U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1996
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 0-19049
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American Gaming & Entertainment, Ltd.
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(Exact name of small business issuer as specified in its charter)
Delaware 74-2504501
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Bayport One, Yacht Club Drive, Suite 300, West Atlantic City, New Jersey 08232
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(Address of principal executive offices)
(609) 272-9099
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(Issuer's telephone number)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ___
Number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date.
Class Outstanding at November 11, 1996
---------------------------- --------------------------------
Common Stock, $.01 par value 12,532,102 shares
Exhibit Index is on page 29 of 43 pages
<PAGE>
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited)
----------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ $50,000 $ 487,000
Prepaid expenses 592,000 97,000
Investments in gaming projects - deposit -- 1,027,000
Inventories and other current assets 260,000 25,000
---------- ----------
Total current assets 902,000 1,636,000
Casino barge and improvements, net of accumulated depreciation
of $2,536,000 - 1996 and $2,384,000 - 1995 1,263,000 14,128,000
Furniture, fixtures and equipment, net of accumulated depreciation
of $64,000 - 1996 and $112,000 - 1995 25,000 152,000
Equipment under operating leases, net of accumulated depreciation
of $1,470,000 - 1995 -- 851,000
Investments in gaming projects 1,856,000 2,152,000
Deferred financing fees 0 2,275,000
Other non-current assets 795,000 41,000
----------- ----------
14,841,000 21,235,000
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited)
------------ -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Amounts due to related parties:
Accrued interest $ 9,684,000 $ 6,036,000
Dividends payable 1,203,000 778,000
Accrual for unutilized lease costs 3,506,000 4,463,000
Current portion of long term debt 39,746,000 39,072,000
------------ ------------
54,139,000 50,349,000
Accounts payable 200,000 420,000
Accrued payroll and related expenses 6,000 48,000
Accrued expenses and other current liabilities 1,383,000 1,933,000
Current portion of mortgage note payable 27,000 24,000
------------ ------------
Total current liabilities 55,755,000 52,774,000
Long term portion of estimated net liabilities for subsidiaries
in bankruptcy 2,500,000 2,250,000
Long term portion of mortgage note payable 104,000 126,000
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58,359,000 55,150,000
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Commitments and Contingencies
Stockholders' Deficiency
Preferred stock, 1,000,000 shares authorized:
Series A preferred stock, par value $.01 per share, 55,983
shares issued 1,000 1,000
Series C and D cumulative preferred stock, and Series E preferred
stock, par value $.01 per share, 4,000 shares authorized and
issued for each series 13,019,000 12,102,000
Common stock, par value $.01 per share; 50,000,000 shares
authorized 12,532,102 shares issued and 12,508,067 outstanding 126,000 126,000
Additional paid-in capital 45,621,000 46,963,000
Cost of shares held in treasury (25,000) (25,000)
Deferred financing and commitment fees -- (1,547,000)
Accumulated deficit (102,260,000) (91,535,000)
------------ ------------
(43,518,000) (33,915,000)
------------ ------------
$ 14,841,000 $ 21,235,000
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
AMERICAN GAMING & ENTERTAINMENT LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Consulting services and other revenues $ 9,000 $ 1,081,000 $ 2,181,000 $ 1,848,000
------------ ------------ ------------ ------------
Costs and expenses
Direct operating and cost of sales -- 212,000 65,000 365,000
Selling, general and administrative 1,036,000 596,000 2,347,000 2,521,000
Casino project development costs including
accrual for unutilized lease costs 100,000 929,000 204,000 2,527,000
Depreciation and amortization 248,000 901,000 916,000 2,231,000
Writedown of impaired assets 2,485,000 -- 2,504,000 2,530,000
Equity in losses of subsidiaries
in bankruptcy -- 1,001,000 250,000 5,408,000
------------ ------------ ------------ ------------
Total costs and expenses 3,869,000 3,639,000 6,286,000 15,582,000
------------ ------------ ------------ ------------
Operating loss (3,860,000) (2,558,000) (4,105,000) (13,734,000)
------------ ------------ ------------ ------------
Other income (expense)
Interest income 21,000 11,000 49,000 56,000
Interest expense (4,781,000) (1,332,000) (7,609,000) (3,911,000)
Net gain on sale of investments (8,000) 301,000 940,000 301,000
------------ ------------ ------------ ------------
Total other income (expense) (4,768,000) (1,020,000) (6,620,000) (3,554,000)
------------ ------------ ------------ ------------
Net loss (8,628,000) (3,578,000) (10,725,000) (17,288,000)
Dividends and accretion on preferred stock 467,000 325,000 1,342,000 1,083,000
------------ ------------ ------------ ------------
Net loss for common stockholders $ (9,095,000) $ (3,903,000) $(12,067,000) $(18,371,000)
============ ============ ============ ============
Net loss per common share $ (0.73) $ (0.32) $ (0.96) $ (1.49)
============ ============ ============ ============
Weighted average number of common
shares outstanding 12,532,102 12,296,003 12,532,102 12,355,155
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------
1996 1995
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<S> <C> <C>
Operating Activities
Net loss $ (10,725,000) $(17,288,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Gain on disposition of fixed assets (262,000)
Depreciation and amortization 916,000 3,718,000
Amortization of deferred financing costs 3,822,000 477,000
Net gain on sale of keno operations (948,000) --
Stock option compensation expense -- 208,000
Consulting expense / Common Stock -- 44,000
Reorganization expense -- 530,000
Writedown of impaired assets 2,504,000 2,530,000
Changes in operating assets and liabilities, net of effect
from business combination:
Prepaids, inventories and other current assets (502,000) (479,000)
Other non-current assets 153,000 149,000
Accounts payable, accrued expenses and other current
liabilities 3,218,000 6,216,000
------------- ------------
Net cash used in operating activities (1,562,000) (4,157,000)
------------- ------------
Investing activities
Proceeds from sale of keno operations 500,000 3,188,000
Capital expenditures -- (328,000)
Investments in gaming activities 973,000 (1,450,000)
Amounts received under financing agreement 87,000 191,000
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Net cash provided by (used in) investing activities 1,560,000 1,601,000
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Financing Activities
Proceeds from notes payable and other long-term obligations 986,000 3,077,000
Proceeds from issuance of common stock -- 28,000
Interest payments on accrued interest (132,000) --
Principal payments on capitalized leases -- (1,230,000)
Principal payments on notes payable (1,289,000) --
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Net cash (used in) provided by financing activities (435,000) 1,875,000
------------- ------------
Decrease in cash (437,000) (681,000)
Cash at beginning of quarter $ 487,000 $ 1,605,000
------------- ------------
Cash at end of quarter $ 50,000 $ 924,000
============= ==============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
AMERICAN GAMING & ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. The consolidated interim financial statements include the
accounts of American Gaming & Entertainment, Ltd. and its subsidiaries (the
"Company"). The unaudited consolidated interim financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company, all adjustments (including normal recurring accruals) and disclosures
(including events occurring subsequent to September 30, 1996) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 1996 may not be indicative of
the results that may be expected for the year ending December 31, 1996. For
further information, reference is also made to the consolidated financial
statements contained in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1995.
The accompanying unaudited consolidated interim financial statements have been
prepared on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. As further described in Note 2, the Company has sustained recurring
operating losses since its inception. The Company has also had a history of
insufficient liquidity and has been dependent upon its largest stockholder,
Shamrock Holdings Group, Inc., formerly known as Bennett Holdings, Inc.
("Shamrock Holdings"), and certain related entities (The Bennett Funding Group,
Inc. ("Bennett Funding") and Bennett Management and Development Corp. ("Bennett
Management")) for both working capital and project related financing. As a
result, the Company's recurring losses, negative working capital, stockholders'
deficiency, defaults under its debt agreements, uncertainties relating to the
ability to consummate the liquidation of certain of its subsidiaries (see Notes
2 and 3) and uncertainties relating to the bankruptcy of, and charges relating
to, Bennett Funding and Bennett Management (see Note 2) raise substantial doubt
about the ability of the Company to continue as a going concern. Management's
plans concerning these matters are discussed in Note 2. The accompanying
unaudited consolidated interim financial statements do not include any
additional adjustments that might result from the outcome of these
uncertainties.
As a result of the bankruptcy proceedings under Chapter 11 of the U.S.
Bankruptcy Code (the "Code") with respect to two of the Company's wholly owned
subsidiaries, AMGAM Associates, a Mississippi partnership ("AMGAM"), and
American Gaming and Resorts of Mississippi, Inc., a Mississippi corporation
("AGRM"), and the expected liquidation of these subsidiaries in the near future,
the Company's control of these entities is likely to be temporary. In accordance
with generally accepted accounting principles, the Company elected, effective
beginning the year ended December 31, 1995, to deconsolidate AMGAM and AGRM and
present the results of operations for AMGAM and AGRM on the equity basis of
accounting as a single line item in the Consolidated Statement of Operations for
financial reporting purposes.
<PAGE>
Certain reclassifications have been made to the 1995 amounts in order to conform
to the classifications used in 1996.
NOTE 2: LIQUIDITY AND CONTINUATION OF BUSINESS
The Company has sustained recurring operating losses since its inception,
including significant losses related to the Gold Shore Casino, as more fully set
forth below. The Company also has had a history of insufficient liquidity and
has been dependent upon Shamrock Holdings, Bennett Funding and Bennett
Management for both working capital and project related financing. However, as a
result of the bankruptcy filings of Bennett Funding and Bennett Management on
March 29, 1996 and the filing by the U.S. Securities and Exchange Commission
(the "Commission") of securities fraud charges against Bennett Funding and
Bennett Management on March 28, 1996, the Company does not anticipate receiving
any additional funds from the Bennett entities. As of September 30, 1996, the
Company owes approximately $52,936,000 to Shamrock Holdings (see Note 4), which
amount includes approximately $2,524,000 under a 66-month operating lease
between the Company and Bennett Management (the "SCS Lease") with respect to the
"Sioux City Sue" riverboat vessel and its supporting barge (the "Vessels") which
lease, as discussed below, Shamrock Holdings has orally represented to the
Company that Bennett Management, prior to its bankruptcy filing, assigned to
Shamrock Holdings.
In the AMGAM bankruptcy proceeding pending before the United States Bankruptcy
Court, Southern District of Mississippi (the "Bankruptcy Court"), the committee
for unsecured creditors in the bankruptcy proceeding of AMGAM (the "AMGAM
Committee") has filed an adversary complaint (the "Complaint") challenging the
1995 transfers of the ownership interests in the Gold Coast Casino barge (the
"Gold Coast Barge") by AGRM and AMGAM to the Company and the 1995 transfer of
the leasehold interest in the Gold Coast Barge by AMGAM to the Company as
fraudulent transfers or voidable preferences under the Code, and seeking, among
other things, that all rental payments from President Mississippi Charter
Corporation ("PMCC") under an agreement (the "Charter Agreement") between the
Company and PMCC whereby PMCC is leasing from the Company the Gold Coast Barge
which the Company owns and on which the Company had previously operated the Gold
Shore Casino, be deposited into an escrow account for the benefit of the
creditors of AMGAM and AGRM (see Note 5).
On April 29, 1996, a preliminary injunction (the "Preliminary Injunction"),
which was agreed upon by the AMGAM Committee and the committee for unsecured
creditors in the bankruptcy proceeding of AGRM (collectively with the AMGAM
Committee, the "Committees") and the Company, was entered by the Bankruptcy
Court (i) to require the May 1996 through July 1996 rental payments
(approximately $329,000 per month) from PMCC under the Charter Agreement (the
"PMCC Payments") be deposited into an escrow account (the "AMGAM/AGRM Escrow
Account") for the benefit of the creditors of AMGAM and AGRM pending
confirmation of a proposed joint plan of liquidation and (ii) to allow a monthly
payment from such escrow account to the Company in the amount of $304,000 for
its monthly operating expenses.
<PAGE>
The Preliminary Injunction was revised and extended by the Bankruptcy Court
effective August 1, 1996 (i) to require the PMCC Payments from August 1996 to
the end of the Injunction Term (as defined in the last sentence of this
paragraph) be deposited into such escrow account for the benefit of the
creditors of AMGAM and AGRM pending confirmation of a proposed joint plan of
liquidation and (ii) to allow a monthly payment from such escrow account to the
Company in the amount of approximately $282,000 for its monthly operating
expenses (subject, however, to the Term Sheet and the PMCC Agreement, both terms
as defined below). Such payments are the Company's only present significant
source of net cash flow and liquidity. The Preliminary Injunction will remain in
effect until the agreement by the Company and the Committees on a joint plan of
liquidation of the AMGAM and AGRM estates or upon further order of the
Bankruptcy Court (the "Injunction Term").
The Company, Shamrock Holdings, AMGAM, AGRM and the Committees have negotiated a
term sheet (the "Term Sheet") for a proposed joint plan of liquidation (the
"Plan"), more fully described below, pursuant to which the PMCC Payments and
payments with respect to certain slot machines acquired by PMCC from AMGAM
formerly used in the operation of the Gold Shore Casino (the "FF&E Payments")
would be deemed assets of the bankruptcy estates of AMGAM and AGRM and the
Company would receive a portion of such aggregate payments, if any. As more
fully described below, upon confirmation of the Plan, the Complaint and all
other litigation brought by the Committees against the Company would be
dismissed. There can be no assurance that the Plan will be implemented or that
the Company will receive any payments from the AMGAM or AGRM bankruptcy cases
pursuant to the Plan or otherwise. Pursuant to the Term Sheet, notwithstanding
the Preliminary Injunction, the Company will be allowed a monthly payment from
the escrow account for the benefit of the creditors of AMGAM and AGRM in the
amount of approximately $261,000 for the Company's monthly operating expenses
beginning with the December 1996 PMCC Payment.
On October 14, 1996, the Company advised PMCC that PMCC was in default under the
Charter Agreement for failure to make the October 1996 PMCC Payment when due. On
October 28, 1996, PMCC alleged that the Company had breached the Charter
Agreement by failing to ensure PMCC's peaceful use and enjoyment of the Gold
Coast Barge. On November 4, 1996, the Company, and PMCC agreed, with the
concurrence of the Committees and Shamrock Holdings, (the "PMCC Agreement") (i)
to allow PMCC to pay one-half of the amounts of the PMCC Payments from October
1996 through December 1996 (of which amounts the Company has received
approximately $141,000 relating to each of the October 1996 and November 1996
PMCC Payments and is entitled to receive approximately $130,000 relating to the
December 1996 PMCC Payment), during which time the Company and PMCC will attempt
to negotiate a purchase of the Gold Coast Barge by PMCC, (ii) that the
acceptance of such payments will not constitute satisfaction of such PMCC
Payments or be considered a waiver by the Company of any of its rights under the
Charter Agreement, and (iii) to withdraw and toll until December 15, 1996 all
declarations of default.
<PAGE>
If (i) the Company, AMGAM, AGRM and the Committees can not agree on a joint
consensual plan of liquidation for AMGAM and AGRM incorporating the terms of the
Term Sheet or any other acceptable terms or any such plan is agreed upon but not
approved by the creditors in the AMGAM and AGRM bankruptcy proceedings in
accordance with the provisions of the Code or thereafter confirmed by the
Bankruptcy Court and (ii) a motion filed by the AMGAM Committee with the
Bankruptcy Court seeking the substantive consolidation of the AMGAM and AGRM
bankruptcy proceedings, resulting in a combination of the assets and liabilities
of AMGAM and AGRM into one bankruptcy estate, is granted by the Bankruptcy Court
and the AMGAM Committee prevails on the Complaint, the Company would not be able
to meet its obligations as they come due. Additionally, if the Company and the
Committees can not agree on a joint consensual plan of liquidation for AMGAM and
AGRM incorporating the terms of the Term Sheet or any other acceptable terms,
and, as a result, the Court (i) terminates the Preliminary Injunction and (ii)
disallows any payments to the Company for its monthly operating expenses from
the PMCC Payments, the Company would not be able to meet its obligations as they
come due. In either such case, the Company would then need to pursue a formal
plan of reorganization or liquidation which would generally result in the sale
of the Company's assets to be applied to outstanding obligations. There can be
no assurance that if either action is required to be pursued that all such
obligations would be completely satisfied. Further, in the event of either
action, it is unlikely that stockholders of the Company will recover any of
their investment in the Company. Even if the Plan is confirmed in the AMGAM and
AGRM bankruptcies, and the Company receives its portion of the PMCC Payments,
such payments would not be sufficient to satisfy the Company's currently
anticipated operating needs and its obligations to Shamrock Holdings and Bennett
Management.
As discussed below, the Company is seeking the modification or termination of
certain agreements (excluding Shamrock Holdings' assumption of the obligation
related to a first preferred ship mortgage (the "Ship Mortgage") on the Gold
Coast Barge of approximately $2,278,000, which assumption has been consummated)
executed between the Company, Shamrock Holdings and Bennett Management whereby
the Company agreed to assign all its rights and interests in the Charter
Agreement, including the rights to all PMCC Payments, and the Gold Coast Barge
to Shamrock Holdings and Bennett Management, respectively, for cancellation of
approximately $22,722,000 in debt due Shamrock Holdings with respect to the Gold
Shore Casino (the "Barge Debt") and Shamrock Holdings' assumption of the Ship
Mortgage (collectively, the "Bennett Debt Exchange") and a restructuring of all
other obligations due from the Company to Shamrock Holdings because (i) the
Company would not be able to meet all of its obligations as they come due if all
or a significant portion of the PMCC Payments were required to be paid to
Shamrock Holdings and (ii) the Company is otherwise unable to service the debt
or repay the principal due to Shamrock Holdings under all other such
obligations.
<PAGE>
Shamrock Holdings has orally represented to the Company that Bennett Management,
prior to its bankruptcy filing, assigned to Shamrock Holdings all of Bennett
Management's rights and obligations under all agreements previously executed by
and between the Company and Bennett Management including, without limitation,
(i) agreements constituting the Bennett Debt Exchange, (ii) a security agreement
whereby the Company granted to Bennett Management a security interest in all of
the Company's accounts receivable and all bank accounts in the State of New
Jersey to secure all obligations owing by the Company to Bennett Management and
its affiliates and to obtain the agreement of Shamrock Holdings to enter into
the Bennett Debt Exchange (the "Security Agreement") and (iii) the SCS Lease.
However, the Company has not been provided with written evidence of such
assignment and, as the result of the bankruptcy filing of Bennett Management,
any such assignment might be challenged as a fraudulent transfer or voidable
preference under the Code. There can be no assurance that such assignment was
entered into between Shamrock Holdings and Bennett Management or, if entered
into, that it will not be voided as a fraudulent transfer or voidable preference
in the bankruptcy proceeding of Bennett Management or otherwise voided on other
grounds if any such assignment became effective within one year prior to the
bankruptcy filing of Bennett Management.
If Shamrock Holdings, and, to the extent an assignment to Shamrock Holdings of
Bennett Management's interest in the agreements constituting the Bennett Debt
Exchange never took place or is voided as a fraudulent transfer, voidable
preference or otherwise in the bankruptcy proceeding of Bennett Management,
Bennett Management, agree to a termination of the Bennett Debt Exchange as of
the respective dates of the agreements comprising the Bennett Debt Exchange
(excluding Shamrock Holdings' assumption of the Ship Mortgage) and agree to
continue to let the Company utilize the PMCC Payments (subject in all cases to
the Preliminary Injunction) (i) the Company would recognize as revenue amounts
previously recorded as indebtedness to Shamrock Holdings arising out of the PMCC
Payments received by the Company (the "PMCC/Bennett Debt") from July 21, 1995,
the scheduled effective date of the Bennett Debt Exchange (the "BDE Date"),
through December 31, 1995 as of the date of such termination and (ii) the
Company would reverse interest expense recognized on such PMCC/Bennett Debt.
Based upon (a) a verbal understanding which the Company believed it had with
Shamrock Holdings to allow the Company to utilize and retain the PMCC Payments
while the Company and Shamrock Holdings were negotiating the terms of a
comprehensive restructuring and (b) the course of conduct of Shamrock Holdings
from January 1, 1996 through June 1996, the Company utilized, retained and
recorded as revenues the PMCC Payments from January 1, 1996 through June 30,
1996. If the Company's understanding is determined to be incorrect or a
restructuring of the Company's obligations to Shamrock Holdings and, if
necessary, Bennett Management is not consummated, the Company would (1) reverse
as revenue the PMCC Payments from January 1, 1996 through June 30, 1996, (2)
record such payments as additional PMCC/Bennett Debt and (3) record interest
expense on such PMCC/Bennett Debt.
In June 1996, the Trustee (the "Trustee") for Bennett Funding and Bennett
Management under Chapter 11 of the Code (see Note 7), to whom, pursuant to
information from the Trustee, Mr. Michael Bennett, the sole owner of Shamrock
Holdings, has transferred of all of the outstanding stock of Shamrock Holdings,
orally notified the Company that Shamrock Holdings is entitled to all PMCC
Payments to be received by the Company as a result of Shamrock Holdings being
the holder of the Ship Mortgage and a second preferred ship mortgage on the Gold
Coast Barge in the amount of $33,000,000 (the "Second Mortgage"), which secures
<PAGE>
the Barge Debt. However, the Company has continued to utilize the PMCC Payments
for its operating needs after June 30, 1996 in accordance with the terms of the
Preliminary Injunction because the Company's management determined that, because
of the Company's liquidity problems, transferring the PMCC Payments received by
the Company under the Preliminary Injunction to Shamrock Holdings would prevent
the Company from meeting its obligations to its creditors and would require the
Company to file for protection under the Code. The Company has not transferred
to Shamrock Holdings the Gold Coast Barge, the Charter Agreement and related
PMCC Payments received by the Company for revenues earned under the Charter
Agreement since July 1, 1996 (totaling approximately $987,000 from July 1, 1996
through September 30, 1996, and which payments are being recorded as
PMCC/Bennett Debt in the accompanying Unaudited Consolidated Balance Sheet as of
September 30, 1996). Additionally, Shamrock Holdings or, to the extent an
assignment to Shamrock Holdings of Bennett Management's interest in the
agreements constituting the Bennett Debt Exchange never took place or are voided
as a fraudulent transfer or voidable preference in the bankruptcy proceeding of
Bennett Management, Bennett Management has not yet canceled the Barge Debt as
required by the Bennett Debt Exchange. In addition, the Company has (a) recorded
interest expense on the PMCC/Bennett Debt recorded by the Company from July 1,
1996 through September 30, 1996 (totaling approximately $23,000) and (b) for the
reasons set forth below, continued to record for the three months ended
September 30, 1996 (i) interest expense on the Barge Debt that was to have been
canceled by Shamrock Holdings, or, if necessary, Bennett Management pursuant to
the Bennett Debt Exchange and (ii) depreciation and amortization expense on the
Gold Coast Barge that were to have been transferred to Shamrock Holdings
pursuant to the Bennett Debt Exchange (totaling approximately $240,000 for the
three months ended September 30, 1996) (although, as discussed below, the
Company did not recognize any rental revenue associated with such expenses for
the three months ended September 30, 1996). If Shamrock Holdings and, to the
extent an assignment to Shamrock Holdings of Bennett Management's interest in
the agreements constituting the Bennett Debt Exchange never took place or are
voided as a fraudulent transfer or voidable preference in the bankruptcy
proceeding of Bennett Management, Bennett Management agree to a termination of
the Bennett Debt Exchange as of the respective dates of the agreements
comprising the Bennett Debt Exchange and agree to continue to let the Company
utilize the PMCC Payments, (i) the Company would recognize as revenue amounts
previously recorded as PMCC/Bennett Debt from July 1, 1996 through September 30,
1996 as of the date of such termination and (ii) the Company would reverse
interest expense recognized on such PMCC/Bennett Debt.
The Gold Coast Barge and related leasehold improvements (with a value on the
Company's books totaling approximately $11,263,000 net of accumulated
depreciation and amortization, as of September 30, 1996) that were to have been
transferred to Bennett Management pursuant to the Bennett Debt Exchange and the
Barge Debt that was to have been canceled by Shamrock Holdings or, if necessary,
Bennett Management pursuant to the Bennett Debt Exchange (totaling approximately
$25,000,000 as of September 30, 1996, and interest on such debt of approximately
$4,117,000 from the BDE Date through September 30, 1996) are shown as assets and
liabilities, respectively, of the Company as of September 30, 1996. Such amounts
are shown on the accompanying Unaudited Consolidated Balance Sheet as of
September 30, 1996 because documents have not been executed to formally transfer
the Gold Coast Barge from the Company to Bennett Management and to forgive such
indebtedness by Shamrock Holdings or, if necessary, Bennett Management all in
accordance with the terms of the Bennett Debt Exchange. The related revenues for
the three months ended September 30, 1996 however were not recognized as such
and instead were recorded as PMCC/Bennett Debt because (i) the Trustee notified
<PAGE>
the Company that Shamrock Holdings is entitled to all PMCC Payments to be
received by the Company and (ii) as of September 30, 1996 Shamrock Holdings had
not executed documents agreeing to a termination or postponement of the Bennett
Debt Exchange and therefore the Company may not have had a right to keep such
revenues.
There can be no assurance that Shamrock Holdings or, if necessary, Bennett
Management will agree to modify or terminate the Bennett Debt Exchange or
restructure all other obligations due from the Company to Shamrock Holdings and,
if applicable, Bennett Management. Failure to obtain such modification,
termination or restructuring would have a material adverse effect on the Company
and the Company would need to pursue a formal plan of reorganization or
liquidation. Any action to be taken by Bennett Management in connection with
modifying or terminating the Bennett Debt Exchange would probably require the
approval of the bankruptcy court before which the Bennett Management bankruptcy
proceeding is being heard.
In addition to the foregoing, the Company is delinquent in the payment of
interest due on its various obligations to Shamrock Holdings totaling
approximately $9,684,000 as of September 30, 1996 and is therefore in default
with respect to such payments under the Company's various loan agreements with
Shamrock Holdings. If Shamrock Holdings takes any action with respect to its
rights and remedies in connection with such defaults, it would have a material
adverse effect on the Company's business and financial condition and the Company
would need to pursue a formal plan of reorganization or liquidation. The Company
is also delinquent in the payment of rent totaling approximately $2,524,000 as
of September 30, 1996 under the SCS Lease. Shamrock Holdings or Bennett
Management, to the extent an assignment to Shamrock Holdings of Bennett
Management's interest in the Security Agreement never took place or is voided as
a fraudulent transfer, voidable preference or otherwise in the bankruptcy
proceeding of Bennett Management, has a security interest in certain assets of
the Company including (i) the Gold Coast Barge pursuant to the Ship Mortgage,
the Second Mortgage and other agreements and (ii) all of the Company's accounts
receivable and bank accounts located in the State of New Jersey and therefore
because of such defaults could foreclose on such assets in the amount of such
defaults. There can be no assurance that Shamrock Holdings and, if necessary,
Bennett Management will agree on and execute an agreement restructuring the
Company's obligations to Shamrock Holdings and, if applicable, Bennett
Management. Additionally, any action required to be taken by Bennett Management
would probably require the approval of the bankruptcy court before which the
Bennett Management bankruptcy proceeding is being heard. Since the announcement
of securities fraud charges against, and the commencement of bankruptcy
proceedings by, certain Bennett entities, including Bennett Funding and Bennett
Management, and the agreement by Mr. Michael Bennett, the sole owner of Shamrock
Holdings, to transfer all of the outstanding stock of Shamrock Holdings to the
Trustee, the Company has had preliminary negotiations with the Trustee on a
<PAGE>
restructuring of the Company's obligations to Shamrock Holdings and, if
applicable, Bennett Management. Even if the Plan is confirmed, and such a
restructuring is consummated, there can be no assurance that the Company would
receive payments pursuant to the Plan sufficient to satisfy the Company's
currently anticipated operating needs and its obligations to Shamrock Holdings
and, if applicable, Bennett Management, as restructured.
The Company has not experienced any success in raising debt or equity financing
from sources independent of Shamrock Holdings, Bennett Funding or Bennett
Management and has no present commitments or other alternatives for such
financing. Given the Company's historical operating losses and present liquidity
position and the legal problems described above relating to certain Bennett
entities it is unlikely that the Company will achieve any success in its attempt
to raise additional equity, working capital or long-term project related
financing.
Given the Company's present financial and liquidity position, the legal problems
described above relating to certain Bennett entities and the Company's other
litigation described below (see Note 5), the business of the Company is unlikely
to continue to be the ownership of equity interests in casino gaming ventures.
Additionally, the Company's ability to continue in business is dependent upon
its ability (i) to obtain Shamrock Holdings' and, if necessary, Bennett
Management's agreement to modify on terms acceptable to the Company or terminate
the Bennett Debt Exchange (excluding Shamrock Holdings' assumption of the Ship
Mortgage) and restructure all other obligations due from the Company to Shamrock
Holdings and, if applicable, Bennett Management, (ii) to consummate the
liquidations under Chapter 11 of the Code of AMGAM and AGRM under plans
acceptable to the Company, resulting in a liquidation of the various trade and
debt obligations of those entities, and (iii) to satisfactorily resolve the
litigation filed against the Company (see Note 5). However, there can be no
assurance the Company will be successful in obtaining Shamrock Holdings' and, if
necessary, Bennett Management's agreement to modify on terms acceptable to the
Company or terminate the Bennett Debt Exchange (excluding Shamrock Holdings'
assumption of the Ship Mortgage) and restructure all other obligations due from
the Company to Shamrock Holdings and possibly Bennett Management, consummating
the liquidations of AMGAM and AGRM under Chapter 11 of the Code under plans
acceptable to the Company or satisfactorily resolving the litigation filed
against the Company. If the Company is unsuccessful in these efforts, the
Company would then need to pursue a formal plan of reorganization or liquidation
of the Company. Either such action would generally result in the sale of the
Company's assets to satisfy outstanding obligations. There can be no assurance
that if either action is required to be pursued that all such obligations would
be completely satisfied. Further, in the event of either action, it is unlikely
that the stockholders of the Company will recover any of their investment in the
Company.
<PAGE>
NOTE 3: SIGNIFICANT DEVELOPMENTS WITH RESPECT TO INVESTMENTS IN GAMING PROJECTS
Mississippi
- -----------
The Company, Shamrock Holdings, AMGAM, AGRM and the Committees have executed the
Term Sheet, which terms are to be incorporated into the Plan. Pursuant to the
Plan as currently agreed upon by such parties, (i) the Company would transfer to
a creditors trust for the holders of allowed claims in the bankruptcy
proceedings of AMGAM and AGRM (excluding the Company and Shamrock Holdings) an
undivided 22.7% ownership interest in the Gold Coast Barge and the Charter
Agreement, which assets will be held by a trustee (the "Mississippi Trustee"),
(ii) the Mississippi Trustee would receive and disburse in accordance with the
terms of the Plan all PMCC Payments and all FF&E Payments, (iii) each
administrative and priority claim, as defined in the Code, incurred in
connection with the bankruptcy proceedings of AMGAM and AGRM would be paid in
full from the respective estates of AMGAM and AGRM in accordance with statutory
priorities pursuant to the Code, (iv) each secured claim (excluding the Ship
Mortgage) would be paid in full from the sale of the related collateral, (v)
each unsecured claim, excluding any claims of the Company and Shamrock Holdings,
would be paid on a pro rata basis (a) from the assets of the respective estates
of AMGAM and AGRM, including all FF&E Payments made from October 1, 1995 through
October 1, 1997 and the funds remaining in the escrow account established
pursuant to the Preliminary Injunction, (b) from a monthly payment in the
aggregate amount of $67,500 out of the PMCC Payments (which total approximately
$329,000 per month) from the date the Plan is confirmed (the "Confirmation
Date") through the end of the initial term of the Charter Agreement and the
renewal term, if any, and (c) from 22.7% of the net proceeds of a sale of the
Gold Coast Barge, if any, (vi) the Mississippi Trustee would escrow $2,500 per
month, up to an aggregate amount of $60,000, for use in paying any and all costs
of protecting the Gold Coast Barge in the event of default by PMCC under the
Charter Agreement, and (vii) the Company's and Shamrock Holdings' unsecured
claims (in the collective claimed amount of $33,000,000) and the Ship Mortgage
would be paid from the balance of (a) the monthly payments (approximately
$259,000) made by PMCC pursuant to the Charter Agreement from the Confirmation
Date and (b) the net proceeds of a sale of the Gold Coast Barge, if any.
The amounts to be paid to creditors would be subject to the claim allowance
process in the AMGAM and AGRM bankruptcies, pursuant to which all allowed claim
amounts, in the order set forth above, would be fixed for purposes of
distributions under the Plan. Prior to the final approval of any settlement
agreement incorporating the terms of the Plan, the Company and Shamrock Holdings
shall advise AMGAM, AGRM and the Committees of the allocation between the
Company and Shamrock Holdings of the distributions to be made pursuant to clause
(vii) in the immediately preceding paragraph. The Bankruptcy Court set May 17,
1996 as the final date for filing proofs of claim or interest in both the AMGAM
and AGRM bankruptcy cases, except with respect to Bennett Management and related
entities, for which the Bankruptcy Court has extended such date until November
18, 1996. Additionally, pursuant to the Plan, the Committees would agree to stay
all litigation, including the Complaint, until the Confirmation Date, at which
time the Committees would dismiss the Complaint and all other litigation brought
against the Company with prejudice, that is, the Committees would be precluded
from filing any action against the Company based on the alleged causes of action
set forth in the Complaint or any such other litigation.
<PAGE>
There can be no assurance that the Company, AMGAM, AGRM and the Committees will
agree on a joint plan of liquidation for AMGAM and AGRM with terms and
conditions substantially equivalent to the Plan, that the Company will receive
any distributions under the Plan, that the creditors in the AMGAM and AGRM
bankruptcy proceedings will approve any such plan in accordance with the
provisions of the Code or that any such plan will thereafter be confirmed by the
Bankruptcy Court.
As previously described, the Company and PMCC have entered into an agreement
allowing PMCC to pay one-half of the amounts of the PMCC Payments from October
1996 through December 1996, during which time the Company and PMCC will attempt
to negotiate a purchase of the Gold Coast Barge by PMCC (See Note 2).
In the third quarter of 1996, the Company recognized a write down of $2,146,000
in the value of its investment in the Gold Coast Barge and the related leasehold
improvements to reflect its appraised market value (see Note 8). In the first
quarter of 1996, the Company reevaluated the useful life of the Gold Coast Barge
and the related leasehold improvements based on the Company's current plans for
the use of such barge and determined that it has a useful life of 25 years,
which is the industry average for such type of barge. Previously, the Gold Coast
Barge and the related leasehold improvements being depreciated over a useful
life of 10 years based on their previous utilization by AMGAM. For the three
months and nine months ended September 30, 1996 the change in such estimated
useful life reduced depreciation and amortization expense by approximately
$360,000 and $1,079,000, respectively, and reduced net loss per common share by
approximately $.03 and $.09, respectively.
Harolds Club Casino
- -------------------
Pursuant to an agreement between Shamrock Holdings and the Company (the "HC
Purchase Agreement") under which Shamrock Holdings provided the necessary funds
to the Company to close the purchase of the Harolds Club casino in Reno, Nevada,
the Company transferred to Shamrock Holdings title to the land and the building
related to the Harolds Club, Shamrock Holdings canceled $650,000 of the
Company's then outstanding indebtedness to Shamrock Holdings and caused Bennett
Funding to cancel $500,000 of the Company's then outstanding indebtedness to
Bennett Funding, and the Company agreed to transfer to Shamrock Holdings all of
the Company's rights, title and interest in certain land leases related to the
Harolds Club by July 30, 1995. The Company is in breach of the latter provision
because such transfer has not been completed pending the negotiation by the
Company with Shamrock Holdings relating to possible future development or sale
of the Harolds Club. The HC Purchase Agreement does not give Shamrock Holdings
any particular rights with respect to such breach by the Company. Although the
Company is obligated until such transfer to make all lease payments under such
leases and notwithstanding that such leases have not yet been assigned to
<PAGE>
Shamrock Holdings, since July 30, 1995 Shamrock Holdings has assumed
responsibility for all carrying costs of the Harolds Club property including,
but not limited to, such lease payments, taxes, insurance and utilities.
However, even if the Company transfers to Shamrock Holdings all of the Company's
rights, title and interest in such leases, the Company could still be ultimately
obligated under such leases, pursuant to certain guaranties of lease executed by
the Company. The Company has been informed by Shamrock Holdings and the lessors
under such leases that Shamrock Holdings has not made any lease payments from
April 1996 through November 1996 due under such leases or quarterly property
taxes due under such leases, collectively totaling approximately $543,000. The
lessors have, among other rights, the right to terminate the respective leases
and hold the Company responsible for all obligations under such leases through
the end of the respective lease terms. Such leases require aggregate annual
lease payments of approximately $620,000, $584,000 and $548,000 for 1996, 1997
and 1998, subject to increase based upon increases in the Consumer Price Index,
and have terms ending between June 1997 and October 2022. The Company has
recorded the unpaid lease payments and property taxes from April 1996 through
September 1996 totaling approximately $439,000 (the "Unpaid Harolds
Obligations") as current liabilities as of September 30, 1996. The Company has
also recorded the amount of the Unpaid Harolds Obligations as a receivable due
from Shamrock Holdings as of September 30, 1996, but, as a result of the
Company's determination as of September 30, 1996 that there is a substantial
likelihood that such amount will be uncollectible, wrote-off such amount as of
September 30, 1996. In September 1996, Shamrock Holdings and the Company entered
into an agreement pursuant to which Shamrock Holdings has agreed, upon the sale
of the Harolds Club, to reimburse the Company for (i) all costs and expenses, in
an amount not to exceed $15,000, incurred by the Company in connection with such
sale, (ii) all reasonable attorneys' fees incurred by the Company in connection
with litigation commenced against, among others, the Company by the five lessors
of the Harolds Club property seeking, among other relief, payment of all unpaid
lease payments and property taxes (see Note 5), and (iii) the Unpaid Harolds
Obligations.
Indiana
- -------
Effective August 23, 1996, the Company transferred to NBD Bank, N.A., as
trustee, ("NBD") the Company's 24.5% equity interest (the "Interest") in RSR,
LLC ("RSR"), representing the equivalent of a 4.9% equity interest in a
riverboat gaming entertainment complex in the City of Rising Sun, Indiana on the
Ohio River (the "Rising Sun Project"). Additionally, the Company has granted a
irrevocable proxy to the other members of RSR (collectively, the "Remaining
Members") to vote the Interest in the same manner and proportion as the
Remaining Members vote on any matter, provided, however, that such proxy may not
be exercised to vote in favor of any action that could reasonably be viewed as
decreasing or otherwise adversely affecting the value of the Interest or the
ability to sell or otherwise transfer the Interest. Prior to August 23, 1998,
the Company may instruct NBD to sell any portion of the Interest, for the
benefit of the Company, to a third party approved by the Indiana Gaming
Commission ("IGC"), subject to rights of first refusal held by RSR, the
Remaining Members and Indiana RBG, L.P. ("RBG"), the partner of RSR in the
Rising Sun Project. Any portion of the Interest which is not transferred prior
to August 23, 1998 shall be purchased from NBD, for the benefit of the Company,
by either the Remaining Members or RSR at an average appraised fair market
value. As a result of the Company, RSR, the Remaining Members and RBG advising
<PAGE>
the staff of the IGC of their intention to enter into the foregoing
arrangements, no determination on the Company's suitability for licensure was
made at the meetings of the IGC held on August 19 and 20, 1996 and the Company
does not believe that the IGC has any present intention of making a
determination on the Company's suitability for licensure.
NOTE 4: LONG TERM DEBT AND ACCRUAL FOR UNUTILIZED LEASE COSTS
As discussed above, the Company is delinquent in the payment of (i) interest due
under the Company's various loan agreements with Shamrock Holdings and (ii) rent
under the SCS Lease (see Note 2) and therefore has classified all indebtedness
due to Shamrock Holdings as current liabilities in the accompanying unaudited
consolidated interim financial statements. At September 30, 1996 and December
31, 1995, the Company had outstanding amounts due Shamrock Holdings
approximating $52,936,000 and $45,108,000, respectively, including accrued
interest of approximately $9,684,000 and $6,036,000, respectively. Such amounts
due Shamrock Holdings also include approximately $2,524,000 and $1,567,000,
respectively, under the SCS Lease which Shamrock Holdings has orally represented
to the Company that Bennett Management, prior to its bankruptcy filing, assigned
to Shamrock Holdings (see Note 2). As a result of the Company's determination as
of December 31, 1995 that there is a substantial likelihood that the Company
will not record any revenues from the Vessels through the end of the SCS Lease
term to offset the remaining lease payments due Shamrock Holdings thereunder,
the portion of such lease payments for the period from October 1, 1996 through
the end of the SCS Lease term totaling approximately $3,506,000 has been
recorded as a liability under the "Accrual for unutilized lease costs" account
as of September 30, 1996. Additionally, the amount due Shamrock Holdings as of
December 31, 1995 includes approximately $562,000 under a line of credit from
Bennett Funding to the Company which Shamrock Holdings has orally represented to
the Company that Bennett Funding, prior to its bankruptcy filing, assigned to
Shamrock Holdings. All borrowings under such line of credit were repaid by the
Company to Bennett Funding in the first quarter of 1996.
In addition to the Company's indebtedness to Shamrock Holdings, at September 30,
1996 and December 31, 1995, the Company owed approximately $131,000 and
$150,000, respectively, under a mortgage note payable.
NOTE 5: CONTINGENCIES
As previously disclosed in the Company's Quarterly Report on Form 10-QSB for the
period ended June 30, 1996, the five lessors of the Harolds Club property have
filed suit against, among others, the Company and Shamrock Holdings seeking,
among other relief, (i) payment of all unpaid lease payments and property taxes,
(ii) a court order voiding the transfer of the title to the land and the
building related to the Harolds Club from the Company to Shamrock Holdings to
<PAGE>
the extent necessary to satisfy the claims of creditors of the Company, (iii) a
court order prohibiting and enjoining Shamrock Holdings from transferring the
title to the land and the building related to the Harolds Club during the
pendency of the actions, (iv) temporary and permanent court orders mandating
that the Company protect the grandfathered right of nonlicensed gaming on the
leaseholds by locating a suitable gaming sub-tenant and (v) reasonable attorneys
fees and costs. The plaintiffs in one of the suits have advised the Company that
they intend to dismiss their suit against the Company, but have not yet done so
and the pleadings in such suit are not closed. Similarly, the pleadings in the
four other suits are not closed. The parties in those suits have advised the
Company that they intend to enter into agreements to extend until March 1997 the
period in which the Company's answers are due to permit the parties to negotiate
a settlement which will protect the grandfathered right of nonlicensed gaming on
the leaseholds and set forth the rights and obligations of all parties upon a
sale of the leaseholds, but have not yet entered into such agreements. As such a
settlement has not yet been agreed upon by such parties, the pleadings are not
yet closed, and discovery and depositions have not yet commenced, outside
counsel to the Company, due to the limited facts available on this matter, is
unable to predict the outcome of these suits. However, should the plaintiffs
prevail, these suits would have a material adverse effect on the Company's
business and financial condition. The Company would then need to pursue a formal
plan of reorganization or liquidation which would generally result in the sale
of the Company's assets to satisfy outstanding obligations. There can be no
assurance that if either action is required to be pursued that all such
obligations would be completely satisfied. Further, in the event of either
action, it is unlikely that stockholders of the Company will recover any of
their investment in the Company.
On September 16, 1996, two stockholders of the Company, who were bondholders and
stockholders of AGRM prior to its merger with and into a subsidiary of the
Company in December 1994 (the "Merger"), filed suit against the Company and
three former officers and/or directors of AGRM in the Circuit Court of Harrison
County, Mississippi, Second Judicial District (Civil Action No. A2402-96-00210).
The plaintiffs allege (i) federal and state securities fraud by the defendants
based on alleged fraudulent misrepresentations made by the defendants in
connection with plaintiffs' decision to purchase common stock of AGRM, to
convert certain debentures issued by AGRM into common stock of AGRM and to
tender their common stock of AGRM in exchange for common stock of the Company in
connection with the Merger and (ii) a breach of directors' duties of good faith
and due care by the three former officers and/or directors of AGRM. The
plaintiffs are seeking compensatory damages in the amount of $250,000, punitive
damages in the amount of $1,000,000 and attorneys fees and costs. As discovery
and depositions have not yet commenced, outside counsel to the Company, due to
the limited facts available on this matter, is unable to predict the outcome of
this lawsuit. However, should the plaintiffs prevail, this litigation would have
a material adverse effect on the Company's business and financial condition. The
Company would then need to pursue a formal plan of reorganization or liquidation
which would generally result in the sale of the Company's assets to satisfy
outstanding obligations. There can be no assurance that if either action is
required to be pursued that all such obligations would be completely satisfied.
Further, in the event of either action, it is unlikely that stockholders of the
Company will recover any of their investment in the Company.
<PAGE>
NOTE 6: DECONSOLIDATION OF AMGAM AND AGRM
The Company has determined that, because of the filings of AMGAM and AGRM under
the Code and the expected liquidation in the near future of AMGAM and AGRM, such
entities should be deconsolidated for financial statement purposes. A combined
unaudited condensed balance sheet of these entities as of September 30, 1996 and
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
Assets
Current Assets and Other $ 3,830,000 $ 3,024,000
Property and Equipment, Net 41,000 5,706,000
Land -- 10,000,000
----------- -----------
Total Assets $ 3,871,000 $18,730,000
=========== ===========
Liabilities and Stockholders' Deficiency
Current Liabilities $24,244,000 $22,740,000
Amounts Due to Parent 12,147,000 30,138,000
Stockholders' Deficiency (32,520,000) (34,148,000)
----------- -----------
Total Liabilities and Stockholders' Deficiency $ 3,871,000 $18,730,000
=========== ===========
</TABLE>
NOTE 7: RECENT RELATED PARTY AND MANAGEMENT DEVELOPMENTS
The Company has been informed by the Trustee that Mr. Michael Bennett, the sole
owner of Shamrock Holdings, has transferred all of the outstanding stock of
Shamrock Holdings to the Trustee. Shamrock Holdings owns (i) 4,423,454 shares of
the Company's Common Stock, (ii) warrants to purchase 12,500 shares of Common
Stock at $4.00 per share and (iii) all of the Company's outstanding Series A
Preferred Stock, convertible into, and voting as, 1,399,565 shares of Common
Stock. Additionally, the Trustee has filed a lawsuit against Mutual Investors
Funding Corporation ("MIFCO"), among other entities, seeking, among other
relief, that MIFCO turnover to the estates of certain Bennett entities or
Shamrock Holdings all of the Company's stock owned by MIFCO. If the Trustee is
successful in such action, the Bennett estates of certain Bennett entities or
Shamrock Holdings would own (i) an additional 1,500,000 shares of Common Stock
and (ii) all of the Company's outstanding Series C Cumulative Preferred Stock,
Series D Cumulative Preferred Stock and Series E Preferred Stock, convertible as
of October 31, 1996 into approximately 632,203,000 shares of Common Stock. The
Company does not have a sufficient number of authorized shares of Common Stock
to enable the conversion of all of the Series C Cumulative Preferred Stock, the
Series D Cumulative Preferred Stock and the Series E Preferred Stock. On April
1, 1996 the Board of Directors voted to request the stockholders of the Company
to approve an amendment to the Company's Restated Certificate of Incorporation
increasing the number of authorized shares of Common Stock to 500,000,000 shares
no later than the 1996 annual meeting of the Company's stockholders. The Board
of Directors has not set a date for such annual meeting. Assuming the Trustee is
successful in his action against MIFCO and converted as of October 31, 1996 that
number of shares of the Series C Cumulative Preferred Stock, Series D Cumulative
<PAGE>
Preferred Stock and Series E Preferred Stock convertible into the total number
of the Company's presently authorized but unissued shares of Common Stock (i.e.
37,467,898 shares), the Trustee, on behalf of the Bennett estates of certain
Bennett entities and Shamrock Holdings, would own approximately 86.8% of the
total outstanding shares of Common Stock and approximately 87.1% of the total
voting power represented by the total outstanding voting securities of the
Company. Assuming the Company's stockholders approve an amendment to the
Company's Restated Certificate of Incorporation increasing the number of
authorized shares of Common Stock to 500,000,000 shares and the Trustee
converted as of October 31, 1996 that number of shares of the Series C Preferred
Stock, Series D Preferred Stock and the Series E Preferred Stock convertible
into the total number of the Company's authorized but unissued shares of Common
Stock immediately after giving effect to such amendment (i.e. resulting in a
total of 487,467,398 shares of Common Stock being issued to the Trustee as of
such date), the Trustee, on behalf of the Bennett estates of certain Bennett
entities or Shamrock Holdings and Shamrock Holdings, would own approximately
98.7% of both the total outstanding shares of Common Stock and the total voting
power represented by the total outstanding voting securities of the Company. As
of November 11, 1996, MIFCO has not asserted any rights they may have against
the Company for the Company's failure to maintain a sufficient number of
authorized shares of Common Stock to enable the conversion of all of the Series
C Cumulative Preferred Stock, Series D Cumulative Preferred Stock and the Series
E Preferred Stock.
Effective September 12, 1996, J. Douglas Wellington, the Company's President and
Chief Operating Officer, was elected as Chief Executive Officer. Also, Paul L.
Patrizio, a partner in Rick, Steiner & Tannenbaum, P.C. and a member of the
Company's Board of Directors, was appointed Chairman of the Board of the
Company.
NOTE 8: WRITE-OFFS
In the third quarter of 1996, the Company (i) recognized a writedown of
$2,146,000 in the value of its investment in the Gold Coast Barge to reflect an
appraisal of its fair market value (see Note 3), (ii) recognized a writedown of
$351,000 in the value of its investment in real property in Mobile, Alabama to
reflect an appraisal of its fair market value, and (iii) amortized $2,086,000 of
deferred financing fees due to Shamrock Holdings and $1,418,000 of deferred
financing and commitment fees due to Shamrock Holdings because the amounts due
under the financing arrangements pursuant to which such fees were incurred have
been recorded as current liabilities in the accompanying Unaudited Consolidated
Balance Sheet as of September 30, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations: Comparison of the three month periods ended September 30,
1996 and September 30, 1995
- --------------------------------------------------------------------------------
Revenues
- --------
Consulting service and other revenues for the three months ended September 30,
1996 amounted to approximately $9,000, a decrease of approximately $1,072,000 or
approximately 99% compared to the three months ended September 30, 1995. The
decrease is primarily attributable to decreases for the three months ended
September 30, 1996 of approximately $358,000, $615,000 and $60,000 attributable
to revenues from PMCC Payments, keno revenues and revenues from an assignment of
funds received under a video lottery consulting contract, respectively. As
discussed above, PMCC Payments earned under the Charter Agreement since July 1,
1996 have not been recorded as revenue but have been recorded as additional
PMCC/Bennett Debt (see Note 2 to the unaudited Consolidated Interim Financial
Statements). The Company's keno assets and operations were sold on March 28,
1996 and the assignment of funds received under a video lottery management
contract terminated on December 15, 1995, therefore no keno revenues or revenues
from such assignment were generated during the three months ended September 30,
1996.
Costs and Expenses
- ------------------
The Company incurred no direct operating expenses and cost of sales for the
three months ended September 30, 1996, compared to direct operating expenses and
cost of sales for the three months ended September 30, 1995 of approximately
$212,000. The decrease was attributable to the expenses and costs related to
sales of keno systems sold during the three months ended September 30, 1995. No
such expenses or costs were incurred for the three months ended September 30,
1996.
Selling, general and administrative expenses were approximately $1,036,000 for
the three months ended September 30, 1996, an increase of approximately $440,000
or approximately 69% compared to the three months ended September 30, 1995. The
increase was primarily due the write-off of Unpaid Harolds Obligations (see Note
3 to the unaudited Consolidated Interim Financial Statements) in the amount of
approximately $563,000 for the three months ended September 30, 1996, an
increase of approximately $171,000 in consulting expense related to the
Company's restructuring efforts, partially offset by a decrease of approximately
$99,000 related to the Company's keno operations, which were sold on March 28,
1996, and a decrease of approximately $155,000 due to the resignation or
termination effective December 15, 1995 of all but five of the Company's
non-keno employees.
<PAGE>
Casino project development costs for the three months ended September 30, 1996
were approximately $100,000, a decrease of approximately $829,000 or
approximately 89% compared to the three months ended September 30, 1995. Such
decrease was primarily due to decreases of approximately $256,000, $54,000 and
$96,000 in personnel, consulting and other operating expenses, respectively,
associated with the Company's change in business direction from the development
of gaming projects to the management of its equity interests in gaming projects
and decreases of $319,000 and $87,000 related to SCS Lease expense of the
Company and maintenance expenses of the Vessels, respectively. The SCS Lease
payments from January 1, 1996 through the end of the lease term were recognized
as an expense as of December 31, 1995 and therefore no such SCS Lease expenses
were recorded in 1996.
Depreciation and amortization costs were approximately $248,000 for the three
months ended September 30, 1996, a decrease of approximately $653,000 or
approximately 72% compared to the three months ended September 30, 1995. The
decrease in depreciation and amortization expense was principally due to a
decrease of approximately $443,000 as a result of the transfer of certain assets
to PMCC in September 1995 and the change in the estimated useful life of certain
depreciable or amortizable assets from 10 years to 25 years and a decrease of
approximately $210,000 related to the Company's keno assets which were sold on
March 28, 1996.
Writedown of impaired assets was approximately $2,485,000 for the three months
ended September 30, 1996, consisting primarily of writedowns of $2,146,000 and
$351,000 in the values of its investments in the Gold Coast Barge and real
property in Mobile, Alabama, respectively (see Note 8 to the unaudited
Consolidated Interim Financial Statements). No such writedowns were recorded for
the three months ended September 30, 1995.
Equity in losses of subsidiaries in bankruptcy related to the results of
operations for AMGAM and AGRM for the three months ended September 30, 1995 were
approximately $1,001,000. The Company wrote off its investments in AMGAM and
AGRM as of December 31, 1995 and therefore no such additional equity in losses
of subsidiaries in bankruptcy were realized for the three months ended September
30, 1996.
Net interest expense for the three months ended September 30, 1996 was
approximately $4,760,000, an increase of approximately $3,439,000 or
approximately 260% compared to the three months ended September 30, 1995.
Interest expense increased approximately $3,449,000, while interest income
increased approximately $10,000. The increase in interest expense was primarily
due to the amortization during the three months ended September 30, 1996 of
approximately $2,086,000 of deferred financing fees due to Shamrock Holdings and
approximately $1,418,000 of deferred financing and commitment fees due to
Shamrock Holdings (see Note 8 to the unaudited Consolidated Interim Financial
Statements).
During the three months ended September 30, 1996, the Company recorded a net
loss of approximately $8,000 as a result of sales of furniture, fixtures and
equipment. During the three months ended September 30, 1995, the Company
recorded a gain of $301,000 as a result of the final installment payment
received from the sale of substantially all of the Company's bingo business
assets.
<PAGE>
Results of Operations: Comparison of the nine month periods ended September 30,
1996 and September 30, 1995
- --------------------------------------------------------------------------------
Revenues
- --------
Consulting service and other revenues for the nine months ended September 30,
1996 amounted to approximately $2,181,000, an increase of approximately $333,000
or approximately 18% compared to the nine months ended September 30, 1995. The
increase is primarily attributable to revenues for the nine months ended
September 30, 1996 from PMCC Payments in the amount of approximately $1,972,000,
compared to revenues for the nine months ended September 30, 1995 from PMCC
Payments in the amount of approximately $358,000. This increase was
substantially offset by decreases for the nine months ended September 30, 1996
of approximately $953,000 attributable to keno revenues and $264,000
attributable to revenues from a video lottery management contract and revenues
from an assignment of funds received under a video lottery consulting contract.
The Charter Agreement became effective on June 18, 1995. As discussed above,
PMCC Payments earned under the Charter Agreement from the BDE Date through
December 31, 1995 and since July 1, 1996 have not been recorded as revenue but
have been recorded as PMCC/Bennett Debt (see Note 2 to the unaudited
Consolidated Interim Financial Statements). The Company's keno assets and
operations were sold on March 28, 1996 and therefore keno revenues significantly
decreased for the nine months ended September 30, 1996. The video lottery
management contract terminated on June 30, 1995 and the assignment of funds
received under a video lottery management contract terminated on December 15,
1995, and therefore no such revenues were generated during the nine months ended
September 30, 1996.
Costs and Expenses
- ------------------
Direct operating expenses and cost of sales were approximately $65,000 for the
nine months ended September 30, 1996, a decrease of approximately $300,000 or
82% compared to the nine months ended September 30, 1995. The decrease was
attributable to the expenses and costs related to sales of keno systems sold
during the nine months ended September 30, 1995. The Company's keno assets and
operations were sold on March 28, 1996 and therefore such expenses and costs
significantly decreased for the nine months ended September 30, 1996.
Selling, general and administrative expenses were approximately $2,347,000 for
the nine months ended September 30, 1996, a decrease of approximately $174,000
or approximately 7% compared to the nine months ended September 30, 1995. The
decrease was primarily due to a decrease of $217,000 related to the Company's
keno operations, which were sold on March 28, 1996 and a decrease of
approximately $758,000 due to the resignation or termination effective December
15, 1995 of all but five of the Company's non-keno employees, substantially
offset by the write-off of the Unpaid Harolds Obligations (see Note 3 to the
unaudited Consolidated Interim Financial Statements) in the amount of
approximately $784,000 as of September 30, 1996.
<PAGE>
Casino project development costs for the nine months ended September 30, 1996
were approximately $204,000, a decrease of approximately $2,323,000 or
approximately 92% compared to the nine months ended September 30, 1995. Such
decrease was primarily due to decreases of approximately $932,000, $78,000,
$64,000, $157,000, $230,000 in personnel, travel & entertainment, legal,
consulting and other operating expenses, respectively, associated with the
Company's change in business direction discussed above, a decrease in licensing
fees of approximately $136,000 primarily attributable to the reimbursement to
the Company during the nine months ended September 30, 1996 of previously
expensed and paid licensing fees, and a decrease of $735,000 related to SCS
Lease expense of the Company, partially offset by an increase of approximately
$10,000 relating to maintenance expenses of the Vessels. The SCS Lease payments
from January 1, 1996 through the end of the lease term were recognized as an
expense as of December 31, 1995 and therefore no such SCS Lease expenses were
recorded in 1996.
Depreciation and amortization costs were approximately $916,000 for the nine
months ended September 30, 1996, a decrease of approximately $1,315,000 or
approximately 59% compared to the nine months ended September 30, 1995. The
decrease in depreciation and amortization expense was principally due to a
decrease of approximately $884,000 as a result of the transfer of certain assets
to PMCC in September 1995 and the change in the estimated useful life of certain
depreciable or amortizable assets from 10 years to 25 years and a decrease of
approximately $454,000 related to the Company's keno assets which were sold on
March 28, 1996.
Writedown of impaired assets was approximately $2,504,000 for the nine months
ended September 30, 1996, consisting primarily of writedowns of $2,146,000 and
$351,000 in the values of the Company's investments in the Gold Coast Barge and
real property in Mobile, Alabama, respectively (see Note 8 to the unaudited
Consolidated Interim Financial Statements). For the nine months ended September
30, 1995, the Company recognized writedowns of $2,250,000 and $280,000 to
reflect the estimated sales values of the Company's investments in the S.S.
Aquarama and real property in Mobile, Alabama, respectively, if the Company were
unable to develop such assets as gaming projects.
Equity in losses of subsidiaries in bankruptcy related to the results of
operations for AMGAM and AGRM for the nine months ended September 30, 1996 of
approximately $250,000, representing a decrease of approximately $5,158,000 or
approximately 95% when compared to the nine months ended September 30, 1995. The
Company wrote off its investments in AMGAM and AGRM as of December 31, 1995 and
therefore the only additional equity in losses of subsidiaries in bankruptcy
recognized in the nine months ended September 30, 1996was an accrual of $250,000
as management's estimate of additional settlement liabilities to be paid out of
the PMCC Payments.
Net interest expense for the nine months ended September 30, 1996 was
approximately $7,560,000, an increase of approximately $3,705,000 or
approximately 96% compared to the nine months ended September 30, 1995. Interest
expense increased approximately $3,698,000 during the nine months ended
<PAGE>
September 30, 1996, while interest income decreased approximately $7,000 during
the nine months ended September 30, 1996. The increase in interest expense was
primarily due to the amortization during the nine months ended September 30,
1996 of approximately $2,086,000 of deferred financing fees due to Shamrock
Holdings and approximately $1,418,000 of deferred financing and commitment fees
due to Shamrock Holdings (see Note 8 to the unaudited Consolidated Interim
Financial Statements).
Net gain on sale of investments for the nine months ended September 30, 1996 was
substantially due to a net gain of approximately $948,000 on the sale of keno
operations. During the nine months ended September 30, 1995, the Company
recorded a gain of $301,000 as a result of the final installment payment
received from the sale of substantially all of the Company's bingo business
assets.
Changes in Financial Condition, Liquidity and Capital Resources
- ---------------------------------------------------------------
As of September 30, 1996, the Company had no committed financing arrangements
and a working capital deficiency of approximately $54,853,000. For a discussion
of liquidity and capital resources, see Note 2 to the unaudited Consolidated
Interim Financial Statements.
Risk Factors; Forward Looking Statements
- ----------------------------------------
Management's Discussion and Analysis contains forward-looking statements
regarding the Company's future plans, objectives and expected performance. These
statements are based on assumptions that the Company believes are reasonable,
but are subject to a wide range of risks and uncertainties, and a number of
factors could cause the Company's actual results to differ materially from those
expressed in the forward-looking statements. These factors include, among
others, the uncertainties related to (i) obtaining Shamrock Holdings' and, if
necessary, Bennett Management's agreement to modify on terms acceptable to the
Company or terminate the Bennett Debt Exchange (excluding Shamrock Holdings'
assumption of the Ship Mortgage) and restructure all other obligations due from
the Company to Shamrock Holdings and, if applicable, Bennett Management, (ii)
consummating the liquidations under Chapter 11 of the Code of AMGAM and AGRM
under plans acceptable to the Company, resulting in a liquidation of the various
trade and debt obligations of those entities, (iii) satisfactorily resolving the
legal proceedings filed against the Company (see Note 5 to the unaudited
Consolidated Interim Financial Statements), and (iv) the legal problems
described above relating to certain Bennett entities (see Notes 1 and 2 to the
unaudited Consolidated Interim Financial Statements).
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see Note 5 to the unaudited Consolidated
Interim Financial Statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
For a discussion of defaults with respect to the Company's indebtedness due to
Shamrock Holdings, see Notes 2 and 4 to the unaudited Consolidated Interim
Financial Statements.
The Company has accrued and declared, but has not paid as of November 11, 1996,
dividends totaling approximately $152,000 which were due and payable on the
outstanding shares of its Series C Cumulative Preferred Stock as of December 31,
1994. The Company has accrued and declared, but has not paid as of November 11,
1996, dividends totaling approximately $152,000 which were due and payable on
the outstanding shares of its Series D Cumulative Preferred Stock as of December
31, 1994.
Additionally, the Company has accrued, but has not declared or paid as of
November 11, 1996, dividends totaling approximately $500,000 which were due and
payable on the outstanding shares of its Series C Cumulative Preferred Stock
from January 1, 1995 through September 30, 1996. (In the Company's 10-QSB for
the quarter ended June 30, 1996, the amount of dividends which were due and
payable on the outstanding shares of its Series C Cumulative Preferred Stock
from January 1, 1995 though June 30, 1996 is incorrectly stated to be $577,000;
the correct amount is $425,000.) The Company has accrued, but has not declared
or paid as of November 11, 1996, dividends totaling approximately $400,000 which
were due and payable on the outstanding shares of its Series D Cumulative
Preferred Stock from January 1, 1995 through September 30, 1996. (In the
Company's 10-QSB for the quarter ended June 30, 1996, the amount of dividends
which were due and payable on the outstanding shares of its Series D Cumulative
Preferred Stock from January 1, 1995 though June 30, 1996 is incorrectly stated
to be $477,000; the correct amount is $325,000.) Although such dividends do not
constitute actual liabilities of the Company until declared, the Company has
accrued for such dividends because, under the terms of the Series C Cumulative
Preferred Stock and the Series D Cumulative Preferred Stock, dividends are
cumulative whether or not declared and the Company is prohibited from paying
dividends on, purchasing or redeeming any of its Series A Preferred Stock or
Common Stock so long as any such cumulated dividends are unpaid. The Company is
prohibited under the General Corporation Law of Delaware from declaring such
dividends unless the Company has (i) capital surplus or (ii) net profits in the
fiscal year in which such dividends are declared and/or the preceding fiscal
year.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
Exhibit Number Description
- -------------- -----------
<S> <C>
10.74 Letter Agreement dated September 26, 1996 between Shamrock
Holdings Group, Inc. and the Company
10.75 Form of AMGAM/AGRM - AGEL Settlement Agreement & Term Sheet
between AMGAM Associates, American Gaming & Resorts of
Mississippi, Inc., the Company, Shamrock Holdings Group,
Inc.
11 Computation of Earnings Per Share.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K. Form 8-K dated August 23, 1996 with respect to (a) the
transfer of the Interest to NBD (see Note 3 to the unaudited Consolidated
Interim Financial Statements) and (b) the election of J. Douglas Wellington as
Chief Executive Officer and the appointment of Paul L. Patrizio as Chairman of
the Board of the Company (see Note 7 to the unaudited Consolidated Interim
Financial Statements).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
American Gaming & Entertainment, Ltd.
Date: 11/14/96 By: /s/ J. Douglas Wellington
--------------- ---------------------------------
J. Douglas Wellington
President and Chief Executive Officer,
and Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ------- ----------- --------
<S> <C> <C>
10.74 Letter Agreement dated September 26, 1996 between Shamrock 30
Holdings Group, Inc. and the Company
10.75 Form of AMGAM/AGRM - AGEL Settlement Agreement & Term Sheet 33
between AMGAM Associates, American Gaming & Resorts of
Mississippi, Inc., the Company, Shamrock Holdings Group, Inc.
11 Computation of Earnings Per Share. 42
27 Financial Data Schedule 43
</TABLE>
September 26, 1996
Emerald Gaming, Inc.
Bayport One, Suite 300
Yacht Club Drive
West Atlantic City, New Jersey 08232
Attn: Doug Wellington
Re: Sale of the Harold's Club Casino
--------------------------------
Gentlemen:
Shamrock Holdings Group, Inc. ("Shamrock") is attempting to sell the
Harold's Club Casino (the "Club") in Reno, Nevada. In connection with such sale
(the "Sale"), the parties agree as follows:
1. Emerald Gaming, Inc. ("Emerald Gaming") hereby agrees that it will
cooperate with Shamrock in consummating the Sale. Except as set forth in
paragraph 2 below, all net proceeds from the Sale shall be paid to
Shamrock.
2. At the closing, Shamrock shall use a portion of the purchase price
to pay all of the following costs and expenses:
(a) all amounts outstanding under the ground leases relating to the
Club (the "Ground Leases") on the closing date, including without
limitation, all unpaid rent, late charges, interest, attorneys' fees and
real estate taxes payable thereunder;
(b) all of the costs and expenses incurred by Emerald Gaming and
American Gaming & Entertainment, Ltd. ("American Gaming") in connection
with the Sale, including without limitation, all attorneys fees relating to
the Sale, provided however that such costs and expenses shall in no event
exceed $15,000;
(c) all reasonable attorneys' fees incurred by Emerald Gaming and
American Gaming in connection with certain litigation commenced by the
lessors under the Ground Leases against Emerald Gaming and American Gaming;
(d) all reasonable costs and expenses hereafter incurred by Emerald
Gaming and/or American Gaming in connection with the operation and
maintenance of the Club; and
<PAGE>
(e) the accounts payable and other costs set forth on Schedule A
attached hereto.
3. Shamrock will use good faith efforts to obtain releases of Emerald
Gaming and American Gaming from various indemnification agreements and
guaranties in favor of Fitzgerald's Reno, Inc.
4. Shamrock will use good faith efforts to obtain releases of Emerald
Gaming from continuing liability under the Ground Leases.
5. Shamrock acknowledges that certain Ground Leases require the
lessor's consent to any assignment of such Ground Leases. American Gaming and
Emerald Gaming will use good faith efforts to obtain such consents, provided,
however, that American Gaming and Emerald Gaming do not represent or warrant
that they will be able to obtain such consents. The parties acknowledge that the
Sale might not occur if one or more of the Ground Leases is terminated as a
result of the lessee's default thereunder.
Please acknowledge your agreement to the foregoing by signing in the
space indicated below.
Very Truly Yours,
SHAMROCK HOLDINGS GROUP, INC.
By:/s/ Richard C. Breedan
-------------------------
Richard C. Breedan
Agreed and Accepted to this 10th
day of October, 1996
EMERALD GAMING, INC.
By:/s/ J. Douglas Wellington
----------------------------
J. Douglas Wellington
AMERICAN GAMING & ENTERTAINMENT, LTD.
By:/s/ J. Douglas Wellington
----------------------------
J. Douglas Wellington
<PAGE>
Harolds Club Expenses (paid by AGEL)
January 1, 1996 through September 17, 1996
SCHEDULE A
<TABLE>
<CAPTION>
HC
Vendor Description Related Expenses
- ---------------------------------- --------------------- --------------
<S> <C> <C>
Nevada Bell HC phone bill $ 4,915.15
Carchman, Sochor & Schwartz Legal services $ 5,170.00
Federal Express Postage $ 10.75
Desert Security Security service $ 42,238.73
State Industrial Insurance Systems Tax $ 30.00
Willis Corroon Insurance $ 157,500.00
Black & Gemgross Legal $ 7,000.50
Clark & Dicky Legal $ 5,000.00
Sierra Power Utilities $ 108,414.93
Easy Footer Plumbing $ 337.50
Barker Business Wire Human Resource Exps. $ 288.90
Garner Mechanical Pump $ 68.50
- ---------------------------------- --------------------- --------------
Total $ 331,962.96
</TABLE>
AMGAM/AGRM - AGEL SETTLEMENT AGREEMENT & TERM SHEET
---------------------------------------------------
Whereas AmGam Associates, a chapter 11 debtor-in-possession ("AmGam")
and American Gaming and Resorts of Mississippi, Inc., a chapter 11
debtor-in-possession ("AGRM") (AmGam and AGRM collectively, the "Debtors") filed
adversary proceedings against American Gaming and Entertainment, Ltd. ("AGEL"),
Bennett Holdings, Inc., now known as Shamrock Holdings Group, Inc. ("Shamrock"),
and Bennett Management and Development Co. ("Bennett") seeking, among other
things, to avoid alleged fraudulent transfers (the "Avoidance Action");
Whereas the Avoidance Action is being prosecuted by the Official
Committees of Unsecured Creditors of AmGam and AGRM for the benefit to their
respective estates;
Whereas AGEL, Shamrock and Bennett have asserted various defenses to
the allegations set forth in the Avoidance Action;
Whereas AGEL has filed proofs of claim against the Debtors in an amount
in excess of $44,664,514.45;
Whereas Shamrock asserts that it possesses claims against the Debtors
in an amount in excess of $29,816,595.00;
Whereas the Debtors assert various defenses to the claims filed or
asserted by AGEL and Shamrock;
Therefore, in full and final compromise/settlement and satisfaction of
all claims that AmGam, AGRM, the AmGam Unsecured Creditors' Committee ("AmGam
Committee"), and the AGRM Unsecured Creditors' Committee ("AGRM Committee"), may
have against AGEL, Shamrock and Bennett, and of all claims that AGEL, Shamrock
and Bennett may have against the Debtors or the Debtors' chapter 11 estates or
their representatives, the undersigned agree to support any chapter 11
Liquidating Plan filed jointly in the AmGam and AGRM cases which contain the
following terms:
I. Settlement Participants:
A. AmGam;
B. AGRM;
C. AmGam Committee;
D. AGRM Committee;
E. AGEL;
F. Shamrock; and
G. Bennett
<PAGE>
II. Matters to be Settled:
A. Avoidance Action (Fraudulent Conveyance Litigation) with Motion for
Substantive Consolidation to be Dismissed;
B. Plan and Disclosure Statement Objections by both Debtors and AGEL;
and
C. Dispute between AGEL and Shamrock as to the proper holder of the
claims against the Debtors. Except as set forth in the previous sentence,
nothing in this settlement agreement shall be construed to settle, release or
otherwise compromise any claim AGEL, Shamrock or Bennett may have against each
other.
III. Settlement Mechanism and Goals:
A. Dismissal of Avoidance Action after entry of final Order of
Confirmation;
B. Liquidation Plan supported by both Debtors, both Committees, AGEL,
Shamrock and Bennett.
IV. Asset Distribution Mechanism and Formula:
A. AGEL and/or Shamrock or its assignee will be the only parties
entitled to receive any distributions under the Plan for claims of any kind
asserted against the Debtors by AGEL, Shamrock and Bennett, or their officers,
directors or stockholders whether such claims are secured, unsecured, direct or
acquired claims, or otherwise;
B. Prior to the final approval of any settlement agreement
incorporating these terms either by separate order or by confirming the chapter
11 Liquidating Plan to be filed jointly in the AmGam and AGRM cases, AGEL and
Shamrock shall advise both Debtors and both Committees, in writing, of the
allocation between AGEL and Shamrock or its assignee of the distributions
described in Sec. IV, Para. A above. Such agreed upon allocation shall become an
integral part of this settlement agreement and shall be incorporated into any
order approving this settlement agreement.
C. Subject to the terms and conditions of paragraph G below, AGEL and
Shamrock in consideration for the terms of this settlement agree to withdraw all
of their secured and unsecured claims against the Debtors and hereby agree to
have one collective general allowed unsecured claim against the Debtors in the
amount of $33,000,000.00, which claim shall be fully satisfied in accordance
with the conditions of this term sheet, and particularly, Sec. VI hereinbelow;
except to the extent otherwise set forth in this term sheet, AGEL and Shamrock
shall waive their claims against all assets in the AmGam and AGRM estates,
including all funds received from the President for the FF&E purchase which are
hereby deemed property of the AmGam estate and shall be dedicated to and used to
pay expenses of administration and other allowed unsecured claims in the AmGam
estate;
<PAGE>
D. On the Effective Date of the Plan, AGEL shall convey to the
AmGam/AGRM Creditor's Trust (the "Trust") to be used for the holders of Allowed
Claims and created under the terms of the Plan (i) an undivided 22.7% ownership
interest in the asset known as the President Casino, and (ii) an undivided 22.7%
interest in all rights of the owner/lessor under the existing Charter Agreement
with the President (the "President Lease"), which assets shall be held by the
Trustee ("Trustee") of the Trust for the benefit of the holders of AmGam Allowed
Unsecured Claims and AGRM Allowed Unsecured Claims, AGEL and Shamrock or its
assignee until the Plan is fully consummated. The Trustee shall be vested with
all rights and benefits pertaining to the 22.7% undivided ownership interest in
the President Casino, including all rights of the owner under the President
Lease (including, without limitation, the right to receive all charter hire and
other payments thereunder, to enforce the collection of any sums or obligations
payable or performable thereunder, to exercise any and all remedies available to
the owner thereunder, and to grant or withhold any consent thereunder). The
beneficiaries of the Trust shall be the AmGam Creditors, the AGRM Creditors,
AGEL and Shamrock or its assignee.
E. As additional responsibilities, the Trustee shall receive and shall
have the sole responsibility for receiving all revenue generated from payments
owned by the President, or other sources, for lease or note payments due as a
result of the President Lease of the former Gold Coast Casino or the purchases,
under a note, of certain FF&E located thereon. The Trustee shall also have
responsibility for payment of such funds as required herein and under the terms
of a confirmed Plan containing the provisions of this term sheet. Except as
stated in the following proviso, neither the Trust nor the Trustee shall assume
or be obligated to pay or perform any obligation of the owner under the
President Lease, and AGEL shall be and remain liable for all such owner's
obligations and shall indemnify and hold the Trust and the Trustee harmless from
and against all such liabilities and obligations; provided, that the Trust shall
assume only the obligations of the owner under the President Lease that accrue
and are first performable thereunder during the period beginning on the
Effective Date and ending on the date the Plan is fully consummated or such
earlier date of termination of the President Lease, but such assumption,
however, shall be enforced solely against the assets of the Trust and shall not
impose any liability on or be enforceable against the Trustee or the
beneficiaries of the Trust.
F. Except as required in section VII herein, upon the Effective Date of
a confirmed Plan of Liquidation, the monthly payments under the President Lease
shall be collected by the Trustee and distributed in accordance with Section VI,
Paragraph B., Subparagraph 2 hereinbelow.
G. AGEL recognizes and agrees that Shamrock holds a valid, properly
perfected and unavoidable first mortgage on or security interest in the Casino
Barge in the original principal amount of $2,040,603.75. In consideration of the
terms of this settlement the AmGam Committee and the AGRM Committee agree not to
contest the Ship Mortgage L.P. preferred Ship's Mortgage now held by Shamrock as
a properly perfected and unavoidable first mortgage on or security interest in
the Casino Barge in the original principal amount of $2,040,603.75. AGEL agrees
that it shall assume sole responsibility for the satisfaction of Shamrock's
mortgage or security interest and Shamrock and AGEL agree, as consideration for
<PAGE>
the agreement by the AmGam and AGRM creditors not to challenge the Ship
Mortgage, L.P. ship mortgage, that there shall be no charge or encumbrance
against the interests of the AmGam and AGRM creditors or the interests of the
AmGam and AGRM creditors in the Trust or the above described 22.7% undivided
ownership interest on account of such claim.
H. Other than payments under this distribution structure from the
revenue stream generated by the President Lease and the payment described in
section VII below, holders of Allowed Unsecured Claims in AmGam shall share only
in distribution of assets owned by and liquidated in the AmGam case.
I. Other than payments under this distribution structure from the
revenue stream generated by the President Lease and the payments described in
section VII below, holders of AGRM Allowed Unsecured Claims shall share only in
distribution of assets owned by the liquidated in the AGRM case.
J. For purposes of this settlement, the following treatment of claims
shall be included in a Plan of Liquidation:
(1) all allowed administrative claims in each estate shall be paid in
full at confirmation from assets of the respective estate;
(2) all allowed priority claims shall be paid in accordance with the
terms of the Plan;
(3) and all other claims treated in accordance with the Plan and
pursuant to priorities established by the Bankruptcy Code.
K. On behalf of the owners, the Trustee shall also have the power and
authority to act to recover lease payments or the casino itself, in the event of
a default under the President Lease or any other payment or performance
obligations by the President. The terms of the Trust shall give the Trustee the
discretion to use a portion of the $67,500.00 monthly payments from the
President Lease (not to exceed $2,500.00 per month) to create a reserve for
payment of the owner's share of the cost of redelivering the vessel to the owner
as provided in the President Lease, which reserve shall be in addition to the
$2,500.00 deduction from the monthly lease payment described in Sec. VI, Para.
B(2)(b) hereinbelow.
V. Use of Cash at Confirmation and During Plan Confirmation Period:
A. Cash Available at Confirmation and to be Generated During Term of
Plan:
(1) Estimate of value of assets to be available for liquidation and
distribution to creditors (estimated at October 15, 1996):
<PAGE>
<TABLE>
<S> <C>
(a) AmGam:
(1)Cash on Hand per Debtor's operating reports (includes
FF&E collections & pro-rata share of Pres. lease pmnts.): $2,097,253
(2)A/C Rec.: FF&E purchase pmnts. (from Pres. Per Debtor's
operating reports) (13 mos. % $120,748.12) $1,569,724
----------
Total: $3,666,977
(3) AGRM:
Cash on hand (est.): $163,533
(2) Estimated cash flow for terms of plan (beginning October 1, 1996):
From President Lease payments ($67,500.00 x 45 mos)
$3,037,500.00
</TABLE>
B. Further Distribution of Funds During Plan Consummation Period:
The remaining cash flow from FF&E and lease payments under the
President FF&E Note and Lease is distributed as follows:
(1) The Plan will dedicate all remaining payments by the
President relating to the FF&E purchase to payment of the Allowed
Claims of the AmGam Unsecured Creditor body, and all cash in the AmGam
estate at the time of confirmation shall likewise be so dedicated. The
AGRM assets likewise shall be dedicated to payment of the Allowed
Claims of the AGRM Unsecured Creditor body.
(2) From the Effective Date of the Plan, the payments received
under the President Lease shall be paid by the Trustee as follows:
(a) First, to the appropriate Distribution Funds
described in a Plan for the benefit of the Allowed Claims of
AmGam and AGRM creditors, excluding AGEL and Shamrock: $67,500.00
per month for distribution in accordance with the terms of the
Plan;
(b) Second, to a segregated account to be held by the
Trustee for use in paying any and all costs of protecting the
Casino leasehold asset in the event of default under the Casino
lease by the President: $2,500.00 per month; in the event that no
default has occurred at the end of twenty four months from the
Effective Date of the Plan, the Trustee, in his discretion, may
pay these funds in accordance with subparagraph (a) immediately
hereinabove (but such distribution shall in no event exceed the
sum of $60,000); in the event the Trustee chooses not to
distribute any funds accumulated in accordance with the
Paragraph, any funds accumulated hereunder and remaining in this
segregated account shall nevertheless be distributed in
accordance with Plan requirements at the time of the last
distribution;
<PAGE>
(c) Thereafter, the balance of the monthly payment
shall be paid to AGEL and/or Shamrock or its assignee.
VI. Additional Requirements
A. Under the terms of the President Lease, the President has the right
to purchase the casino under certain conditions or to extend the term of the
President Lease for two additional terms of five years each.
B. In the event the President elects to purchase the casino during the
Plan consummation period, then out of the closing proceeds, there shall be
delivered to the Trustee, as seller, 22.7% of the net sales proceeds for use in
distribution to holders of the AmGam and AGRM claims under the Plan; those funds
shall then be distributed to the holders of such Allowed Claims in accordance
with the terms of the Plan; the remaining funds or 77.3% of the net sales
proceeds shall be paid to AGEL and/or Shamrock or its assignee, net proceeds
being defined as those funds remaining after payment of all closing expenses
related to the sale.
C. In the event the President elects to extend the President Lease for
the first extended term (the "First Extended Term"), or to modify the existing
charter with the consent and approval of the parties hereto, the Trustee shall
continue to receive the lease payments in accordance with the Plan and shall
escrow the same percentage amount described in B above for distribution to the
creditors of the AmGam and AGRM estate over the First Extended Term of the
extended lease.
D. Upon the occurrence of either event in B, or C, above, and the
payment of all requisite distributions, costs and expenses, the Plan shall be
deemed finally consummated.
E. All of the signatories hereto agree to vote for support any Plan of
Liquidation filed in the AmGam and AGRM cases containing the terms and
conditions described herein.
VII. Terms of the Trust
A. The terms of the Trust and the rights and obligations of the trustee
of the Trust (the "Trustee") shall be set forth in a written Trust Agreement
acceptable to the AmGam Committee, the AGRM Committee, AGEL and Shamrock. Any
Trustee selected to serve must be acceptable to AGEL, Shamrock, and the
designated representative (the "Representative") of the holders of AGRM and
AmGam Unsecured Claims entitled to a distribution from the liquidating Trust.
<PAGE>
B. The Trust Agreement shall provide that the Trustee shall have no
power to take any actions out of the ordinary course of business with respect to
the interest of the Casino Barge or the President Lease held in the Trust
without the consent and approval of the Representative, AGEL and Shamrock or its
assignee. Such actions requiring consent will be generally defined in the Trust
Agreement and shall include any prepayment or other modification of the
President Lease, any proposed sale, transfer or any other disposition of any
interest in the Casino Barge, and the terms of any proposed settlement of any
dispute or litigation with the lessee of the Casino Barge that would result in a
reduction of or delay in receipt of any remaining unpaid lease payments under
the current terms of the President Lease.
C. The Representative, AGEL and Shamrock shall cooperate with each
other in good faith and use their best efforts to reach mutually acceptable
terms with respect to any proposed sale, transfer or other disposition of the
Casino Barge or any settlement of any dispute or litigation with the lessee of
the Casino Barge for which the Trustee requires consent and approval as set
forth in paragraph VII. B above. The Representative, AGEL and Shamrock or its
assignee agree to provide the other party with immediate notice of any proposed
purchase of the whole or partial interest in the Casino Barge. Upon receiving
written notice of the terms of any such proposed sale to which one party intends
to consent, the other party shall have five (5) business days to respond by
expressing in writing whether such proposal is acceptable. If the parties do not
both agree that the proposal is or is not acceptable, the parties shall meet
within five (5) business days, which meeting by agreement may take place
telephonically, of such response to determine whether the parties can agree on
an acceptable counteroffer. If the parties are still unable to agree to an
appropriate course of action, the parties shall submit the terms of the proposed
sale, and the reason for the opposing party's dissatisfaction with those terms
to an independent third party, mutually acceptable to both parties, whose
decision shall be binding on both parties. Prior to final approval of the terms
of this settlement agreement, the parties shall designate one or more mutually
acceptable independent third parties to fulfill this function in the event of
such a disagreement.
<PAGE>
AGREED THIS THE day of November, 1996.
AMGAM ASSOCIATES, DEBTOR
BY:
----------------------------------------
ITS:
----------------------------------------
AMERICAN GAMING & RESORTS OF
MISSISSIPPI, INC., DEBTOR
BY:
----------------------------------------
ITS:
----------------------------------------
AMERICAN GAMING & ENTERTAINMENT, LTD,
A DELAWARE CORP.
BY:
----------------------------------------
ITS:
----------------------------------------
AND
BYRD & WISER
BY:
----------------------------------------
ITS COUNSEL
<PAGE>
SHAMROCK HOLDINGS GROUP, INC.,
A DELAWARE CORP.
BY:
----------------------------------------
ITS:
----------------------------------------
AND
--------------------------------------------
BY:
----------------------------------------
ITS COUNSEL
OFFICIAL COMMITTEE OF
UNSECURED CREDITORS OF AMGAM
ASSOCIATES
BY:
----------------------------------------
ITS:
----------------------------------------
OFFICIAL COMMITTEE OF UNSECURED
CREDITORS OF AMERICAN GAMING AND
RESORTS OF MISSISSIPPI, INC.
BY:
----------------------------------------
ITS:
----------------------------------------
AMERICAN GAMING & ENTERTAINMENT, LTD.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
PRIMARY AND FULLY-DILUTED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average number
of shares for computation 12,532,102 12,296,003 12,532,102 12,355,155
------------ ------------ ------------ ------------
Net loss $ (8,628,000) $ (3,578,000) ($10,725,000) (17,288,000)
Dividends and accretion
on preferred stock 467,000 325,000 1,342,000 1,083,000
------------ ------------ ------------ ------------
Net loss for common
stockholders $ (9,095,000) $ (3,903,000) $(12,067,000) $(18,371,000)
------------ ------------ ------------ ------------
Net loss per common
share $ (0.73) $ (0.32) $ (0.96) $ (1.49)
------------ ------------ ------------ ------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF AMERICAN GAMING &
ENTERTAINMENT, LTD. FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<PERIOD-START> JAN-01-1996
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 50,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 920,000
<PP&E> 13,888,000
<DEPRECIATION> 2,600,000
<TOTAL-ASSETS> 14,841,000
<CURRENT-LIABILITIES> 55,755,000
<BONDS> 104,000
0
13,019,000
<COMMON> 126,000
<OTHER-SE> (56,664,000)
<TOTAL-LIABILITY-AND-EQUITY> 14,841,000
<SALES> 0
<TOTAL-REVENUES> 9,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,869,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,781,000
<INCOME-PRETAX> (8,628,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,628,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,095,000)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
</TABLE>
