vi) To the knowledge of Seller and the Shareholders, any
statute, rule, regulation or order adopted or
promulgated or proposed or discussed by a
governmental body which adversely affects the
Purchased Assets and/or the Seller's Gaming
Operation; or
(vii) Any other change in the condition (financial or
otherwise) or business operations of the Seller which
has, or could reasonably be expected to have, a
material adverse affect on the
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<PAGE> 9
Purchased Assets. Furthermore, there has not been
any statute, rule, regulation or order adopted or
promulgated or other change in the Seller's Gaming
Operation occurring prior to January 1, 1996 which
could reasonably be expected to have a material
adverse effect on the Purchased Assets or the
operation thereof.
(e) Tax Matters. The Seller has paid or made adequate provisions
for all United States, state, county and local and other taxes, including
without limitation, income taxes, payroll taxes, corporate franchise taxes,
gaming taxes, admission taxes, sales, excise and use taxes and ad valorem taxes
with respect to the Purchased Assets and all payments required by the Seller
pursuant to the CCGA Gaming Agreement. The Seller has timely filed in correct
form all tax returns and reports required to be filed by it on or before the
date of this Agreement with all such taxing authorities.
(f) Operating Agreements. Schedule l(a)(xii) lists all Operating
Agreements and the remaining term thereof. Each and all of the Operating
Agreements have been duly executed by the Seller, are currently in effect, are
valid and binding upon the parties thereto and are enforceable in all material
respects in accordance with their terms. Neither the Seller nor the
Shareholders are aware of any facts or existing circumstances that would
prevent the performance of any of the Operating Agreements. Except as set
forth on Schedule l(a)(xii), neither the Seller nor any other party is in
default under any of the Operating Agreements, nor has any claim of default
been asserted or notice of termination issued by the Seller or any such other
party. The Seller has committed no act and there has been no omission which
will result in the breach by it of any Operating Agreement. The Seller has
provided the Purchaser with true and correct copies of such Operating
Agreements.
(g) CCGA Lease and CCGA Gaming Agreement. Each of the CCGA Lease
and the CCGA Gaming Agreement have been duly executed by the Seller, are
currently in effect and are valid and binding upon the parties thereto and are
enforceable in all material respects in accordance with their respective terms.
Neither the Seller nor the Shareholders are aware of any facts which would
prevent the performance of the CCGA Lease or the CCGA Gaming Agreement.
Neither the Seller nor the other party to the CCGA Lease or the CCGA Gaming
Agreement is in default thereunder nor has any claim of default been asserted
or notice of termination issued by the Seller or any such other party. The
Seller has committed no act and there has been no omission which will result in
the breach by it of either the CCGA Lease or the CCGA Gaming Agreement. The
Seller has provided the Purchaser with true and correct copies of the CCGA
Lease and the CCGA Gaming Agreement. The term of the CCGA Gaming Agreement
expires on April 30, 2000 and the term of the CCGA Lease expires on April 30,
2000 or upon termination of the CCGA Gaming Agreement, whichever occurs first.
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<PAGE> 10
(h) Vessel. To the knowledge of Seller and Shareholders, the
Vessel has been constructed in compliance with applicable United States Coast
Guard ("USCG") regulations, C.F.R. 46 Subchapter T, and classified as a
passenger vessel for the carriage of a maximum of 1,250 passengers and crew.
The Vessel has a current, valid Certificate of Inspection. The Seller agrees
to assign to the Purchaser all transferable warranties relating to equipment
located on the Vessel to the Purchaser.
(i) Title to Properties and Related Matters. The Purchased Assets
will be owned by the Seller on the Closing Date by good title, free and clear
from all security interests, mortgages, liens, claims, title defects and
encumbrances. By executing this Agreement, RRR, Inc. agrees to convey to
Seller by merger or otherwise on or before the Closing Date, the Vessel, the
vehicles identified as owned by RRR, Inc. on Schedule 1(a)(iv), and the kitchen
equipment identified as owned by RRR, Inc. on Schedule 1(a)(xviii). The Vessel
and vehicles and kitchen equipment owned by RRR, Inc. shall have been conveyed
to the Seller by merger or otherwise on or before Closing so that such assets
may be conveyed by Seller to the Purchaser in accordance with the terms hereof.
All of the Purchased Assets are in good operating condition and repair, subject
to ordinary wear and tear. All of such Purchased Assets have been properly
maintained, with no extraordinary maintenance planned or anticipated, and are
adequate and sufficient for the operation of a riverboat gaming facility as
historically operated by the Seller. There are no material capital
expenditures currently contemplated or necessary to maintain the Seller's
Gaming Operation or the Purchased Assets. The deadline for the next scheduled
hull inspection of the Vessel is October, 1999.
(j) Capital Leases. Seller has no capital leases.
(k) Litigation and Proceedings. Except as described in Schedule
3(k), no action or suit has been served and, to the knowledge of the Seller or
the Shareholders, no proceedings are pending or threatened against or affecting
the Seller, at law or in equity, or before or by any governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
before any arbitrator of any kind, that might adversely affect or relate to the
Purchased Assets or the operation thereof, or the transaction contemplated
hereby, whether or not fully covered by insurance; and the Seller is not in
default with respect to any judgment, order, writ, injunction, decree, award,
or in default with respect to any rule or regulation of any court, arbitrator
or governmental department, commission, board, bureau, agency or
instrumentality applicable to the Purchased Assets. To the knowledge of Seller
and Shareholders, the Seller has complied in all material respects with all
applicable Federal, state, municipal and other political subdivision or
governmental agency (including, without limitation, the Iowa Racing and Gaming
Commission) statutes,
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<PAGE> 11
ordinances and regulations, in every applicable jurisdiction, in respect of the
ownership and/or operation of the Purchased Assets.
(l) Indebtedness. Attached as Schedule 3(l) is a list of all
indebtedness, liens and security interests to which the Purchased Assets are
subject, including a description of such indebtedness and the terms thereof,
all of which shall be paid by the Seller and released on or prior to Closing.
(m) Employee Relations. Attached as Schedule 3(m) is a list of
all employees of the Seller employed in the Seller's Gaming Operation (the
"Employees") and their respective annual salaries, and separately indicating
any bonuses and incentive compensation paid to such employees. There are no
persons performing work on behalf of the Seller who are not employees of the
Seller. Except as set forth in Schedule 3(m), there are no written employment
agreements in effect between the Seller and any Employees and there are no
collective bargaining agreements covering any Employees. The Employees are not
members of a collective bargaining group and no union organizing activities are
in process or contemplated. There is no labor strike, dispute, slowdown or
representation campaign or work-stoppage pending or threatened with respect to
the Employees of the Seller.
(n) Employee Plans. The Seller heretofore has either delivered to
the Purchaser or made available for inspection by the Purchaser true and
complete copies (or a written description of the material terms and
conditions), of any and all bonus, profit-sharing, stock option, pension,
employee benefit, severance and similar plans and arrangements maintained by
the Seller for the Employees (collectively, the "Employee Plans") as listed on
Schedule 3(n) hereto.
(o) OSHA. Except as shown on Schedule 3(o), the Seller has not
received notice nor is Seller aware of any violation by the Seller, and to the
knowledge of Seller and Shareholders, the Seller is not in violation of and has
not been in violation of, the Occupational Safety and Health Act of 1970,
including rules and regulations thereunder, or any other federal, state, local
or foreign laws, including rules and regulations thereunder, regulating or
otherwise affecting employee health and safety, with respect to any Purchased
Assets or the operations thereof.
(p) Absence of Adverse Agreements; No Violations. The Seller is
not a party to any instrument or agreement or subject to any charter or other
corporate restriction or any judgment, order, writ, injunction, decree, award,
rule or regulation which, to the best of the Seller's and the Shareholders'
knowledge and belief, materially and adversely affects the Purchased Assets.
To the knowledge of Seller and Shareholders, except as shown in Schedule 3(k),
neither the Purchased Assets nor the Seller's Gaming Operation is in violation
of any federal, state,
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<PAGE> 12
county, or local law or regulation (including, without limitation, any rule or
regulation of the Iowa Racing and Gaming Commission), which violation, if not
corrected, may have a material, adverse affect on the Purchased Assets and/or
the operation thereof.
(q) No Defaults. The Seller is not in default under, nor, to the
best of the Seller's and the Shareholders' knowledge and belief, has any event
occurred which with notice or lapse of time or both, could result in a waiver
(except caused by the statute of limitations) of any material right or default
under, any outstanding indenture, mortgage, lease, contract or agreement to
which the Seller is a party or by which the Seller or the Purchased Assets may
be bound.
(r) No Conflicts. The execution and performance of this Agreement
and the transactions contemplated hereby will not violate any provision of or
result in a breach of or constitute a default under the Articles of
Incorporation or By-Laws of the Seller, or under any order, writ, injunction or
decree of any court, governmental agency or arbitration tribunal, or under any
contract, agreement or instrument to which the Seller is a party or by which
its properties may be bound, including, without limitation, the CCGA Lease, the
Operating Agreements or the CCGA Gaming Agreement, or, to the best of the
Seller's and the Shareholders' knowledge and belief, under any law, statute or
regulation. Seller has advised Purchaser and Purchaser acknowledges that
approval of this Agreement by the Iowa Racing and Gaming Commission must be
obtained.
(s) Environmental Violations. To the knowledge of Seller and
Shareholders, the Seller is not in violation of any federal, state, country or
local law, rule or regulation, including, without limitation, any applicable
building, zoning or other land use requirement or any law relating to pollution
or protection of the environment or Hazardous Substances (as hereinafter
defined), or any regulation of the National Board of Fire Underwriters, which
violation if not corrected may materially adversely affect the Purchaser's
operation of the Purchased Assets, nor has the Seller received any notice or is
aware that any governmental authority, insurer or other person is asserting any
violation of the same.
(t) Hazardous Substances. Except as shown on Schedule 3(t), to
the knowledge of Seller and Shareholders, there are no Hazardous Substances
located on any property utilized by the Seller, including the Vessel, the
Barges, property leased from the City of Clinton, and Real Estate sold
hereunder. As used herein, "Hazardous Substances" shall mean any material or
substance defined as "hazardous substances", "hazardous materials", "toxic
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<PAGE> 13
substances", "pollutants", or "hazardous waste" (including asbestos), under
federal, state and local laws regulating hazardous or toxic substances.
(u) Insurance Policies. Included in Schedule 3(u) is a true and
complete schedule of all policies of fire, public liability and other kinds of
insurance maintained as of the date hereof by the Seller relating to the
Seller's Gaming Operation and the Purchased Assets, which schedule includes,
without limitation, the kind of insurance, the insurer, the amount of coverage,
the expiration date, the annual premium, the person(s) to whom the proceeds are
payable, the policy number and any pending claim(s) thereunder. All such
policies are binding and in full force and effect, and there exists no default,
or event that with notice or the lapse of time or both, would constitute a
default, under any such insurance policy by the Seller or, to the best
knowledge of the Seller and the Shareholders, by the insurance company issuing
such policy.
(v) Inventories. To the knowledge of Seller and Shareholders, the
Inventories are not obsolete or defective and such items are saleable or usable
in the ordinary course of business. The levels of the Inventories currently on
hand are not, and the amount of Inventories on hand as of the Closing will not
be, materially in excess of or less than that necessary for the operation of
the Seller's Gaming Operation in the ordinary course of business consistent
with past practices of the Seller (approximately 30 days for meat, poultry and
fish and approximately 30 days for plastic cups, wet wipes, napkins, matches,
garbage bags, and table covers).
(w) Brokers. Neither the Seller nor any Shareholder is a party
to or in any way obligated under a contract or other agreement, and there are
no outstanding claims against any of them, for the payment of any broker's or
finder's fees in connection with the origin, negotiation, execution or
performance of this Agreement.
(x) Disclosure. Neither this Agreement, the Schedules attached
hereto, nor any other document furnished by the Seller to the Purchaser contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein and therein not misleading,
and except as disclosed herein or therein, there is no fact (other than matters
of a general economic or a political nature which do not effect the business of
the Seller uniquely) known to the Seller or the Shareholders which materially
adversely affects or in the future can be reasonably expected to materially
adversely affect the Purchased Assets.
(y) DISCLAIMER OF WARRANTIES. EXCEPT AS SPECIFICALLY PROVIDED IN
THIS AGREEMENT, THERE ARE NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING THE
LIMITED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH
REGARD
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TO ANY OF THE PURCHASED ASSETS, INCLUDING, BUT NOT LIMITED TO, THE VESSEL. THE
ONLY WARRANTIES OF SELLER TO PURCHASER ARE THOSE SET FORTH IN THIS AGREEMENT.
EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, THE VESSEL AND ALL PERSONAL
PROPERTY INCLUDED IN THIS SALE ARE BEING SOLD IN THEIR "AS IS" AND "WHERE IS"
CONDITION ON THE CLOSING DATE. EXCEPT AS SPECIFICALLY PROVIDED IN THIS
AGREEMENT, PURCHASER AGREES TO ACCEPT THE VESSEL, ANY EQUIPMENT, AND ANY
PERSONAL PROPERTY IN THEIR "AS IS" AND "WHERE IS" CONDITION ON THE CLOSING
DATE. EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, SELLER MAKES NO
REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE SUITABILITY OF THE VESSEL FOR
ANY USE INTENDED BY PURCHASER.
EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, SELLER MAKES NO
REPRESENTATIONS OR WARRANTIES WHATSOEVER REGARDING ANY BUSINESS CLIMATE TO BE
EXPERIENCED BY PURCHASER AFTER THE CLOSING, OR THE PROFITABILITY OF PURCHASER'S
OPERATIONS AFTER THE CLOSING, OR THE SUITABILITY OF THE PURCHASED ASSETS, OR
ANY OF THEM, FOR PURCHASER'S INTENDED USE OR PURPOSES.
4. Representations and Warranties of the Purchaser. The
Purchaser represents and warrants to the Seller and the Shareholders that:
(a) Organization, Standing and Authority of the Purchaser. The
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Iowa, and has full corporate power and
authority to conduct its business as it is now being conducted, and to enter
into and carry out the provisions of this Agreement.
(b) No Violation. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any provision of the Articles of Incorporation or By-Laws of the
Purchaser, (ii) violate any provision of any agreement or other obligation to
which the Purchaser is a party or by which the Purchaser is bound or to which
its assets are subject, or (iii) violate or result in a breach of, constitute a
default under, any judgment, order, decree, rule or regulation of any court or
governmental agency to which the Purchaser is subject.
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<PAGE> 15
(c) Corporate Proceedings of the Purchaser. The execution,
delivery and performance of this Agreement by the Purchaser have been
authorized by the Board of Directors of the Purchaser, and this Agreement will
constitute the valid and legally binding obligation of the Purchaser,
enforceable in accordance with its terms.
(d) Litigation and Proceedings. There are no actions, suits, or
proceedings pending or, to the knowledge of Purchaser, threatened against or
affecting the Purchaser, at law or in equity, or before or by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind, that might adversely affect or
relate to the transaction contemplated hereby.
(e) Consents and Approvals. Purchaser shall use its commercially
reasonable best efforts to obtain prior to the Closing any and all requisite
consents and approvals of and licensure by third parties of Purchaser and its
officers, directors, and employees, including, but not limited to, federal,
state or local public authority, including regulatory agencies, required to be
received by or on the part of Purchaser for the execution and the delivery of
this Agreement and the performance of its terms.
Crown shall use its commercially reasonable best efforts to obtain
prior to the Closing any and all requisite consents and approvals of and
licensure by third parties of Crown and its officers, directors, and
employees, including, but not limited to, federal, state or local public
authority, including regulatory agencies, required to be received by or on the
part of Crown for the execution and the delivery of the Guarantee Agreement and
the performance of its terms.
(f) Brokers. The Purchaser is not a party to or in any way
obligated under a contract or other agreement, and there are no outstanding
claims against it, for the payment of any broker's or finder's fees in
connection with the origin, negotiation, execution or performance of this
Agreement.
(g) Misstatements or Omissions. No written representation or
written warranty made by Purchaser in any document, written statement,
certificate or schedule which was furnished to the Seller by or on behalf of
Purchaser in connection with this Agreement, contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the
statements or facts contained therein not materially misleading.
5. Additional Covenants and Agreements of the Seller.
(a) Access to Records. At all reasonable times prior to Closing,
the Seller shall give the Purchaser, its counsel, accountants and other
representatives, full and free access to all the properties, books, financial
statements, contracts, commitments, records and Purchased Assets of the Seller
so the Purchaser may have full
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<PAGE> 16
opportunity to make such investigation as it shall desire to make of the
business and affairs of the Seller, provided that such investigation shall not
unreasonably interfere with the operations of the Seller. Purchaser shall have
the right to conduct all due diligence investigations and inquiries that it
deems necessary or advisable to satisfy itself as to the accuracy of the
warranties and representations of Seller set forth in Section 3 above.
Purchaser shall give prompt written notice to Seller if, during Purchaser's
investigations, Purchaser discovers any information which is inconsistent with
any representation or warranty made by Seller hereunder. If this Agreement is
terminated, the Purchaser shall keep confidential and shall not use in any
manner any information or documents obtained from the Seller concerning the
business affairs of the Seller, unless readily ascertainable from public or
published information. trade sources, or already known or subsequently
developed by the Purchaser independently of any investigation of the Seller, or
received from a third party not under an obligation to the Seller to keep such
information confidential. If this Agreement is terminated, the Purchaser shall
immediately return to the Seller any documents obtained from the Seller
together with all copies thereof in the Purchaser's possession or under the
Purchaser's control.
(b) Preservation of Assets. From the date hereof until the
Closing Date, subject to prudent business judgment, the Seller will use its
best efforts to preserve the Purchased Assets, reasonable wear and tear
excepted, to keep available to the Purchaser the services of employees of the
Seller related to the Purchased Assets and to preserve the goodwill of all
suppliers, customers, regulators, City of Clinton officials, CCGA, Ltd. and
others having business relations with them.
(c) Consents. Prior to Closing, the Seller shall use its
commercially reasonable best efforts to obtain all approvals and consents which
must be obtained in order to effectuate the transaction contemplated hereby and
to satisfy the terms and conditions of this Agreement, including, without
limitation, consents to the assignment of all Operating Agreements requiring
such consent, the CCGA Lease and the CCGA Gaming Agreement. Seller shall use
its commercially reasonable best efforts to obtain prior to the Closing any and
all requisite consents of third parties required to be obtained by Seller,
including, but not limited to, governmental or other regulatory agencies,
foreign or domestic, required to be received by or on the part of Seller for
the execution and delivery of this Agreement and the performance of its terms.
(d) Employee Plans. The Seller shall take such action as may be
appropriate with respect to any Employee Plans so that after the Closing Date,
the Purchaser shall not be obligated to any Employees, whether or not hired by
the Purchaser, with respect to and under such Employee Plans. Further, the
Seller shall be responsible for
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<PAGE> 17
any continuation of coverage of group health plans for any such Employees under
Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).
The Seller and the Shareholders, jointly and severally, agree to indemnify the
Purchaser and hold the Purchaser harmless from and against any liability under
the Employee Plans, including any liability to any such Employees pursuant to
COBRA.
(e) Employment Agreements. The Purchaser and the Shareholders
listed on Schedule 5(e) agree to execute and enter into employment agreements,
effective as of the Closing Date, for the duration, compensation, vacation and
benefits shown thereon, which employment agreements shall be in the form
attached hereto as Exhibit "E". In addition, Purchaser agrees to execute and
enter into employment agreements, effective as of the Closing Date, in the form
attached hereto as Exhibit "E", with the individuals listed on Schedule 5(e)
who are not Shareholders of Seller, for the duration, compensation, vacation
and benefits shown thereon.
(f) Reimbursement for Gift Certificates. Seller agrees to
reimburse Purchaser for all gift certificates issued by Seller prior to Closing
and presented to Purchaser for redemption within one year from the Closing
Date, excluding gift certificates donated by Seller.
6. Conditions to Obligations of the Purchaser. The obligations
of the Purchaser to consummate the transaction contemplated hereby shall be
subject to the satisfaction, on or before the Closing Date, of all of the
following conditions unless expressly waived in writing by the Purchaser:
(a) Representations and Covenants. All representations and
warranties of the Seller and the Shareholders contained in this Agreement shall
be true in all material respects on and as of the Closing Date as if such
representations and warranties were made on and as of such date (except to the
extent any such representation or warranty is made as of a specified date), and
the Seller and the Shareholders shall have performed all agreements and
covenants to be performed by them on or prior to the Closing Date, and the
Purchaser shall have received a certificate dated the Closing Date, signed by
the President or a Vice-President of the Seller and the Shareholders, to the
effect that such is the case.
(b) Certified Resolutions. The Purchaser shall have received
certified copies of resolutions of the Board of Directors and the Shareholders
of the Seller, certified by the Secretary or an Assistant Secretary of the
Seller, duly authorizing and approving the execution, delivery and performance
of this Agreement and consummation of the transaction contemplated hereby.
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<PAGE> 18
(c) Approvals and Consents. The Seller and the Shareholders shall
have obtained and delivered to the Purchaser all approvals and consents which
must be obtained in order to effectuate the transaction contemplated hereby and
to satisfy the terms and conditions of this Agreement, including, but not
limited to, any consents required to assign the Operating Agreements, the CCGA
Lease and the CCGA Gaming Agreement to the Purchaser, and all approvals and
consents from all regulatory agencies having authority over any matter covered
by this Agreement including, without limitation, the Iowa Racing and Gaming
Commission; provided, however, that Purchaser shall have the sole
responsibility for obtaining an operator's license and occupational licenses
for its key persons and employees from the Iowa Racing and Gaming Commission.
(d) Regulatory Approval. The Purchaser and Crown, if necessary,
and their respective officers, directors and employees shall have been licensed
by all regulatory authorities having jurisdiction over the riverboat gaming
operation and related activities of the Purchaser to be conducted by the
Purchaser with the Purchased Assets, including without limitation, the Iowa
Racing and Gaming Commission. Purchaser agrees to use its commercially
reasonable best efforts to obtain prior to Closing such licensure and any and
all requisite consents of third parties to be obtained by Purchaser, including
all necessary regulatory approvals.
(e) Opinion of Counsel. The Purchaser shall have received the
opinion of Fuerste, Carew, Coyle, Juergens & Sudmeier, P.C., counsel for the
Seller, dated the Closing Date, to the effect that:
(i) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Iowa, and, in such counsel's opinion, has
full power and authority to carry on its business as
it is now being conducted and to enter into this
Agreement and perform its obligations thereunder;
(ii) In such counsel's opinion, the Agreement has been
duly and validly authorized, executed and delivered
by the Seller and the Shareholders, and (assuming
valid execution and delivery by the other party
thereto) constitutes the legal, valid and binding
obligation of the Seller and the Shareholders
enforceable against the Seller and the Shareholders
in accordance with its terms (except as otherwise
limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors'
rights and except that such counsel need not express
an opinion as to whether any covenant contained
herein is specifically enforceable);
(iii) In such counsel's opinion, the execution and delivery
of the Agreement by the Seller, the consummation by
the Seller of the transaction contemplated thereby
and compliance by the Seller with the provisions
thereof will not (1) conflict with or result in any
breach of any provision of the Articles of
Incorporation or By-Laws of the Seller, (2) violate
any court order, writ, injunction or decree
applicable to the Seller, (3) violate any material
contract, agreement, undertaking, understanding or
commitment to which the Seller is a party or by which
it or its properties may be bound, (4) violate any
applicable law, rule or regulation, or (5) result in
the creation of any lien on any of the Purchased
Assets;
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(iv) In such counsel's opinion, the instruments of
conveyance and assignment which will be executed and
delivered to the Purchaser by the Seller at the
Closing pursuant to the Agreement will be valid and
binding in accordance with their terms and have been
duly authorized, executed by the appropriate officers
of Seller, and will be delivered to Purchaser at
Closing;
(v) To the best of such counsel's actual knowledge and
belief, there are no legal actions or governmental
proceedings pending or threatened to which the Seller
is a party which may adversely affect the Purchased
Assets or the Purchaser's use thereof.
(f) No Material Adverse Changes. The Seller and the Shareholders
shall have delivered to the Purchaser their certificate stating that there has
been no material, adverse change in the business, operations, financial
condition or properties of the Seller, and the Purchased Assets shall not have
been materially and adversely affected due to fire, accident, other casualty or
Act of God.
(g) Pre-Acquisition Review. The Purchaser shall have completed a
pre-acquisition review of (i) the Purchased Assets, (ii) the Operating
Agreements, the CCGA Lease and the CCGA Gaming Agreement, and the respective
terms and provisions thereof, and (iii) the financial statements and books and
records of the Seller relating to the Purchased Assets and shall have
discovered no conditions, facts, circumstances or change in the business,
properties, operations, condition (financial or otherwise) or prospects of the
Purchaser's operation of the Purchased Assets which, in the reasonable, good
faith opinion of the Purchaser, could have a material and adverse effect on the
value to the Purchaser of the Purchased Assets.
(h) Absence of Litigation. No litigation, governmental action,
insolvency, receivership or other proceeding shall have been threatened,
asserted or commenced which materially adversely affects the Purchased Assets
and the transaction contemplated hereby.
(i) Release of Liens. Prior to the Closing, all liens, mortgages
or other encumbrances to which the Purchased Assets are subject shall have been
released and the Purchaser shall be provided with evidence of such releases
having been filed in the appropriate offices of governmental authorities in
each jurisdiction where such filing is necessary for proper filing in
accordance with applicable law.
(j) Transfer Documents. The Seller shall have tendered for
delivery to the Purchaser the Bill of Sale, Assignment and Assumption of
Operating Agreements, the Assignment and Assumption of the CCGA Lease, the
Assignment and Assumption of the CCGA Gaming Agreement, and such other
instruments of conveyance as reasonably shall be necessary to transfer to the
Purchaser all right, title and interest in and to the Purchased Assets in form
reasonably satisfactory to the Purchaser.
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(k) Financing. The Purchaser shall have obtained financing for
not less than $20,000,000.00 of the Purchase Price upon terms and conditions
reasonably satisfactory to Purchaser; provided, however, Purchaser covenants
and agrees Purchaser will use its commercially reasonable best efforts to
obtain prior to Closing said financing and agrees that it will not decline any
offer of financing which includes a term of three (3) years or more, payments
calculated on an amortization schedule over seven (7) years or more, an
interest rate of national prime plus one (1) point or less, a requirement that
the loan be guaranteed by Crown, no personal guarantees, and no other terms or
conditions which are unreasonable in Purchaser's good faith judgment, which
terms may relate to, without limitation, financial covenants, affirmative and
negative covenants, restrictions on acquisitions of properties or business,
yield enhancement obligations (such as warrants) or excessive loan closing or
origination points. The Purchaser's failure to close the transaction
contemplated hereunder for failure of the condition set forth in this Section
6(l) shall entitle Seller to retain the Deposit Shares in accordance with
Section 2(a) hereof and, in such event, neither the Purchaser nor Crown shall
have any further obligation or liability hereunder.
(l) Extension Option - CCGA Lease. The CCGA Lease shall be
amended to grant to the Purchaser an option or options to extend such
agreement through April 30, 2003 on terms substantially similar to the
existing terms.
(m) Extension Option - CCGA Gaming Agreement. The CCGA Gaming
Agreement shall be amended to grant to the Purchaser an option or options to
extend such agreement through April 30, 2003 on terms substantially similar to
the existing terms, including cost of living adjustments to the fees paid to
CCGA.
7. Conditions to Obligations of the Seller and the Shareholders.
The obligation of the Seller and the Shareholders to consummate the transaction
contemplated hereby shall be subject to the satisfaction, or, or before the
Closing Date, of all of the following conditions, unless expressly waived in
writing by the Seller and the Shareholders:
(a) Representations and Covenants. All representations and
warranties of the Purchaser contained in this Agreement shall be true in all
material respects on and as of the Closing Date as if such representations and
warranties were made on and as of such date (except to the extent any such
representation or warranty is made as of a specified date), and the Purchaser
shall have performed all agreements and covenants to be performed by it on or
prior to the Closing Date, and the Seller shall have received a certificate
dated the Closing Date, signed by the President or a Vice-President of the
Purchaser, to the effect that such is the case.
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(b) Opinion of Counsel. The Seller shall have received the
opinion of T. J. Falgout, III, legal counsel for the Purchaser, dated the
Closing Date, to the effect that:
(i) The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws
of the State of Iowa and, in such counsel's opinion,
has full power and authority to carry on its business
as it is now being conducted and to enter into this
Agreement and perform its obligations thereunder;
(ii) In such counsel's opinion, the Agreement has been
duly and validly authorized, executed and delivered
by the Purchaser, and (assuming valid execution and
delivery by the other parties thereto) constitutes
the legal, valid and binding obligation of the
Purchaser enforceable against the Purchaser in
accordance with its terms (except as otherwise
limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors'
rights, and except that such counsel need not express
an opinion as to whether any covenant contained
herein is specifically enforceable); and
(iii) In such counsel's opinion, the execution and delivery
of the Agreement by the Purchaser, the consummation
by the Purchaser of the transaction contemplated
thereby and compliance by the Purchaser with the
provisions thereof will not (1) conflict with or
result in any breach of any provision of the Articles
of Incorporation or ByLaws of the Purchaser, (2)
violate any court order, writ, injunction or decree
applicable to the Purchaser, (3) violate any material
contract, agreement, undertaking, understanding or
commitment to which the Purchaser is a party or by
which it or its properties may be bound, or (4)
violate any applicable law, rule or regulation.
(c) Consent to Assignment of the CCGA Lease. The Seller shall
have obtained the consent and approval of the City of Clinton to the assignment
of the CCGA Lease from the Seller to the Purchaser.
(d) Approval of Iowa Racing and Gaming Commission. The Seller
shall have obtained the consent and approval of the Iowa Racing and Gaming
Commission to the transactions contemplated by this Agreement. The Purchaser
understands and acknowledges that Purchaser has the sole responsibility for
obtaining an operator's license and occupational licenses for its key persons
and employees from the Iowa Racing and Gaming Commission.
(e) Certified Resolutions. The Seller shall have received
certified copies of resolutions of the Board of Directors of the Purchaser,
certified by the Secretary or an Assistant Secretary of the Purchaser,
authorizing the execution, delivery and performance of this Agreement.
8. The Closing. The closing hereunder (the "Closing") shall take
place at the offices of Fuerste, Carew, Coyle, Juergens & Sudmeier, P.C., 200
Security Building, Dubuque, Iowa 52001, at 10:00 a.m. local time on the date
which is no later than five (5) business days after all conditions of the
Closing set forth in Sections 6 and 7 hereof have been satisfied or waived, or
at such subsequent time and day or other location as may be mutually agreed by
the Purchaser, the Seller and the Shareholders, but in no event later than
November 15, 1996, unless otherwise mutually agreed by the parties hereto. The
date and time of the Closing is herein called the "Closing Date".
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<PAGE> 22
This Agreement shall automatically terminate and be of no further force and
effect if any of the conditions of the Closing set forth in Sections 6 and 7
hereof have not been satisfied or waived by 11:59 p.m. on November 15, 1996,
unless otherwise mutually agreed by the parties hereto.
Seller and Shareholders shall not be liable under this Agreement or
deemed in default of this Agreement, including but not limited to Seller's
obligations with respect to delivery, for any failure of performance of any
part of this Agreement resulting directly or indirectly from any delay caused
by Purchaser or any force majeure event, including without limitation,
lightning; fire; strikes or labor disputes; floods; acts of God; the elements,
including rain, tornadoes, and hurricanes; war; civil disturbances; acts of
civil or military authorities or the public enemy; condemnation or taking by
eminent domain. If a force majeure event prevents timely performance of this
Agreement by Seller and Shareholders, the Purchaser may extend the period for
Closing for a reasonable period, but not later than 11:59 p.m. on December 31,
1996, or may terminate this Agreement by serving written notice on the Seller
within thirty (30) days after such force majeure event.
In the event of a partial destruction of any or all of the Purchased
Assets prior to Closing, meaning a destruction which can be repaired within
sixty (60) days after the occurrence, Seller shall repair such damages within
sixty (60) days of its occurrence and shall deliver the repaired Purchased
Assets to Purchaser according to this Agreement, except that the Closing and
delivery of such repaired Purchased Assets shall be extended by the time for
such repairs, not to exceed sixty (60) days.
9. Nature and Survival of Representations and Warranties.
(a) Nature of Statements. All statements contained in this
Agreement and any schedule, document or any certificate or other instrument
delivered by or on behalf of the Seller and the Shareholders or the Purchaser
pursuant to this Agreement or in connection with the transactions contemplated
hereby shall be deemed representations and warranties made by the Seller and
the Shareholders or the Purchaser, as the case may be.
(b) Survival of Representations and Warranties. All
representations, warranties, covenants, agreements and undertakings contained
herein or in any schedule, certificate or other document shall remain operative
and in full force and effect, and shall survive the Closing Date and the
delivery of all consideration and documents pursuant to this Agreement for a
period of three (3) years from the date of Closing.
10. Indemnification by the Seller and the Shareholders and
Related Matters.
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(a) Indemnification by the Seller and Shareholders. The Seller
and the Shareholders, jointly and severally, agree to defend, indemnify and
hold harmless the Purchaser and its respective successors and assigns, from,
against and in respect of any and all loss or damage resulting from:
(i) The breach by the Seller or the Shareholders of any
of their warranties, representations, covenants,
agreements or undertakings contained herein;
(ii) The Seller's failure to pay or otherwise satisfy any
accounts payable, debts, obligations or liabilities
whatsoever of the Seller, whether accrued, absolute,
fixed, contingent or otherwise, and whether now known
or hereafter discovered and whether presently
existing or hereafter arising, unless expressly
assumed by the Purchaser pursuant to Section l(b)
hereof;
(iii) Any acts or omissions of the Seller occurring prior
to the Closing Date; and
(iv) Any liability arising out of any and all actions,
suits, proceedings, claims, demands, judgments, costs
and expenses (including reasonable legal and
accounting fees) incident to any of the foregoing
(collectively, the "Losses"). Notwithstanding the
foregoing, the Seller and the Shareholders shall not
be liable until the Losses exceed $2,000.00 in the
aggregate.
(b) Procedure for Making Claims. If and whenever the Purchaser
desires to claim indemnification by the Seller and the Shareholders pursuant to
the provisions of this Section 10, the Purchaser shall promptly deliver to the
Seller and the Shareholders a certificate signed by the President or
Vice-President of the Purchaser (the "Notice of Claim") (i) stating that the
Purchaser its successors and assigns, will pay or accrue losses, damages or
expenses in an aggregate stated amount if known to which the Purchaser is
entitled to indemnification pursuant to this Section and (ii) specifying the
individual items of loss, damage or expense included in the amount if known so
stated and the nature of the misrepresentation, breach of warranty or claim to
which such item is related, provided, however, failure to notify the Seller and
the Shareholders shall relieve the Seller and the Shareholders from liability
only if it is prejudiced thereby. If the misrepresentation, breach of warranty
or claim to which such items relates is not cured within ten (10) days of the
Seller's and the Shareholders' receipt of the Notice of Claim, the Purchaser,
its successors and assigns, shall be entitled to pay or accrue such loss,
damage or expense and obtain indemnification from the Seller and the
Shareholders in accordance with this Section 10. The Seller and the
Shareholders shall have the right to defend any claim by a third party at the
expense of the Seller and the Shareholders. The Purchaser shall provide to the
Seller and the Shareholders prompt and complete disclosure of all pertinent
information in the possession of or available to the Purchaser and shall extend
full and timely assistance in the cooperation in the investigation of the
defense of the claim, suit or action, with respect to which such
indemnification is claimed. The Seller and the Shareholders, in the defense of
any such suit, action or proceeding, shall not consent to the entry of any
judgment or
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decree except with the written consent of the Purchaser nor enter into any
settlement (except with the written consent of the Purchaser) which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to the Purchaser of a complete release from every liability in
respect of such claim, suit, action or proceeding. In any defense of any claim
by a third party, the Purchaser shall have the right (but shall not be
obligated) to participate in such defense through counsel of its own selection
and at its own expense.
11. Indemnification by the Purchaser and Related Matters.
(a) Indemnification by the Purchaser. The Purchaser agrees to
defend, indemnify and hold harmless the Seller and Shareholders, their
successors and assigns from, against and in respect of any and all loss or
damage resulting from:
(i) The breach by the Purchaser of any of its warranties,
representations, covenants, agreements or
undertakings contained herein;
(ii) The Purchaser's failure to pay or otherwise satisfy
any of the Assumed Liabilities;
(iii) Any acts or omissions of the Purchaser occurring on
or after the Closing Date;
(iv) All liabilities and obligations of Seller and
Shareholders for any claim, dispute or litigation
relating to, arising out of, or in connection with
any event pertaining to the Purchaser's operation of
the Purchased Assets and occurring on or after the
Closing Date;
(v) All liabilities and obligations of Seller for
workers' claims and Jones Act claims relating to any
work injury, any occupational injury (including, but
not limited to occupational hearing loss), or any
occupational disease suffered or contracted on or
after the Closing Date, or any aggravation or
re-occurrence of any such injury or disease where
such aggravation or re- occurrence is suffered or
contracted on or after the Closing Date by an
employee of the Purchaser;
(vi) All liabilities and obligations arising or occurring
on or after the Closing Date which are the subject of
any lawsuit, grievance, arbitration, charge or other
proceeding or employee complaint made or filed
against Seller, any Shareholder or Purchaser, which
complaints relate directly to the operation of the
Purchased Assets on or after the Closing Date; and
(vii) Any liability arising out of any and all actions,
suits, proceedings, claims, demands, judgments, costs
and expenses (including reasonable legal and
accounting fees) incident to any of the foregoing.
(b) Procedure for Making Claims. If and whenever the Seller
desires to claim indemnification by the Purchaser pursuant to the provisions of
this Section 11, the Seller shall promptly deliver to the Purchaser a
certificate signed by an officer of the Seller (the "Notice of Claim") (i)
stating that the Seller, its successors or assigns, will pay or accrue losses,
damages or expenses to which the Seller is entitled to indemnification pursuant
to this Section 11, and (ii) specifying the individual items of loss, damage or
expense included in the amount so stated and the nature of the
misrepresentation, breach of warranty or claim to which such item is related,
provided, however, failure to notify
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the Purchaser shall relieve the Purchaser from liability only if it is
prejudiced thereby. If the misrepresentation, breach of warranty or claim to
which such item relates is not cured within ten (10) days of the Purchaser's
receipt of the Notice of Claim, the Seller, its successors or assigns shall be
entitled to pay or accrue such loss, damage or expense and obtain
indemnification from the Purchaser in accordance with this Section 11. The
Purchaser shall have the right to defend any claim by a third party at the
expense of the Purchaser. The Seller shall provide to the Purchaser prompt and
complete disclosure of all pertinent information in the possession of or
available to the Seller and shall extend full and timely assistance in the
cooperation in the investigation of the defense of the claim, suit or action,
with respect to which such indemnification is claimed. The Purchaser, in the
defense of any such suit, action or proceeding, shall not consent to the entry
of any judgment or decree except with the written consent of the Seller nor
enter into any settlement (except the written consent of the Seller) which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to the Seller of a complete release from every liability in respect
of such claim, suit, action, or proceeding. In any defense of any claim by a
third party, the Seller shall have the right (but shall not be obligated) to
participate in such defense through counsel of its own selection and at its own
expense.
12. Prorations. All revenues, income and expenses of the
Purchased Assets with respect to the period prior to the Closing shall be for
the account of the Seller, and all revenues, income and expenses of the
Purchased Assets with respect to the period after the Closing, shall be for the
account of the Purchaser. Accordingly, the following expenses shall be
allocated and apportioned as of the Closing Date on the basis of a 30-day month
and a 365-day year, and shall be paid or credited by the Seller to the
Purchaser or by the Purchaser to the Seller, as the case may be (i.e.,
prorated): (i) rent and other sums payable under each lease, conditional sale
agreement or other contract pursuant to which the Seller leases or otherwise
holds any FF&E, and each other contract and commitment described in Section
3(f) hereof; (ii) real and personal property taxes, assessments and special
district levies applicable to the Purchased Assets (based on the tax bills for
the current year, copies of which bills shall be delivered by the Seller to the
Purchaser prior to or at the Closing; (iii) charges for electricity, gas,
telephone, water, sewage, cable and other utilities furnished to the Seller's
property; (iv) annual license, permit and/or inspection fees applicable to the
Purchased Assets; (v) personal property taxes applicable to the Slot Machines
or the other Purchased Assets (based on the tax bills for the current year,
copies of which bills shall be delivered by the Seller to the Purchaser at the
Closing); (vi) annual license, permit, inspection and/or similar fees
applicable to the Purchased Assets; and (vii) other expenses, incurred by the
Seller in connection with the ownership or operation of the Purchased Assets.
The
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<PAGE> 26
foregoing expenses shall be allocated as soon as practicable after the Closing
Date, and in any event no later than sixty (60) days after the Closing Date,
and the Seller or the Purchaser shall promptly pay to the other the sum
determined pursuant to such subsequent allocation.
Seller covenants and agrees that Seller will set aside and not
distribute to the Shareholders from the Purchase Price an amount sufficient to
cover Seller's proration obligations under this paragraph until all such
proration obligations have been satisfied.
13. Covenants Against Competition; Solicitation of Employees.
(a) The Seller and the Shareholders agree that from and after the
Closing Date, except as employees of the Purchaser, they will not, directly or
indirectly, for five (5) years, but not to exceed the maximum period allowed
by law, own, operate, engage in or be interested in, affiliated or connected
with any person, firm, corporation or other entity operating or purporting to
operate a business which engages in riverboat gaming activities within a
one-hundred fifty (150) mile radius of the location of the Seller's Gaming
Operation in Clinton, Iowa, except for (i) a currently operating gaming
property known as "Catfish Bend Casinos" in Ft. Madison/Burlington, Iowa (and
potentially Keokuk, Iowa) and/or (ii) a currently operating gaming property
known as "Miss Marquette" in Marquette, Iowa. No covenant of the Seller and
Shareholders under this paragraph shall be applicable to ownership of,
employment in, or other participation in any form in said Catfish Bend Casinos
in Ft. Madison/Burlington/Keokuk, Iowa and/or Miss Marquette in Marquette,
Iowa. Further, no covenant of the Seller and Shareholders under this paragraph
shall be applicable to ownership of, employment in, or other participation in
any form in the marine operations, as opposed to gaming and other operations of
any riverboat gaming operator, including, but not limited to vessel piloting.
The Seller and the Shareholders hereby acknowledge that the foregoing
restrictions are reasonable in scope and necessary for the protection of the
goodwill of the Purchaser and that a breach of this covenant would cause the
Purchaser substantial damage impossible of precise determination. Accordingly,
in addition to such other rights and remedies as may be available to the
Purchaser in the event of any breach, actual or threatened, of the foregoing
provisions of this Section 13, the Purchaser (or any successor or successors
thereof) shall be entitled to enjoin such breach, actual or threatened. The
Seller and the Shareholders further agree that should any portion of the
foregoing covenant be unenforceable because of the scope thereof or the period
covered thereby or otherwise, the covenant shall be deemed to be reduced and
limited to enable it to be enforced to the extent permissible under the laws
and public policies in the jurisdiction in which enforcement is sought.
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<PAGE> 27
(b) The Seller and the Shareholders agree that for a period of two
(2) years after the Closing Date, they will not, directly or indirectly, induce
any employees of the Seller that are hired by the Purchaser to leave the employ
of the Purchaser.
(c) The Seller and the Shareholders agree to keep confidential and
not to use or disclose, except in furthering the Purchaser's business after
Closing, any confidential information of the Seller, including, without
limitation, any customer lists, marketing data or other proprietary information
of the Seller related to the Seller's Gaming Operation. Seller and Purchaser
agree that the identity and marketing of non-local customers (except for those
in Seller's Player's Club) and bus and motor coach companies and the like shall
not be confidential or proprietary information of Seller or Purchaser.
(d) The Purchaser and the Shareholders have agreed in Section 5(e)
hereof to execute and enter into certain employment agreements in connection
with this transaction. The Purchaser and the Shareholders acknowledge and
agree that performance of such employment agreements by the Purchaser is
additional consideration for the covenants of Seller and the Shareholders under
this Section 13 and a breach of any of said employment agreements by the
Purchaser shall render the covenants of the affected Shareholder under this
Section 13 null, void and of no further force or effect.
14. Expenses. Each party hereto shall pay its own expenses
(including without limitation counsel and accounting fees and expenses)
incident to the preparation and carrying out of this Agreement and the
consummation of the transaction contemplated hereby.
15. Notices. All notices, demands and requests which may be given
or which are required to be given by any party to the others, shall be in
writing and shall be deemed effective when either: (a) personally delivered to
the intended recipient; (b) sent by certified or registered mail, return
receipt requested, addressed to the intended recipient at the address specified
below; (c) delivered in person to the address set forth below for the party to
which the notice was given; (d) deposited into the custody of a nationally
recognized overnight delivery service such as Federal Express Corporation,
Airborne, Emery or Purolator, addressed to such party at the address specified
below; or (e) sent by facsimile, telegram or telex, provided that receipt for
such facsimile, telegram or telex is verified by the sender and followed by a
notice sent in accordance with one of the other provisions set forth above.
Notices shall be effective on the date of delivery or receipt or, if delivery
is not accepted, on the earlier of the date that delivery is refused or three
(3) days after the date the notice is mailed. For purposes of this Section,
the addresses of the
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parties for all notices are as follows (unless changes by similar notice in
writing are given by the particular person whose address is to be changed):
If to the Seller, to MISSISSIPPI BELLE II, INC., 311 Riverview
Drive, Clinton, Iowa 52733-1234;
With a copy to Stephen J. Juergens, Fuerste, Carew, Coyle,
Juergens & Sudmeier, P.C., 200 Security Building, Dubuque, Iowa 52001;
fax (319) 556-7134;
Or if to the Shareholders, to the addresses set forth on Table
I attached hereto;
With a copy to Stephen J. Juergens, Fuerste, Carew, Coyle,
Juergens & Sudmeier, P.C., 200 Security Building, Dubuque, Iowa 52001;
fax (319) 556-7134;
Or if to the Purchaser, to CROWN-MISSISSIPPI BELLE II, INC.,
4040 North MacArthur Boulevard, Suite 100, Irving, Texas 75038;
Attention: Mark D. Slusser, Chief Financial Officer; fax (214)
719-4466;
With a copy to T. J. Falgout, III, General Counsel, Crown
Casino Corporation, 4040 North MacArthur Boulevard, Suite 100, Irving,
Texas 75038; fax (214) 719-4466;
Or if to Crown, to CROWN CASINO CORPORATION, 4040 North
MacArthur Boulevard, Suite 100, Irving, Texas 75038; Attention: Mark
D. Slusser, Chief Financial Officer; fax (214) 719-4466;
With a copy to T. J. Falgout, III, General Counsel, Crown
Casino Corporation, 4040 North MacArthur Boulevard, Suite 100, Irving,
Texas 75038; fax (214) 719-4466;
Or if to RRR, Inc., to ROBERTS RIVER RIDES, INC., P.O. Box
419, Dubuque, Iowa 52004;
With a copy to Stephen J. Juergens, Fuerste, Carew, Coyle,
Juergens & Sudmeier, P.C., 200 Security Building, Dubuque, Iowa 52001;
fax (319) 556-7134.
Any party hereto may designate a different address by written notice given to
the other parties.
16. Satisfaction of Conditions, Termination.
(a) Commercially Reasonable Best Efforts to Satisfy Conditions.
The Seller and the Shareholders agree to use commercially reasonable best
efforts to bring about the satisfaction of the conditions specified in Section
6 hereof, and the Purchaser agrees to use commercially reasonable best efforts
to bring about the satisfaction of the conditions specified in Section 7
hereof.
(b) Termination. This Agreement may be terminated on or before
the Closing, without liability on the part of any party hereto to any other
party hereto, by:
(i) The written agreement of Seller and Purchaser at any
time;
(ii) The Purchaser, if a material default shall be made by
the Seller or the Shareholders in the observance or
in the due and timely performance by the Seller or
the Shareholders of any of the covenants of the
Seller or the Shareholders herein contained, or if
there shall have been a material breach by the Seller
or the Shareholders of any of the warranties and
representations of the Seller or the Shareholders
herein contained, or if the conditions of this
Agreement to be complied with or performed at or
before the Closing shall not have
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been complied with or performed at the time required
for such compliance or performance and such
non-compliance or non-performance shall not have been
waived in writing by the Purchaser. In the event of
any termination pursuant to this Section 16 (other
than pursuant to Section 8 or Section 16(b)(i)),
written notice setting forth the reasons therefor
shall forthwith be given by the terminating party; or
(iii) The Seller and the Shareholders, if a material
default shall be made by the Purchaser in the
observance or in the due and timely performance by
the Purchaser of any of the covenants of the
Purchaser herein contained, or if there shall have
been a material breach by the Purchaser of any of its
warranties and representations herein contained, or
if the conditions of this Agreement to be complied
with or performed by the Purchaser at or before the
Closing shall not have been complied with or
performed at the time required for such compliance or
performance and such non-compliance or
non-performance shall not have been waived in writing
by the Seller. In the event of any termination
pursuant to this Section 16 (other than pursuant to
Section 8 or Section 16(b)(i)), written notice
setting forth the reasons therefor shall forthwith be
given by the terminating party.
17. Remedies; Limitation of Damages.
(a) In the event Purchaser breaches this Agreement, Seller and/or
Shareholders shall have a right to seek specific performance of this Agreement
or, at Seller's election, in lieu of specific performance, to seek damages,
including, but not limited to, those relating to lost profits and/or revenues;
(b) In the event the Seller fails to deliver the Vessel and other
Purchased Assets to Purchaser and such failure constitutes a breach of this
Agreement, because the Seller (i) has sold the Vessel and/or a substantial
portion of the Purchased Assets to another party; or (ii) the Seller continues
to own or operate the Vessel and the Purchased Assets itself, the Purchaser
shall have the right to seek specific performance of this Agreement or, at the
Purchaser's election, in lieu of specific performance, to seek damages,
including, but not limited to, those relating to lost profits and/or revenues.
(c) In the event the Seller fails to deliver the Vessel and other
Purchased Assets to the Purchaser for any reason other than the reasons set
forth in Section 17(b)(i) or (ii) above, and such failure constitutes a breach
of this Agreement, the Purchaser shall have the right to seek specific
performance of this Agreement or, at the Purchaser's election, in lieu of
specific performance, to seek damages, including, but not limited to, those
relating to lost profits and/or revenues, provided, however, that in no event
shall the Seller and the Shareholders be obligated to the Purchaser for lost
profits and/or revenues in excess of the sum of Five Million Dollars
($5,000,000.00).
(d) In the event Seller or the Shareholders breach a
representation, warranty or covenant of Seller or the Shareholders contained
herein after Closing and such breach constitutes a breach of this Agreement,
the Purchaser shall have the right to seek direct damages, but in no event
shall the Seller and the Shareholders be obligated to the
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Purchaser for direct damages in excess of the Purchase Price and in no event
shall the Purchaser be entitled to recover indirect, special or consequential
damages, including but not limited to, those relating to lost profits and/or
revenues.
18. Miscellaneous.
(a) Assignment. This Agreement may not be assigned by any party
hereto without the prior written consent of the other parties, provided,
however, the Purchaser shall have the right at any time prior to Closing to
assign this Agreement to its parent corporation, Crown, or to a corporation
wholly owned by Crown. Subject to the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
(b) Taxes. All sales, use, excise, transfer, stamp, recording and
other taxes or fees incurred incident to the sale of the Purchased Assets to
the Purchaser shall be borne and shall be timely paid by the Seller.
(c) Bulk Sales Law. Purchaser waives compliance by Seller with
the provisions of the so-called bulk sales law of Iowa, specifically the
provisions of Section 554.6101 through 554.6111 of the Code of Iowa. The
Seller, the Shareholders and the Purchaser hereby acknowledge that the parties
will not comply with the requirements of the Iowa Bulk Sales Act. The Seller
and the Shareholders hereby agree to indemnify the Purchaser and hold it
harmless from and against any and all claims, costs, expenses (including
attorney's fees) and other damages the Purchaser may incur as a result of the
parties' failure to comply with the Iowa Bulk Sales Act.
(d) No Shopping. Unless and until this Agreement is terminated
pursuant to Section 16(b) hereof, the Seller shall not, and shall insure that
its directors, officers, agents and advisers do not, institute, pursue or enter
into any discussions or negotiations, whether or not preliminary in nature,
with any person or entity, relating to any acquisitive transaction or change in
control involving the Purchased Assets.
(e) Section and Paragraph Headings. The Section and Paragraph
headings of this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
(f) Amendment. This Agreement may be amended only by an
instrument in writing executed by the parties hereto.
(g) Entire Agreement. This Agreement and the Exhibits, Schedules,
certificates and documents referred to herein constitute the entire agreement
of the parties, and supersede all understandings with respect to the subject
matter hereof. Any agreements entered into prior hereto are revoked and
superseded by this Agreement, and no
29
<PAGE> 31
representations, warranties, inducements or oral agreements have been made by
any of the parties except as expressly set forth herein, or in other
contemporaneous written agreements.
(h) Public Announcements. No publication and/or press release of
any nature shall be issued pertaining to this Agreement or the transaction
contemplated hereby without the prior written approval of the Purchaser and the
Seller, except as may be required by law.
(i) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall constitute
one and the same instrument.
(j) Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF IOWA.
(k) Expenses of Transfer. Purchaser shall be responsible for, and
shall pay or reimburse promptly when and if due, all applicable sales,
transfer, excise, use, documentary stamps or any other similar taxes which may
be imposed in any jurisdiction, or by any authority, in connection with or
arising from the transaction contemplated by this Agreement, and shall timely
prepare and file all returns, instruments and other documents associated
therewith.
(l) Hart-Scott Rodino. Prior to Closing, Purchaser shall comply
with, or be exempted from, the Hart-Scott Rodino Act. Seller shall reasonably
cooperate with Purchaser, at Purchaser's expense, in obtaining such compliance
or exemption.
(m) Worker Assistance and Relocation Notification Act. Prior to
Closing, Seller shall comply with the Worker Assistance and Relocation
Notification Act.
(n) Jurisdiction and Venue. The jurisdiction and venue for any
litigation with respect to any term or condition of this Agreement will be the
Iowa District Court, Clinton County. The Purchaser hereby consents to the
jurisdiction of the Iowa District Court, Clinton County and agrees that the
jurisdiction and venue of any action concerning this Agreement shall be with
such court. Each party hereby waives any objection to the jurisdiction and
venue for any such litigation.
(o) Time. Time is of the essence of this Agreement and each and
every provision hereof. Except as otherwise provided in this Agreement, any
extension of time for performance of any duty under this Agreement must be in
writing signed by the parties to this Agreement.
30
<PAGE> 32
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as of
the date and year first above written.
PURCHASER:
---------
CROWN-MISSISSIPPI BELLE II, INC.
By:
----------------------------------
Edward R. McMurphy, President
By:
----------------------------------
Mark D. Slusser, Secretary
31
<PAGE> 33
SELLER:
-------
MISSISSIPPI BELLE II, INC.
By:
---------------------------------
Kenneth J. Bonnet, President
By:
---------------------------------
Christina M. Kehl, Secretary
SHAREHOLDERS:
------------
--------------------------------------
Robert A. Kehl
--------------------------------------
Daniel J. Kehl
--------------------------------------
Kevin A. Kehl
--------------------------------------
Christina M. Kehl
--------------------------------------
Cynthia A. Winter
--------------------------------------
Kenneth J. Bonnet
AS TO PARAGRAPH 3(i):
ROBERTS RIVER RIDES, INC.
By:
---------------------------------
Kenneth J. Bonnet, President
By:
---------------------------------
Christina M. Kehl, Secretary
AS TO PARAGRAPH 4(e):
CROWN CASINO CORPORATION
By:
---------------------------------
Edward R. McMurphy, President
By:
---------------------------------
Mark D. Slusser, Secretary
32
<PAGE> 34
TABLES, SCHEDULES AND EXHIBITS
TABLES DESCRIPTION
- --------- -----------
Table I Names and Addresses of Shareholders
SCHEDULES DESCRIPTION
- --------- -----------
l(a)(iii) FF&E
l(a)(iv) Vehicles
l(a)(viii) Slot Machines
l(a)(xii) Operating Agreements
l(a)(xiv) Leasehold Improvements
1(a)(xviii) Kitchen Equipment
1(a)(xix) Real Estate
1(b) Players Club Liability
2(b) Allocation of Purchase Price
3(k) Litigation and Proceedings (Seller and Shareholders)
3(l) Indebtedness
3(m) Employee Relations
3(n) Employee Plans
3(o) OSHA
3(t) Hazardous Substances
3(u) Insurance Policies
4(d) Litigation and Proceedings (Purchaser)
5(e) Officers and Property Managers of Seller
EXHIBITS DESCRIPTION
- -------- -----------
"A" Assignment and Assumption of Operating Agreements
"B" Assignment and Assumption of CCGA Lease
"C" Assignment and Assumption of CCGA Gaming Agreement
"D" Bill of Sale
"E" Employment Agreements
<PAGE> 35
TABLE I
SHAREHOLDERS
<TABLE>
<CAPTION>
No. of Shares of Common Stock,
Name and Address No Par Value, Owned of
of Shareholder MISSISSIPPI BELLE II, INC.
- -------------- -------------------------
<S> <C>
Kenneth J. Bonnet 312.50
11 Rose Lane
Clinton, Iowa 61252
Christina M. Kehl 1,187.50
5130 Dunn Road
East Dubuque, Illinois 61025
Daniel J. Kehl 1,187.50
3 Blackhawk Heights
Fort Madison, Iowa 52627
Kevin A. Kehl 1,187.50
3701 Valley Oaks Drive
Clinton, Iowa 52732
Robert A. Kehl 1,187.50
1622 Pershing Road
Clinton, Iowa 52732
Cynthia A. Winter 1,187.50
618 34th Avenue, North
Clinton, Iowa 52732
</TABLE>
<PAGE> 36
SCHEDULE 5(E)
OFFICERS AND PROPERTY MANAGERS OF SELLER
<TABLE>
<CAPTION>
Name Duration Compensation/Benefits
- ---- -------- ---------------------
<S> <C> <C>
Patrick J. Anglin 5 Years As shown in Exhibit "E"
Kenneth J. Bonnet 5 Years
Christina M. Kehl 5 Years As shown in Exhibit "E"
Robert A. Kehl 5 Years As shown in Exhibit "E"
Ricky D. Winter 5 Years As shown in Exhibit "E"
</TABLE>
<PAGE> 37
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the ____ day
of __________, 1996 between CROWN-MISSISSIPPI BELLE II, INC., an Iowa
corporation (the "Company") and ___________________________ (the "Employee").
WITNESSETH:
WHEREAS, pursuant to the terms of that certain Asset Purchase
Agreement dated as of June ___, 1996 (the "Purchase Agreement"') by and
between the Company, Mississippi Belle II, Inc., ("MBII"), and the shareholders
of MBII, the Company has acquired substantially all of the assets of MBII; and
WHEREAS, until the Closing Date (as defined in the Purchase
Agreement), the Employee has been an employee of MBII; and
WHEREAS, the Company desires to employ the Employee, and the Employee
desires to provide such services upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound
hereby, agree as follows:
1. Employment. The Company hereby employs the Employee as an
employee of the Company and the Employee hereby accepts such employment.
During the term of employment under this Agreement (the "Employment Term"), the
Employee shall perform such duties as shall be reasonably required of an
employee of the Company, and shall serve in the capacity of a Property Manager
for the Company. The Employee's duties will not be substantially changed from
present without the Employee's consent. The Employee, the President or General
Manager, and the other Property Managers employed by the Company shall serve on
an Executive Management Committee, which will make, by majority vote, decisions
relating to the day-to-day operation of the Company's gaming operation in
Clinton, Iowa; provided, however, it is understood that any and all decisions
of the Executive Management Committee are subject to approval of the Company.
2. Performance. The Employee agrees to devote his fulltime
efforts to the performance of his duties hereunder; provided, however, that the
Employee may engage in other business and personal investment activities not
involving the Company so long as they do not interfere with the performance of
his/her duties hereunder.
3. Term. Unless otherwise terminated in accordance with the
terms hereof, the Employment Term shall be for a term of ______ ( ) year(s)
commencing on the Closing Date; provided, however, that the Employee
<PAGE> 38
shall have the option, at the Employee's sole discretion, to terminate this
Agreement every six (6) months by giving the Employer not less than thirty (30)
days written notice of such termination.
4. Compensation. The Employee shall be paid (i) $28.00 per hour
($42.00 per hour for each hour worked per week in excess of forty (40) hours
per week) (the "Hourly Pay") and (ii) a quarterly bonus of $2,500 per quarter
(the "Quarterly Bonus"). The Hourly Pay shall be paid at the same time other
employees of the Company are paid. The Quarterly Bonus shall be paid three (3)
months after the Closing Date and each three (3) months thereafter during the
term hereof. The Hourly Pay shall be adjusted upward on each anniversary of
the Closing Date by the greater of (i) the increase in the Consumer Price Index
for the previous twelve (12) month period, or (ii) five (5%) percent. The
Company will devise and provide an annual Officer/General Manager/Property
Manager bonus program based on profitability. Nothing contained herein shall
affect or in any way limit the Employee's rights as an employee of the Company
to participate in any Company profit sharing plan, medical and life insurance
programs or any other fringe benefits offered by the Company to its employees,
all of which shall be available to the Employee to the same extent as if this
Agreement had not existed, and compensation received by the Employee hereunder
shall be in addition to the foregoing.
5. Expense Account and Vacations. The Company agrees to
reimburse the Employee for all expenses reasonably incurred by him on behalf of
the Company in accordance with the prevailing practice and policy of the
Company. The Employee shall be entitled to three (3) weeks paid vacation per
year. In addition, the Employee shall be entitled to that number of days of
paid sick leave as is consistent with the prevailing practice and policy of
the Company for other employees in the same or similar position as that held by
the Employee hereunder.
6. Confidential Information. The Employee has had and will have
possession of or access to confidential information relating to the business of
the Company, including but not limited to writings, equipment, processes,
reports, manuals, financial information, business plans, customer lists, the
identity of or other facts relating to prospective customers, arrangements with
suppliers and customers, computer programs or other material embodying trade
secrets, customer or product information or technical or business information
of the Company. All such confidential information, other than any information
which is in the public domain through no act or omission of the Employee or
which he is authorized to disclose, is referred to collectively as the "Company
Information". The Company and Employee agree that the identity and marketing
of non-local customers (except for those in
2
<PAGE> 39
Company's Player's Club) and bus and motor coach companies and the like shall
not be confidential or proprietary information of the Company or included in
Company Information. The Employee agrees that, so long as he is employed by
the Company and for an indefinite period thereafter, he shall not (i) use or
exploit in any manner the Company Information for himself or any other person,
partnership, association, corporation or other entity other than the Company,
(ii) remove any Company Information, or any reproduction thereof, from the
possession or control of the Company, and (iii) treat Company Information
otherwise than in a confidential manner.
7. Remedies. The Employee expressly agrees that the remedy at
law for any breach of Section 6 will be inadequate and that upon any such
breach or threatened breach, the Company shall be entitled as a matter of right
to injunctive relief in any court of competent jurisdiction, in equity or
otherwise, to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to
the Company or the inadequacy of a legal remedy. The rights conferred upon the
Company by the preceding sentence shall not be exclusive of, but shall be in
addition to, any other rights or remedies which the Company may have at law, in
equity or otherwise.
8. Termination Without Compensation.
(a) The Employment Term will terminate as of the end of the
Employment Term, unless terminated earlier in accordance with Sections 8, 9, 10
or 11 of this Agreement.
(b) The Employment Term may also be terminated by the Company with
written notice to the Employee upon the occurrence of any of the following:
(i) the commission by the Employee of any deliberate and
premeditated act involving moral turpitude
detrimental to the economic interests of the Company;
(ii) the conviction of the Employee of a felony;
(iii) the determination by the Iowa Racing and Gaming
Commission or other similar state body having
jurisdiction over the Company's affairs, that the
Employee is unsuitable to be an employee of the
Company;
(iv) the willful failure or refusal of the Employee to
perform his duties hereunder (which failure or
refusal persists after ten (10) business days written
notice from the Company to the Employee complaining
of such failure or refusal) or the Employee's gross
negligence of a material nature in connection with
the performance of such duties; or
(v) the breach by the Employee of any provision of this
Agreement which is not cured within thirty (30) days
subsequent to written notice from the Company to the
Employee of the breach.
3
<PAGE> 40
(c) Upon termination of the Employment Term under Subsections (a)
or (b) above, the parties hereto will be relieved of any further obligations
hereunder except for any obligations set forth in Section 6.
9. Death of the Employee. If the Employee dies during the
Employment Term, (a) the Employment Term shall terminate and (b) the Company
will pay to the Employee's estate the Employee's Salary through the end of the
calendar month in which such death occurs.
10. Disability of the Employee. If the Employee becomes disabled
during the Employment Term, (a) the Company may terminate the Employee's
position hereunder, but this Agreement shall otherwise remain in full force and
effect, and (b) any amounts payable to the Employee under the Company's
disability insurance policy shall be deducted from the amounts payable to the
Employee hereunder. For the purposes of this Agreement, the Employee shall be
deemed to be disabled when he is deemed to be disabled under the Company's
disability insurance policy.
11. Governing Law. The terms of this Agreement shall be governed
by the laws of the State of Iowa.
12. Assignability. The Employee may not assign his interest in or
delegate his duties under this Agreement. The rights and obligations of the
Company hereunder may be assigned only by operation of law in connection with a
merger in which the Company is not the surviving corporation or in connection
with the sale of substantially all of the assets of the Company, and in the
latter event such assignment shall not relieve the Company of its obligations
hereunder.
13. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, its successors and assigns.
14. Notices. All notices, demands and requests which may be given
or which are required to be given by either party to the other, and any
exercise of a right of termination provided by this Agreement, shall be in
writing and shall be deemed effective when either: (a) personally delivered to
the intended recipient; (b) sent by certified or registered mail, return
receipt requested, addressed to the intended recipient at the address specified
below; (c) delivered in person to the address set forth below for the party to
which the notice was given; (d) deposited into the custody of a nationally
recognized overnight delivery service such as Federal Express Corporation,
Emery or Purolator, addressed to such party at the address specified below; or
(e) sent by facsimile, telegram or telex, provided that receipt for such
facsimile, telegram or telex is verified by the sender and followed by a notice
sent in accordance with one of the other provisions set forth above. Notices
shall be effective on the date of delivery or receipt, of, if
4
<PAGE> 41
delivery is not accepted, on the earlier of the date that delivery is refused
or three (3) days after the date the notice is mailed. For purposes of this
paragraph, the addresses of the parties for all notices are as follows (unless
changes by similar notice in writing are given by the particular person whose
address is to be changed):
If to the Employee, to ______________________________________
_______________________________________;
If to the Company, to CROWN-MISSISSIPPI BELLE II, INC., 4040
North MacArthur Boulevard, Suite 100, Irving, Texas 75038; Attention:
Mark D. Slusser, Chief Financial Officer; Fax 214-719-4466;
With a copy to T. J. Falgout, III, General Counsel, Crown
Casino Corporation, 4040 North MacArthur Boulevard, Suite 100, Irving,
Texas 75038; Fax 214-719-4466.
Any party hereto may designate a different address by written notice given to
the other parties.
15. Entire Agreement; Modification. This Agreement constitutes
the entire agreement of the parties hereto with respect to the subject matter
hereof and may not be modified or amended in any way except in writing by the
parties hereto.
16. Duration. Notwithstanding the termination of the Employment
Term and of the Employee's employment by the Company, this Agreement shall
continue to bind the parties for so long as any obligations remain under this
Agreement, and in particular, the Employee shall continue to be bound by the
terms of Section 6.
17. Waiver. No waiver by the Company of any breach by the
Employee of this Agreement shall be construed to be a waiver as to succeeding
breaches.
18. Enforceability. In the event any portion or portions of this
Agreement are declared to be void for illegality, then the remaining portions
of the Agreement shall remain and shall be valid and binding.
19. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same agreement.
20. Condition of Effectiveness. This Agreement shall become
effective if and only if the Company consummates the transactions contemplated
by the Purchase Agreement.
21. Related Covenant Not To Compete. The Employee is a party to
the Purchase Agreement in which the Employee agreed to a covenant not to
compete as set forth in Section 13 thereof. The Company and the Employee
acknowledge and agree that performance of this Agreement by the Company is
additional consideration for such covenant not to compete and a breach of this
Agreement by the Company shall render such covenant not to compete null, void
and of no further force or effect.
5
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
or as of the date and year first above written.
COMPANY:
--------
CROWN-MISSISSIPPI BELLE II, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
EMPLOYEE:
---------
--------------------------------------
Name:
-------------------------------
6
<PAGE> 43
NOTE: The Employment Agreements between the Company and Patrick J. Anglin
("Anglin") and between the Company and Christina M. Kehl ("Kehl")
will contain the following, additional provisions:
1. Anglin and Kehl shall be allowed the private use of the
apartment on the property for living quarters, as presently
provided;
2. Subject to Paragraph 4 below, Anglin and Kehl shall be
scheduled to work the same hours;
3. The Company, at its option, shall either reimburse Anglin or
Kehl for gasoline and oil used in a personal vehicle for
travel to and from home to work, or provide to Anglin or Kehl
a company vehicle for such travel;
4. Anglin will be regularly scheduled to work between 40 and 45
hours per week. Kehl will be regularly scheduled to work
between 35 and 45 hours per week;
5. If the effective date of the Employment Agreements is prior to
the event, Anglin and Kehl will attend a certain gaming show
in Las Vegas, Nevada at Company expense; and
6. Anglin and Kehl will be allowed to bring their dog (Sasha) to
work.
7. Anglin's Employment Agreement will contain a covenant not to
compete in substantially the same form as found in Section 13
of the Purchase Agreement, which negative covenant shall
commence on the date of execution of the Employment Agreement.
The Employment Agreement between the Company and Rickie D. Winter will
contain the following additional provision:
1. Winter's Employment Agreement will contain a covenant not to
compete in substantially the same form as found in Section 13
of the Purchase Agreement, which negative covenant shall
commence on the date of execution of the Employment Agreement.
<PAGE> 44
GUARANTEE AGREEMENT
This Guarantee Agreement ("Guarantee Agreement") is made effective
this 11th day of June, 1996, by and between Mississippi Belle II, Inc. ("MBII")
and Crown Casino Corporation ("Guarantor").
WITNESSETH:
WHEREAS, MBII has agreed to sell a vessel known as the M/V Mississippi
Belle II, associated personal property and equipment, and other assets for
$40,000,000.00 to Crown-Mississippi Belle II, Inc., an Iowa corporation,
("Purchaser") in accordance with an Asset Purchase Agreement executed by MBII
as Seller and Crown-Mississippi Belle II, Inc. as Purchaser on or as of the
11th day of June, 1996, (hereafter called the "Agreement"); and
WHEREAS, the agreement of MBII to sell the vessel, personal property,
equipment, and other assets to Purchaser as set forth above is conditioned
upon, and subject to the execution, validity and enforceability of this
Guarantee Agreement; and
WHEREAS, Guarantor is the sole stockholder of Purchaser.
THEREFORE, in consideration of, and as an inducement to MBII to enter
the Agreement and sell the aforesaid assets to Purchaser, Guarantor hereby
agrees to and with MBII as follows:
1. Extent of Guarantee
Guarantor absolutely and unconditionally guarantees full and prompt
performance, payment and discharge of any liabilities, claims, obligations,
indebtedness, expenses, or costs of whatever kind or nature, now or hereafter
due and owing from Purchaser, its successors or assigns, arising from, or in
connection with the Agreement and the performance by the Purchaser of all of
the terms and conditions of the Agreement required to be performed by the
Purchaser as contemplated by the Agreement (all of the foregoing obligations of
Purchaser under the Agreement being hereafter referred to as the "Guaranteed
Obligations").
2. Waiver
Guarantor hereby waives presentment for payment, demand for payment,
protest, notice of protest, or notice of dishonor in connection with the
Guaranteed Obligations now or hereafter to become due and owing from or to be
performed by Purchaser; agrees that no act or thing, except full payment of or
performance of the Guaranteed Obligations, which but for this provision could
or might in law or in equity act as a release of the liability of Guarantor
hereunder, shall in any way alter or impair the obligations of this Guarantee
Agreement.
3. Payment of Guaranteed Obligations
Upon the non-payment or non-performance by Purchaser of any of the
Guaranteed Obligations when due, or at any time thereafter, an amount equal to
the outstanding balance of the Guaranteed Obligations, shall, at MBII's sole
option, become immediately due and payable by Guarantor upon ten (10) days
written notice to Guarantor.
4. Impairment
The liability of Guarantor hereunder shall in no way be affected,
impaired or reduced by the sale, pledge, surrender, release, extension,
indulgence, alteration, substitution, exchange, modification (other than any
settlement or compromise with Purchaser the effect of which is to extinguish
all or part of the Guaranteed Obligations) or other disposition of the
Guaranteed Obligations, any evidence thereof, or any security or any collateral
therefor, or by any failure, neglect or omission to realize upon or enforce the
Guaranteed Obligations, or any collateral or security therefor, or to exercise
or foreclose any lien upon or right of appropriation of any moneys, credits, or
property toward the liquidation or satisfaction of the Guaranteed Obligations,
or by any application of payment or credits thereon.
<PAGE> 45
5. Term of Guarantee
This Guarantee Agreement shall remain in force until the satisfaction
of all of the Guaranteed Obligations as contemplated by the Agreement.
Thereafter, this Guarantee Agreement shall be of no further force or effect.
6. Right to Proceed Directly Against Guarantor, Additional Waivers
This is a guarantee of payment and not merely of collection.
Guarantor hereby waives any right (a) to require that any action be brought
against the Purchaser or any other person or entity, (b) to require that MBII
pursue any other remedy within its power, (c) to require that resort be had to
any security or collateral held by MBII with respect to the Guaranteed
Obligations, or (d) to require the property of Purchaser or any other person or
entity first be applied to the discharge of the Guaranteed Obligations, prior
to the exercise of any right that MBII may have by virtue of this Guarantee
Agreement. Guarantor waives, to the fullest extent permitted by law, any
rights and benefits, at law, in equity or pursuant to statutory enactment,
purporting to reduce the Guarantor's obligations in proportion to the
Guaranteed Obligations. In addition, Guarantor hereby waives, to the fullest
extent permitted by law, any defense arising as a result of MBII's election, in
any proceeding instituted under the Bankruptcy Code by or against Purchaser, to
apply Section llll(b)(ii) of the United States Bankruptcy Code. Guarantor
further waives any right to require marshaling of liens or collateral. Until
the entirety of the Guaranteed Obligations have been satisfied in full,
including such part thereof, if any, as may exceed the liability of Guarantor
hereunder, Guarantor shall have no right of subrogation to and waive any right
to enforce any remedy which MBII now has or may hereafter have against
Purchaser, and Guarantor waives any benefit of, and any right to participate
in, any security now or hereafter held by MBII with respect to the Guaranteed
Obligations.
7. Notices
All notices given hereunder shall be in writing, sent by certified or
registered mail, postage prepaid, at:
If to MBII:
Mississippi Belle II, Inc.
311 Riverview Drive
Clinton, Iowa 52733-1234
ATTN: Kenneth J. Bonnet
With a copy to:
Stephen J. Juergens, Esq.
200 Security Building
Dubuque, Iowa 52001
If to Purchaser:
Crown-Mississippi Belle II, Inc.
4040 North MacArthur Boulevard, Suite 100
Irving, Texas 75038
ATTN: Mark D. Slusser
With a copy to:
T. J. Falgout, III
General Counsel
Crown Casino Corporation
4040 North MacArthur Boulevard, Suite 100
Irving, Texas 75038
2
<PAGE> 46
If to Guarantor:
Crown-Mississippi Belle II, Inc.
4040 North MacArthur Boulevard, Suite 100
Irving, Texas 75038
ATTN: Mark D. Slusser
With a copy to:
T. J. Falgout, III
General Counsel
Crown Casino Corporation
4040 North MacArthur Boulevard, Suite 100
Irving, Texas 75038
or at such other place as the parties may from time to time designate.
Personal service shall be deemed to be effective substitute for such mailing.
8. Effect on Successors
The obligations and rights set forth in this Guarantee Agreement shall
be binding upon Guarantor and upon its successors and assigns, and shall inure
to the benefit of MBII, its successors and assigns.
9. Counterparts
This Guarantee Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
10. Captions
The captions of the paragraphs of this Guarantee Agreement are for
convenience only and shall not be considered or referred to in resolving
questions of interpretation.
11. Governing Law
The laws of the State of Iowa shall govern the rights, duties and
remedies of the parties to this Guarantee Agreement. Guarantor hereby consents
and submits to the personal jurisdiction of the Iowa District Court, Clinton
County, with respect to any legal proceedings arising out of or in connection
with this Guarantee Agreement.
12. Modification, Assignment
No amendment, modification or change in this Guarantee Agreement shall
be of any force or effect unless it has been executed by each of the parties
hereto. Guarantor shall not assign any of its obligations under this Agreement
without the prior express written consent of MBII which may be withheld in its
absolute and sole discretion.
13. Partial Invalidity
Should any one or more provisions of this Guarantee Agreement be
determined to be illegal or unenforceable, all other provisions shall
nevertheless remain in full force and effect.
3
<PAGE> 47
14. Expenses of Enforcement
In addition to any other obligations assumed herein, Guarantor agrees
to pay all costs, expenses and reasonable attorney fees paid or incurred by
MBII in connection with the enforcement of this Guarantee Agreement.
15. Entire Agreement
The provisions of this Guarantee Agreement constitute the entire
agreement of the parties in regard to the subject matter hereof and supersede
all prior oral or written or contemporaneous oral agreements or understandings
between the parties in connection therewith.
IN WITNESS WHEREOF, the parties hereto have executed this Guarantee
Agreement as of the day and year first above written.
MISSISSIPPI BELLE II, INC. CROWN CASINO CORPORATION
By: By:
---------------------------- ------------------------------
KENNETH J. BONNET, EDWARD R. McMURPHY,
President President
By: By:
---------------------------- ------------------------------
CHRISTINA M. KEHL, MARK D. SLUSSER,
Secretary Secretary
4
<PAGE> 48
STATE OF IOWA )
) ss:
DUBUQUE COUNTY )
On this 11th day of June, 1996, before me, the undersigned, a notary
public in and for the above county and state, personally appeared KENNETH J.
BONNET and CHRISTINA M. KEHL, to me personally known, who being by me duly
sworn, did say that they are the President and Secretary, respectively, of the
above corporation; that no seal has been procured by the corporation; that this
instrument was signed on behalf of the corporation by authority of its Board of
Directors and KENNETH J. BONNET and CHRISTINA M. KEHL, as such officers,
acknowledged the execution of this instrument to be the voluntary act and deed
of the corporation, by it and by them voluntarily executed.
------------------------------------------
Notary Public in and for the State of Iowa
STATE OF IOWA )
) ss:
DUBUQUE COUNTY )
On this 11th day of June, 1996, before me, the undersigned, a notary
public in and for the above county and state, personally appeared Edward R.
McMurphy and Mark D. Slusser, to me personally known, who being by me duly
sworn, did say that they are the President and Secretary, respectively, of the
above corporation; that no seal has been procured by the corporation; that this
instrument was signed on behalf of the corporation by authority of its Board of
Directors and Edward R. McMurphy and Mark D. Slusser, as such officers,
acknowledged the execution of this instrument to be the voluntary act and deed
of the corporation, by it and by them voluntarily executed.
------------------------------------------
Notary Public in and for the State of Iowa
5
<PAGE> 1
EXHIBIT 13.1
ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED APRIL 30, 1996
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CROWN CASINO CORPORATION
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements appearing elsewhere in this annual report.
OVERVIEW
The Company owns an 18.6 acre tract of land in the gaming district of Las
Vegas, Nevada which may be used in the development of a hotel and casino, and
in June 1996 the Company entered into a definitive asset purchase agreement to
acquire the Mississippi Belle II, Inc. ("MBII") riverboat casino located in
Clinton, Iowa. The Company is also actively pursuing other gaming
opportunities in these and other jurisdictions. Prior to March 1994 the
Company had been engaged in various facets of the cable and related programming
businesses.
In June 1993 the Company completed the acquisition of 100% of the outstanding
common stock of St. Charles Gaming Company, Inc. ("SCGC"), a Louisiana
corporation, which had received preliminary approval from the Louisiana
Riverboat Gaming Commission to construct and operate a riverboat gaming casino.
In March 1994 SCGC received a license from the Louisiana Riverboat Gaming
Enforcement Division of the Office of State Police. In January 1995 SCGC made
the strategic decision to relocate the site for its planned Louisiana riverboat
casino from St. Charles Parish (near New Orleans) to Calcasieu Parish in the
southwest part of the state near the Texas border.
In June 1995 the Company sold a 50% interest in SCGC to Louisiana Riverboat
Gaming Partnership ("LRGP"), a joint venture owned 50% by Casino America, Inc.
("Casino America") and 50% by Louisiana Downs, Inc. LRGP owns the Isle of
Capri(SM) dockside riverboat casino in Bossier City, Louisiana. The purchase
price consisted of (i) a five-year $20 million note (the "LRGP Note"), (ii) $1
million cash, and (iii) a warrant (which may only be exercised by converting a
portion of the LRGP Note) to purchase 416,667 shares of Casino America common
stock at $12 per share. In connection with this transaction the Company
recorded a pretax gain of approximately $21.5 million. In July 1995 SCGC's
riverboat casino opened for business in Calcasieu Parish, Louisiana as an Isle
of Capri(SM) themed property.
In May 1996 the Company sold its remaining 50% interest in SCGC to Casino
America for (i) 1,850,000 shares of Casino America common stock, (ii) the
exchange of the $20 million LRGP Note for LRGP Note A ("Note A") and LRGP Note
B ("Note B"), each in the principal amount of $10 million and bearing interest
at 11.5% per annum, and (iii) an additional five-year warrant to purchase up
to another 416,667 shares of Casino America common stock (bringing the total
number of shares purchasable pursuant to warrants by the Company to 833,334) at
an exercise price of $12 per share. In connection with this transaction, in
May 1996, the Company recorded a gain before income taxes of approximately
$14.9 million.
In August 1996 Casino America acquired the remaining interest in LRGP it did
not already own and issued $315 million of senior secured notes due 2003 (the
"Casino America Bonds"), a portion of the proceeds of which were used to pay
off Note A. As a result of the Casino America transactions, Note B has become
an unsecured, subordinated obligation of Casino America, with interest payable
monthly and principal due in seventeen equal fully amortizing quarterly
payments beginning in June 1997 with final maturity in June 2001. The
subordination language of Note B requires principal and interest payments to be
made according to the terms of the note unless there is a payment default of
(i) principal on, or (ii) interest on and a resulting acceleration of, the
Casino America Bonds, in which case the payments to the Company would be
suspended during the pendency of such default.
The original Casino America warrant received in the sale of the first 50% of
SCGC and the additional Casino America warrant received in the sale of the
remaining 50% of SCGC, both of which expire in May 2001, may only be exercised
by converting all or a portion of the principal amount of Note B based upon a
$12 per share exercise price.
4
<PAGE> 3
In connection with a rights offering declared by Casino America, the Company
was granted the right to purchase 684,786 shares of Casino America common stock
at a price of $5.875 per share. On August 6, 1996 the Company exercised its
right and purchased 684,786 shares of Casino America common stock for an
aggregate exercise price of $4,023,118.
In December 1993 the Company acquired 100% of the outstanding common stock of
Gaming Entertainment Management Services, Inc. ("GEMS"), a Nevada corporation,
which was organized for the purpose of developing a hotel and casino in Las
Vegas, Nevada. GEMS' primary asset was its option to purchase an 18.6 acre
tract of land in the gaming district of Las Vegas. In June 1994 the option was
exercised and the land was purchased. The Company may develop such property by
itself or on a joint venture basis, or, if not developed, may sell the land.
In June 1996 the Company entered into a definitive asset purchase agreement to
acquire the assets and operations of the MBII riverboat casino located in
Clinton, Iowa for a purchase price of $40 million. The MBII riverboat contains
approximately 485 slot machines, 20 table games and has on-board dining and
entertainment facilities. For the year ended December 31, 1995 MBII had
revenues and pretax profits of $30.5 million and $9.5 million, respectively.
As a result of the Company's entry into the gaming industry in June 1993, the
Company made the decision to discontinue operations in the cable industry and
focus all its efforts on gaming. During fiscal 1994 the Company sold all its
remaining cable related assets and operations.
RESULTS OF OPERATIONS
As a result of the Company's decision to exit the cable industry, all revenues,
costs and expenses directly related to cable operations have been reclassified
to discontinued operations. Continuing operations principally consist of
corporate general and administrative expenses, gaming pre-opening and
development costs, interest expense, and other charges related to developing
the Company's gaming operations. The following discussion focuses on results
from continuing operations.
Furthermore, as a result of the Company's sale of the first 50% of SCGC on June
9, 1995, from and after such date SCGC's operating results are no longer
consolidated with the Company, but rather are accounted for on the equity
method. Accordingly, operating results for the current and prior fiscal
periods are not entirely comparable.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
General and administrative expenses for fiscal 1996 increased $1,033,755
compared to fiscal 1995. The increase was primarily attributable to greater
personnel, transportation, and consulting and directors fees, offset by a
decrease in professional fees. Gaming development costs for fiscal 1996
decreased $297,077 compared to fiscal 1995 principally as a result of the
Company ceasing to pursue a riverboat gaming license in the State of Illinois.
SCGC pre-opening and development costs for fiscal 1996 decreased $14,272,011
compared to fiscal 1995 as a result of the Company no longer consolidating
SCGC's operating results from and after June 9, 1995.
Interest expense for fiscal 1996 decreased $5,817,826 compared to fiscal 1995.
The decrease was the result of the Company no longer consolidating SCGC's
operating results from and after June 9, 1995. Interest income for fiscal 1996
increased $2,115,707 compared to fiscal 1995. The increase was a result of
interest being recognized in the current fiscal year on the $20 million LRGP
Note at the rate 11.5% per annum, whereas in the prior fiscal year the LRGP
Note was not in existence.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
General and administrative expenses for fiscal 1995 increased $583,006 compared
to fiscal 1994. The increase was primarily attributable to increased
professional fees, personnel and travel costs associated with the development
of
5
<PAGE> 4
SCGC's riverboat casino project. Gaming development costs for fiscal 1995
increased $474,453 over fiscal 1994 principally as a result of the Company's
efforts to obtain a riverboat gaming license in the State of Illinois in
anticipation that such state may authorize additional licenses. SCGC
pre-opening and development costs for fiscal 1995 increased $13,865,459
compared to fiscal 1994. The increase was the result of (i) greater personnel,
advertising, legal, consulting and training costs incurred in connection with
the anticipated opening of the Louisiana riverboat casino, (ii) a $3.1 million
charge pertaining to the abandonment of a former site in St. Charles Parish,
Louisiana in favor of a new site in Calcasieu Parish, Louisiana, and (iii) in
connection with the stock purchase agreement with LRGP, a $4 million payment by
SCGC to buy out its casino management agreement such that it could enter into a
new management agreement with Casino America. In addition, fiscal 1995
reflects SCGC pre-opening and development activities for a full year, whereas
in fiscal 1994 the Company was only in the early stages of developing its
Louisiana riverboat casino project.
Interest expense amounted to $6,826,538 in fiscal 1995, principally
attributable to the issuance of SCGC's $28 million Senior Note in June 1994,
with no comparable amount in the prior fiscal period. Included in fiscal 1995
interest expense is $3,376,392 of amortization of debt issuance costs and the
discount from the issuance of the SCGC Senior Note.
LIQUIDITY AND CAPITAL RESOURCES
As of August 6, 1996, after (i) the sale of the Company's remaining 50%
interest in SCGC, (ii) receiving a $10 million prepayment on Note A, and (iii)
purchasing an additional 684,786 shares of Casino America common stock, the
Company's sources of liquidity included (a) $6.1 million in cash, (b) the sale
of all or a portion of the Company's 2,534,786 shares of Casino America common
stock (which stock was valued at approximately $18.4 million on such date), (c)
the sale of Note B, (d) the sale of the Company's Las Vegas land, and (e) the
issuance of debt and/or equity. See "Overview".
In August 1996 Casino America filed a registration statement with the
Securities and Exchange Commission to register the 1,850,000 shares of Casino
America common stock received by the Company in the sale of the Company's
remaining 50% interest in SCGC, which registration statement has not as yet
been declared effective. During the effectiveness of such registration
statement the Company may sell such shares in the open market. The 684,786
shares of Casino America common stock purchased by the Company pursuant to the
Casino America rights offering are freely tradable shares and may be sold by
the Company at any time.
In connection with the proposed acquisition of the MBII riverboat casino the
Company anticipates raising the $40 million purchase price from some
combination of (i) the issuance of $20 million of bank debt, (ii) $6.1 million
of cash on hand, (iii) the sale of all or a portion of the Company's Casino
America common stock, (iv) the sale of the Company's Las Vegas land, and/or (v)
the sale of Note B.
In March 1996 the Company's Board of Directors approved a program to repurchase
up to 500,000 shares (which was amended to 1,000,000 shares in May 1996) of the
Company's common stock from time to time in the open market. At April 30, 1996
the Company had repurchased 25,000 shares pursuant to this program. The timing
and amount of future share repurchases, if any, will depend on various factors
including market conditions, available alternative investments and the
Company's financial position.
Management of the Company continues to evaluate the potential development of a
hotel and casino project on the Company's 18.6 acre tract of land in Las Vegas.
Management is considering a variety of scenarios with respect to the operation
and ownership of the proposed hotel and casino, including a potential joint
venture relationship, but currently has no definitive development plan in
place. In connection with the stock purchase agreement with LRGP, the Company
granted LRGP a right of first refusal, which expires in June 1998, to develop
such project with the Company in the event the Company chooses to develop such
project on a joint venture basis. In addition to seeking an acceptable joint
venture arrangement, the Company has considered selling its Las Vegas land and
has had discussions with certain parties in that regard, although no agreement
has been reached with any party respecting such a sale.
6
<PAGE> 5
CONSOLIDATED BALANCE SHEETS CROWN CASINO CORPORATION
<TABLE>
<CAPTION>
April 30,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 668,853 $ 1,692,440
Receivables, net 742,246
Prepaid expenses 49,766 931,935
------------ ------------
Total current assets 1,460,865 2,624,375
------------ ------------
Property and equipment:
Construction in progress 1,565,739
Furniture, fixtures and equipment 1,892,666 8,887,241
Riverboat and barges 15,256,140
Land held for development 16,169,709 16,608,555
------------ ------------
18,062,375 42,317,675
Less accumulated depreciation (194,179) (223,055)
------------ ------------
17,868,196 42,094,620
------------ ------------
Other assets:
Note receivable from LRGP 20,000,000
Non-compete agreement, net 316,674
Debt issuance costs, net 345,963
License costs 9,125,000
------------ ------------
20,000,000 9,787,637
------------ ------------
$ 39,329,061 $ 54,506,632
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 72,773 $ 999,611
Accrued liabilities 819,018 1,038,587
Advances from LRGP 2,179,083
Capital lease obligations 6,329 2,876,632
Current portion of long-term debt 62,676 26,511,603
------------ ------------
Total current liabilities 960,796 33,605,516
------------ ------------
Capital lease obligations, less current portion 2,271,477
Long-term debt, less current portion 918,564
Deferred income taxes 4,000,000 500,000
Investment in SCGC 3,297,043
Common stock pending issuance 200,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share, 1,000,000 shares
authorized; none issued or outstanding
Common stock, par value $.01 per share, 50,000,000 shares
authorized; 11,650,559 issued and outstanding (11,678,459 in 1995) 116,506 116,785
Additional paid-in capital 41,784,088 41,859,407
Accumulated deficit (11,747,936) (24,046,553)
------------ ------------
Total stockholders' equity 30,152,658 17,929,639
------------ ------------
$ 39,329,061 $ 54,506,632
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 6
CONSOLIDATED STATEMENTS OF OPERATIONS CROWN CASINO CORPORATION
<TABLE>
<CAPTION>
Years Ended April 30,
1996 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
Revenues $ - $ - $ -
Costs and expenses:
General and administrative 3,042,074 2,008,319 1,425,313
Gaming development 215,963 513,040 38,587
SCGC pre-opening and development 536,110 14,808,121 942,662
Bourbon Street acquisition abandonment 664,991
Depreciation and amortization 130,556 248,044 370,885
------------ ------------- ------------
4,589,694 17,577,524 2,777,447
------------ ------------- ------------
Other income (expense):
Interest expense (1,008,712) (6,826,538) (578,320)
Interest income 2,292,596 176,889 197,447
Equity in loss of SCGC (2,408,213)
Gain on sale of 50% of SCGC 21,512,640
------------ ------------- ------------
20,388,311 (6,649,649) (380,873)
------------ ------------- ------------
Income (loss) from continuing operations before
income taxes 15,798,617 (24,227,173) (3,158,320)
Provision (benefit) for income taxes 3,500,000 (3,902,328) (1,105,933)
------------ ------------- ------------
Income (loss) from continuing operations 12,298,617 (20,324,845) (2,052,387)
------------ ------------- ------------
Discontinued operations, net of taxes:
Income from discontinued operations 2,949
Loss on disposition of discontinued operations (179,755)
------------ ------------- ------------
(176,806)
------------ ------------- ------------
Net income (loss) $ 12,298,617 $ (20,324,845) $ (2,229,193)
============ ============= ============
Earnings (loss) per share:
From continuing operations $ 1.03 $ (2.01) $ (.34)
From discontinued operations (.03)
------------ ------------- ------------
$ 1.03 $ (2.01) $ (.37)
============ ============= ============
Weighted average common and common
equivalent shares outstanding 11,981,757 10,103,993 5,988,963
============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS CROWN CASINO CORPORATION
<TABLE>
<CAPTION>
Years Ended April 30,
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Operating activities:
Income (loss) from continuing operations $ 12,298,617 $(20,324,845) $(2,052,387)
Adjustments to reconcile income (loss)
to net cash used by operating activities:
Depreciation and amortization 130,556 248,044 370,885
Amortization of debt issuance costs/discount 389,360 3,376,392
Deferred income taxes 3,500,000 (3,940,000) (1,147,500)
Equity in loss of SCGC 2,408,213
Write-down of assets 51,496 3,131,359 421,760
Gain on sale of 50% of SCGC (21,512,640)
Equity securities issued for services 1,562,500
Discount on notes sold 245,086
Changes in assets and liabilities, net of transactions:
Receivables, net (780,747) 592,447 344,534
Prepaid expenses 54,347 (902,259) (113,082)
Accounts payable and accrued liabilities 243,606 1,611,415 96,673
Net effect of discontinued operations 322,357
----------- ------------ -----------
Net cash used by operating activities (3,217,192) (14,644,947) (1,511,674)
----------- ------------ -----------
Investing activities:
Purchase of assets (4,536,401) (18,897,910) (7,452,047)
Sale of assets 441,023 1,331,374
Acquisitions of SCGC and GEMS, net (869,519)
Sale of 50% of SCGC 1,000,000
Net effect of discontinued operations 869,623
----------- ------------ -----------
Net cash used by investing activities (3,095,378) (18,897,910) (6,120,569)
----------- ------------ -----------
Financing activities:
Issuance of common stock 23,125 7,403,490 13,298,463
Purchase of common stock (298,723) (55,000) (2,208,000)
Issuance of debt and warrants 1,000,000 32,700,000 700,000
Debt issuance costs (1,633,407)
Advances from LRGP 4,627,897 2,179,083
Payments of debt and capital lease obligations (63,316) (7,137,808) (2,500,000)
----------- ------------ -----------
Net cash provided by financing activities 5,288,983 33,456,358 9,290,463
----------- ------------ -----------
Increase (decrease) in cash and cash equivalents (1,023,587) (86,499) 1,658,220
Cash and cash equivalents at: Beginning of year 1,692,440 1,778,939 120,719
----------- ------------ -----------
End of year $ 668,853 $ 1,692,440 $ 1,778,939
=========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CROWN CASINO CORPORATION
For the Three Years in the Period Ended April 30, 1996
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------------- -----------------------
Shares Amount Shares Amount
---------- -------- -------- ---------
<S> <C> <C> <C> <C>
Balance at April 30, 1993 4,211,230 $ 42,112 687,394 $(587,887)
Issuance of common stock 5,608,389 56,084
Issuance of warrants
Purchase of common stock (220,800) (2,208)
Stock options exercised 87,500 875
Tax benefit of stock options
Net loss
---------- -------- -------- ---------
Balance at April 30, 1994 9,686,319 96,863 687,394 (587,887)
Issuance of common stock 2,650,034 26,501
Issuance of warrants
Purchase of common stock 10,000 (55,000)
Stock options exercised 39,500 395
Cancellation of treasury stock (697,394) (6,974) (697,394) 642,887
Net loss
---------- -------- -------- ---------
Balance at April 30, 1995 11,678,459 116,785 - -
Issuance of common stock 50,000 500
Purchase of common stock (90,900) (909)
Stock options exercised 13,000 130
Net income
---------- -------- -------- ---------
Balance at April 30, 1996 11,650,559 $116,506 - $ -
========== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE> 9
<TABLE>
<CAPTION>
Additional Total
Paid-In Accumulated Stockholders'
Capital Deficit Equity
----------- ------------ ------------
<S> <C> <C> <C>
Balance at April 30, 1993 $ 4,313,708 $ (57,315) $ 3,710,618
Issuance of common stock 23,347,585 23,403,669
Issuance of warrants 951,664 951,664
Purchase of common stock (770,592) (1,435,200) (2,208,000)
Stock options exercised 67,016 67,891
Tax benefit of stock options 140,000 140,000
Net loss (2,229,193) (2,229,193)
----------- ------------ ------------
Balance at April 30, 1994 28,049,381 (3,721,708) 23,836,649
Issuance of common stock 12,418,442 12,444,943
Issuance of warrants 1,989,845 1,989,845
Purchase of common stock (55,000)
Stock options exercised 37,652 38,047
Cancellation of treasury stock (635,913)
Net loss (20,324,845) (20,324,845)
----------- ------------ ------------
Balance at April 30, 1995 41,859,407 (24,046,553) 17,929,639
Issuance of common stock 199,500 200,000
Purchase of common stock (297,814) (298,723)
Stock options exercised 22,995 23,125
Net income 12,298,617 12,298,617
----------- ------------ ------------
Balance at April 30, 1996 $41,784,088 $(11,747,936) $ 30,152,658
=========== ============ ============
</TABLE>
11
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CROWN CASINO CORPORATION
A - HISTORY AND DESCRIPTION OF BUSINESS
Crown Casino Corporation and subsidiaries (the "Company") is in the business of
owning, operating and developing casino properties. Presently the Company owns
an 18.6 acre tract of land in the gaming district of Las Vegas, Nevada, which
may be used in the development of a hotel and casino, and in June 1996 the
Company entered into a definitive asset purchase agreement to acquire the
Mississippi Belle II, Inc. ("MBII") riverboat casino in Clinton, Iowa (see Note
O). On June 9, 1995 the Company sold a 50% interest in St. Charles Gaming
Company, Inc. ("SCGC"), which owns and operates a riverboat casino located in
Calcasieu Parish, Louisiana, to Louisiana Riverboat Gaming Partnership ("LRGP")
(see Note C). SCGC was originally acquired by the Company in June 1993 and
remained in the development stage until opening its riverboat casino in July
1995. On May 3, 1996 the Company sold its remaining 50% interest in SCGC to
Casino America, Inc. ("Casino America"). The Company is actively pursuing
gaming opportunities in these and other jurisdictions.
Prior to March 1994 the Company had been engaged in various facets of the cable
programming business.
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates. The consolidated
financial statements include the accounts of Crown Casino Corporation and all
of its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Since its acquisition in June 1993 through
June 8, 1995 SCGC was a consolidated subsidiary of the Company. From June 9,
1995 through May 3, 1996 the Company accounted for its 50% ownership in SCGC
using the equity method.
Cash and Cash Equivalents
The Company considers cash and all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Casino Pre-opening and Development Costs
All casino pre-opening and development costs are expensed as incurred.
Pre-opening and development costs consist principally of personnel costs,
advertising, insurance, travel, consulting and professional fees.
Property and Equipment
Property and equipment are stated at cost. Expenditures for additions,
renewals and improvements are capitalized. Interest costs during construction
of facilities are capitalized. Costs of repairs and maintenance are expensed
as incurred. Depreciation on furniture, fixtures and equipment is computed
using the straight-line method over five to ten years.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a concentration
of credit risk consist principally of a $20 million note receivable from LRGP,
which owns a dockside riverboat casino in Bossier City, Louisiana (see Note C).
In August 1996 $10 million of this receivable was paid off and the balance
became an obligation of Casino America (see Note O). The collectability of
this receivable could be affected by future economic, competitive and
regulatory conditions as they pertain to gaming in the State of Louisiana.
Management believes the remaining receivable is fully collectable.
12
<PAGE> 11
Non-Compete Agreement
In connection with the acquisition of SCGC the seller agreed not to compete
with the Company within the Louisiana market for a period of five years. The
cost allocated to such agreement is being amortized over a five year period
using the straight-line method. At April 30, 1995 accumulated amortization
amounted to $183,326.
Debt Issuance Costs
In connection with SCGC's issuance of the Senior Note (see Note E) in June 1994
and amendments to the agreement governing the Senior Note, SCGC incurred debt
issuance costs of approximately $2.5 million. These costs have been amortized
over the one year term of the Senior Note using the effective interest method.
License Costs
License costs principally represent the excess purchase price of acquiring SCGC
over the net identifiable tangible assets. Amortization of these costs began
in July 1995 upon commencement of SCGC's operations.
Income Taxes
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.
Treasury Stock
During fiscal 1995 the Company formally canceled all of its shares held in
treasury. The amount credited to additional paid-in capital upon the original
issuance of such shares was estimated to be equal to or greater than the
Company's cost of reacquiring such shares. Accordingly, the carrying value in
excess of the par value of such shares was charged to additional paid-in
capital upon such cancellation.
Employee Stock Options
The Financial Accounting Standards Board has issued a new standard, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires that an entity
account for employee stock compensation under a fair value based method.
However, SFAS 123 also allows an entity to continue to measure compensation
cost for employee stock-based compensation plans using the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25"). Entities
electing to remain with the accounting under Opinion 25 are required to make
pro forma disclosures of net income and earnings per share as if the fair value
based method of accounting under SFAS 123 had been applied. Upon adopting SFAS
123 in fiscal 1997, the Company expects to continue to account for employee
stock-based compensation under Opinion 25.
Earnings (Loss) Per Share
Earnings (loss) per share has been calculated using the weighted average number
of shares outstanding, including common stock equivalents, if dilutive. Fully
diluted per share amounts are substantially the same as primary per share
amounts for the periods presented.
Reclassifications
Certain prior year amounts in the accompanying financial statements have been
reclassified to conform to the fiscal 1996 presentation. Amounts associated
with cable activities have been reclassified to discontinued operations.
13
<PAGE> 12
C - SALE OF SCGC
On June 9, 1995 pursuant to a definitive stock purchase agreement the Company
sold a 50% interest in SCGC to LRGP, a joint venture owned 50% by Casino
America and 50% by Louisiana Downs, Inc. LRGP owns the Isle of Capri(SM)
dockside riverboat casino in Bossier City, Louisiana. The purchase price
consisted of (i) a five-year $20 million non-recourse note with interest
payable monthly at 11.5% per annum and secured by LRGP's 50% interest in SCGC
(the "LRGP Note"), (ii) $1 million cash, and (iii) a warrant (which may only be
exercised by converting a portion of the LRGP Note) to purchase 416,667 shares
of Casino America common stock at $12 per share. In connection with this
transaction the Company recorded a gain before income taxes of approximately
$21.5 million.
The fair value of the LRGP Note at April 30, 1996 is not readily determinable
since such note was issued in a private transaction and is not traded, nor is
the Company aware of a security with similar terms that does trade. However,
based upon limited discussions with certain investment professionals,
management believes the fair value of the LRGP Note at April 30, 1996 was
approximately $19 million.
On May 3, 1996 the Company sold its remaining 50% interest in SCGC to Casino
America for (i) 1,850,000 shares of Casino America common stock, (ii) the
exchange of the $20 million LRGP Note for LRGP Note A ("Note A") and LRGP Note
B ("Note B"), each in the principal amount of $10 million and bearing interest
at 11.5% per annum, and (iii) an additional five- year warrant to purchase up
to another 416,667 shares of Casino America common stock (bringing the total
number of shares purchasable pursuant to warrants by the Company to 833,334) at
an exercise price of $12 per share. In connection with this transaction, in
May 1996, the Company recorded a gain before income taxes of approximately
$14.9 million.
Casino America has agreed to register the 1,850,000 shares issued to the
Company in order that, providing such registration statement is effective, the
Company may sell such shares in the open market. The Company has given Casino
America an irrevocable proxy on the Casino America stock held by the Company,
and the right of first refusal to purchase any Casino America stock the Company
plans to sell in a single transaction of 500,000 shares or more, or in a series
of related transactions to a single purchaser within a 120 day period. In
connection with a rights offering declared by Casino America, the Company was
granted the right to purchase 684,786 shares of Casino America common stock at
a price of $5.875 per share. On August 6, 1996 the Company exercised its right
and purchased 684,786 shares of Casino America common stock for an aggregate
exercise price of $4,023,118.
In August 1996 Casino America acquired the remaining interest in LRGP it did
not already own and issued $315 million of senior secured notes due 2003 (the
"Casino America Bonds"), a portion of the proceeds of which were used to pay
off Note A. As a result of the Casino America transactions, Note B has become
an unsecured, subordinated obligation of Casino America, with interest payable
monthly and principal due in seventeen equal fully amortizing quarterly
payments beginning in June 1997 with final maturity in June 2001. The
subordination language of Note B requires principal and interest payments to be
made according to the terms of the note unless there is a payment default of
(i) principal on, or (ii) interest on and a resulting acceleration of, the
Casino America Bonds, in which case payments to the Company would be suspended
during the pendency of such default.
The original Casino America warrant received in the sale of the first 50% of
SCGC and the additional Casino America warrant received in the sale of the
remaining 50% of SCGC, both of which expire in May 2001, may only be exercised
by converting all or a portion of the principal amount of Note B based upon a
$12 per share exercise price.
In addition to the foregoing the Company granted LRGP a right of first refusal,
which expires in June 1998, to jointly develop its 18.6 acre tract of land in
the gaming district of Las Vegas, Nevada in the event the Company chooses to
develop such project on a joint venture basis.
14
<PAGE> 13
The Company has included 100% of SCGC's operating results in its consolidated
results of operations through June 8, 1995. From and after June 9, 1995 (the
date of sale of 50% of SCGC), the Company has accounted for its investment in
SCGC on the equity method, and accordingly has included its proportionate share
of SCGC's operating results in its consolidated results of operations. The
Company's gain before income taxes on the sale of SCGC is calculated as follows
(in thousands):
<TABLE>
<CAPTION>
Sale of Sale of
First 50% Second 50%
(June 1995) (May 1996)
----------- ----------
<S> <C> <C>
Consideration received in sale $ 21,000 $ 12,025
The Company's negative basis in stock sold 889 3,297
Transaction and other costs (376) (388)
-------- --------
Gain before income taxes on sale of SCGC $ 21,513 $ 14,934
======== ========
</TABLE>
At April 30, 1996 the Company's investment in SCGC is calculated as follows (in
thousands):
<TABLE>
<S> <C>
Remaining negative basis in SCGC on June 9, 1995 after sale of 50% $ (889)
The Company's portion of SCGC's loss from June 9, 1995 to April 30, 1996 (2,408)
--------
The Company's investment in SCGC $ (3,297)
========
</TABLE>
Since the Company anticipated SCGC would have future income (operations
commenced on July 29, 1995), its investment in SCGC was carried below zero and
is shown as a liability at April 30, 1996. Upon closing of the sale of its
remaining 50% interest in SCGC on May 3, 1996, the Company's investment in SCGC
was eliminated. Other than a guarantee of certain leases, for which the
Company has been indemnified by LRGP and Casino America, the Company is not
liable for any obligations of SCGC.
At April 30, 1996 SCGC had assets, liabilities and shareholders' deficit of
approximately $87 million, $94 million and $7 million, respectively. SCGC's
condensed results of operations for the years ended April 30, 1996 and 1995,
and the period from June 25, 1993 (date of acquisition) through April 30, 1994
are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Revenues $ 57,263 $ - $ -
Costs and expenses 50,958
Pre-opening and development 4,196 14,809 1,182
Depreciation and amortization 3,289 111 334
Interest expense 6,210 6,810
Benefit for income taxes (1,056) (2,828) (573)
-------- --------- --------
Net loss $ (6,334) $ (18,902) $ (943)
======== ========= ========
</TABLE>
15
<PAGE> 14
D - ACQUISITIONS
In June 1993 the Company acquired 100% of the outstanding common stock of SCGC,
a Louisiana corporation which was organized in January 1993 for the purpose of
developing a riverboat casino project in St. Charles Parish, Louisiana. The
Company paid $500,000 and issued 1.2 million shares of restricted common stock
to the seller in exchange for all of the issued and outstanding common stock of
SCGC and for the seller's agreement not to compete with the Company. In
addition, in connection with the transaction, the Company issued 400,000 shares
of restricted common stock as a finder's fee to a company which has a principal
shareholder who is a director of the Company.
In December 1993 the Company acquired 100% of the outstanding common stock of
Gaming Entertainment Management Services, Inc. ("GEMS"), a Nevada corporation
which was organized in September 1992 for the purpose of developing a hotel and
casino project in Las Vegas, Nevada. GEMS' primary asset was its option to
purchase an 18.6 acre tract of land in the gaming district of Las Vegas located
on the southeast corner of the intersection of Flamingo and Arville. The
option was exercised and the land was purchased in June 1994. In connection
with the transaction, the Company issued 850,000 shares of restricted common
stock to the shareholders of GEMS and issued 35,000 shares of restricted common
stock to an unrelated company as a finder's fee. Prior to the acquisition the
Company loaned GEMS $500,000 which was assumed in the purchase.
The acquisitions have been accounted for using the purchase method of
accounting. The purchase price and purchase price allocations are as follows
(in thousands):
<TABLE>
<CAPTION>
SCGC GEMS
------- -------
<S> <C> <C>
Purchase price:
Cash $ 500
Stock issued 5,600 $ 3,982
Other transaction costs 50 20
Liabilities assumed 25 585
------- -------
$ 6,175 $ 4,587
======= =======
Purchase price allocation:
Cash $ 50 $ 80
Non-compete agreement 500
Land purchase option 6,075
License costs 9,025
Deferred income taxes (3,400) (1,568)
------- -------
$ 6,175 $ 4,587
======= =======
</TABLE>
The shares issued were valued based upon the trading price of the Company's
stock on the earlier of the date when all material contingencies to the
acquisition were removed or upon closing, discounted to reflect the restricted
nature of the securities. The Company recorded a deferred tax liability to
reflect the difference in basis of the acquired assets and liabilities for
income tax and financial reporting purposes. The activities of SCGC and GEMS
have been included in the Company's results of operations from their respective
dates of acquisition.
In July 1995 the Company entered into a definitive asset purchase agreement to
acquire the Bourbon Street Hotel and Casino located in Las Vegas, Nevada. In
November 1995 the Company determined not to proceed with the acquisition due to
(i) the possibility of more attractive investment opportunities, (ii) the lack
of attractive financing, and (iii) declining margins at the property. In
connection with this decision, the Company wrote off $664,991 of costs and
expenses related to the proposed acquisition.
In June 1996 the Company entered into a definitive asset purchase agreement to
acquire the assets and operations of MBII which owns a riverboat casino in
Clinton, Iowa for a purchase price of $40 million (see Note O).
16
<PAGE> 15
E - DEBT
At April 30, 1996 and 1995 the Company had the following debt:
<TABLE>
<CAPTION>
1996 1995
--------- ------------
<S> <C> <C>
Note payable to bank $ 981,240
Senior Note, net of discount of $118,397 $ 21,811,603
Notes payable to Casino America 4,700,000
--------- ------------
981,240 26,511,603
Less current portion (62,676) (26,511,603)
--------- ------------
Long-term debt, less current portion $ 918,564 $ -
========= ============
</TABLE>
In November 1995 the Company issued a $1 million ten year note to a bank which
bears interest at prime plus 1 1/2%, and is collateralized by certain equipment
of the Company. Principal and interest payments of $13,364 are due monthly for
the full ten year term. Management believes the estimated fair value of the
Company's long-term debt at April 30, 1996 approximates its carrying value.
The proceeds have been used for general corporate purposes.
In June 1994 SCGC issued a $28 million Senior Secured Increasing Rate Note (the
"Senior Note") to an institutional investor. The Senior Note was initially due
on June 3, 1995, but was subsequently extended to August 31, 1995 and carried a
12% coupon increasing 67 basis points each quarter up to a maximum interest
rate of 14%. The Senior Note was issued with a five year warrant to purchase
508,414 shares of the Company's common stock. The proceeds from the private
placement were allocated between the Senior Note ($26.7 million) and the
warrant ($1.3 million) based upon the relative fair value of each of the
securities at the time of issuance. The resulting original issue discount has
been amortized over the life of the Senior Note using the effective interest
method.
SCGC repaid $6.5 million of the Senior Note in October 1994. The balance of
the Senior Note was repaid in August 1995 from the proceeds of $38.4 million of
Senior Secured Increasing Rate Notes (the "New Notes"), issued jointly by SCGC
and LRGP. The New Notes initially became due in July 1996, but can be extended
up to an additional twelve months at the option of the issuers, provided no
event of default has occurred and is continuing, and carry a 12% coupon
increasing 25 basis points each quarter until maturity, and provide for
contingent interest beginning in June 1996 equal to 7.5% of SCGC's and LRGP's
consolidated cash flow, as defined. The New Notes are collateralized by
substantially all of the assets of SCGC and LRGP and contain covenants relating
to certain business, operational and financial matters. The New Notes are not
guaranteed by the Company or any of its subsidiaries.
In March 1995, pursuant to the stock purchase agreement with LRGP, SCGC issued
promissory notes aggregating $4.7 million to Casino America. The notes bear
interest at 11.5% per annum and are due three business days after the New Notes
are paid in full. The notes are not guaranteed by the Company or any of its
subsidiaries.
17
<PAGE> 16
F - CAPITAL STOCK
During fiscal 1994 the Company conducted a private placement offering under
Regulation D of the Securities Act of 1933 ("Securities Act") whereby the
Company sold 2,690,056 shares of its common stock to accredited investors which
resulted in gross proceeds of approximately $14.0 million. In connection with
such private placement the Company paid cash finder's fees of approximately
$770,000. In May 1994 the Company sold an additional 636,700 shares of its
common stock in the private placement offering which resulted in gross proceeds
of approximately $3.7 million.
In connection with the purchase of SCGC's riverboat the Company issued 433,333
shares of its common stock during fiscal 1994 to Kehl River Boats, Inc.
("KRB"). During fiscal 1995, after KRB was found suitable by the Louisiana
gaming regulatory authorities, the Company issued KRB the remaining 623,334
shares of its common stock due under the vessel purchase agreement.
During fiscal 1995 the Company sold 915,000 shares of its common stock pursuant
to an effective registration statement resulting in net proceeds of $3,545,500.
In addition, during fiscal 1995 the Company (i) sold 150,000 shares of its
common stock to foreign investors under the provisions of Regulation S under
the Securities Act resulting in net proceeds of $461,406, and (ii) issued a
total of 325,000 shares of its common stock for services rendered and the
termination of a certain letter agreement pertaining to a proposed casino site
in Lake Charles, Louisiana that was ultimately not pursued.
In February 1995 the Company made a commitment to issue 50,000 shares of its
common stock (representing $200,000) to a consultant upon commencement of
SCGC's riverboat gaming operations in Calcasieu Parish, Louisiana. In July
1995 such operations commenced and subsequently the shares were issued.
In March 1996 the Company's Board of Directors approved a program to repurchase
up to 500,000 shares (which was amended to 1,000,000 shares in May 1996) of the
Company's common stock from time to time in the open market. At April 30, 1996
the Company had repurchased 25,000 shares pursuant to this program. The timing
and amount of future share repurchases, if any, will depend on various factors
including market conditions, available alternative investments and the
Company's financial position.
The Company is authorized to issue up to one million shares of $.01 par value
preferred stock in one or more series having such respective terms, rights and
preferences as are designated by the Board of Directors. No preferred stock
has yet been issued.
G - LICENSING
In connection with the proposed acquisition of the assets and operations of
MBII, the Company has applied for an Iowa gaming license.
In connection with the Company's ownership of more than 5% of the outstanding
common stock of Casino America, the Company has made application to the
Mississippi gaming authorities to be approved to be a 5% or greater holder of
such shares.
18
<PAGE> 17
H - STOCK OPTIONS AND WARRANTS
Options
The Company has two stock option plans, the 1986 Incentive Stock Option Plan
("1986 Plan") for employees covering 1,250,000 shares of common stock and the
1991 Non-Qualified Stock Option Plan ("1991 Plan") for directors and key
employees covering 250,000 shares of common stock. Stock options are granted
with the exercise price equal to the market value of the Company's common stock
on the date of grant. No options may be granted after September 1996 with
respect to the 1986 Plan, and February 1996 with respect to the 1991 Plan.
Options granted under the Plans expire in the years 1998 through 2006 and
generally are exercisable on the date of grant, with the exception of options
to purchase 225,000 shares which become exercisable from 1997 through 1999. At
April 30, 1996 there were 248,575 shares of common stock available for grant
under the 1986 Plan.
The following is an aggregate summary of the 1986 Plan and 1991 Plan activity
since April 30, 1993:
<TABLE>
<CAPTION>
Number Exercise Price Proceeds
of Shares per Share on Exercise
--------- ------------------- -----------
<S> <C> <C> <C>
Outstanding at April 30, 1993 237,143 $ .41 to $ .72 $ 152,813
Granted 507,500 $ 1.41 to $ 7.38 2,903,125
Exercised (77,500) $ .63 to $ 1.41 (62,891)
-------- -----------
Outstanding at April 30, 1994 667,143 $ .41 to $ 7.38 2,993,047
Granted 480,000 $ 3.31 to $ 4.03 1,671,094
Exercised (39,500) $ .41 to $ 1.41 (38,047)
Canceled (310,000) $ 7.31 (2,266,875)
-------- -----------
Outstanding at April 30, 1995 797,643 $ .41 to $ 7.38 2,359,219
Granted 12,500 $ 1.95 24,414
Exercised (18,000) $ 1.41 to $ 3.31 (53,906)
Canceled (25,000) $ 7.31 (182,813)
-------- -----------
Outstanding at April 30, 1996 767,143 $ .41 to $ 7.38 $ 2,146,914
======== ===========
</TABLE>
Warrants
During fiscal 1994 and 1995, the Company issued common stock purchase warrants
to a variety of parties in connection with (i) the issuance of SCGC's debt
(558,414 underlying shares), (ii) finder's fees for private placements of
common stock (314,952 underlying shares), (iii) a commitment fee for the
issuance of a commitment letter (160,880 underlying shares), (iv) the purchase
of SCGC's riverboat (100,000 underlying shares), and (v) a certain joint
venture agreement (50,000 underlying shares). The warrants issued were valued
based upon a composite of commonly accepted warrant valuation models.
The following is an aggregate summary of warrant activity since April 30, 1993:
<TABLE>
<CAPTION>
Number of
Underlying Exercise Price Proceeds
Shares per Share on Exercise
---------- --------------- -----------
<S> <C> <C> <C>
Outstanding at April 30, 1993 - $ -
Issued 475,832 $ 6.00 to $ 12.00 3,327,420
--------- ----------
Outstanding at April 30, 1994 475,832 $ 6.00 to $ 12.00 3,327,420
Issued 708,414 $ 3.00 to $ 7.25 2,793,992
--------- ----------
Outstanding at April 30, 1995 1,184,246 $ 3.00 to $ 12.00 6,121,412
--------- ----------
Outstanding at April 30, 1996 1,184,246 $ 3.00 to $ 12.00 $6,121,412
========= ==========
</TABLE>
All of the warrants became exercisable upon their issuance. The warrants
expire between 1997 and 1999, contain certain anti-dilution provisions and
provide the holders with certain registration rights relative to the underlying
shares.
19
<PAGE> 18
I - INCOME TAXES
The provision (benefit) for income taxes from continuing operations was as
follows for the three fiscal years ended April 30, 1996:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Provision (benefit) for income taxes:
Current $ - $ 37,672 $ (43,359)
Deferred 3,500,000 (3,940,000) (1,062,574)
----------- ------------ ------------
$ 3,500,000 $ (3,902,328) $ (1,105,933)
=========== ============ ============
</TABLE>
The provision (benefit) for income taxes from continuing operations is
different from the amount computed by applying the statutory federal income tax
rate to income (loss) from continuing operations before income taxes for the
following reasons:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Federal statutory rate 34% (34)% (34)%
State income tax, net of federal benefit (5) (3)
Equity in loss of SCGC 5
Basis difference in SCGC stock (22)
Valuation allowance 23
Other 5 2
----- ----- -----
22% (16)% (35)%
===== ===== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets were as follows:
<TABLE>
<CAPTION>
April 30, April 30,
1996 1995
----------- -------------
<S> <C> <C>
Deferred tax liabilities:
Installment sale $ 3,768,841
License costs $ 3,442,030
Land held for development 1,792,255 1,792,255
Other 460,560 19,975
----------- -------------
Total deferred tax liabilities 6,021,656 5,254,260
----------- -------------
Deferred tax assets:
Pre-opening expenses 1,436,428 6,471,000
Net operating loss carryforward 466,510 3,589,150
Barge reserve 269,000
Other 118,718 57,304
----------- -------------
Total deferred tax assets 2,021,656 10,386,454
Valuation allowance (5,632,194)
----------- -------------
Net deferred tax liability $ 4,000,000 $ 500,000
=========== =============
</TABLE>
20
<PAGE> 19
The Company recorded a valuation allowance for the year ended April 30, 1995 to
reduce the carrying value of certain SCGC deferred tax assets. The valuation
allowance at April 30, 1995 related to management's estimate of the realization
of such deferred tax assets. At April 30, 1996 the Company had a net operating
loss carryforward for tax purposes of approximately $1,372,000 which expires in
2011.
J - LEASES
The Company has certain operating leases for equipment and its office
facilities. As of April 30, 1996 the aggregate rentals due under such leases
were as follows:
<TABLE>
<CAPTION>
Fiscal Amount
------ ---------
<S> <C>
1997 $ 66,936
1998 71,400
1999 72,888
2000 77,352
2001 58,014
---------
$ 346,590
=========
</TABLE>
Rent expense for all operating leases during the last three fiscal years was as
follows:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Continuing operations $ 62,158 $ 93,888 $ 39,483
Discontinued operations 23,727
---------- ---------- ----------
$ 62,158 $ 93,888 $ 63,210
========== ========== ==========
</TABLE>
K - COMMITMENTS AND CONTINGENCIES
Litigation
On September 21, 1994 an action was filed against the Company and SCGC in the
24th Judicial District Court for the Parish of Jefferson, Louisiana by Avondale
Industries, Inc. ("Avondale"). In this action Avondale alleges that the
Company was contractually obligated to Avondale for the construction of SCGC's
riverboat vessel based upon a letter of intent (allegedly reaffirming a
previous agreement entered into between Avondale and SCGC). Avondale alleges
that the Company breached a duty to negotiate in good faith toward the
execution of a definitive vessel construction contract. Alternatively,
Avondale alleges that a separate oral contract for the construction of the
vessel existed and that the Company committed unspecified unfair trade
practices and made certain misrepresentations. Avondale seeks unspecified
damages including "all lost profits and lost overhead" and attorneys fees.
Avondale has claimed its lost profits and lost overhead amount to approximately
$2.5 million. The Company intends to vigorously contest liability in this
matter. While no assurance can be given as to the ultimate outcome of this
litigation, management believes that this litigation will not have a material
adverse effect on the Company.
Teaming Agreement
In June 1994 the Company entered into a teaming agreement with a group of
individuals for the purpose of pursuing a gaming license in the State of
Illinois. The agreement requires the Company to issue warrants to purchase up
to 250,000 shares of the Company's common stock, and to make certain payments
in cash upon the occurrence of specified events, including the issuance of a
gaming license. The teaming agreement expires in April, 1997.
21
<PAGE> 20
Severance Agreements
In July 1996 the Board of Directors of the Company authorized the Company to
enter into severance agreements with three of its executive officers which
provide for payments to the executives in the event of their termination after
a change in control, as defined, of the Company. These agreements will
provide, among other things, for a compensation payment equal to 2.99 times
the annual compensation paid to the executive as well as accelerated vesting of
options under the Company's incentive stock option plan.
Louisiana Local Option Referendum
As of August 6, 1996 the Company was the holder of 2,534,786 shares of Casino
America common stock and a $10 million note receivable from Casino America.
Casino America currently operates four gaming facilities, two in Mississippi
and two in Louisiana. In April 1996 Louisiana gaming statutes were modified to
provide for a local option vote to decide whether or not to continue riverboat
gaming, video draw poker and the New Orleans land-based casino. The vote will
be conducted on a parish by parish basis in November 1996 with separate votes
for each form of gaming. The discontinuation of riverboat gaming in Bossier
Parish or Calcasieu Parish would have a material adverse effect on Casino
America and, to the extent the Company continues to hold securities of Casino
America, the Company. Based upon published polls, the Company believes that
the vote to continue riverboat gaming in the two parishes in which Casino
America operates will be approved.
L - RELATED PARTY TRANSACTIONS
In June 1996 the Company entered into a definitive asset purchase agreement to
acquire the assets and operations of MBII, which owns and operates a riverboat
casino in Clinton, Iowa (see Note O). MBII is principally owned by the adult
children of a director of the Company.
During fiscal 1995 the Company entered into a teaming agreement (see Note K)
with an individual who subsequently became a director of the Company. Pursuant
to such agreement the Company issued warrants to purchase 50,000 shares of the
Company's common stock.
During fiscal 1994, in connection with the acquisition of SCGC (see Note D),
the Company issued 400,000 shares of restricted common stock as a finder's fee
to a company whose principal shareholder is a director of the Company. In July
1995 this director became a full-time executive officer of the Company.
The Company incurred legal fees of approximately $121,000, $259,000 and
$218,000 during fiscal 1996, 1995 and 1994, respectively, from a law firm of
which a director of the Company was a partner. In July 1995 this director left
such law firm and became a full-time executive officer of the Company.
During fiscal 1994 the Company paid $24,000 for investment banking services to
a company of which a director of the Company is an officer.
During fiscal 1994 the Company borrowed an aggregate of $700,000 on a
short-term basis from an individual who was a beneficial shareholder of more
than five percent of the Company at the time of such loan.
M - DISCONTINUED OPERATIONS
In July 1993 the Company made the decision to focus all its efforts in the
gaming industry and discontinue operating in the cable programming industry.
As a result, during fiscal 1994 the Company sold all its remaining cable assets
for total consideration of $1,125,000.
22
<PAGE> 21
The loss on disposal of the Company's cable operations was as follows:
<TABLE>
<CAPTION>
Loss Before Income
Income Taxes Tax Benefit Net Loss
----------- ---------- ---------
<S> <C> <C> <C>
Loss on disposal of cable operations $(239,925) $(81,575) $(158,350)
Operating loss from July 1993 to
February 1994 (disposal date) (32,432) (11,027) (21,405)
--------- -------- ---------
$(272,357) $(92,602) $(179,755)
========= ======== =========
</TABLE>
The identifiable revenues and expenses from cable operations have been
reclassified on the accompanying statements of operations from their historical
classification to separately identify them as the net results of discontinued
operations. Discontinued operations include allocations of general and
administrative expenses that were determined to be directly related to such
operations. The condensed statements of operations for discontinued operations
for fiscal year 1994 are as follows:
<TABLE>
<CAPTION>
Fiscal 1994
---------------------------
May-June July-April
(Pre-measure- (Post-measure-
ment Date) ment Date)
---------- ----------
<S> <C> <C>
Revenues $ 192,313 $ 412,050
Costs and expenses 187,845 444,482
Loss on disposal of cable operations 239,925
---------- ----------
Income (loss) before income taxes 4,468 (272,357)
Provision (benefit) for income taxes 1,519 (92,602)
---------- ----------
Net income (loss) $ 2,949 $ (179,755)
========== ==========
</TABLE>
N - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow disclosures are as follows for the three fiscal years
ended April 30, 1996:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Continuing operations:
Note received for sale of 50% of SCGC stock $20,000,000
Common stock issued in acquisitions $9,582,500
Common stock issued for equipment $1,450,000 550,000
Common stock issued for services and other 1,300,000
Equipment acquired under capital leases 5,778,767
Equipment acquired with debt 5,000,000
Note payable converted to common stock 3,000,000
Note payable exchanged for land 471,465
Retirement of debt with property 200,000
Warrants issued for equipment and services 337,500 951,664
Interest paid, net of amount capitalized 922,801 6,132,059 11,474
Income taxes paid, net of refunds (124,328) (141,359)
Discontinued operations:
Cable assets sold for note receivable 250,000
</TABLE>
23
<PAGE> 22
O - SUBSEQUENT EVENTS
On May 3, 1996 the Company sold its remaining 50% interest in SCGC to Casino
America for (i) 1,850,000 shares of Casino America common stock, (ii) the
exchange of the $20 million LRGP Note for Note A and Note B, each in the
principal amount of $10 million, and (iii) an additional five-year warrant to
purchase up to another 416,667 shares of Casino America common stock (bringing
the total number of shares purchasable pursuant to warrants by the Company to
833,334) at an exercise price of $12 per share. In connection with this
transaction, in May 1996, the Company recorded a gain before income taxes of
approximately $14.9 million (see Note C).
On June 11, 1996 the Company entered into a definitive asset purchase agreement
to acquire the assets and operations of Mississippi Belle II, Inc. ("MBII") for
a purchase price of $40 million. The MBII riverboat casino, located in
Clinton, Iowa, has been owned and operated by the Kehl family, and has been
profitable since its opening in June of 1991. The MBII riverboat contains
approximately 485 slot machines, 20 table games, and has on-board dining and
entertainment facilities. In connection with the agreement the Company will
enter into employment agreements with certain members of the Kehl family
whereby MBII's existing management will continue to operate the Clinton
facility. Closing of the transaction is subject to certain conditions
including obtaining the approval of the Iowa Racing and Gaming Commission. For
the year ended December 31, 1995 MBII had revenues and pretax profits of $30.5
million and $9.5 million, respectively.
In August 1996 Casino America acquired the remaining interest in LRGP it did
not already own and paid off Note A in the amount of $10 million which was due
from LRGP to the Company. Also in August 1996, pursuant to a rights offering
of Casino America, the Company exercised its right and purchased 684,786 shares
of Casino America common stock for an aggregate purchase price of $4,023,118 or
$5.875 per share.
24
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS Crown Casino Corporation
Stockholders and Board of Directors
Crown Casino Corporation
We have audited the accompanying consolidated balance sheets of Crown Casino
Corporation and subsidiaries as of April 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended April 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Crown
Casino Corporation and subsidiaries as of April 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended April 30, 1996 in conformity with generally
accepted accounting principles.
Dallas, Texas Coopers & Lybrand L.L.P.
August 6, 1996
25
<PAGE> 24
COMMON STOCK INFORMATION, DIVIDENDS AND Crown Casino Corporation
RELATED STOCKHOLDER MATTERS
The Company's common stock is authorized for quotation on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") Small
Cap Market under the NASDAQ symbol DICE. The following table sets forth, by
fiscal quarter, the high and low bid prices reported by NASDAQ for the
Company's common stock for the periods indicated. The bid quotation
information presented represents prices between dealers and does not include
retail mark-ups, mark-downs, or other fees or commissions and may not represent
actual transactions.
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
----------------- ----------------
High Low High Low
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter $6 5/16 $4 3/4 $7 1/2 $5 5/8
Second quarter 5 5/8 2 7/8 8 3/8 4 1/8
Third quarter 3 1/16 1 5/8 7 2 7/8
Fourth quarter 2 3/16 1 7/16 5 3/4 3 1/4
</TABLE>
As of July 1, 1996, there were approximately 1,823 stockholders of record.
This number excludes individual stockholders holding stock under nominee
security position listings.
Since its inception the Company has paid no dividends on its common stock. The
Company currently intends to follow a policy of retaining earnings to finance
future growth. Payment of dividends in the future will be determined by the
Company's Board of Directors and will depend upon, among other things, the
Company's future earnings, operations, capital requirements and surplus,
general financial condition, and contractual restrictions that may exist, and
such other factors as the Board of Directors may deem relevant.
26
<PAGE> 25
SELECTED FINANCIAL DATA
The financial data set forth below was derived from the audited consolidated
financial statements of the Company and should be read in conjunction with the
consolidated financial statements and related notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained elsewhere herein. (In thousands, except per share amounts.)
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30, 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from:
Continuing operations $ - $ - $ - $ - $ -
Discontinued operations - - 604 1,347 11,618
Income (loss) from:
Continuing operations $ 12,298 $ (20,325) $ (2,052) $ (263) $ (380)
Discontinued operations (177) (145) 2,701(a)
---------- --------- --------- --------- -------
$ 12,298 $ (20,325) $ (2,229) $ (408) $ 2,321
---------- --------- --------- --------- -------
Income (loss) per share:
Continuing operations $ 1.03 $ (2.01) $ (.34) $ (.07) $ (.10)
Discontinued operations (.03) (.04) .73
---------- --------- --------- --------- -------
$ 1.03 $ (2.01) $ (.37) $ (.11) $ .63
---------- --------- --------- --------- -------
Total assets(b) $ 39,329 $ 54,507 $ 30,974 $ 4,388 $ 5,477
Long-term obligations 919 2,271 2,330 - -
Stockholders' equity 30,153 17,930 23,837 3,711 4,196
Shares outstanding 11,650 11,678 8,999 3,524 3,689
</TABLE>
(a) - Includes a gain on the sale of certain cable assets of $5.7 million
before income taxes.
(b) - Assets related to discontinued operations are shown net of related
liabilities.
27
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE CROWN CASINO CORPORATION
AS OF APRIL 30, 1996
Gaming Entertainment Management Services, Inc.
Crown Delaware Investments Corp.
St. Charles Gaming Company, Inc. (50% owned)
Crown Casino Nevada, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Annual Report on Form 10-K of our report,
dated June 14, 1996, on our audits of the financial statements of St. Charles
Gaming Company, Inc., as of April 30, 1996 and 1995 and for the years ended
April 30, 1996 and 1995 and for the period from June 25, 1993 (acquisition
date) to April 30, 1994. We also consent to the incorporation by reference in
the registration statements of Crown Casino Corporation and subsidiaries on
Form S-8 (File No. 33-59519 and File No. 33-59527) of our report dated August
6, 1996, on our audits of the consolidated financial statements and financial
statement schedule of Crown Casino Corporation and subsidiaries as of April 30,
1996 and 1995, and for the years ended April 30, 1996, 1995 and 1994, which
report is incorporated by reference in this Annual Report on Form 10-K and of
our report dated June 14, 1996, on our audits of the financial statements of
St. Charles Gaming Company, Inc., as of April 30, 1996 and 1995 and for the
years ended April 30, 1996 and 1995 and for the period from June 25, 1993
(acquisition date) to April 30, 1994.
Dallas, Texas Coopers & Lybrand L.L.P.
August 9, 1996
<PAGE> 1
EXHIBIT 23.2
Shareholders and Board of Directors
Crown Casino Corporation
Our report on the consolidated financial statements of Crown Casino Corporation
and subsidiaries has been incorporated by reference in this form 10-K from page
25 of the 1996 Annual Report to Shareholders of Crown Casino Corporation and
subsidiaries. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in the index
on page 27 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Dallas, Texas Coopers & Lybrand L.L.P.
August 6, 1996
<PAGE> 1
EXHIBIT 24.1
STATE OF TEXAS )
)
COUNTY OF DALLAS )
POWER OF ATTORNEY
Know all men by these presents that I, EDWARD R. MCMURPHY, a Director of CROWN
CASINO CORPORATION, a Texas corporation, do constitute and appoint MARK D.
SLUSSER, my true and lawful attorney-in-fact, with full power of substitution,
for me in any and all capacities, to sign, pursuant to the requirements of the
Securities and Exchange Act of 1934, the Annual Report on Form 10-K for CROWN
CASINO CORPORATION, for the fiscal year ended April 30, 1996, and to file the
same with the Securities and Exchange Commission and the National Association
of Securities Dealers, Inc., together with all exhibits thereto and other
documents in connection therewith, and to sign on my behalf and in my stead, in
any and all capacities, any amendments to said Annual Report, incorporating
such changes as any of the said attorney-in-fact deems appropriate, hereby
ratifying and confirming all of said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue thereof.
In witness whereof, I have hereunto set my hand and seal this _____ day of
July, 1996.
--------------------------------------
EDWARD R. MCMURPHY
ACKNOWLEDGEMENT
Before me this ____ day of July, 1996, came EDWARD R. MCMURPHY, personally
known to me, who in my presence did sign and seal the above and foregoing Power
of Attorney and acknowledged the same as his true act and deed.
--------------------------------------
Notary Public, State of Texas
<PAGE> 1
EXHIBIT 24.2
STATE OF TEXAS )
)
COUNTY OF DALLAS )
POWER OF ATTORNEY
Know all men by these presents that I, T.J. FALGOUT, III, a Director of CROWN
CASINO CORPORATION, a Texas corporation, do constitute and appoint EDWARD R.
MCMURPHY and MARK D. SLUSSER, jointly and severally, my true and lawful
attorneys-in-fact, each with full power of substitution, for me in any and all
capacities, to sign, pursuant to the requirements of the Securities and
Exchange Act of 1934, the Annual Report on Form 10-K for CROWN CASINO
CORPORATION, for the fiscal year ended April 30, 1996, and to file the same
with the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc., together with all exhibits thereto and other
documents in connection therewith, and to sign on my behalf and in my stead, in
any and all capacities, any amendments to said Annual Report, incorporating
such changes as any of the said attorneys-in-fact deems appropriate, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue thereof.
In witness whereof, I have hereunto set my hand and seal this _____ day of
July, 1996.
--------------------------------------
T.J. FALGOUT, III
ACKNOWLEDGEMENT
Before me this ____ day of July, 1996, came T.J. FALGOUT, III, personally known
to me, who in my presence did sign and seal the above and foregoing Power of
Attorney and acknowledged the same as his true act and deed.
--------------------------------------
Notary Public, State of Texas
<PAGE> 1
EXHIBIT 24.3
STATE OF TEXAS )
)
COUNTY OF DALLAS )
POWER OF ATTORNEY
Know all men by these presents that I, DAVID J. DOUGLAS, a Director of CROWN
CASINO CORPORATION, a Texas corporation, do constitute and appoint EDWARD R.
MCMURPHY and MARK D. SLUSSER, jointly and severally, my true and lawful
attorneys-in-fact, each with full power of substitution, for me in any and all
capacities, to sign, pursuant to the requirements of the Securities and
Exchange Act of 1934, the Annual Report on Form 10-K for CROWN CASINO
CORPORATION, for the fiscal year ended April 30, 1996, and to file the same
with the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc., together with all exhibits thereto and other
documents in connection therewith, and to sign on my behalf and in my stead, in
any and all capacities, any amendments to said Annual Report, incorporating
such changes as any of the said attorneys-in-fact deems appropriate, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue thereof.
In witness whereof, I have hereunto set my hand and seal this _____ day of
July, 1996.
--------------------------------------
DAVID J. DOUGLAS
ACKNOWLEDGEMENT
Before me this ____ day of July, 1996, came DAVID J. DOUGLAS, personally known
to me, who in my presence did sign and seal the above and foregoing Power of
Attorney and acknowledged the same as his true act and deed.
--------------------------------------
Notary Public, State of Texas
<PAGE> 1
EXHIBIT 24.4
STATE OF TEXAS )
)
COUNTY OF DALLAS )
POWER OF ATTORNEY
Know all men by these presents that I, J. DAVID SIMMONS, a Director of CROWN
CASINO CORPORATION, a Texas corporation, do constitute and appoint EDWARD R.
MCMURPHY and MARK D. SLUSSER, jointly and severally, my true and lawful
attorneys-in-fact, each with full power of substitution, for me in any and all
capacities, to sign, pursuant to the requirements of the Securities and
Exchange Act of 1934, the Annual Report on Form 10-K for CROWN CASINO
CORPORATION, for the fiscal year ended April 30, 1996, and to file the same
with the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc., together with all exhibits thereto and other
documents in connection therewith, and to sign on my behalf and in my stead, in
any and all capacities, any amendments to said Annual Report, incorporating
such changes as any of the said attorneys-in-fact deems appropriate, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue thereof.
In witness whereof, I have hereunto set my hand and seal this _____ day of
July, 1996.
--------------------------------------
J. DAVID SIMMONS
ACKNOWLEDGEMENT
Before me this ____ day of July, 1996, came J. DAVID SIMMONS, personally known
to me, who in my presence did sign and seal the above and foregoing Power of
Attorney and acknowledged the same as his true act and deed.
--------------------------------------
Notary Public, State of Texas
<PAGE> 1
EXHIBIT 24.5
STATE OF TEXAS )
)
COUNTY OF DALLAS )
POWER OF ATTORNEY
Know all men by these presents that I, GERALD L. ADAMS, a Director of CROWN
CASINO CORPORATION, a Texas corporation, do constitute and appoint EDWARD R.
MCMURPHY and MARK D. SLUSSER, jointly and severally, my true and lawful
attorneys-in-fact, each with full power of substitution, for me in any and all
capacities, to sign, pursuant to the requirements of the Securities and
Exchange Act of 1934, the Annual Report on Form 10-K for CROWN CASINO
CORPORATION, for the fiscal year ended April 30, 1996, and to file the same
with the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc., together with all exhibits thereto and other
documents in connection therewith, and to sign on my behalf and in my stead, in
any and all capacities, any amendments to said Annual Report, incorporating
such changes as any of the said attorneys-in-fact deems appropriate, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue thereof.
In witness whereof, I have hereunto set my hand and seal this _____ day of
July, 1996.
--------------------------------------
GERALD L. ADAMS
ACKNOWLEDGEMENT
Before me this ____ day of July, 1996, came GERALD L. ADAMS, personally known
to me, who in my presence did sign and seal the above and foregoing Power of
Attorney and acknowledged the same as his true act and deed.
--------------------------------------
Notary Public, State of Texas
<PAGE> 1
EXHIBIT 24.6
STATE OF TEXAS )
)
COUNTY OF DALLAS )
POWER OF ATTORNEY
Know all men by these presents that I, GERARD M. JACOBS, a Director of CROWN
CASINO CORPORATION, a Texas corporation, do constitute and appoint EDWARD R.
MCMURPHY and MARK D. SLUSSER, jointly and severally, my true and lawful
attorneys-in-fact, each with full power of substitution, for me in any and all
capacities, to sign, pursuant to the requirements of the Securities and
Exchange Act of 1934, the Annual Report on Form 10-K for CROWN CASINO
CORPORATION, for the fiscal year ended April 30, 1996, and to file the same
with the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc., together with all exhibits thereto and other
documents in connection therewith, and to sign on my behalf and in my stead, in
any and all capacities, any amendments to said Annual Report, incorporating
such changes as any of the said attorneys-in-fact deems appropriate, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue thereof.
In witness whereof, I have hereunto set my hand and seal this _____ day of
July, 1996.
--------------------------------------
GERARD M. JACOBS
ACKNOWLEDGEMENT
Before me this ____ day of July, 1996, came GERARD M. JACOBS, personally known
to me, who in my presence did sign and seal the above and foregoing Power of
Attorney and acknowledged the same as his true act and deed.
--------------------------------------
Notary Public, State of Texas
<PAGE> 1
EXHIBIT 24.7
STATE OF TEXAS )
)
COUNTY OF DALLAS )
POWER OF ATTORNEY
Know all men by these presents that I, ROBERT J. KEHL, a Director of CROWN
CASINO CORPORATION, a Texas corporation, do constitute and appoint EDWARD R.
MCMURPHY and MARK D. SLUSSER, jointly and severally, my true and lawful
attorneys-in-fact, each with full power of substitution, for me in any and all
capacities, to sign, pursuant to the requirements of the Securities and
Exchange Act of 1934, the Annual Report on Form 10-K for CROWN CASINO
CORPORATION, for the fiscal year ended April 30, 1996, and to file the same
with the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc., together with all exhibits thereto and other
documents in connection therewith, and to sign on my behalf and in my stead, in
any and all capacities, any amendments to said Annual Report, incorporating
such changes as any of the said attorneys-in-fact deems appropriate, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue thereof.
In witness whereof, I have hereunto set my hand and seal this _____ day of
July, 1996.
--------------------------------------
ROBERT J. KEHL
ACKNOWLEDGEMENT
Before me this ____ day of July, 1996, came ROBERT J. KEHL, personally known to
me, who in my presence did sign and seal the above and foregoing Power of
Attorney and acknowledged the same as his true act and deed.
--------------------------------------
Notary Public, State of Texas
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 668,853
<SECURITIES> 0
<RECEIVABLES> 20,742,246
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,460,865
<PP&E> 18,062,375
<DEPRECIATION> (194,179)
<TOTAL-ASSETS> 39,329,061
<CURRENT-LIABILITIES> 960,796
<BONDS> 0
<COMMON> 116,506
0
0
<OTHER-SE> 30,036,152
<TOTAL-LIABILITY-AND-EQUITY> 39,329,061
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,589,694
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,008,712
<INCOME-PRETAX> 15,798,617
<INCOME-TAX> 3,500,000
<INCOME-CONTINUING> 12,298,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,298,617
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
</TABLE>
