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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1998
REGISTRATION NO. 333-12839
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
ON FORM S-3
UNDER THE SECURITIES ACT OF 1933
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MTR GAMING GROUP, INC.
(FORMERLY KNOWN AS WINNERS ENTERTAINMENT, INC.)
(Exact name of Company as Specified in its Charter)
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DELAWARE 7993 84-1103135
(State or other jurisdiction (Primary SIC (I.R.S. Employer
of Code Number) Identification
incorporation or organization Number)
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STATE ROUTE 2 SOUTH
CHESTER, WEST VIRGINIA 26034
(304) 387-5712
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
EDSON R. ARNEAULT, CHIEF EXECUTIVE OFFICER
MTR GAMING GROUP, INC.
STATE ROUTE 2 SOUTH
CHESTER, WEST VIRGINIA 26034
(304) 387-5712
(Name, Address, including zip code, and telephone number,
including area code, of agent for service)
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WITH COPIES TO:
ROBERT L. RUBEN, ESQ.
EDWARD A. FRIEDMAN, ESQ.
RUBEN & ARONSON, LLP
3299 K Street, N.W., Suite 403
Washington, D.C. 20007
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS POST-EFFECTIVE AMENDMENT NO. 4 TO THE REGISTRATION
STATEMENT BECOMES EFFECTIVE.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, CHECK THE FOLLOWING BOX. /X/
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING PURSUANT
TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND LIST
THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. / /
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(B) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. / /
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED SEPTEMBER 4, 1998.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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PROSPECTUS
MTR GAMING GROUP, INC.
1,645,913 SHARES OF COMMON STOCK PAR VALUE $.00001 PER SHARE
The registration statement (the "Registration Statement"), of which this
Prospectus forms a part, registers the offer and sale by certain stockholders
(the "Selling Stockholders") of 1,645,913 shares of common stock, par value
$.00001 (the "Common Stock") of MTR Gaming Group, Inc. (the "Company'). Of the
1,645,913 shares of Common Sock registered herein, 103,053 shares are
outstanding and held by the Selling Stockholders and 1,542,860 shares are
issuable upon the exercise of certain warrants held by the Selling Stockholders,
of which 1,492,860 warrants are exercisable at a price of $1.06 per share and
50,000 warrants are exercisable at a price of $0.80 per share, subject to
adjustment (collectively, the "Warrants"). The Selling Stockholders acquired the
securities either directly from the Company in connection with a secured working
capital loan agreement between a wholly-owned subsidiary of the Company, the
Company as guarantor and a private lender, or from the private lenders in
subsequent transactions. See "Selling Stockholders." The Company will not
receive any of the proceeds from the sale of the shares of Common Stock offered
hereby by the Selling Stockholders. See "Use of Proceeds." The Warrants are
exercisable commencing on July 2, 1996 and ending at the close of business on
July 2, 2001. Except with respect to the exercise price, the terms of the
Warrants are identical.
The Common Stock is quoted on the NASDAQ SmallCap Market under the symbol
MNTG. On September 1, 1998, the closing sale price of the Common Stock as
reported by NASDAQ was $2.00 per share.
The Selling Stockholders may sell the securities registered herein from time
to time in transactions in the open market (including any securities exchange or
through any inter-dealer quotation system), in negotiated transactions, or by a
combination of these methods, at fixed prices that may be changed, at market
prices at the time of sale, at prices related to market prices or at negotiated
prices. The Selling Stockholders may effect these transactions directly with the
purchasers by selling the securities registered herein to or through
underwriters, agents, or broker-dealers, in each case who may receive
compensation in the form of discounts or commissions from the Selling
Stockholders or otherwise from the purchasers of such securities for whom the
underwriters, agents or broker-dealers may act as agent or to whom they may sell
as principal, or both. See "Plan of Distribution."
The Company will bear all of the expenses in connection with the
registration of the Common Stock offered hereby. The Selling Stockholders will
pay any brokerage compensation in connection with their sale of the Common Stock
registered herein.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. AN INVESTMENT IN THESE SECURITIES SHOULD ONLY BE MADE BY INVESTORS WHO
CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS SEPTEMBER , 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and copies of such material can be obtained from
the Public Reference Section of the Commission in Washington, D.C., at
prescribed rates and the Commission's EDGAR database which is on the internet at
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement (the
"Registration Statement") pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the securities offered hereby. This
Prospectus (the "Prospectus") does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the securities offered
hereby, reference is hereby made to the Registration Statement, and exhibits and
schedules thereto.
Statements contained in this Prospectus as to the contents of any contract
or any other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or statement filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the Commission's principal office, and copies of all
or any part of the Registration Statement may be obtained from such office upon
the fees prescribed by the Commission.
The Company will provide, without charge, to each person (including any
beneficial owner) to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any document incorporated
by reference in this Prospectus (other than exhibits unless such requests are
directed to MTR Gaming Group, Inc., State Route 2 South, Chester, West Virginia,
26034, (304) 387-5712, Attention: Edson R. Arneault, President.
INFORMATION INCORPORATED BY REFERENCE
There are hereby incorporated by reference in this Registration Statement
the following documents and information heretofore filed under the Exchange Act,
with the Commission by the Company:
(a.) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as amended on Form 10-K/A (File No. 0-20508);
(b) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1998 (File No. 0-20508);
(c) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1998 (File No. 0-20508);
(d) The Company's Current Report on Form 8-K (filed on February 20,
1998);
(e) The Company's Current Report on Form 8-K (filed on May 20, 1998) as
amended on the Company's Current Report on Form 8-K/A (filed on July 15,
1998); and
(f) The description of the Common Stock of the Company, contained in the
Company's Registration Statement on Form 8-A dated August 6, 1992.
All documents filed with the Commission by the Registrant pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this
Registration Statement and prior to the filing of a post-effective amendment
which indicates that all securities offered have been sold or which deregisters
all securities then remaining unsold, shall be deemed to be incorporated by
reference in this Registration Statement and to be part hereof from the date of
filing of such documents.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE
PUBLIC FILINGS OF MTR GAMING GROUP, INC. PROSPECTIVE INVESTORS ARE URGED TO READ
THE ENTIRE PROSPECTUS, INCLUDING THE MATTERS SET FORTH UNDER THE HEADING "RISK
FACTORS." THIS PROSPECTUS CONTAINS "FORWARD LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS OTHER
THAN STATEMENTS OF HISTORICAL FACT INCLUDED IN THIS DOCUMENT REGARDING THE
COMPANY'S STRATEGIES, PLANS, OBJECTIVES, EXPECTATIONS, AND FUTURE OPERATING
RESULTS ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE AT THIS
TIME, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN
CORRECT. ACTUAL RESULTS COULD DIFFER MATERIALLY BASED UPON A NUMBER OF FACTORS
INCLUDING BUT NOT LIMITED TO, HISTORY OF LOSSES, LEVERAGE AND DEBT SERVICE,
GAMING REGULATION AND LICENSING, DEPENDENCE ON KEY PERSONNEL, COMPETITION, NO
DIVIDENDS, CONTINUED LOSSES FROM HORSE RACING, ROAD IMPROVEMENTS, COSTS
ASSOCIATED WITH MAINTENANCE AND EXPANSION OF MOUNTAINEER PARK'S INFRASTRUCTURE
TO MEET THE DEMANDS ATTENDING INCREASED PATRONAGE, OBTAINING BUILDING PERMITS IN
THE STATE OF NEVADA, CONSUMMATION OF THE PURCHASE OF A 1/2 ACRE PARCEL ADJACENT
TO THE COMPANY'S NORTH LAS VEGAS PROPERTY, FAILURE TO LIQUIDATE DISCONTINUED
OPERATIONS, CYCLICAL NATURE OF BUSINESS, LIMITED PUBLIC MARKET AND LIQUIDITY,
LACK OF PUBLIC MARKET, SHARES ELIGIBLE FOR FUTURE SALE, IMPACT OF ANTI-TAKEOVER
MEASURES, THE COMPANY'S COMMON STOCK BEING SUBJECT TO PENNY STOCK REGULATION AND
OTHER RISKS DETAILED IN THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION
FILINGS. UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, AS USED
IN THIS PROSPECTUS THE TERM "COMPANY" OR "MTR GAMING GROUP, INC." REFERS TO MTR
GAMING GROUP, INC. AND ITS SUBSIDIARIES.
THE COMPANY
The Company acquired Mountaineer Park, Inc. in December of 1992 and has
since operated the Mountaineer Racetrack & Gaming Resort ("Mountaineer Park") in
West Virginia's northern "panhandle," approximately twenty-five miles from the
Pittsburgh International Airport. The West Virginia Racetrack Video Lottery Act
of 1994, as amended (the "Lottery Act"), authorized only the four racetracks
then existing in the State to offer Video Slot gaming through the West Virginia
State Lottery. Mountaineer Park currently offers 1200 video lottery terminals,
which are cash-in ticket-out computerized versions of casino slot machines with
game themes including blackjack, poker and keno ("Card Terminals") or slot
games--sometimes known as "line" or "reel" games--as well as cards and keno
("Slot Terminals"; collectively with Card Terminals, "Video Slots"). A
"grandfather" clause in the Lottery Act permits only Mountaineer Park to operate
up to 2/3 of its Video Slots separate from the racetrack buildings in its hotel
and Speakeasy Gaming Saloon. The resort complex also includes a thoroughbred
horse racetrack, pari-mutuel wagering, off track wagering on horse and greyhound
races simulcast from other tracks, a 101-room lodge (the "Lodge"), a nine-hole
executive golf course, swimming, tennis, dining and lounge facilities.
The Company has invested approximately $20 million in expansion, renovation,
and refurbishment of Mountaineer Park and has incrementally increased the number
of Video Slots from 165 at the time of acquisition to 1200 in July of 1998 as
legislative developments either permitted additional Video Slots or made their
operation more profitable. The Company has also undertaken an aggressive
marketing campaign involving print, radio and television advertisements,
including a 30-minute "infomercial" that has been airing since 1997 in
Mountaineer Park's target markets.
On May 5, 1998, through its newly formed, wholly owned subsidiaries,
Speakeasy Gaming of Las Vegas, Inc. ("Speakeasy Las Vegas") and Speakeasy Gaming
of Reno, Inc. ("Speakeasy Reno"), the Company closed the purchase of two
hotel/gaming properties in Nevada: the Cheyenne Hotel & Casino, which has been
renamed the "Speedway Hotel & Casino," in North Las Vegas (the "Speedway
Property") for $5.5 million and the Reno Ramada, which will be renamed the
"Speakeasy Hotel & Casino," in Reno (the "Reno Property"; collectively, the
"Nevada Properties") for $8 million. The Company intends to construct a casino
at the Speedway Property, incorporating an auto racing theme, and renovate and
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redecorate the Reno Property, utilizing the speakeasy theme currently in place
at Mountaineer Park. The Nevada Properties are qualified for nonrestricted
casino gaming upon licensing of a casino operator pursuant to "grandfather"
provisions of applicable state and municipal laws. The Company expects to apply
for gaming approval and in the interim is operating the hotels and intends to
allow slot machines to be operated at the properties by a licensed slot machine
route operator in exchange for lease payments.
The Company also holds an interest in oil and gas property in Michigan for
which it is currently negotiating a sale pursuant to a plan of liquidation
adopted in 1993.
THE OFFERING
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Securities Registered............................... 1,645,913 shares of Common Stock
Common Stock outstanding prior to the offering 20,399,464 shares of Common
hereby............................................ Stock(1)(2)
Common Stock outstanding after the offering 21,942,324 shares of Common Stock
hereby............................................ (2)(3)
Common stock trading symbol on NASDAQ............... MNTG
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(1) Does not include 8,597,247 shares issuable upon the exercise of outstanding
warrants and options.
(2) Includes 378,415 shares of Common Stock issued to the Company's President
following his exercise of options to acquire such shares on August 31, 1998.
(3) Assumes the exercise of all Warrants. Does not include the shares issuable
upon the exercise of any other warrants or options issued by the Company.
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RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk. They should not be purchased by anyone who cannot afford the loss of his
or her entire investment. In analyzing this offering, prospective investors
should consider the following risk factors, as well as other information
contained in this Prospectus, before making an investment in such securities.
LEVERAGE AND DEBT SERVICE
The Company had significant interest expense of approximately $1.8 million
and principal repayment obligations which amounted to $0 in the quarter ended
June 30, 1998. The Company is obligated to repay all principal on such debt on
July 2, 2001. Substantially all of the Company's assets are pledged to secure
such debt. The Company's ability to service its debt will be dependent on its
future performance, which will be affected by prevailing economic conditions and
financial, business, regulatory and other factors, many of which are beyond the
Company's control. Accordingly, no assurance can be given that the Company will
maintain a level of operating cash flow that will permit it to service its
obligations and to satisfy the financial covenants in its loan agreements. The
Company estimates that the minimum level of monthly operating cash flow
necessary for it to service its operations and obligations, and to satisfy its
financial covenants in its loan agreements is $500,000. If the Company is unable
to generate sufficient cash flow or is unable to refinance or extend its
outstanding indebtedness, it will have to adopt one or more alternatives, such
as reducing or delaying future expansion and capital expenditures, selling
assets, restructuring debt or obtaining additional equity capital. There is no
assurance that any of these strategies could be effected on satisfactory terms
to the Company, if at all. Moreover, the terms and financial covenants contained
in certain of the Company's debt instruments may restrict the Company's ability
to compete effectively in the gaming market by effectively preventing expansion
of the Company's facilities or other competitively advantageous capital
expenditures, which may have a material adverse effect on the Company.
FLUCTUATIONS IN HISTORICAL OPERATING RESULTS
The Company incurred net losses from its inception through the first quarter
of 1996. In the five years from 1993 to 1997, the Company experienced mixed
results in net income (loss). Net losses of $5.9 million, $6.9 million and $5.3
million for 1993, 1994 and 1995 respectively, were followed by net income of
$1.2 million and $4.7 million for 1996 and 1997 respectively. For the quarter
ended June 30, 1998, the Company had net income of approximately $1.8 million.
Such growth and profitability may not be sustainable and may not be indicative
of future results. The Company's ability to increase revenues and generate
profits will depend on numerous factors, many of which are beyond the Company's
control. Some of these factors include prevailing economic conditions,
competition and the attractiveness of gaming as a leisure pastime. There can be
no assurance that such fluctuations in income will not continue in the future.
As of June 30, 1998, the Company had an accumulated deficit of $17.1 million.
FUTURE GROWTH AND FINANCING
The Company's growth strategy includes strengthening its existing
properties, which may include future development, construction and renovation
projects. The extent and timing of any such projects will depend upon various
factors, including available cash flow or the ability to obtain additional
financing. There can be no assurance that sufficient cash flow will be available
or that necessary financing will be available at all or on terms satisfactory to
the Company for such projects or for other purposes, including debt service
obligations. See "--Leverage and Debt Service." In addition, the Company will be
subject to the risks inherent in any construction activity, including, but not
limited to, disruption of existing operations, delays in receipt of permits,
licenses or other regulatory approvals, shortages of materials or skilled labor,
work stoppages, and weather interference, any of which could delay construction
or result in substantial cost increases to the Company. Acquisition of any
additional gaming businesses in the future
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would be subject to similar risks and financing issues. See "--Risks Associated
With Expansion of Operations."
LACK OF NEVADA GAMING LICENSES
The proposed gaming operations and the ownership of securities of Speakeasy
Las Vegas and Speakeasy Reno (collectively, the "Nevada Subsidiaries") as well
as the registration of the Company in Nevada as a publicly traded corporation is
subject to extensive regulation by the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada State Gaming Control Board (the "Nevada Board") and the
City of North Las Vegas with respect to Speakeasy Las Vegas and the Speedway
Hotel & Casino and the City of Reno with respect to Speakeasy Reno and the
Speakeasy Hotel & Casino (collectively, the "Nevada Gaming Authorities"). The
Nevada Gaming Authorities have broad authority with respect to licensing and
registration of entities and individuals involved with the Company and the
Nevada Subsidiaries, including holders of the Company's securities. To enforce
applicable gaming regulations, the Nevada Gaming Authorities may, among other
things, limit, suspend or revoke the licenses of any gaming entity or
individual, and may levy fines or forfeiture of assets against the Company, the
Nevada Subsidiaries or individuals for violations of gaming laws or regulations.
Any public offering of securities by the Company (excluding this Offering)
requires the prior approval of the Nevada Commission if the securities or the
proceeds from the offering are intended to be used for the construction of, to
acquire any interest in or to finance the operations of any gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. There can
be no assurances that any such approval will be granted or that if granted, it
will be granted on a timely basis.
The Company must apply for and obtain, prior to the commencement of gaming
activities by the Nevada Subsidiaries, approval from the Nevada Commission to be
registered in Nevada as a publicly traded corporation. The Nevada Subsidiaries
must apply for and obtain, prior to commencement of gaming activities at the
Nevada Properties, gaming licenses and approvals from the Nevada Gaming
Authorities, in addition to approvals from other applicable governmental or
administrative state or local agencies involved in the regulation of gaming and
gaming activities in the State of Nevada. There can be no assurances that the
Company or the Nevada Subsidiaries will obtain all necessary licenses or
approvals. See "--Regulation and Taxation."
IMPACT OF RESORT HOTEL LEGISLATION
The locations upon which the Speedway Hotel & Casino and the Speakeasy Hotel
& Casino are located are subject to legislation passed in 1991 by the Nevada
Legislature which is commonly referred to as the Resort Hotel Legislation. The
key portions of this legislation are found in Section 463.1605 of the Nevada
Revised Statutes ("NRS"). NRS 463.1605 essentially provides that the Nevada
Commission shall not approve a nonrestricted gaming license for an establishment
located in either Clark County or Washoe County, Nevada, unless the
establishment is a resort hotel. A resort hotel is defined to include an
establishment held out to the public as a hotel with more than 200 rooms
available for sleeping accommodations, at least one bar with capacity for more
than 30 patrons, and at least one restaurant with capacity for more than 60
patrons. The Speedway Hotel & Casino does not have 200 rooms and is therefore
subject to the provisions of NRS 463.1605. The Speakeasy Hotel & Casino has more
than 200 rooms so it is in compliance with NRS 463.1605. A county, city or town
may require resort hotels to meet standards in addition to those required by NRS
463.1605 as a condition to issuance of a gaming license by the particular
county, city or town. The City of Reno has by ordinance increased the room
requirement for resort hotels to 300. Therefore, the Speakeasy Hotel & Casino
does not conform to the 300 room City of Reno requirements. The Speedway Hotel &
Casino is exempt from NRS 463.1605 because this location has held a
non-restricted gaming license. The grandfathered exemption, however, is only
valid as to the Speedway Hotel & Casino until the earlier of the commencement of
gaming operations at that property or May, 1999. As to the Speakeasy Hotel &
Casino, the Company is relying upon a January 22, 1998
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determination by the City of Reno that the property is grandfathered from the
300 room requirement. The failure to keep the grandfathered exemptions to NRS
463.1605 and the local regulations governing resort hotels would have a
materially adverse effect on the Company.
RISKS ASSOCIATED WITH EXPANSION OF OPERATIONS
The significant expansion of the Company's business and operational scale as
a result of its contemplated further development of Mountaineer Park and its
newly acquired properties in Nevada will place demands on the Company's
administrative, operational and financial resources and could place an
additional strain on the capacity, management and operations of the Company.
Such strain, together with demands associated with future expansion of the
Company's gaming businesses or potential further acquisitions, may have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
effectively and profitably to manage its newly acquired Nevada operations since
the Company has no prior experience in operating a gaming business in Nevada.
COMPETITION AND RISKS OF EXPANDING LEGALIZATION OF GAMING
The Company faces substantial competition in each of the markets in which
its gaming facilities are located. Some of the competitors have significantly
greater name recognition and financial and marketing resources than the Company.
Such competition results, in part, from the geographic concentration of
competitors. All of the Company's gaming operations primarily compete with other
gaming operations in their geographic areas. New expansion and development
activity (with the exception of video lottery in Mountaineer Park's target
markets) is occurring in each of the relevant markets, which may be expected to
intensify competitive pressures. All of the Company's gaming operations also
compete to a lesser extent with operations in other locations, including Native
American lands, riverboats and cruise ships, and with other forms of legalized
gaming in the United States, including state-sponsored lotteries, on- and off-
track wagering, high-stakes bingo and card parlors. Several states have
considered legalized casino gaming and others may in the future. Legalization of
large-scale, unlimited casino gaming in or near any major metropolitan area or
increased gaming in other areas could have a material adverse effect on the
business of any or all of the Company's gaming facilities.
Specific competitive factors relating to the Company's primary gaming
markets include the following:
MOUNTAINEER PARK. In recent years, the number of gaming options available
to consumers in the Company's West Virginia area market has increased
considerably. Mountaineer Park's principal direct competitors are Wheeling
Downs, located approximately 40 miles to the south in Wheeling, West Virginia,
Thistledown, located approximately 85 miles to the northwest in Cleveland, Ohio
and Ladbroke, located approximately 80 miles away from Mountaineer Park in
Washington, Pennsylvania. Wheeling Downs conducts pari-mutuel greyhound dog
racing and video lottery gaming. Thistledown conducts pari-mutuel thoroughbred
horse racing but not video lottery gaming. Ladbroke conducts live harness racing
and provides import simulcasting, but does not have video lottery gaming. The
Company also competes with statewide lotteries in West Virginia, Pennsylvania
and Ohio, off-track and on-site wagering in Pennsylvania, and, to a lesser
extent, destination gaming facilities in Las Vegas and Atlantic City, as well as
other entertainment options available to consumers, including live and televised
professional and collegiate major sports events. The Company will also compete
with off-track wagering in Ohio, which has recently been approved in that state.
To the extent that Pennsylvania, Ohio or West Virginia legalizes any forms of
casino gaming, the Company's video lottery operations could compete with any
such new gaming facilities located within driving distance of Mountaineer Park.
If permitted under such new legislation, such facilities may offer more gaming
machines than Mountaineer Park, or gaming machines which are superior to those
offered by Mountaineer Park, as well as forms of gaming not available in West
Virginia. Such competition could have a material adverse effect on the Company.
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NORTH LAS VEGAS. The Company does not intend for Speakeasy Las Vegas to
compete with the high-end luxury hotel/casinos along Las Vegas' famous "Strip".
Although the Strip is the main attraction for gaming patrons who travel to Las
Vegas, the Company believes that North Las Vegas constitutes a distinct segment
of the Las Vegas gaming market. Nevertheless, management recognizes that the
strip may limit customer traffic to the North Las Vegas area. Even within the
North Las Vegas segment of the market, however, Speakeasy Las Vegas faces
substantial competition. New properties, or major additions, expansions or
enhancements to competitors' existing properties, could have a material adverse
effect on the Company.
RENO. The Reno property competes with other properties in Reno, Nevada
principally on the basis of location and direct marketing. The Reno property's
principal direct competitors are those gaming facilities located in downtown
Reno. There are currently nine gaming facilities in downtown Reno with over
11,700 slot machines, 470 table games and 6,600 hotel rooms. These gaming
facilities are, in general, larger and more heavily themed and have more
amenities than the Reno property. New properties, or major additions, expansions
or enhancements to competitors' existing properties could have a material
adverse effect on the Company
REGULATION AND TAXATION
GENERAL.
All of the Company's current and proposed operations are subject to
extensive regulations and could be subjected at any time to additional or more
restrictive regulations, or banned entirely. The Company is also subject to the
provisions of West Virginia law that govern the conduct of thoroughbred horse
racing in West Virginia (the "West Virginia Racing Act") and the operation of
Video Slots in West Virginia (the "Lottery Act"). The Company's live racing,
pari-mutuel wagering and Video Slot operations are contingent upon the continued
governmental approval of such operations as forms of legalized gaming. The
Company also may be adversely affected by legislation of additional forms of
gaming activity, or expanded licensure, within or near the Company's present or
future markets.
The regulations and oversight applicable to the Company's operations are
intended primarily to safeguard the legitimacy of gaming activity and its
freedom from inappropriate or criminal influences. Government authorities could,
at any time, terminate pari-mutuel wagering as a form of legalized gaming in
jurisdictions where the Company operates or subject such wagering to additional
restrictive regulation; such termination would, and any further restrictions
could, have a material adverse effect upon the Company's business, financial
condition and results of operations. The Company may not be able to obtain all
necessary approvals for the operation or expansion of its business. In addition,
the Company's material licenses are subject to annual or other periodic renewal
and governmental authorities may refuse to grant permission to continue to
operate existing facilities. The failure to obtain or maintain in effect
required regulatory approvals would have a material adverse effect upon the
Company's business, financial condition and results of operations.
WEST VIRGINIA RACING AND GAMING REGULATION. The Company's operations at
Mountaineer Park are subject to regulation by the West Virginia State Racing
Commission (the "Racing Commission") under the West Virginia Racing Act, and by
the West Virginia State Lottery Commission under the Lottery Act. The powers and
responsibilities of the Racing Commission include, among other things, (i)
granting permission annually to maintain racing licenses and schedule race
meets, (ii) approving simulcasting activities, (iii) licensing all officers,
directors, racing officials and certain other employees of the Company and (iv)
approving all contracts entered into by the Company affecting racing and
pari-mutuel wagering operations. Such powers and responsibilities extend to the
approval and/or oversight of all aspects of racing and pari-mutuel wagering
operations. The Company has received all necessary approvals to conduct its
current operations at Mountaineer Park; however, such approvals are subject to
renewal and approval annually. The failure to receive or retain approvals or
renewals of approvals, or a delay in receiving such
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approvals and renewals, could cause the reduction or suspension of racing and
pari-mutuel wagering, as well as of Video Slot operations, at Mountaineer Park
and have a material adverse effect upon the Company's business, financial
condition and results or operations.
Pursuant to the Lottery Act, each of the two West Virginia horse racetracks
and two West Virginia dog racetracks licensed prior to January 1, 1994 and which
conduct a minimum number of days of live racing, may apply for an annual license
to operate Video Slots at its racetrack. The Lottery Act likewise requires that
the operator of Mountaineer Park be subject to a written agreement with the
horse owners, breeders and trainers who race horses at that facility (the
"Mountaineer Park Horsemen") in order to conduct Video Slots operations. The
Company is party to the requisite agreement with the Mountaineer Park Horsemen,
which expires on January 1, 2001. The Lottery Act also requires that the
operator of Mountaineer Park be subject to a written agreement with the
pari-mutuel clerks in order to operate Video Slots. The Company is party to the
requisite agreement with its pari-mutuel clerks which expires on November 30,
2002. The absence of an agreement with the Mountaineer Park Horsemen or the
pari-mutuel clerks at Mountaineer Park, or the termination or non-renewal of
such agreement, would have a material adverse affect on the Company's business,
financial condition and results of operations. The Lottery Commission has broad
powers to approve and monitor all operations of the video lottery terminals, the
specification of the terminals and the interface between the terminals and the
West Virginia Central Lottery System. In addition, the Lottery Commission
licenses all persons who control the licensed entity or are key personnel of the
video lottery operation to ensure their integrity and absence of any criminal
involvement.
NEVADA GAMING REGULATION. 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) to provide a
source of state and local revenues through taxation and licensing fees. Change
in such laws, regulations, and procedures could have an adverse effect on the
operations of the Company and the Nevada Subsidiaries.
In order to operate non-restricted gaming at the Nevada Properties, the
Nevada Subsidiaries are required to be licensed as operators of a casino by the
Nevada Gaming Authorities. A gaming license requires the periodic payment of
fees and taxes and is not transferable. The Company will be applying to be
registered by the Nevada Commission as a publicly traded corporation
("Registered Corporation") and as such, it will be required periodically to
submit detailed financial and operating reports to the Nevada Commission and
furnish any other information which the Nevada Commission may require. No person
may become a stockholder of, or receive any percentage of profits from, the
Nevada Subsidiaries without first obtaining licenses and approvals from the
Nevada Gaming Authorities. Neither the Company nor the Nevada Subsidiaries have
obtained from the Nevada Gaming Authorities the various registrations,
approvals, permits, and licenses required in order to engage in gaming
activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or the
Nevada Subsidiaries in order to determine whether such individual is suitable or
should be licensed as a business associate of a gaming licensee. Officers,
directors, and certain key employees of the Nevada Subsidiaries must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers,
directors, and key employees of the Company who are actively and directly
involved in gaming activities of the Nevada Subsidiaries may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an application for licensing for any cause
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which they deem reasonable. A finding of suitability is comparable to licensing,
and both require submission of detailed personal and financial information
followed by a thorough investigation. The applicant for licensing or a finding
of suitability must pay all the costs of the investigation. Changes in licensed
positions must be reported to the Nevada Gaming Authorities and in addition to
their authority to deny an application for a finding of suitability or
licensing, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
After registration and licensing, 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 Nevada
Subsidiaries, the companies involved would have to sever all relationships with
such person. In addition, the Nevada Commission may require the Company or the
Nevada Subsidiaries to terminate the employment of any person who refuses to
file appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
After registration and licensing, the Company and the Nevada Subsidiaries
will be required to submit detailed financial and operating reports to the
Nevada Commission. Substantially all material loans, leases, sales of
securities, and similar financial transactions by the Nevada Subsidiaries will
have to be reported to, or approved by, the Nevada Commission.
After licensing, if it were determined that the Nevada Gaming Control Act or
the regulations promulgated thereunder (collectively, the "Nevada Act") was
violated by the Nevada Subsidiaries, the gaming licenses they are applying for
could be limited, conditioned, suspended, or revoked, subject to compliance with
certain statutory and regulatory procedures. In addition, the Nevada
Subsidiaries, the Company, 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.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of the Company'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 five percent of
the Company's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10
percent of the Company's voting securities apply to the Nevada Commission for a
finding of suitability within 30 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 then
10 percent, but not more than 15 percent, of the Company'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 Company, any change in the Company's
corporate charter, bylaws, management, policies, or operations of the Company,
or any of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding the Company's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies, or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial holder
of voting securities who
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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 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board, may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identify
the beneficial owner. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the common stock of a Registered
Corporation beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company or The
Nevada Subsidiaries, the Company (i) pays that person any dividend or interest
upon voting securities of the Company, (ii) allows that person to exercise,
directly or indirectly, any voting right conferred through securities held by
that person, (iii) pays remuneration in any form to that person for services
rendered or otherwise, or (iv) fails to pursue all lawful efforts to require
such unsuitable person to relinquish his voting securities for cash at fair
market value.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated, and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
After registration and licensing, 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. After registration and licensing, the Nevada Commission
will have the power to require the Company's stock certificates to bear a legend
indicating that the securities are subject to the Nevada Act.
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
Company has not applied for approval by the Nevada Commission of the Offering as
it is not required.
After registration and licensing, changes in control of the Company 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 gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further
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Nevada's policy to: (i) assure the financial stability of corporate gaming
operators and their affiliates; (ii) preserve the beneficial aspects of
conducting business in the corporate form; and (iii) promote a neutral
environment for the orderly governance of corporate affairs. Approvals are, in
certain circumstances, required from the Nevada Commission before the Company
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 Company'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.
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 is or 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 of 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. A Licensee is also subject to
disciplinary action by the Nevada Commission if it knowingly violates any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engages in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employs a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
POTENTIAL FEDERAL REGULATION. In August 1996, the United States Congress
passed legislation, which President Clinton signed, creating the National
Gambling Impact and Policy Commission to conduct a comprehensive study of all
matters relating to the economic and social impact of gaming in the United
States. The legislation provides that, not later than two years after the
enactment of such legislation, the commission must issue a report to the
President and to Congress containing its findings and conclusions, together with
recommendations for legislation and administrative actions. Any such
recommendations, if enacted into law, could adversely impact the gaming industry
and have a material adverse effect on the Company's business and results of
operations. The Company is unable to predict whether this study will result in
legislation that would impose additional regulations on gaming industry
operators, including the Company. Additionally, from time to time, certain
federal legislators have proposed the imposition of a federal tax on gaming
revenues. Any such tax could have adverse an material effect on the Company's
financial condition or results of operations.
COMPLIANCE WITH OTHER LAWS. The Company and facilities are also subject to
a variety of other rules and regulations, including zoning, construction and
land-use laws and regulations in Nevada and West Virginia governing the serving
of alcoholic beverages. Mountaineer Park derives a significant portion of its
other revenues from the sale of alcoholic beverages to patrons of its
facilities, and the Company anticipates that the same will be true of Speakeasy
Vegas and Speakeasy Reno. Any interruption or termination of Mountaineer Park's
existing ability to serve alcoholic beverages or the inability of Speakeasy Las
Vegas or Speakeasy Reno to obtain and hold permits to serve alcoholic beverages
would have a material adverse effect on the Company's business, financial
condition and results of operations.
RESTRICTIONS ON SHARE OWNERSHIP AND TRANSFER. Unless prior approval of the
West Virginia Lottery Commission is obtained, the sale of five percent or more
of the voting stock of the license holder or any corporation that controls the
license holder or the sale of a license holder's assets (other than in the
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ordinary course of business), or any interest therein, to any person not
previously determined by the Lottery Commission to have satisfied the licensing
qualifications, voids the license. With respect to the State of Nevada, any
beneficial holder of a registered Corporation's voting securities (or rights to
acquire such securities), regardless of the number of shares owned, may be
required to file an application, be investigated and have his suitability as a
beneficial holder of 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. Applicable Nevada law 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 the 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.
APPLICATION OF ENVIRONMENTAL REGULATIONS. Generally, the Company and its
subsidiaries are subject to a variety of federal, state and local governmental
laws and regulations relating to the use, storage, discharge, emission and
disposal of hazardous materials. While the Company believes that it and its
subsidiaries are presently in material compliance with all environmental laws,
failure to comply with such laws could result in the imposition of severe
penalties or restrictions on operations by government agencies or courts that
could adversely affect operations. In addition, although the Company is not
aware of any environmental contamination at its properties (with the exception
of a discharge from an underground storage tank at Mountaineer Park which is (i)
subject to a state-approved plan of redemption and (ii) not considered
material), it has not conducted exhaustive environmental investigations of all
such properties. The Company does not have insurance to cover environmental
liabilities, if any, other than certain coverage limited to its Reno property.
TAXATION. The Company believes that the prospect of significant additional
revenue is one of the primary reasons that jurisdictions permit legalized
gaming. As a result, gaming companies are typically subject to significant taxes
and fees in addition to normal federal and state income taxes, and such taxes
and fees are subject to increase at any time. The Company pays substantial taxes
and fees with respect to its operations. From time to time, federal legislators
and officials have proposed changes in tax laws, or in the administration of
such laws, affecting the gaming industry. It is not possible to determine with
certainty the likelihood of changes in tax laws or in the administration of such
laws. Such changes, if adopted, could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company is currently managed by a small number of key management and
operating personnel, whose efforts will largely determine the Company's success.
The success of the Company also depends upon its ability to attract, hire and
retain qualified operating, marketing, financial and technical personnel.
Competition for qualified personnel in the gaming industry is intense and,
accordingly, there can be no assurance that the Company will be able to continue
to hire or retain necessary personnel. The loss of key management personnel,
particularly Edson R. Arneault, the Company's Chairman, President and Chief
Executive Officer, and Bruce E. Dewing, the Vice president and Chief Operating
Officer of both Speakeasy Las Vegas and Speakeasy Reno, would likely have a
material adverse effect on the Company. The Company is highly dependent on the
services of Mr. Arneault. The Company does not maintain key man life insurance
for Mr. Arneault or any other employee.
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CONTINUED LOSSES FROM HORSE RACING
To date, Mountaineer Park has incurred continued losses on its pari-mutuel
commission business, which have been offset by gains in the Video Slot business.
The Company believes that the racing business is currently unprofitable, and is
attempting to minimize or eliminate losses from such operations by increased
marketing efforts, cost cutting and enhancing the quality of racing activities.
The Company believes that its strategy of becoming a one-stop entertainment,
recreation and gaming destination resort will produce synergies which, in
combination with its Video Slot operations, may reduce such losses. No assurance
can be given, however, that this strategy will prove successful, that the
Company's unprofitable operations can become profitable or that the Company's
profitable operations will remain so. Even if the Company is unsuccessful in its
efforts to reduce its racing losses, it will have to continue its racing
activity which is a prerequisite to maintaining its Video Lottery license.
FAILURE TO LIQUIDATE DISCONTINUED OPERATIONS
The Company owns certain oil and gas properties in Michigan, which it is in
the process of liquidating in furtherance of the Company's determination to
focus its efforts on its core gaming, entertainment and recreation business. The
Company is currently negotiating a sale of these properties to a potential
buyer. There is no guarantee the Company will be successful in its negotiations
to sell the assets.
CYCLICAL NATURE OF BUSINESS; SEASONALITY; ABSENCE OF INSURANCE COVERAGE
The Company's primary business involves leisure and entertainment. During
periods of recession or economic downturn, consumers may reduce or eliminate
spending on leisure and entertainment activities. In the event that any of the
Company's demographic markets suffer adverse economic conditions, the Company's
revenues may be materially adversely affected. In addition, the operations of
Mountaineer Park are typically seasonal in nature. Winter conditions may
adversely affect transportation routes to Mountaineer Park, as well as cause
cancellations of live horse racing. As a result, adverse seasonal conditions
could have a material adverse effect on the operations of the Company. In the
Las Vegas and Reno market, business levels are generally weaker from
Thanksgiving through the middle of January (except during the week between
Christmas and New Years) and throughout the summer, and generally stronger from
mid-January through Easter and from mid-September through Thanksgiving.
The Company's results at its Nevada properties may also be affected by
inclement weather. For example, the Reno site, located in the foothills of the
Sierra Nevada mountains in Nevada, is subject to snow and icy road conditions
during the winter months. Any such severe weather conditions may discourage
potential customers from visiting the Company's facilities in that area. It is
unlikely that the Company will be able to obtain business interruption coverage
for casualties resulting from severe weather, and there can be no assurance that
the Company will be able to obtain casualty insurance coverage at affordable
rates for casualties resulting from severe weather.
UNCERTAINTIES OF FUTURE DEVELOPMENT
While the Company intends to expand its business by managing additional
gaming properties and acquiring and developing new gaming properties, there is
no assurance that it will be able to do so or that such projects will become
operational within the time frames and budgets contemplated by management.
Construction projects, such as the proposed hotel and convention center
construction at Mountaineer Park, the casino construction under way at the
Speedway Property and the renovation underway at the Reno Property, entail
significant development and construction risks, including, but not limited to,
cost overruns, delay in receipt of governmental approvals, shortages of
materials or skilled labor, unforeseen engineering or environmental problems,
work stoppages, weather interference, unanticipated cost increases and
regulatory problems, any of which, if they occurred, could delay construction or
result in substantial cost increases to the Company. Budget overruns and delays
with respect to expansion and
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development projects could have a material adverse impact on the Company's
results of operations. In addition, with respect to the Speedway Property, the
Company does not have final construction contracts. Further, to the extent that
the Company is successful in its expansion strategy, it will face the inherent
risks associated with managing an increased number of properties. The necessity
of key employees to focus their attention on various planned expansion projects
may reduce the amount of time they can devote to core operations of the Company.
In addition, the Company has been advised by the City of North Las Vegas that
approval of its current construction plans will require the Company to acquire
from a third party an adjacent parcel of approximately 1/2 acre. The Company is
negotiating the purchase of the parcel for approximately $120,000 and believes
it can complete construction within 120 days after receipt of all necessary
governmental approvals.
COMPUTERIZED OPERATIONS AND THE YEAR 2000
During recent years, there has been significant global awareness raised
regarding the potential disruption to business operations worldwide resulting
from the inability of current technology to process properly the change from the
year 1999 to 2000. The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
In 1997 the Company initiated an investigation to identify potential year
2000 and provide that all significant applications will be Year 2000 compliant.
The Company will utilize both internal and external resources to test, program
and/or replace applications to ensure that they are Year 2000 compliant.
Completion of this project is anticipated not later than October 31, 1999.
Although the costs associated with the Year 2000 project are not expected to be
material in nature, the Company has not finalized its investigation and is
unable to provide an estimate of such costs at this time. Such costs are
expected to be funded through operating cash flows. Personnel and all other
costs related to the project will be expensed as incurred. The conversion of
most purchased applications will be completed under the terms of maintenance
agreements which provide for the conversion of such applications at no
additional cost. All equipment and other operating systems are currently being
evaluated to determine if Year 2000 issues have an effect on their ability to
perform their respective functions.
In addition, the Company is conducting its investigation and is in the
process of obtaining assurance from its vendors that timely updates will be made
available to ensure that all purchased applications are Year 2000 compliant.
However, there can be no assurance that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
Although, based on its investigation to date the Company does not believe
that it will experience any significant adverse effects or material unbudgeted
costs associated with the Year 2000 project, the Company cannot provide any
assurance in this regard, and any such cause or effect could materially and
adversely affect the Company.
LIMITED PUBLIC MARKET AND LIQUIDITY
The Company's Common Stock is traded on the Nasdaq SmallCap Market and
trading of the Common Stock in the over-the-counter market is limited. A limited
trading market could result in an investor being unable to liquidate his or her
investment. If the Company is unable to satisfy Nasdaq's maintenance criteria in
the future, its Common Stock will be subject to being delisted, and trading, if
any, in the Company's Common Stock would thereafter be conducted in the
over-the-counter market in the so-
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called "pink sheets" or the NASD's "Electronic Bulletin Board." As a consequence
of such delisting, an investor would likely find it more difficult to dispose,
or to obtain quotations as to the price, of the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of August 30, 1998, the Company had approximately 20,021,049 shares of
Common Stock outstanding. In addition, the Company is obligated to issue an
additional 7,054,387 shares of Common Stock upon the exercise of outstanding
options and warrants other than the Warrants. Of the shares of Common Stock
currently outstanding, approximately 2,407,344 were issued in registered or
other offerings which rendered such shares freely tradable in the hands of the
holders thereof. Of the remaining 17,613,705 shares of Common Stock currently
outstanding which were not freely tradable by the holders thereof upon issuance
by the Company, the Company has registered the resale of 3,455,427 shares of
Common Stock by the holders thereof, 103,053 of which are included in this
Post-Effective Amendment. Approximately 2,900,000 shares of Common Stock
currently outstanding remain subject to the resale limitations imposed by Rule
144 because such shares have either: (i) been held by non-affiliates for less
than two years (827,229 shares); or (ii) are held by affiliates (2,078,730
shares).
With respect to the shares of Common Stock to be issued upon the exercise of
outstanding options or warrants, the Company has previously registered the
resale of 5,336,148 of such shares by the holders thereof. The remaining
1,718,239 shares of Common Stock issuable upon the exercise of outstanding
options and warrants will be "restricted securities" for purposes of the Act
when issued.
The Company is currently obligated to or intends to file future registration
statements to cover the resale of 2,710,555 shares of Common Stock which are, or
will when issued be, "restricted securities." Of that 2,710,555 shares of Common
Stock, 2,182,140 are being registered for resale pursuant to an additional
Registration Statement filed concurrently herewith. See "Selling Stockholders",
"Plan of Distribution" and "Description of Securities--Common Stock."
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned "restricted
securities" for at least one year but less than two years and any affiliate of
the Company who has owned shares for at least one year, is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the outstanding shares of the Company's Common Stock or the
average weekly trading volume in the Company's Common Stock on the Nasdaq
SmallCap Market during the four calendar weeks preceding such sale. Such sales
under Rule 144 are also subject to certain provisions regarding the manner of
sale, notice requirements and the availability of current public information
about the Company. A stockholder who is not an affiliate of the Company at the
time of the sale and for at least 90 days prior to a proposed transaction and
who has beneficially owned "restricted securities" for two years is entitled to
sell such shares under Rule 144 without regard to the limitations described
above.
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could have an adverse impact on the
market price of the Common Stock.
IMPACT OF ANTI-TAKEOVER MEASURES
Certain provisions of the Company's Certificate of Incorporation
("Certificate") may have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire,
control of the Company. Such provisions could limit the price that certain
investors might be willing to pay in the future for shares of the Company's
Common Stock. Specifically, the Company's Certificate requires the Board of
Directors (the "Board") to consider a variety of factors other than the adequacy
of the price offered for the Company's securities in evaluating a takeover
offer. The effect of this provision, in the event of a takeover attempt, may be
to prevent stockholders from receiving maximum returns on their shares in the
short-term and may deflate the price of the Company's Common Stock over
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the long-term. Additionally, the Certificate provides the Company with a right
to repurchase any shares of Common Stock of the Company from any person who
acquires more than 5% of the voting stock of the Company. This provision was
adopted so that the Company can remain in compliance with the Lottery Act, which
requires advance approval of any acquisition of more than 5% of the Company's
Common Stock. Nonetheless, there can be no assurance that such provision can
provide adequate protection against the Company losing its qualification with
the Lottery Commission due to the acquisition by a third party, whether in the
open market or otherwise, of more than 5% of the Company's Common Stock, as the
provision in the Certificate applies only retroactively and the Lottery Act
requires approval of such acquisitions prospectively. See "Description of
Securities--Common Stock--Anti-Takeover Provisions."
COMPANY'S COMMON STOCK SUBJECT TO PENNY STOCK REGULATION
Penny stocks generally are equity securities with a price of less than $5.00
per share other than securities registered on certain national securities
exchanges or quoted on the Nasdaq National Market, provided that current price
and volume information with respect to transactions in such securities is
provided by the exchange or system. The market price of the Company's Common
Stock may continue at a price less than $5.00. Thus the Company's Common Stock
is subject to the "penny stock" rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
with their spouse).
For transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase of such securities and have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a risk
disclosure document prescribed by the Commission relating to the penny stock
market. Such document must disclose the risks of investing in the penny stock
market including (i) a description of the nature and risk involved in the penny
stock market; (ii) a description of the duties of the broker-dealer to the
customer and the rights and remedies available; (iii) an explanation of the name
of "bid" and "ask" prices in the penny stock market; (iv) a description of all
significant terms used in the risk disclosure document; and (v) a toll free
number to provide information on disciplinary histories. The broker-dealer also
must disclose the commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability or desire of broker-dealers to sell the Company's
securities. However, the Commission, as it may determine consistent with the
public interest and protection of investors, may exempt, in whole or in part,
any person or class of persons, or any transaction or class of transactions,
from the penny stock requirements. Such exemptions shall include an exemption
for brokers and dealers based on the minimal percentage of broker's or dealer's
commissions, commission-equivalent, and markups received from transactions in
penny stock. See "Plan of Distribution."
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares of
Common Stock offered herein by the Selling Stockholders.
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DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is currently authorized to issue 50,000,000 shares of Common
Stock, par value $.00001 per share. As of August 30, 1998, there were 20,021,049
shares of Common Stock issued and outstanding. As of August 30, 1998 there were
approximately 565 stockholders of record of the Company's Common Stock.
As of August 30, 1998, a total of 7,054,387 shares of Common Stock were
reserved for issuance pursuant to outstanding options and warrants of the
Company other than the Warrants. A majority of the outstanding shares of the
Company's Common Stock entitled to vote, represented in person or by proxy (and
in no event less than 33 1/3 percent of the outstanding shares of the Company's
Common Stock) shall constitute a quorum, and at any meeting at which a quorum is
present the affirmative vote of a majority of the shares represented at the
meeting and entitled to vote on the subject matter shall be the act of the
shareholders, unless the vote of a greater proportion or number is required by
Delaware law or the Company's Certificate of Incorporation. Only those
stockholders of record as of the record date, which may be fixed not more than
60 nor less than 10 days before the meeting, or stockholder action in lieu of a
meeting, are entitled to vote on the subject matter before the stockholders. In
most cases, if a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting constitutes an act of the stockholders.
Consequently, the holders of one share more than one-quarter of the outstanding
Common Stock could exercise effective control over the Company. The affirmative
vote of a majority of all outstanding shares entitled to vote, however, is
required to amend the Company's Certificate, as well as to accomplish certain
other matters.
All shares of Common Stock are equal to each other with respect to voting,
liquidation, dividend and other rights. Owners of shares of Common Stock are
entitled to one vote for each share of Common Stock they own at any
stockholders' meeting. Holders of shares of Common Stock are entitled to receive
such dividends as may be declared by the Board of Directors out of funds legally
available therefor, and upon liquidation are entitled to participate pro rata in
a distribution of assets available for such a distribution to stockholders. The
Term Loan Agreement (as described below) restricts the payment of dividends to
stockholders without the lender's consent. There are no preemptive rights or
privileges with respect to any shares of Common Stock. The Common Stock of the
Company does not have cumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of directors may elect all
of the directors if they choose to do so. In such event, the holders of the
remaining shares aggregating less than 50% would not be able to elect any
directors.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate has two significant anti-takeover provisions.
Pursuant to Article VI of the Certificate, any "Acquisition Proposal" (defined
therein as a proposal by any person to (i) make a tender offer or exchange offer
for any equity securities of the Company, (ii) merge or consolidate the Company
with another corporation, or (iii) purchase or otherwise acquire all or
substantially all of the properties and assets of the Company), requires the
Board to scrutinize such Acquisition Proposal within certain guidelines.
Specifically, the Certificate states that the Board, in exercising its judgment
with respect to the best interests of the Company, is authorized to give due
consideration to such factors as the Board determines to be relevant, including,
without limitation:
(i) the interests of the Company's stockholders;
(ii) whether the proposed transaction might violate federal or state laws,
or affect the Company's ability to obtain required licenses;
(iii) the consideration being offered in the proposed transaction, in
relation not only to the then current market price for the outstanding capital
stock of the Company, but also to the market price for the
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capital stock of the Company over a period of years, the estimated price that
might be achieved in a negotiated sale of the Company as a whole or in part or
through orderly liquidation, the premiums over market price for the securities
of other corporations in similar transactions, current political, economic and
other factors bearing on securities prices, and the Company's financial
condition and future prospects; and
(iv) the social, legal and economic effects upon employees, suppliers,
customers and others having similar relationships with the Company, and the
communities in which the Company conducts its business.
The Certificate requires a supermajority of 80% of the outstanding shares of
the Company entitled to vote in the election of directors to amend or repeal
this provision.
In addition to this provision relating to the Board's response to a takeover
offer, in response to regulatory requirements of the Lottery Commission
requiring advance approval of persons who acquire 5% or more of the Company's
voting stock, Article VII of the Certificate provides the Company with the right
to redeem any shares acquired on the open market or otherwise. Specifically, the
Certificate prohibits any Person (a natural person or entity) from becoming the
Beneficial Owner (as defined in conformance with Rule 13d-3 of the Exchange Act)
of five percent (5%) or more of the Company's Common Stock unless such person
agrees in writing delivered to the Company at its registered office to:
(1) provide to the Gaming Authorities (defined in the Certificate as any
governmental authority regulating any form of gaming which has jurisdiction over
the Company or its subsidiaries) information regarding such Person, including,
without limitation, information regarding other gaming related activities of
such Person and financial statements and disclosures, in such form, and with
such updates, as may be requested and/or required by any Gaming Authority;
(2) respond to written and/or oral questions and inquiries that may be
propounded by any Gaming Authority; and
(3) consent to the performance of any personal background investigation that
may be required by any Gaming Authority, including, without limitation, an
investigation of any criminal record and/or alleged criminal activity of such
Person.
Notwithstanding such provisions, any and all issued and outstanding shares
of Common Stock held or otherwise owned by a Disqualified Holder (defined in the
Certificate as any Beneficial Owner of shares of Common Stock, or its
subsidiaries, whose holding of Common Stock may result, in the judgment of the
Board, in (i) the denial, loss or non-reinstatement of any license or franchise
from any governmental agency applied for or held by the Company or any
subsidiary to conduct any portion of the proposed or actual business of the
Company or any subsidiary, which license or franchise is conditioned upon some
or all of its holders of Common Stock meeting certain criteria, or (ii) the
disapproval, modification, or non-renewal of any contract under which the
Company or any of its subsidiaries has sole or shared authority to manage any
gaming operations) shall be subject to repurchase (such securities being defined
as the "Repurchase Securities") by the Company at any time at the sole
discretion of the Company by action of the Board. The terms and conditions of
such repurchase provided for by the Certificate are as follows:
(1) the repurchase price of the Repurchase Securities to be repurchased
pursuant to such provision shall be an amount equal to the Fair Market Value
(defined as the average closing price as quoted on Nasdaq for the 20 days
preceding the repurchase) of such Repurchase Securities or such other repurchase
price as required by either the DGCL, any state law applicable to the
determination that a Beneficial Owner is a Disqualified Holder or applicable
federal law;
(2) the repurchase price of such Repurchase Securities may be paid in cash,
or Corporation Debt Securities (defined as any debt securities of the Company
which comprise all or a portion of the repurchase price), or any combination
thereof;
(3) if less than all of the Repurchase Securities held or otherwise owned by
one or more Disqualified Holders are to be repurchased, the Repurchase
Securities to be repurchased shall be selected in such
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manner as shall be determined by the Company's Board in their sole discretion,
which may include selection of the most recently acquired Repurchase Securities,
selection of Repurchase Securities by lot, or selection of Repurchase Securities
in such other manner as shall be determined by the Company's Board;
(4) at least ten (10) days' written notice of the Repurchase Date shall be
given to the Beneficial Owner (and the record holder if such Person is not the
Beneficial Owner) of the Repurchase Securities selected to be repurchased unless
notice is waived in writing by any such holder) provided that the Repurchase
Date may be the date on which written notice is given if the cash or Corporation
Debt Securities necessary to effect the repurchase shall have been deposited in
trust for the benefit of such record holder and subject to immediate withdrawal
upon surrender of the certificates for the Repurchase Securities to be
repurchased;
(5) from and after the Repurchase Date or such earlier date as mandated by
either the DGCL, any state law applicable to the determination that a Beneficial
Owner is a Disqualified Holder or applicable federal law, any and all rights of
whatever nature which may be held by the Beneficial Owners of Repurchase
Securities selected for repurchase (including, without limitation, any rights to
vote or participate in dividends declared on securities of the same class or
series as such Repurchase Securities), shall cease and terminate and such
Beneficial Owners shall thenceforth be entitled only to receive the cash or
Corporation Debt Securities payable upon repurchase; and
(6) such other terms and conditions as the Board shall determine.
All securities subject to this restriction bear a restrictive legend stating
the fact that such securities are subject to the repurchase option of the
Company and may not be transferred other than in accordance with the
Certificate.
AVAILABILITY OF SHARES OF CAPITAL STOCK FOR FUTURE ISSUANCE
The availability of shares of Common Stock for issuance without further
action by stockholders could be viewed as enabling the Board of Directors to
make more difficult a change in control of the Company, including by issuing
warrants or rights to acquire shares of Common Stock to discourage or defeat
unsolicited stock accumulation programs and acquisition proposals and by issuing
shares to dilute or deter stock ownership of persons seeking to obtain control
of the Company. The Company has no present plans to issue any additional shares
of Common Stock, other than as contemplated under the Company's employee benefit
plans.
NEVADA STATUTORY RESTRICTIONS ON BUSINESS COMBINATIONS/CORPORATE CONTROL
The Nevada Combinations With Interested Stockholders Statutes (the "Business
Combinations Act") and the Nevada Acquisition of Controlling Interest Statutes
(the "Control Shares Act") may have the effect of delaying or making it more
difficult to effect a change in control of the Company.
The Business Combinations Act prohibits an "interested stockholder" and a
Nevada corporation with 200 or more stockholders (hereinafter, "corporation")
from entering into a "combination," unless certain conditions are met. A
"combination" means any merger or consolidation of a corporation or any of its
subsidiaries with an "interested stockholder," or any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets of the corporation, in
one transaction or a series of transactions, to or with an "interested
stockholder" having: (i) an aggregate market value equal to 5% or more of the
aggregate market value of the assets of a corporation, (ii) an aggregate market
value equal to 5% or more of the aggregate market value of all outstanding
shares of a corporation or (iii) representing 10% or more of the earning power
or net income of a corporation. An "interested stockholder" means (a) the
beneficial owner, directly or indirectly, of 10% or more of the voting power of
the corporation, or (b) an affiliate or associate of the corporation, that, at
any time within the three years immediately before the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the voting power of
the
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corporation. A corporation may not engage in a "combination" with any
"interested stockholder" within three years after the interested stockholder
first became an interested stockholder unless the combination or purchase of
shares first making such person an interested stockholder is approved by the
board of directors before the interested stockholder first became an interested
stockholder. If this approval is not obtained, then after the expiration of the
three-year period, the business combination may only be consummated with the
approval of the board of directors or a majority of the voting power held by
disinterested stockholders, or after certain minimum statutory consideration
requirements have been met with respect to the acquisition of all the capital
stock of the corporation held by the disinterested stockholders immediately
before the date the interested stockholder acquired such shares.
The Control Shares Act prohibits an acquirer, under certain circumstances,
from voting newly acquired shares of a Nevada corporation with 200 or more
stockholders, 100 of whom are stockholders of record and Nevada residents
(hereinafter, "target corporation") when such acquisition causes the number of
shares held by the acquirer to exceed certain threshold ownership percentages,
unless the acquirer obtains the approval of the target corporation's
disinterested stockholders. The Control Shares Act specifies three ownership
thresholds: (i) one-fifth or more but less than one-third, (ii) one-third but
less than a majority and (iii) a majority or more, of the outstanding voting
power of the corporation. Once an acquirer crosses one of these thresholds,
those shares in an offer or acquisition and acquired within 90 days immediately
preceding the date when the acquiring person became an acquiring person, become
"control shares" and are deprived of the right to vote until disinterested
stockholders restore that right. The Control Shares Act also provides that in
the event "control shares" are accorded full voting rights and the acquiring
person has acquired a majority or more of all voting power, all other
stockholders who do not vote in favor of authorizing voting rights to the
"control shares" are entitled to payment for the fair value of their shares in
accordance with statutory procedures established for dissenters' rights.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the DGCL, a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation),
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
A corporation also may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation.
However, in such an action by or on behalf of a corporation, no
indemnification may be made in respect of any claim, issue or matter as to which
the person is adjudged liable to the corporation unless and only to the extent
that the court determines that, despite the adjudication of liability but in
view of all the circumstances, the person is fairly and reasonably entitled to
indemnification for such expenses which the court shall deem proper.
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In addition, the indemnification provided by Section 145 shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any By-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. The Certificate and
By-laws of the Company are consistent with Section 145. The Certificate provides
that no director shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except: (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts and omissions not in good faith or which
involve intentional misconduct or knowing violation of the law; (iii) for acts
specified in Title 8, Section 174 of the DGCL, or (iv) for which the director
derived an improper personal benefit.
In addition to the Certificate, the Company's By-laws provide
indemnification (the "Indemnity Provisions") for any person who is or was a
party to any threatened, pending or completed action, suit, or proceeding
whether civil, criminal, administrative, arbitrative, investigative procedure by
reason of the fact that he or she was a director, officer, employee, fiduciary
or agent of the Company or served in such capacity with another entity at the
Company's request (such persons are defined as an "Indemnified Party" or
"Indemnified Parties"). With respect to third party actions, the Indemnity
Provisions represent the Company's commitment to indemnify based on such persons
incurring expenses (including legal fees) judgments, fines, excise taxes, and
amounts paid in settlement based on civil or criminal matters. In the case of a
civil matter, the Indemnified Parties must have acted in good faith and in a
manner reasonably believed by that person to be in or not opposed to the best
interests of the Company. With respect to a criminal matter, the person must
have had no reasonable cause to believe that the conduct was unlawful.
With respect to derivative actions, Indemnified Parties are entitled to
indemnification for any and all expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection with the settlement or
defense of such actions. The Indemnified Party must show that he or she acted in
good faith and a manner reasonably believed by that person to be in or not
opposed to the best interests of the Company, except that no indemnification
shall be available if such person has been adjudged liable for negligence or
misconduct in performing his or her duties to the Company, unless the court in
which such action or suit was brought has determined upon application that,
despite the adjudication of liability but in view of all of the circumstances of
the case, the Indemnified Party is fairly and reasonably entitled to
indemnification for the expenses the court deems proper. Nonetheless, if the
Indemnified Party is successful on the merits or otherwise, he or she need not
show that the applicable standard of conduct was met. If not successful on the
merits, any indemnification may only be made if the Indemnified Party applies to
the Company for indemnification and (i) a majority vote of a quorum of the
Board, or (ii) if a quorum is not available or even if obtainable, or if a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by vote of the stockholders of the Company.
With respect to both derivative actions and third party actions, the
Indemnity Provisions also provide for the advancement of expenses, including
actual and reasonable attorneys' fees, incurred in defending or investigating
any action, suit, proceeding or claim, subject to a written affirmation by the
Indemnified Party or person requesting an advance for such Indemnified Party
that he or she has met the applicable standard of conduct and that he or she
will repay such advance if it is ultimately determined that he or she did not
meet the applicable standard of conduct.
Notwithstanding the foregoing, the Company has discretion to impose as
conditions to any of the Indemnification Provisions, such requirements as may
appear appropriate in the specific case including but not limited to: (a) that
any counsel representing the person be mutually acceptable to the Company and
the Indemnified Party, (b) that the Company has the right to assume control of
the defense of such Indemnified Party, and (c) that the Company shall be
subrogated to the extent of any payments made by way of indemnification to all
of such Indemnified Party's right of recovery, and do everything necessary to
assure such rights of subrogation to the Company.
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The rights of Indemnified Parties under the Indemnity Provisions are not
exclusive of any other rights Indemnified Parties may have under the
Certificate, any agreement, vote of stockholders, vote of disinterested
directors, any liability insurance policies or otherwise. The Company currently
maintains a Directors and Officers liability insurance policy with coverage of
$10,000,000. Although the Company believes the policy and its coverage limits to
be adequate, the policy may not provide coverage in all circumstances in which
the Company's directors and officers are entitled to indemnification and may not
cover the Company's total liability to its directors and officers even in cases
where coverage is provided.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Indemnified Parties pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
persons in connection with the securities being registered, the Company will,
unless in the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
DESCRIPTION OF WARRANTS
GENERAL
In connection with the Term Loan Agreement, the Company issued an aggregate
of 1,542,860 Warrants to three private lenders (the "Warrant Holders"), all of
which are presently outstanding. The Warrants were issued pursuant to Warrant
Certificates dated July 2, 1996, between the Company and each of the Warrant
Holders.
Each Warrant entitles the holder thereof to purchase one share of Common
Stock (each a "Warrant Share") from the Company. The exercise price of 1,492,860
of the Warrants is $1.06 per share and the exercise price of 50,000 of the
Warrants is $0.80 per share, in each case subject to adjustment as described
below. Subject to certain limitations, the Warrants may be exercised at any time
beginning on July 2, 1996 until 5:00 p.m. Pacific Time on July 2, 2001 (the
"Expiration Date"). Warrants that are not exercised prior to the Expiration Date
will expire.
EXERCISE
In order to exercise all or any of the Warrants represented by a Warrant
Certificate, the holder thereof is required to surrender to the Company a
completed Exercise Agreement (as defined in the Warrant Certificate), a Warrant
Certificate and cash or a certified or official bank check payable to the
Company in an amount equal to the then effective Purchase Price for the shares
for which the Warrant Certificate is being exercised. Certificates for Warrant
Shares purchased upon exercise of the Warrants will be delivered by the Company
to the holder thereof within five business days after the exercise. The Warrant
Shares shall, when issued, be duly authorized, validly issued, previously
unissued, fully paid and nonassessable and will be free from all taxes, liens
and charges with respect thereto.
ADJUSTMENTS
The initial purchase price per Warrant shall be subject to adjustment from
time to time upon the occurrence of certain events including: (i) the issuance
or sale of any shares of Common Stock by the Company, (ii) the grant of any
rights to subscribe for or to purchase, or any options for the purchase of,
Common Stock, or any stock or securities convertible into or exchangeable for
Common Stock, (iii) the issuance or sale of convertible securities, whether or
not the right to exchange or convert thereunder are immediately exercisable, or
(iv) the declaration of any dividend or the making of any other distribution of
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any stock of the Company payable in Common Stock, options or convertible
securities. Upon the occurrence of such an event, the holder shall be entitled
to purchase, at an adjusted purchase price, the number of Warrant Shares equal
to that percentage of the total number of shares of Common Stock (determined on
an as-converted basis) that the holder was entitled to purchase immediately
prior to such event; provided, however, that if the offer and/or issuance of
securities is made to all holders of the Common Stock, then the Warrant Holder
shall be entitled to receive the number of shares which such holder would have
been entitled to receive (on an as-converted basis) had such holder exercised
the Warrants immediately prior to such event. Notwithstanding this fact, no
adjustment shall be made: (i) at any time prior to 30 months after repayment in
full of the outstanding amounts under the Amended Term Loan Agreement and a loan
commitment issued by the lender (the "Loan Commitment"), if (a) the securities
issued in connection with such event were sold for a price (determined on an
as-converted basis) exceeding the holder's purchase price or if (b) the event
was approved in advance in writing by the holders of a majority of the shares of
Common Stock (determined on an as-converted basis) issuable on the exercise of
the Warrants; and (ii) following the date that is 30 months after the repayment
in full of all of the outstanding amounts under the Amended Term Loan Agreement
and the Loan Commitment (if drawn down by the Company which occurred in
connection with the Amended Term Loan Agreement); provided that, notwithstanding
(i) and (ii) above, the adjustments provided for upon the occurence of any of
the events described in the first sentence of this paragraph shall continue to
be made to the extent that such event involves the offer and/or issuance of
securities to all holders of any class of securities of the Company; provided,
further, that the provisions described in this sentence will not limit any
adjustments to be made pursuant to other sections of the Warrant Certificate. No
adjustment need be made based on issuances of (x) stock or options to employees,
directors or officers of the Company and its subsidiaries under bona fide
benefit plans in any fiscal year, not to exceed (on an as-converted basis) 4% of
the issued and outstanding shares of Common Stock on the date of issuance; (y)
Common Stock issued in the ordinary course of business, not to exceed 2% of the
outstanding shares of Common Stock on the day of issuance; or (z) any of the
Warrants or shares of Common Stock issued in connection with the Term Loan
Agreement or Loan Commitment. As of the date of this prospectus, no adjustment
has been required. The holder of the Warrants shall be entitled to participate
in any dividends declared by the Company or any rights to subscribe for the
purchase of Common Stock, options, or convertible securities to the same extent
as such holder would be entitled after giving full effect to the exercise of
such Warrants. Finally, should the Company undertake a subdivision or
combination of its Common Stock to either increase such shares into a greater
number or decrease such shares into a lesser number, the number of shares
purchasable under the Warrant Certificate (and the purchase price of such
shares) are to be proportionately increased or reduced. If conditions arise not
otherwise covered by the anti-dilution provisions discussed above, the Company
is required to appoint a firm of independent certified public accountants of
recognized national standing, which shall give their opinion on any adjustment
necessary to preserve the exercise rights of the Warrant Holder.
REORGANIZATIONS, MERGERS, AND CERTAIN OTHER TRANSACTIONS
If any capital reorganization or reclassification of the capital stock of
the Company (other than a subdivision or combination discussed above), or
consolidation or merger of the Company with another corporation, or the sale or
conveyance of all or substantially all of its assets to another corporation,
shall be effected so as to entitle the holders of the Common Stock of the
Company to receive stock, securities or assets with respect to or in exchange
for shares of Common Stock, then, prior to and as a condition of such
reorganization, reclassification, consolidation, merger, sale or conveyance, the
Warrant holder shall be entitled to purchase and receive in lieu of any Warrant
Shares, such shares of stock, securities, or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of Common
Stock equal to the number of shares immediately theretofore purchasable and
receivable upon exercise of the rights under the Warrant Certificate had such
reorganization, reclassification, consolidation, merger, sale or conveyance, not
taken place.
24
<PAGE>
NO RIGHTS AS STOCKHOLDERS
The holders of unexercised Warrants are not entitled, as such, to receive
notice of any meeting of the stockholders of the Company, to consent to any
action of the stockholders of the Company, to receive notice of any other
stockholder proceedings, or to any other rights as stockholders of the Company,
except with respect to dividend subscription rights and rights upon merger or
consolidation, as discussed above, and none of the rights of the Warrant Holder
shall give rise to liability for the purchase price of the Warrant Shares or as
a stockholder of the Company.
ADDITIONAL WARRANTS
In connection with the Amended Term Loan Agreement, the Company issued
warrants to purchase 1,632,140 shares of Common Stock with terms substantially
similar to the warrants described above and 550,000 shares of Common Stock to
the Selling Stockholders. The Company is filing concurrently with the filing of
the Registration Statement of which this Prospectus is a part, an additional
Registration Statement registering for resale such 2,182,140 shares of Common
Stock. None of the Warrants issued in connection with the Amended Term Loan
Agreement, nor any of the shares of Common Stock issuable upon the exercise
thereof are registered hereby.
TRANSFER AGENT
The Transfer Agent for the Common Stock is Continental Stock Transfer &
Trust Company.
25
<PAGE>
SELLING STOCKHOLDERS
GENERAL
Effective July 2, 1997, Mountaineer and the Company amended and restated the
July 2, 1996 Term Loan Agreement, which had been previously amended and restated
as of December 10, 1996. The December 10, 1996 Amended Term Loan Agreement (the
"Amended Term Loan Agreement") reflected an increase in the amount borrowed from
$5 million to $16.1 million, established a $5,376,500 revolving line of credit,
and converted the lender's position from second to first trust holder. Pursuant
to the Amended Term Loan Agreement, the lender received 550,000 shares of Common
Stock of the Company and warrants to purchase an additional 1,632,140 shares of
Common Stock. Those shares and the shares of Common Stock issuable upon exercise
of those warrants are not included in this Registration Statement.
The July 2, 1997 Second Amended Term Loan Agreement (i) extended the term of
the loan to July 2, 2001 (compared to July 2, 1999); (ii) increased the total
amount borrowed to $21,476,500 (by virtue of Mountaineer Park drawing down the
line of credit); (iii) eliminated from the Amended Term Loan Agreement annual
fees of cash in the amount of 8% of the outstanding principal balance of the
loan that would have been due each November 15 while the loan is outstanding;
(iv) called for payments of interest only with the principal due at the end of
the four year term; (v) eliminated annual warrants to purchase 250,000 shares of
the Company's common stock at $1.06 per share which would have been issued on
November 15, 1997, 1998 and 1999; and (vi) eliminated annual warrants to
purchase additional shares in a number to be calculated under a formula defined
in the Amended Term Loan Agreement, which would have been issued on November 15,
1997, 1998 and 1999. The lender's rights pursuant to the Amended Term Loan
Agreement with respect to the 550,000 shares of the Company's stock and warrants
to purchase 1,632,140 additional shares issued thereunder were unaffected by the
Second Amended Agreement. The Company continues to guarantee the loan. In
addition, as a result of the Second Amended Term Loan Agreement the Company had
excess funds available for investment (subject to negative covenants contained
in the Second Amended Term Loan Agreement) and further expansion at Mountaineer
Park.
As consideration for the lender's entering into the Second Amended Term Loan
Agreement, Mountaineer Park agreed (i) to pay a one time fee of approximately
$1.8 million or 8.5% of the total amount borrowed, which was paid over the first
year of the term; (ii) to pay interest at the rate of 13% (compared to 12% on
the $16.1 million term loan and 15% on the $5.4 million line of credit under the
Amended Term Loan Agreement); and (iii) to pay a call premium equal to 5% in the
event of prepayment during the first year of the term, declining to 3% during
the second year, 2% in the third year and 1% in the final year.
The Company, as guarantor, entered into the Third Amended and Restated Term
Loan Agreement, dated as of April 30, 1998, by and among Mountaineer Park, Inc.,
Speakeasy Gaming of Las Vegas, Inc., Speakeasy Gaming of Reno, Inc. and
Madeleine LLC in order to finance certain acquisitions by subsidiaries of the
Company which were consummated on May 5, 1998. This increased the loan amount to
$33,391,500, which caused an increase in the interest expense for the first six
months of 1998 of $112,000.
In connection with this Term Loan Agreement, the Company issued the lender
183,206 shares of Common Stock and warrants to purchase 1,492,860 shares of
Common Stock at $1.06 per share. In connection with a separate $250,000 bridge
loan which was repaid with the proceeds of the $5,000,000 loan, the Company
issued two other private lenders warrants to purchase an aggregate of 50,000
shares of Common Stock at $.80 per share. Prior to the date of the
Post-Effective Amendment of which this Prospectus forms a part, the private
lender transferred 80,153 shares of its originally issued 103,053 shares and
653,126 of its originally issued 1,492,860 Warrants to two unaffiliated parties,
one of which, in turn, transferred 37,322 of the Warrants to a third
unaffiliated party.
The Warrants, issued to the lenders in connection with the Term Loan
Agreement (the underlying shares of which are being offered pursuant to this
Prospectus), are entitled to protection from dilution in
26
<PAGE>
certain circumstances. The Company agreed to register the shares of Common Stock
and warrants for public sale pursuant to the terms of the warrants and the
Registration Rights Agreement entered July 2, 1996. Amendment No. 1 to the
Registration Rights Agreement, which was entered in connection with the Amended
Term Loan Agreement, limits the lender's right to demand registration to once
per calendar year absent default by Mountaineer Park or the Company, prepayment
of the loan, or a change in control of the Company. Amendment No. 2 to the
Registration Rights Agreement amended the Registration Rights Agreement by
providing that (i) the Company is only obligated to maintain the registration of
the shares of Common Stock which are Registrable Securities as defined in such
Amendment No. 2 and is no longer required to continue the registration of the
Warrants, and (ii) revises the dates by which the Company must effect the
applicable registration of such Registrable Securities.
The Selling Stockholders have the right, at the Company's expense, to have
the shares of Common Stock and the shares of Common Stock issuable upon exercise
of the Warrants offered hereby registered for the offer and sale to the public
under the Securities Act until (i) none of the shares constitute Registrable
Securities (as defined in the Registration Rights Agreement, as amended, and the
Warrant Certificates) or (ii) all of such shares may be sold under Securities
Act Rule 144(k) subject to the Company obtaining an opinion of counsel, and
counsel for the Selling Stockholders concurring with such opinion, that such
conditions were satisfied.
In connection with the registration of the securities offered hereby, the
Company will supply prospectuses to the Selling Stockholders and use its best
efforts to qualify such securities for sale in certain states which may be
designated by the Selling Stockholders.
STOCK OWNERSHIP
The table below sets forth the number of shares of Common Stock (i) owned
beneficially by each of the Selling Stockholders; and (ii) being offered by each
Selling Stockholder pursuant to this Prospectus; and (iii) to be owned
beneficially by each Selling Stockholder after completion of the offering,
assuming that all of the Warrants held by the Selling Stockholders are exercised
and all of the shares offered hereby are sold and that none of the other shares
held by the Selling Stockholders, if any, are sold. For purposes of this table
each Selling Stockholder is deemed to own beneficially (i) the shares of Common
Stock underlying the Warrants held by them, (ii) the issued and outstanding
shares of Common Stock owned by the Selling Stockholder as of June 30, 1998, and
(iii) the shares of Common Stock underlying any other options or warrants owned
by the Selling Stockholder which are currently exercisable, subject to certain
restrictions set forth in the Company's agreements with its lenders. Except as
otherwise noted herein, none of such persons or entities has had any material
relationship with the Company during the past three years.
<TABLE>
<CAPTION>
NUMBER OF SHARES TO BE
NUMBER OF SHARES OWNED BENEFICIALLY
BENEFICIALLY NUMBER OF AFTER COMPLETION
SELLING STOCKHOLDERS OWNED SHARES OFFERED OF OFFERING
- ------------------------------------------------------ ----------------- -------------- ----------------------
<S> <C> <C> <C>
Madeleine LLC......................................... 2,884,302(1) 942,787(2) 1,941,515
Bridge Capital, L.L.C................................. 25,000(3) 25,000(3) 0
Brownstone Holdings, LLC.............................. 544,195(4) 360,893(5) 183,302
Capital One, Inc...................................... 417,387(6) 279,911(7) 137,476
Richard Wolfen........................................ 118,322(8) 37,322 81,000
Total................................................. 3,908,206 1,645,913 2,262,293
</TABLE>
- ------------------------
(1) Includes 309,375 shares currently outstanding and 2,574,927 shares issuable
upon the exercise of warrants exercisable within 60 days held by Madeleine
LLC subject to certain restrictions.
27
<PAGE>
(2) Includes 103,053 shares currently outstanding and 839,734 shares issuable,
subject to certain restrictions, upon the exercise of the Warrants.
(3) Includes 25,000 shares issuable upon the exercise of warrants exercisable
within 60 days held by Bridge Capital; 137,476 shares currently outstanding
held by Capital One ("Capital One"), an affiliate of Bridge Capital; and
279,911 Warrants exercisable within 60 days held by Capital One.
(4) Includes 183,302 shares currently outstanding and 360,893 shares issuable
upon the exercise of warrants exercisable within 60 days.
(5) Includes 360,893 shares issuable upon exercise of Warrants exercisable
within 60 days.
(6) Includes 137,476 shares currently outstanding and 279,911 shares issuable
upon the exercise of Warrants.
(7) Includes 279,911 shares issuable upon the exercise of Warrants.
(8) Includes 37,322 shares issuable upon the exercise of Warrants.
28
<PAGE>
PLAN OF DISTRIBUTION
Shares of Common Stock currently outstanding and shares of Common Stock
issuable upon exercise of the Warrants may be sold pursuant to this Prospectus
by the Selling Stockholders. These sales may occur in privately negotiated
transactions, block transactions or in market transactions including the
over-the-counter market through brokers and dealers as agents or to brokers and
dealers as principals, who may receive compensation in the form of discounts or
commissions from the Selling Stockholders or from the purchasers of the Common
Stock for whom the broker-dealers may act as agent or to whom they may sell as
principal, or both. The Company has not been advised by the Selling Stockholders
that they have made any arrangements relating to the distribution of the shares
of Common Stock covered by this Prospectus. In effecting sales, broker-dealers
engaged by the Selling Stockholders may arrange for other broker-dealers to
participate. Broker-dealers will receive commissions or discounts from the
Selling Stockholders in amounts to be negotiated immediately prior to the sale.
Upon being notified by a Selling Stockholder that any material arrangement
(other than a customary brokerage account agreement) has been entered into with
a broker or dealer for the sale of shares through a block trade, purchase by a
broker or dealer, or similar transaction, the Company will file a supplemented
Prospectus pursuant to Rule 424(c) under the Securities Act disclosing (a) the
name of each such broker-dealer, (b) the number of shares involved, (c) the
price at which such shares were sold, (d) the commissions paid or discounts or
concessions allowed to such broker-dealer(s), (e) if applicable, that such
broker-dealer(s) did not conduct any investigation to verify the information set
out in the Prospectus, as supplemented, and (f) any other facts material to the
transaction.
Certain of the Selling Stockholders and any broker-dealers who execute sales
for the Selling Stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act by virtue of the number of shares of Common Stock
to be sold or resold by such persons or entities or the manner of sale thereof,
or both. If any of the Selling Stockholders, broker-dealers or other holders
were determined to be underwriters, any discounts or commissions received by
them or by brokers or dealers acting on their behalf and any profits received by
them on the resale of their shares of Common Stock might be deemed underwriting
compensation under the Securities Act.
The Company has advised the Selling Stockholders that any purchase or sale
of the Common Stock by them must be in compliance with Regulation M under the
Exchange Act. In general, Regulation M under the Exchange Act prohibits any
affiliated purchasers from bidding for or purchasing or attempting to induce any
person to bid for or purchase shares of Common Stock without compliance with the
provisions of Rule 102, until after they have completed their participation in
the Distribution (the "Distribution Period").
During the Distribution Period, Rule 102 under the Exchange Act prohibits
any affiliated purchasers from bidding for, purchasing, or attempting to induce
any person to bid for or purchase shares of Common Stock. However, Rule 102 of
Regulation M ("Rule 102") under the Exchange Act does not prohibit the following
activities: odd-lot transactions; transactions by closed-end investment
companies; redemptions by commodity pools or limited partnerships; exercises of
securities; offers to sell or the solicitation of offers to buy; unsolicited
purchases; and transactions in Rule 144A securities.
29
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Ruben & Aronson, LLP, Washington, D.C.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries
included herein as of December 31, 1997, 1996 and 1995, and for each of the
years in the three year period ended December 31, 1997 have been audited by
Corbin & Wertz, independent certified public accountants, as set forth in their
opinion incorporated herein by reference. The financial statements referred to
above have been incorporated herein by reference in reliance upon such opinion
given upon the authority of such firm as experts in accounting and auditing.
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER
OR ANY SUPPLEMENT TO THIS PROSPECTUS CONSTITUTES AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SUPPLEMENT TO THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATES AS OF WHICH SUCH INFORMATION IS FURNISHED CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH SUCH
INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Information Incorporated by Reference..................................... 2
Prospectus Summary........................................................ 3
The Company............................................................... 3
The Offering.............................................................. 4
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 17
Description of Securities................................................. 18
Selling Stockholders...................................................... 26
Plan of Distribution...................................................... 29
Legal Matters............................................................. 30
Experts................................................................... 30
</TABLE>
1,645,913 SHARES OF
COMMON STOCK
MTR GAMING GROUP, INC.
---------------------
PROSPECTUS
---------------------
SEPTEMBER , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
The following is a list of the estimated expenses to be incurred by the
Company in connection with the distribution of the securities being registered
hereby, other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission............ $ 628.60
Accountants' Fees and Expenses.................................. $5,000.00
Legal Fees and Expenses......................................... $40,000.00
Printing Expenses............................................... $10,000.00
Miscellaneous................................................... $4,371.40
---------
$60,000.00
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is hereby made to Section 145 of the Delaware General Corporation
Law ("DGCL") relating to the indemnification of officers and directors, which
Section is hereby incorporated herein by reference.
However, in such an action by or on behalf of a corporation, no
indemnification may be made in respect of any claim, issue or matter as to which
the person is adjudged liable to the corporation unless and only to the extent
that the court determines that, despite the adjudication of liability but in
view of all the circumstances, the person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
The Company's Certificate of Incorporation and Bylaws are consistent with
Section 145. The Certificate provides that no director shall be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except: i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, ii) for acts and omissions
not in good faith or which involve intentional misconduct or knowing violation
of the law; iii) for acts for specified in Title 8, Section 174 of the DGCL, or
iv) for which the director derived an improper personal benefit.
In addition to the Certificate, the Company's By-laws provide
indemnification (the "Indemnity Provisions") for any person who is or was a
party to any threatened, pending or completed action, suit, or proceeding
whether civil, criminal, administrative, arbitrative, investigative procedure by
reason of the fact that he or she was a director, officer, employee, fiduciary
or agent of the Company or served in such capacity with another entity at the
Company's request (such persons are defined as an "Indemnified Party" or
"Indemnified Parties"). With respect to third party actions, the Indemnity
Provisions represent the Company's commitment to indemnify based on such persons
incurring expenses (including legal fees) judgments, fines, excise taxes, and
amounts paid in settlement based on civil or criminal matters. In the case of a
civil matter, the Indemnified Parties must have acted in good faith and in a
manner reasonably believed by that person to be in or not opposed to the best
interests of the Company. With respect to a criminal matter, the person must
have had no reasonable cause to believe that the conduct was unlawful.
With respect to derivative actions, Indemnified Parties are entitled to
indemnification for any and all expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection with the settlement or
defense of such actions. The Indemnified Party must show that he or she acted in
good faith and a manner reasonably believed by that person to be in or not
opposed to the best interests of the Company, except that no indemnification
shall be available if such person has been adjudged liable for negligence or
misconduct in performing his or her duties to the Company, unless the court in
which such action or suit was brought has determined upon application that,
despite the adjudication of liability but in
II-1
<PAGE>
view of all of the circumstances of the case, the Indemnified Party is fairly
and reasonably entitled to indemnification for the expenses the court deems
proper. Nonetheless, if the Indemnified Party is successful on the merits or
otherwise, he or she need not show that the applicable standard of conduct was
met. If not successful on the merits, any indemnification may only be made if
the Indemnified Party applies to the Company for indemnification and (i) a
majority vote of a quorum of the Board, or (ii) if a quorum is not available or
even if obtainable, or if a quorum of disinterested directly so directs, by
independent legal counsel in a written opinion, or (iii) by vote of the
stockholders of the Company.
With respect to both derivative actions and third party actions, the
Indemnity Provisions also provide for the advancement of expenses, including
actual and reasonable attorneys' fees, incurred in defending or investigating
any action, suit, proceeding or claim, subject to a written affirmation by the
Indemnified Party or person requesting an advance for such Indemnified Party
that he or she has met the applicable standard of conduct and that he or she
will repay such advance if it is ultimately determined that he or she did not
meet the applicable standard of conduct.
Notwithstanding the foregoing, the Company has discretion to impose as
conditions to any of the Indemnification Provisions, such requirements as may
appear appropriate in the specific case including but not limited to: a) that
any counsel representing the person be mutually acceptable to the Company and
the Indemnified Party, b) that the Company has the right to assume control of
the defense of such Indemnified Party, and c) that the Company shall be
subrogated to the extent of any payments made by way of indemnification to all
of such Indemnified Party's right of recovery, and do everything necessary to
assure such rights of subrogation to the Company.
The rights of Indemnified Parties under the Indemnity Provisions are not
exclusive of any other rights Indemnified Parties may have under the
Certificate, any agreement, vote of stockholders, vote of disinterested
directors, any liability insurance policies or otherwise. The Company currently
maintains a Directors and Officers liability insurance policy with coverage of
$10,000,000. Although the Company believes the policy and its coverage limits to
be adequate, the policy may not provide coverage in all circumstances in which
the Company's directors and officers are entitled to indemnification and may not
cover the Company's total liability to its directors and officers even in cases
where coverage is provided.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Indemnified Parties pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
persons in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-2
<PAGE>
ITEM 16. EXHIBITS
The following are filed either as exhibits to this Registration Statement or
incorporated by reference to the exhibits to prior Registration Statements and
reports of the Company as indicated:
<TABLE>
<CAPTION>
EXHIBIT NO. ITEM TITLE
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.1(1) Specimen of Common Stock Certificates
4.2(2) Warrant Certificate No. 1 issued to Madeleine LLC, dated July 2, 1996, to purchase 891,250 shares of
Common Stock of Winners Entertainment, Inc. at $1.06 per share for five years commencing July 2,
1996.
4.3(3) Warrant Certificate No. 6 issued to Madeleine L.L.C., dated December 10, 1996, to purchase 125,552
Shares of Common Stock of MTR Gaming Group, Inc. at $1.06 per share for five years commencing
December 10, 1996.
5.1(4) Opinion of Ruben & Aronson, LLP
23.1(4) Consent of Ruben & Aronson, LLP (included in Exhibit 5.1)
23.2(4) Consent of Corbin and Wertz
24.1(4) Power of Attorney (included on Signature Page)
</TABLE>
- ------------------------
(1) Previously filed as an exhibit to the Company's Form 10-K for the Fiscal
Year ended December 31, 1989 and incorporated herein by reference thereto.
(2) Previously filed as an exhibit to the Company's Form 10-Q for the Quarter
ended June 30, 1996 and incorporated herein by reference thereto.
(3) Previously filed as an exhibit to the Company's Form 8-K dated January 7,
1997.
(4) Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
II-3
<PAGE>
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in the
periodic reports filed by the Company pursuant to Section 13 or Section 15(d) of
the Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section1 3(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to any provision or arrangement, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized in the City of Chester, State of West
Virginia, on September 4, 1998.
MTR GAMING GROUP, INC.
By: /s/ EDSON R. ARNEAULT
-----------------------------------------
Edson R. Arneault
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
The undersigned directors and officers of TelePad corporation hereby
constitute and appoint Edson R. Arneault and Robert A. Blatt and each of them,
with full power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full power to execute
in our name and behalf in the capacities indicated below any and all amendments
(including post-effective amendments and amendments thereto) to this
registration statement and time to file the same, with all exhibits thereto and
other documents in connection therewith with the Securities and Exchange
commission and hereby ratify and confirm that such attorneys-in-fact, or either
of them, or their substitutes shall lawfully do or use to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 4th day of September, 1998. Signature Title
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board and
/s/ EDSON R. ARNEAULT Chief Executive Officer
- ------------------------------ and Chief Financial
Edson R. Arneault Officer Director
/s/ ROBERT A. BLATT
- ------------------------------ Director
Robert A. Blatt
/s/ ROBERT L. RUBEN
- ------------------------------ Director
Robert L. Ruben
/s/ JAMES V. STANTON
- ------------------------------ Director
James V. Stanton
/s/ WILLIAM D. FUGAZY, JR.
- ------------------------------ Director
William D. Fugazy, Jr.
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. ITEM TITLE
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.1(1) Specimen of Common Stock Certificates
4.2(2) Warrant Certificate No. 1 issued to Madeleine LLC, dated July 2, 1996, to purchase 891,250 shares of
Common Stock of Winners Entertainment, Inc. at $1.06 per share for five years commencing July 2,
1996.
4.3(3) Warrant Certificate No. 6 issued to Madeleine LLC, dated December 10, 1996, to purchase 125,552
Shares of Common Stock of MTR Gaming Group, Inc. at $1.06 per share for five years commencing
December 10, 1996.
5.1(4) Opinion of Ruben & Aronson, LLP
23.1(4) Consent of Ruben & Aronson, LLP (included in Exhibit 5.1)
23.2(4) Consent of Corbin and Wertz
24.1(4) Power of Attorney (included on Signature Page)
</TABLE>
- ------------------------
(1) Previously filed as an exhibit to the Company's Form 10-K for the Fiscal
Year ended December 31, 1989 and incorporated herein by reference thereto.
(2) Previously filed as an exhibit to the Company's Form 10-Q for the Quarter
ended June 30, 1996 and incorporated herein by reference thereto.
(3) Previously filed as an exhibit to the Company's Form 8-K dated January 7,
1997.
(4) Filed herewith.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF RUBEN & ARONSON, LLP]
September 4, 1998
MTR Gaming Group, Inc.
State Route 2 South
Chester, West Virginia 26034
Re: MTR Gaming Group, Inc.
Ladies and Gentlemen:
You have requested our opinion with respect to the public offering and sale
by certain selling stockholders (the "Selling Stockholders") of MTR Gaming
Group, Inc., a Delaware corporation (the "Company"), pursuant to a
Post-Effective Amendment No. 4 on Form S-3 to the Registration Statement on Form
S-1 (the "Registration Statement") of up to 103,053 shares of the Company's
common stock, $.00001 par value per share (the "Common Stock") and up to
1,542,860 shares of common stock issuable upon exercise of certain of the
Company's outstanding warrants (the "Warrants") held by the Selling Stockholders
as described in the Registration Statement. Of the 1,645,913 shares of Common
Stock, (i) 103,053 shares are outstanding and held by the Selling Stockholders
(the "Outstanding Common Shares"), and (ii) 1,542,860 shares (the "Warrant
Shares") are issuable upon exercise of the Warrants.
In connection with this opinion we have examined the Term Loan Agreement,
the Amended Term Loan Agreement and the Second Amended Term Loan Agreement
between the Company as Guarantor, Mountaineer Park, Inc., a wholly owned
subsidiary of the Company, and one of the Selling Stockholders; the Registration
Rights Agreement dated as of July 2, 1996 and entered into by and among the
Company and one of the Selling Stockholders as subsequently amended as of
December 10, 1996 and August 2, 1998 (the "Registration Rights Agreement"); the
Warrant Certificates dated July 2, 1996 representing the Warrants; the Company's
Certificate of Incorporation, as amended; the Company's By-laws, as amended;
records of applicable corporate proceedings of the Company; and such other
documents as we have deemed necessary as a basis for the opinion herein
expressed including other documents referenced in the Registration Statement.
With respect to such examination we have assumed the legal capacity to sign and
the genuineness of all signatures appearing on all documents presented to us as
originals, and the conformity to the originals of all documents presented to us
as conformed or reproduced copies. With respect to factual matters relevant to
such opinion, we have relied, without independent verification thereof, upon
representations, oral and written, of appropriate executive officers, directors
and responsible employees and agents of the Company.
Based upon the foregoing, and in reliance thereon, and subject to the
limitations and qualifications set forth herein, we are of the opinion that:
1. The Outstanding Common Shares are legally and validly issued, fully
paid, and non-assessable.
2. When issued and paid for in accordance with the Warrants, the
Warrant Shares will be legally and validly issued, fully paid and
non-assessable shares.
We consent to the use of our name in the Registration Statement and the
related Prospectus under the caption "Legal Matters", and we consent to the
filing of this opinion as an Exhibit to the Registration Statement.
Very truly yours,
/s/ Ruben & Aronson, LLP
----------------------------------------------------------------------
RUBEN & ARONSON, LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
MTR Gaming Group, Inc.
State Route 2 South
Chester, West Virginia 26034
We hereby consent to the incorporation by reference in post-effective Amendment
No. 4 to Form S-1 Registration Statement on Form S-3 (No. 333-12839) of our
report dated February 27, 1998, except as to Note 17, which is as of March 14,
1998, appearing in your Annual Report on Form 10-K for the years ended December
31, 1997, 1996 and 1995.
/s/ CORBIN & WERTZ
-------------------------------------------------------------------------
Corbin & Wertz
Irvine, California
September 3, 1998
