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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1996
American Gaming & Entertainment, Ltd.
(Name of small business issuer in its charter)
0-19049
Commission file number
Delaware 74-2504501
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Bayport One, Yacht Club Drive, Suite 300
West Atlantic City, New Jersey 08232
(Address of principal executive offices) (Zip Code)
(609) 272-9099
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock ($0.01 par value per share) ("Common Stock")
(Title of Class)
Check whether the issuer (1) has 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 [ ]
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
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Issuer's revenues for the fiscal year ended December 31, 1996
were approximately $216,000. On February 28, 1997 the aggregate
market value of the voting stock of the registrant held by non-
affiliates of the registrant was approximately $310,000.
On February 28, 1997 there were 12,532,102 shares of the
registrant's Common Stock outstanding.
_____________________________________________________
Additional Information
For the purpose of calculating the aggregate market value of the
registrant's Common Stock held by non-affiliates, it has been
assumed that only the outstanding Common Stock legally or
beneficially held by the directors and executive officers of the
registrant and the two stockholders indicated in "Security
Ownership" with the largest holdings of the registrant's Common
Stock are held by affiliates of the registrant. However, this
should not be deemed to constitute an admission that all of such
persons are, in fact, affiliates or that there are no other
persons who may be deemed to be affiliates of the registrant.
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AMERICAN GAMING & ENTERTAINMENT, LTD.
1996 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
PART 1
Item 1. Description of Business ........................... 4
Item 2. Description of Property ........................... 25
Item 3. Legal Proceedings ................................. 25
Item 4. Submission of Matters to a Vote of Security
Holders ........................................... 30
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters ........................................... 31
Item 6. Management s Discussion and Analysis or Plan of
Operation ......................................... 32
Item 7. Financial Statements .............................. 35
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ............ 35
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Section 16(a) Beneficial
Ownership Report Compliance ....................... 36
Item 10. Executive Compensation ............................ 38
Item 11. Security Ownership of Certain Beneficial Owners
and Management .................................... 40
Item 12. Certain Relationships and Related Transactions .... 44
Item 13. Exhibits and Reports on Form 8-K .................. 47
SIGNATURES .................................................. 92
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PART I
Item 1. Description of Business
GENERAL
The Company owns equity interests in various properties which, at
the respective times of purchase, were anticipated to be utilized
in casino gaming projects. The Company has a 4.9% beneficial
equity interest in a riverboat gaming and entertainment complex
in Rising Sun, Indiana, which interest the Company has agreed to
sell by August 23, 1998 (See "- Investments - Indiana"). The
Company has entered into an agreement (the "Charter Agreement"),
with President Mississippi Charter Corporation ("PMCC") whereby
PMCC is leasing from the Company the Gold Coast Casino barge and
related leasehold improvements (collectively, the "Gold Coast
Barge") which the Company owns and on which the Company had
previously operated the Gold Shore Casino (See "- Investments -
Mississippi"). The Company owns one site in Alabama (a second
site in Alabama is scheduled to be sold on March 27, 1997, see "-
Discontinued Ventures - Prichard, Alabama") and a 15% equity
interest in the S.S. Aquarama, which the Company believes are
suitable for use as casino gaming facilities if gaming
legislation is enacted by appropriate jurisdictions (See "-
Investments - Mobile, Alabama and - Empire/Aquarama"). Since
December 1995, the Company is no longer actively seeking to
develop gaming projects and is currently managing its equity
interests. Given the Company's present financial and liquidity
position, the legal problems described below relating to The
Bennett Funding Group, Inc. ("Bennett Funding") and Bennett
Management and Development Corp. ("Bennett Management") and the
Company s other litigation described below (see "- Liquidity and
Continuation of Business" and "Legal Proceedings"), the business
of the Company is unlikely to continue to be the ownership of
equity interests in casino gaming ventures.
From 1993 through 1995, the Company s business was the provision
of development and management services for, and the acquisition
of equity ownership interests in, casino gaming ventures,
particularly in connection with the design, development,
financing and management of riverboat, dockside and land-based
casinos. During 1994 and 1995, the Company owned, managed and
operated the Gold Shore Casino in Biloxi, Mississippi and managed
the video lottery and certain other gaming activities at
Mountaineer Park Racetrack and Resort in Chester, West Virginia
(the "Mountaineer Facility"). See "-Investments - Mississippi",
and "- Discontinued Ventures - West Virginia".
The Company conducts its business directly and through wholly-owned
subsidiaries. The term "Company" as used herein refers to
American Gaming & Entertainment, Ltd. and such subsidiaries
unless the context otherwise requires. The Company's principal
executive offices are located at Bayport One, Yacht Club Drive,
Suite 300, West Atlantic City, New Jersey 08232; telephone:
(609) 272-9099. The Company was incorporated in 1988 under the
laws of the State of Delaware.
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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 Group, Inc., formerly known as Bennett
Holdings, Inc. ("Shamrock"), Bennett Funding and Bennett
Management (collectively, the "Bennett Entities") 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
February 28, 1997, the Company owes approximately $54,965,000 to
Shamrock, which amount includes (i) approximately $2,701,000
under an 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 "SCS Barge",
collectively with the "Sioux City Sue" riverboat vessel, the
"Vessels") which SCS Lease, as discussed below, Shamrock has
orally represented to the Company that Bennett Management, prior
to its bankruptcy filing, assigned to Shamrock and (ii) accrued
and declared dividends collectively totaling approximately
$303,000 which are due and payable on the Series C Preferred
Stock and Series D Preferred Stock (excluding accrued but
undeclared dividends collectively totaling approximately
$1,250,000 on the Series C Preferred Stock and Series D Preferred
Stock).
In the bankruptcy proceeding pending before the United States
Bankruptcy Court, Southern District of Mississippi (the
"Bankruptcy Court") of AMGAM Associates ("AMGAM"), a wholly owned
subsidiary of the Company, 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 Barge
by American Gaming and Resorts of Mississippi, Inc. ("AGRM"), a
wholly-owned subsidiary of the Company, 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 U.S. Bankruptcy Code (the "Code"), and
seeking, among other things, that all rental payments from PMCC
under the Charter Agreement ("PMCC Payments") be deposited into
an escrow account for the benefit of the creditors of AMGAM and
AGRM (see "-Investments - Mississippi").
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 PMCC Payments (approximately $329,000
per month) from May 1996 through July 1996 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 the AMGAM/AGRM Escrow Account to the Company in the
amount of $304,000 for the Company s monthly operating expenses.
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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
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 the
AMGAM/AGRM Escrow Account to the Company in the amount of
approximately $282,000 for the Company s 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, AMGAM, AGRM and the Committees have
executed 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 (the "FF&E
Payments") with respect to substantially all of the furniture,
fixtures and equipment, including certain slot machines, acquired
by PMCC from AMGAM formerly used in the operation of the Gold
Shore Casino (the "Acquired Equipment") 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 AMGAM/AGRM 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 (subject,
however, to the PMCC Agreement).
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. The Company and PMCC agreed, with the concurrence of
the Committees and Shamrock, (the "PMCC Agreement") (i) to allow
PMCC to pay 50% of the amounts of the PMCC Payments from October
1996 through January 1997 (of which amounts the Company has
received its portion), (ii) that the acceptance of such payments
would 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 January
31, 1997 all declarations of default.
The Company has verbally agreed with Shamrock that, beginning
with the February 1997 PMCC Payment, the Company shall repay
Shamrock at least $100,000 per month of the Company s
indebtedness to Shamrock contingent upon the Company receiving
its portion of at least 75% of
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the monthly amount of the PMCC Payments. PMCC has not made the
February and March 1997 PMCC Payments and therefore the Company
has not repaid Shamrock any of the Company s indebtedness to
Shamrock.
On March 4, 1997, the Company advised PMCC that PMCC was in
default under the Charter Agreement for failure to make the
February 1997 and March 1997 PMCC Payments when due and for
failure to make the October 1996 through January 1997 PMCC
Payments in full (collectively totaling approximately
$1,316,000). On March 5, 1997, PMCC alleged that the Company does
not have standing to assert any default under the Charter
Agreement because the Preliminary Injunction requires PMCC
Payments to be deposited into the AMGAM/AGRM Escrow Account, and
not to be paid directly to the Company. Additionally, PMCC
alleged that the Company had breached the Charter Agreement by,
among other defaults, (i) failing to ensure PMCC s peaceful use
and enjoyment of the Gold Coast Barge, (ii) misrepresenting the
Company s ownership of the Gold Coast Barge and (iii) failing to
disclose that the Gold Coast Barge was not in good condition. The
Company has advised PMCC that the Company believes that it has
not breached the Charter Agreement and will vigorously defend any
allegations of default under the Charter Agreement. The Company
is attempting to negotiate a settlement of this matter, but may
need to litigate these issues. If the Company does not, by some
means, (i) receive its portion of the PMCC Payments due from PMCC
under the Charter Agreement or (ii) agree with PMCC, with the
concurrence of the Committees and Shamrock, on a mutually
acceptable amended charter agreement, 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.
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 (the
"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
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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 and Bennett Management.
As discussed below, the Company is seeking the modification or
termination of certain agreements (excluding Shamrock s
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 and Bennett Management in
April 1995 and July 1995, 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 and Bennett Management, respectively, for cancellation
of approximately $22,722,000 in debt due Shamrock with respect to
the Gold Shore Casino (the "Barge Debt") and Shamrock s
assumption of the Ship Mortgage (collectively, the "Bennett Debt
Exchange") and a restructuring of all other obligations due from
the Company to Shamrock 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 and (ii) the Company is otherwise unable to service
the debt or repay the principal due to Shamrock under all other
such obligations.
Shamrock has orally represented to the Company that Bennett
Management, prior to its bankruptcy filing, assigned to Shamrock
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 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 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.
The Bennett Debt Exchange was to become effective on July 21,
1995 (the "BDE Date"), the day on which Shamrock was licensed to
own the Gold Coast Barge as a gaming facility by the Mississippi
Gaming Commission. However, the Company continued to utilize the
PMCC Payments for its operating needs after the BDE Date because
the Company s management determined on the BDE Date that, because
of the Company s liquidity problems, consummating
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the Bennett Debt Exchange and transferring the Charter Agreement
and PMCC Payments would prevent the Company from meeting its
obligations to its creditors. In the opinion of management,
consummating the Bennett Debt Exchange at that time would have
required the Company to file for protection under the Code. After
the BDE Date the Company utilized the PMCC Payments for working
capital based initially on an understanding which the Company
believed it had with Shamrock to postpone the consummation of the
Bennett Debt Exchange.
However, on October 3, 1995, Shamrock notified the Company that
the Company had not fulfilled its obligations under the Bennett
Debt Exchange to assign the Charter Agreement and the Gold Coast
Barge from the Company to Shamrock and Bennett Management,
respectively, and that Shamrock is entitled to all PMCC
Payments. Additionally, in June 1996, the Trustee (the "Trustee")
for Bennett Funding and Bennett Management under Chapter 11 of
the Code, who, pursuant to information from the Trustee, is the
sole owner of Shamrock, orally notified the Company that Shamrock
is entitled to all PMCC Payments to be received by the Company as
a result of Shamrock 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 the
Barge Debt. Accordingly, the Company has recorded the PMCC
Payments received by the Company from the BDE Date through
February 28, 1997 (totaling approximately $5,260,000) as
indebtedness due to Shamrock ("PMCC/Bennett Debt"). In addition,
the Company has (a) recorded interest expense on such
PMCC/Bennett Debt from the BDE Date through December 31, 1995 and
for the year ended December 31, 1996 (totaling approximately
$61,000 and $550,000, respectively) and (b) for the reasons set
forth below, continued to record for the years ended December 31,
1995 and 1996 (i) interest expense on the Barge Debt that was to
have been canceled by Shamrock, or, if necessary, Bennett
Management pursuant to the Bennett Debt Exchange and (ii)
depreciation and amortization expense on the Gold Shore Barge
that was to have been transferred to Shamrock pursuant to the
Bennett Debt Exchange (totaling approximately $1,997,000 and
$1,388,000 for the years ended December 31, 1995 and 1996,
respectively) (although, as discussed below, the Company is not
recognizing any rental revenue associated with such expenses).
Shamrock has not rescinded such letter nor executed documents
agreeing to a termination or postponement of the Bennett Debt
Exchange. The Company has not yet transferred the Gold Shore
Barge, the Charter Agreement and PMCC Payments received by the
Company from the BDE Date through February 28, 1997.
Additionally, Shamrock or, to the extent an assignment to
Shamrock 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. If Shamrock, and, to the extent an assignment to
Shamrock 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 s 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, the Term Sheet and the PMCC Agreement) (i) the
Company would recognize as revenue amounts previously recorded as
PMCC/Bennett Debt from
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the BDE Date through February 28, 1997 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 to allow the Company to utilize and retain
the PMCC Payments while the Company and Shamrock were negotiating
the terms of a comprehensive restructuring and (b) the course of
conduct of Shamrock from January 1, 1996 through June 1996, the
Company utilized, retained and initially recorded as revenues the
PMCC Payments from January 1, 1996 through June 30, 1996.
However, because there is no agreement with the Trustee allowing
the Company to utilize and retain the PMCC Payments from January
1, 1996 through June 1996, in the fourth quarter of 1996 the
Company (1) reversed as revenue the PMCC Payments from January 1,
1996 through June 30, 1996, (2) recorded such payments as
additional PMCC/Bennett Debt and (3) recorded interest expense on
such PMCC/Bennett Debt.
The Gold Coast Barge (with a value on the Company s books
totaling approximately $9,994,000 net of accumulated depreciation
and amortization, as of December 31, 1996) that was to have been
transferred to Bennett Management pursuant to the Bennett Debt
Exchange and the Barge Debt (totaling approximately $22,722,000
as of December 31, 1996, and accrued interest on such debt of
approximately $4,442,000 from the BDE Date through December 31,
1996) that was to have been canceled by Shamrock or, if
necessary, Bennett Management pursuant to the Bennett Debt
Exchange are shown as assets and liabilities, respectively, of
the Company as of December 31, 1996. Such amounts are shown on
the accompanying Consolidated Balance Sheet as of December 31,
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 or, if
necessary, Bennett Management all in accordance with the terms of
the Bennett Debt Exchange. The related revenues for the year
ended December 31, 1996, however, were not recognized as such and
instead are recorded as PMCC/Bennett Debt because (i) in June
1996 the Trustee notified the Company that Shamrock is entitled
to all PMCC Payments to be received by the Company and (ii) as of
December 31, 1996 Shamrock 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 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 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
totaling approximately $12,109,000 as of February 28, 1997 and is
therefore in default with respect to such payments under the
Company s various loan
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agreements with Shamrock. If Shamrock 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 $2,701,000 as of February 28, 1997 under the SCS
Lease. Shamrock or Bennett Management, to the extent an
assignment to Shamrock 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
and, if necessary, Bennett Management will agree on and execute
an agreement restructuring the Company s obligations to Shamrock
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
Funding and Bennett Management, and certain related parties, and
the transfer of all of the outstanding stock of Shamrock by Mr.
Michael Bennett to the Trustee, the Company has had preliminary
negotiations with the Trustee on a restructuring of the Company s
obligations to Shamrock 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 and, if applicable, Bennett Management,
as restructured.
The Company has not experienced any success in raising debt or
equity financing from sources independent of the Bennett Entities
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 raising 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
"Legal Proceedings"), 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 to (i) obtain sufficient
funds for its operations through the charter of the Gold Coast
Barge, sales of assets, or otherwise, (ii) obtain Shamrock s and,
if necessary, Bennett Management s agreement to modify on terms
acceptable to the Company or terminate the Bennett Debt Exchange
(excluding Shamrock s assumption of the Ship Mortgage) and
restructure all other obligations due from the Company to
Shamrock and, if applicable, Bennett Management, (iii) 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
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various trade and debt obligations of those entities, and (iv)
satisfactorily resolve the litigation filed against the Company
(see "Legal Proceedings"). However, there can be no assurance the
Company will be successful in obtaining Shamrock s and, if
necessary, Bennett Management s agreement to modify on terms
acceptable to the Company or terminate the Bennett Debt Exchange
(excluding Shamrock s assumption of the Ship Mortgage) and
restructure all other obligations due from the Company to
Shamrock 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.
INVESTMENTS
Indiana. The Company owns a 24.5% beneficial equity interest (the
"RSR Interest") in RSR, LLC ("RSR"), a limited liability company
formed by the Company and a group of non-affiliated individuals,
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"). Effective
August 23, 1996, the Company transferred legal title to the RSR
Interest to NBD Bank, N.A., as trustee, ("NBD"). Additionally, at
such time, the Company granted a irrevocable proxy to the other
members of RSR (collectively, the "Remaining Members") to vote
the RSR 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 RSR Interest or the ability
to sell or otherwise transfer the RSR Interest. Prior to August
23, 1998, the Company may instruct NBD to sell any portion of the
RSR 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 RSR 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 the staff of
the IGC of their intention to enter into the foregoing
arrangements, no determination on the Company s suitability for
licensure has been made by the IGC and the Company does not
believe that the IGC has any present intention of making a
determination on the Company s suitability for licensure.
Mississippi. Pursuant to a Partnership Agreement dated January 4,
1994 (the "AMGAM Partnership Agreement"), the Company and AGRM,
formerly known as American Gaming Corporation, through their
respective subsidiaries, formed AMGAM, to develop and operate the
Gold Shore Casino in Biloxi, Mississippi. AGRM, through a wholly-
owned subsidiary, owns a 90% partnership interest in AMGAM. AGRM
also owned and leased property in Vicksburg,
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Mississippi, which ownership interests have been terminated as
discussed below (collectively, the "Vicksburg Property"). The
Company, through another wholly-owned subsidiary, holds the other
10% partnership interest in AMGAM. The Gold Shore Casino opened
on June 20, 1994.
On December 1, 1994, the Company acquired AGRM in a merger
transaction (the "Merger"). As a result of the Merger, the
Company became indirectly the sole owner of the Gold Shore Casino
and the Vicksburg Property. Under the terms of the Agreement and
Plan of Merger dated November 10, 1994, the stockholders of AGRM
of record on November 30, 1994 and holders of certain warrants to
purchase AGRM common stock received in exchange for such
securities 4,414,560 restricted shares of Common Stock equal to
approximately 22.5% of the then outstanding Common Stock and
Common Stock issuable upon the exercise, exchange or conversion
of certain of the Company's convertible securities including
preferred stock, warrants and options.
As a result of AMGAM s continuing operating losses and liquidity
problems subsequent to the date of the Merger, as well as an
inability on the part of the Company to raise the financing
required to address the operating and liquidity problems of the
Gold Shore Casino, the Company, on February 17, 1995, entered
into the Charter Agreement with PMCC for use at PMCC's existing
site in Biloxi, Mississippi for annual rent of approximately
$4,000,000. The Gold Coast Barge had been transferred to the
Company from AGRM in exchange for the cancellation of AGRM s
guaranty to the Company of certain unpaid lease obligations of
AMGAM to the Company, which transfer is being challenged by the
AMGAM Committee as a fraudulent transfer or voidable preference
under the Code (see "Legal Proceedings"). Pursuant to terms of
the Charter Agreement, PMCC is responsible for operating,
insurance and maintenance costs of the Gold Coast Barge. The
Charter Agreement has an initial term of five years, which term
may be extended by PMCC for two additional five year terms. PMCC
also has the option to purchase the Gold Coast Barge for fair
market value at any time during the term of the Charter Agreement
although the Company may reject any such offer should it not meet
certain financial criteria set forth in the Charter Agreement.
The Gold Shore Casino ceased operations on May 14, 1995 and the
Charter Agreement became effective on June 18, 1995. The AMGAM
Committee has filed the Motion and the Complaint in the
Bankruptcy Court seeking, among other things, that all PMCC
Payments be deposited into an escrow account for the benefit of
the creditors of AMGAM and AGRM (See "Legal Proceedings").
In April 1995 and July 1995, the Company, Shamrock and Bennett
Management executed the Bennett Debt Exchange (See "-Liquidity
and Continuation of Business").
On May 5, 1995 AMGAM was served by certain creditors with a
petition filed in the Bankruptcy Court seeking liquidation of
AMGAM under Chapter 7 of the Code. On May 25, 1995 AMGAM
responded to such petition by requesting the Bankruptcy Court to
convert the case into a reorganization under Chapter 11 of the
Code, which request was granted by the Bankruptcy Court. On
February 1, 1996 the Bankruptcy Court approved the sale of the
leases comprising the Gold Shore Casino site to a third party for
the sum of $750,000 plus the assumption and payment of all
outstanding liabilities relating to and arising from such leases.
On March 12 and 13, 1996,
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the personal property of AMGAM was sold at auction for the net
sum of approximately $337,000.
On June 1, 1995, AGRM filed a voluntary petition for
reorganization under Chapter 11 of the Code with the Bankruptcy
Court. On December 20, 1995 the Bankruptcy Court lifted the
automatic stay to allow an action of foreclosure on one of two
parcels of the Vicksburg Property owned by AGRM which served as
collateral for certain borrowing agreements. In the first quarter
of 1996, the creditors under such borrowing agreements foreclosed
on such property. On April 8, 1996, the Bankruptcy Court lifted
the automatic stay to allow an action of foreclosure on the
second parcel of the Vicksburg Property owned by AGRM which
served as collateral for certain borrowing agreements and the
creditors under such borrowing agreements subsequently foreclosed
on such parcel. Additionally, on March 14, 1996 the Bankruptcy
Court approved the rejection by AGRM of its lease with the lessor
of the parcel constituting the remainder of the Vicksburg
Property.
Pursuant to an order (the "PMCC Order") of the Bankruptcy Court,
on September 21, 1995 PMCC acquired from AMGAM the Acquired
Equipment in exchange for the promise to make to AMGAM the FF&E
Payments, consisting of an initial payment of approximately
$48,000 and twenty-six equal monthly payments of approximately
$121,000 through October 1, 1997 totaling approximately
$3,188,000, which is an amount substantially equal to the
indebtedness of AMGAM to IGT - North America ("IGT") for such
machines. Pursuant to the PMCC Order (a) commencing October 1,
1995 any such payments made by PMCC to AMGAM are escrowed in the
AMGAM bankruptcy proceeding pending a determination by the
Bankruptcy Court as to the disposition of such proceeds and (b)
approximately $22,000 was disbursed from such account in
satisfaction of the secured claim of one creditor in the AMGAM
bankruptcy proceeding. As a result of the establishment of such
escrow, AMGAM has not been able to use such payments from PMCC to
pay its indebtedness to IGT and AMGAM is not otherwise able to
repay such indebtedness. The Company has guaranteed to IGT the
repayment by AMGAM of such indebtedness (See "Legal
Proceedings").
PMCC has not made any FF&E Payments from August 1996 through
February 1997, totaling approximately $845,000. On January 31,
1997 AMGAM and the AMGAM Committee filed suit in the Bankruptcy
Court against PMCC and an affiliate seeking payment of all FF&E
Payments currently due under the PMCC Order, among other relief
(See "Legal Proceedings").
The Company, Shamrock, 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) 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
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<PAGE> 15
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, 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
AMGAM/AGRM Escrow Account, (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 s unsecured claims and the Ship
Mortgage (in the collective claimed amount of $33,000,000) would
be paid from the balance of (a) the monthly PMCC Payments
(approximately $259,000) 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
shall advise AMGAM, AGRM and the Committees of the allocation
between the Company and Shamrock 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 the Confirmation Date. 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.
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 entered into the
PMCC Agreement, PMCC has failed to make the February 1997 and
March 1997 PMCC Payments when due and has failed to make the
October 1996 through January 1997 PMCC Payments in full. (See
"-Liquidity and Continuation of Business").
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<PAGE> 16
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 their
appraised market value.
Nevada. On May 31, 1995 the Company consummated an agreement with
Fitzgerald's Reno, Inc. to purchase the Harolds Club casino in
Reno, Nevada (which is not presently operating as a casino and
which would require substantial renovations and equipment
purchases to enable it to operate as a casino) for a purchase
price of $8,900,000, consisting of $1,150,000 previously paid
into escrow by the Company and $7,750,000 provided by Shamrock.
The Company did not have sufficient funds to complete the
purchase. To prevent the Company from forfeiting the escrowed
funds because of a failure to consummate the purchase by the date
required in the agreement, Shamrock agreed to provide the
additional financing in exchange for the transfer to it by the
Company of the property constituting the Harolds Club casino, all
as more fully described below.
Pursuant to an agreement between Shamrock and the Company (the
"HC Purchase Agreement") under which Shamrock provided the
necessary funds to the Company to close the purchase of the
Harolds Club casino in Reno, Nevada, the Company transferred to
Shamrock title to the land and the building related to the
Harolds Club, Shamrock canceled $650,000 of the Company s then
outstanding indebtedness to Shamrock 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 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 relating to possible future sale or
development of the Harolds Club. The HC Purchase Agreement does
not give Shamrock 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
Shamrock, since July 30, 1995 Shamrock 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 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 and the lessors under
such leases that Shamrock has not made lease payments from April
1996 through February 1997 due under such leases or quarterly
property taxes due under such leases, collectively totaling
approximately $732,000. 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 $584,000, $548,000 and
$548,000 for 1997, 1998 and 1999, subject to increase based upon
increases in the Consumer Price Index, and have terms ending
between June 1997 and October 2022. If the lease expiring June
1997 is not renewed (and such lease requires the lease to be in
full force and effect at the time of any renewal), sale or
development of the Harolds Club could be adversely affected. The
Company has recorded the unpaid lease payments and property taxes
from April 1996 through December 1996 totaling approximately
$638,000 (the "Unpaid
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<PAGE> 17
Harolds Obligations") as current liabilities as of December 31,
1996. The Company has also recorded the amount of the Unpaid
Harolds Obligations as a receivable due from Shamrock as of
December 31, 1996, but, as a result of the Company s
determination as of December 31, 1996 that there is a substantial
likelihood that such amount will be uncollectible, wrote-off such
amount as of December 31, 1996. In September 1996, Shamrock and
the Company entered into an agreement (the "HC Reimbursement
Agreement") pursuant to which Shamrock 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 "Legal Proceedings"), and (iii) all reasonable costs and
expenses incurred by the Company in connection with the operation
and maintenance of the Harolds Club.
Pursuant to agreements between Shamrock and the Company dated as
of August 15, 1995 (the "Harolds Agreements"), the Company has
the right to lease Harolds Club from Shamrock or, under certain
circumstances, manage the Harolds Club. The Company does not
have, nor does it anticipate having, the financial ability or
personnel to exercise such lease option. Additionally, the
Company has no current intention of exercising such lease option
or managing the Harolds Club.
The Company is precluded from conducting casino operations in the
Harolds Club prior to receipt of a gaming license from the Nevada
State Gaming Control Board. In January 1996, the Company
withdrew, without prejudice to reapply, a previously filed
licensing application.
Mobile, Alabama. During August 1993, the Company acquired, for
$1,006,000 in cash, a former railroad station in Mobile, Alabama,
which the Company believes is suitable for use as a casino gaming
facility if the State of Alabama enacts gaming legislation. In
the second quarter of 1995, as a result of the Company s
determination that there is a substantial likelihood that the
former railroad station will not be able to be utilized as a
gaming facility in the next few years, the Company recognized a
write down of $280,000 in the value of its investment in the
former railroad station to reflect its estimated sale value if it
is unable to be developed as a gaming facility. In the third
quarter of 1996, the Company recognized an additional 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.
The Company does not have, nor does it anticipate having, the
financial ability or personnel to develop such property as a
gaming or other facility, and is therefore assessing
opportunities to sell such property.
Empire/Aquarama. In May 1993, the Company invested $3,000,000 in
cash to acquire a 15% initial equity interest (with the right to
increase its percentage ownership to 30%) in Empire Cruise Lines,
Ltd., a Delaware corporation ("Empire"), which has acquired
ownership of the S.S. Aquarama, a U.S. flag cruise ship suitable
for refurbishment as a gaming vessel. Empire has no prior
operating history or business operations and was formed solely
for the purpose of acquiring and refurbishing the S.S. Aquarama.
The S.S. Aquarama has been docked in protected fresh waters since
1963 when it left service as a ferry on the Great Lakes. The
vessel was constructed in
17<PAGE>
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1945 and originally served as a troop carrier for the United
States Navy for three years. Under an agreement with Empire, the
Company has committed to use its best efforts to obtain up to
$75,000,000 in financing to refurbish and equip the S.S. Aquarama
in exchange for which Empire has agreed to engage the Company as
manager of any future casino operations of the vessel for a term
equivalent to the term of the financing arranged by the Company.
In exchange for its management services, the Company would
receive a fee equal to 10% of earnings before interest,
depreciation and taxes ("EBIDT") up to EBIDT of $120 million in
total at which point no more fees will be paid until interest
costs associated with such financing have been earned on a net
operating basis. The Company does not have, nor does it
anticipate having, the financial ability or personnel to manage
such property as a gaming or other facility. The Company is
currently assessing opportunities to sell its equity ownership in
Empire. Additionally, the Company, on behalf of Empire, is
currently seeking opportunities to sell the S.S. Aquarama. As a
result of the Company s determination in the second quarter of
1995 that there was a substantial likelihood that the S.S.
Aquarama will not be able to be utilized as a gaming project in
the next few years, the Company recognized a write down of
$2,250,000 in the value of its investment in Empire to reflect
the estimated net scrap metal proceeds which would be received by
the Company if the S.S. Aquarama was unable to be developed as a
gaming project and instead sold for its scrap metal value. As a
result of the Company s determination in the fourth quarter of
1996 that there (i) is a substantial likelihood that the S.S.
Aquarama will not be able to be utilized as a gaming project and
(ii) the outstanding carrying costs of the S.S. Aquarama exceed
its estimated net scrap metal value, the Company wrote off its
investment of $750,000 in Empire.
DISCONTINUED VENTURES
Prichard, Alabama. The Company purchased seven adjoining parcels
of real estate in Prichard, Alabama for a total of approximately
$676,000 for possible development in connection with a casino
gaming facility. The Company completed those purchases in 1995.
In addition, the Company has a lease through July, 1997 for
another parcel at a rent of approximately $22,000 per year. In
the fourth quarter of 1996, the Company recognized a writedown of
$566,000 in the value of its investment in real property in
Prichard, Alabama to reflect an appraisal of its fair market
value. The Company has agreed to sell its seven parcels of real
estate to the City of Prichard for $110,000; closing is currently
scheduled for March 27, 1997. The net sales proceeds of
approximately $98,000 will be used to repay a portion of a
promissory note in the outstanding principal amount as of
February 28, 1997 of approximately $121,000 payable to a former
employee of the Company related to expenses that such employee
incurred during his employment with the Company, which note was
secured by the seven parcels of real estate in Prichard, Alabama
owned by the Company. The Company does not intend to renew the
lease of the other parcel of real estate in Prichard, Alabama.
Keno. On March 28, 1996 the Company entered into an assignment
and transfer agreement (the "Keno Agreement") with American
Heartland Corporation ("AHC"), and Big Red Keno, Ltd., a licensed
keno operator in Omaha, Nebraska ("BRK"), pursuant to which: (i)
the Company assigned, and AHC assumed, all of the Company s
rights and obligations under that certain financing agreement
dated October 15, 1991 with BRK to provide equipment, services
and
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financing for the operation of a multiple parlor keno game in the
City of Omaha in exchange for a revenue participation equal to
50% of cash net income of BRK after deduction of certain cash
payments by BRK: (ii) the Company transferred and assigned to AHC
all of the Company s right, title and interest to all of the
assets utilized by the Company in the conduct of its keno gaming
activities (the "Keno Assets"), including, without limitation,
all maintenance and servicing agreements with the licensed
operators for stations and locations at which the Company s
computerized keno system is utilized (the "Keno Maintenance
Agreements") and the Company s computerized keno system; (iii)
the Company agreed not to compete, directly or indirectly, with
AHC or BRK as a distributor, manufacturer or maintainer of keno
equipment or software, other than in the normal course of any
casino operations of the Company for a period of five years; (iv)
AHC paid the Company $500,000 on March 29, 1996; and (v) AHC
issued and delivered its promissory note to the Company in the
principal amount of approximately $1,112,000 (the "Keno Note").
The Keno Note requires principal and interest payments, at an
interest rate of 8% per annum, based on a fifty-three month
amortization with payments commencing on April 28, 1996. The
Company has received principal and interest payments totaling
$275,000 through February 28, 1997. The Keno Note is secured by
the Keno Assets and is guaranteed by BRK, which guarantee is
secured by keno equipment previously provided to BRK by the
Company.
AHC has agreed to submit licensing applications to the
appropriate governmental authorities for the temporary licenses,
permanent licenses or other gaming approvals or authorizations or
other evidence of non-disapproval (the "Required Licenses")
necessary to enable AHC to lawfully perform the obligations
assumed by AHC under the Keno Maintenance Agreements. Pending the
issuance of the Required Licenses, the Company shall perform the
obligations under the Keno Maintenance Agreements for the benefit
of AHC and shall be reimbursed by AHC for any net cash operating
expenses incurred by the Company in connection with the
performance of such obligations. If the arrangement described
above is not permitted by applicable laws or regulations, then,
pending the issuance of the Required Licenses, the Company shall
continue to perform its obligations under the Keno Maintenance
Agreements for its own benefit and at its own expense. If AHC
does not submit the required licensing applications or obtain the
Required Licenses within specified time frames set forth in the
Keno Agreement, AHC and BRK, jointly and severally, shall (i)
indemnify the Company for any damages relating to the termination
of the Keno Maintenance Agreements, and (ii) except with respect
to a failure to submit applications for or to obtain licenses
required by the State of Nebraska, pay the Company liquidated
damages in the amount of $100,000 as compensation for damages
relating to the termination of the Keno Maintenance Agreements.
If AHC does not obtain the Required Licenses within specified
time frames set forth in the Keno Agreement, the Company has the
right, but not the obligation, to retain certain Keno Maintenance
Agreements and the Keno Assets located in the Company s former
Billerica, Massachusetts facility as of March 28, 1996. The
Company and AHC have agreed to extend such time frame through
June 1997. AHC s obligations under the Keno Note are not
contingent upon AHC submitting appropriate licensing applications
or obtaining the Required Licenses.
Sioux City Sue. Effective May 1994, Bennett Management
consummated the purchase of the Vessels from a third party. The
Company believed, at such time, the Vessels were suitable for
riverboat gaming operations and planned to use the Vessels for
such operations if successful in
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obtaining a gaming license in any of a number of jurisdictions in
which riverboat gaming has been legalized or is being considered
for legalization.
In conjunction therewith, the Company entered into the SCS Lease
with Bennett Management whereby the Company leased the Vessels
for casino gaming purposes at a monthly rental of $106,250 plus
operating and maintenance expenses. The SCS Lease was approved by
a special committee of the Board of Directors which makes
recommendations to the Board of Directors concerning potential
transactions between the Company and entities which may be deemed
affiliates of the Company and such action was ratified by the
Board of Directors of the Company. As a result of the Company s
determination in 1995 that there was a substantial likelihood
that the Company would not record any revenues from the Vessels
through the end of the SCS Lease term to offset the remaining
lease payments due Bennett Management under the SCS Lease from
January 1, 1996 to the end of the lease term totaling
approximately $4,463,000, such remaining lease payments were
recognized as a liability as of December 31, 1995 by the Company.
The Company has been advised by Shamrock that the SCS Barge was
sold by Shamrock on November 20, 1996. The Company has advised
Shamrock that it believes that the SCS Lease terminated on such
date and accordingly reversed the remaining lease payments due
Bennett Management under the SCS Lease from November 20, 1996 to
the end of the lease term totaling approximately $3,329,000. The
Company has not paid approximately $2,701,000 in rent to Bennett
Management due under the SCS Lease from November 10, 1994 through
November 20, 1996.
Shamrock has orally represented to the Company that Bennett
Management, prior to its bankruptcy filing, assigned to Shamrock
all of Bennett Management s rights and obligations under 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 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.
West Virginia. The Company had been engaged by Mountaineer Park,
Inc. ("Mountaineer") pursuant to a management agreement (the
"Mountaineer Park Management Agreement") to provide management
services for the video lottery and other gaming activities of
Mountaineer which may be permitted from time to time under West
Virginia law other than pari-mutuel horse racing and off-track
betting on horse racing (the "Managed Activities") at the
Mountaineer Facility. The provision of such services began on
October 27, 1994.
Under the Mountaineer Park Management Agreement, the Company was
entitled to receive a management fee of 3% of the gross revenues
of the Managed Activities at the Mountaineer Facility. In
addition, the Company was entitled to receive 8% of the earnings
before interest, taxes, depreciation and amortization of all
businesses conducted at or, in the case of off-track betting,
generated as a result of, the Mountaineer Facility, including the
Managed Activities and all pari-mutuel horse racing and off-track
betting on horse racing.
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On June 30, 1995 the Company, Mountaineer and Winners
Entertainment, Inc., the parent of Mountaineer, entered into an
agreement pursuant to which the Mountaineer Park Management
Agreement and all relationships established, and all obligations
arising, thereunder were permanently stayed. American Newco, Inc.
("Newco"), a corporation owned by the Company s then President
and Chief Executive Officer, was contemporaneously retained by
Mountaineer pursuant to a Consulting Agreement (the "MP
Consulting Agreement") to consult with Mountaineer concerning
marketing services, operation of gaming activities and
construction of the Mountaineer Facility, among other matters.
Under the MP Consulting Agreement, Newco is entitled to receive a
base fee of $10,000 per month and additional compensation of not
less than $30,000 for each three month period commencing July 1,
1995. Newco agreed to remit to the Company any such funds
received pursuant to an assignment agreement (the "Assignment"),
which obligation was terminated pursuant to a separation
agreement dated December 15, 1995 executed by the Company and
such then President and Chief Executive Officer, among others.
For the period from July 1, 1995 through December 15, 1995, the
Company received approximately $60,000 from Newco pursuant to the
Assignment.
Bingo. On December 23, 1994, the Company sold substantially all
of the assets utilized by the Company in the conduct of its high
stakes bingo gaming activities to MegaBingo, Inc., for which the
Company ultimately received approximately $1,700,000 in cash and
12,500 shares of Series A Preferred Stock of Multimedia Games,
Inc., the parent of MegaBingo, Inc. Such preferred stock is
voting, convertible preferred stock with a cumulative quarterly
dividend of $0.275 per share.
On April 15, 1994, MegaBingo, Inc. exercised an option granted by
the Company on December 10, 1993 and entered into a service
agreement (the "Services Agreement") pursuant to which, on an
exclusive basis, MegaBingo, Inc. is providing marketing and other
services required by the bingo gaming activities conducted at
such time by the Company and, since April 15, 1994, by MegaBingo,
Inc. The term of the Services Agreement is for a period of three
years ending April 14, 1997 subject to extension in certain
circumstances for an additional two (2) years. Although the
Company has sold all its bingo assets, the Services Agreement is
required until such time as agreements pursuant to which
marketing and other services required by such bingo gaming
activities have been entered into between MegaBingo, Inc. and
certain bingo gaming hall operators. In consideration of those
services, MegaBingo, Inc. receives a services fee equal to 100%
of Free Cash Flow (as defined in the Services Agreement) from
such high stakes bingo operations.
California. On September 29, 1994, the Company executed a
Memorandum of Understanding ("MOU") with International Marine and
Gaming, Inc. to jointly pursue the potential development of a
card club casino in Bell, California. In connection with the
execution of the MOU, the Company deposited $1,027,000 (the "Bell
Deposit") in trust with the City of Bell in order to participate
as a 25% interest holder in the card club casino project. The
Company withdrew from such project in January 1996 and the Bell
Deposit was returned to the Company, without interest, in
February 1996. The Company used $1,000,000 of the Bell Deposit to
repay (i) approximately $183,000 of its indebtedness to Shamrock
under a $1,900,000 working capital line of credit provided to the
Company by Shamrock in September 1994 (the "1994 Line of
Credit"), (ii)
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approximately $175,000 of its indebtedness to Bennett Funding
under a line of credit provided to the Company by Bennett Funding
in March 1995 (the "1995 Line of Credit"), including outstanding
accrued interest on such debt and (iii) approximately $642,000 of
its indebtedness to Shamrock under a non-revolving working
capital line of credit provided by Shamrock to the Company in
July 1995 (the "July 1995 LC"), including outstanding accrued
interest on such debt. See "Certain Relationships and Related
Parties - Current Transactions and - Terminated or Superseded
Agreements."
Video Gaming Machines. In 1992, the Company entered the video
gaming machine and video lottery terminal (collectively, "VLT")
segment of the gaming business. The Company's investments in the
VLT segment never developed as successfully as expected.
Consequently, during 1994 the Company recorded a loss provision
of approximately $76,000, constituting a writeoff of all of the
Company's investment in the VLT segment. In 1995 the Company sold
all of its video gaming machines, which had an aggregate net book
value of $899,000, for the aggregate sum of approximately
$43,000.
In November 1994, the United States District Court for the
Western District of Louisiana entered a judgment in favor of the
Company and against certain VLT distributors for the full amount
of a loan to them by the Company in the principal amount of
approximately $1,108,000, which amount had been previously
written-off by the Company. Pursuant to the execution of the
judgment, such distributors sold their VLTs and VLT routes for
the benefit of the Company, for which the Company received
approximately $219,000 and the loan described above was deemed
paid in full. Additionally, the Company settled its claims
against the principals of such VLT distributors in exchange for
$100,000, which was received by the Company in December 1994.
NET OPERATING LOSS CARRYFORWARDS AND RELATED OWNERSHIP CHANGE
LIMITATIONS
As of December 31, 1996, the Company had net operating loss
carryforwards ("NOL s") of approximately $55,404,000 available to
offset future taxable income. Under Section 382 of the Internal
Revenue Code of 1986, as amended (the "Tax Code") if a loss
corporation has an "ownership change" (as defined in the Tax
Code) within a designated testing period, its ability to use its
NOL s is subject to certain limitations. The Company has had
various ownership changes for Section 382 purposes which limit
the amount of pre-April 9, 1993 losses that may be utilized
annually to offset taxable income. Net operating losses subject
to an annual limitation as of April 9, 1993 amounted to
approximately $17,000,000. Losses after April 9, 1993 totaling
approximately $38,404,000 are also subject to such limitation as
of the date of this filing. There can be no assurance that a
future ownership change will not occur or that a past event, such
as the Merger, will be determined to not be an ownership change
which could further limit the utilization of the Company s NOL s
during future periods, nor can there be any assurance that
operations of the Company will generate taxable income in future
years so as to realize a tax benefit from such NOL s.
LICENSES AND LICENSE APPLICATIONS
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In connection with its investments in gaming ventures, the
Company has a license in the state of Nebraska as a
manufacturer/distributor of lottery equipment and supplies. The
Company does not intend to renew such license, which expires in
September 1997, as a result of the sale of the Company s keno
business pursuant to the Keno Agreement (See "- Discontinued
Ventures - Keno").
COMPETITION AND GOVERNMENT REGULATION
Certain forms of casino gaming, including riverboat casino
gaming, are now permitted in portions of Colorado, Illinois,
Indiana, Iowa, Louisiana, Michigan, Mississippi, Missouri,
Nevada, New Jersey and South Dakota, as well as on American
Indian lands in many States. Some form of gaming (e.g.,
lotteries, horse or dog racing, charitable games) is now legal in
every State except Utah and Hawaii. The many forms of gaming
conducted both on and off Indian lands in the United States may,
in a broad sense, be deemed to be in competition with the gaming
ventures in which the Company invests and affect the value of
such gaming ventures. The extent to which the various forms of
gaming conducted both on and off Indian lands in the United
States may be competitive with the gaming ventures in which the
Company's invests depends upon several factors including the
nature and location of the gaming activity and the demographics
of the player populations.
Additionally, the gaming industry in which the Company invests is
subject to extensive government regulation by federal, state and
local authorities and, accordingly, regulatory and legislative
changes, including gaming related taxes, could have an adverse
effect on the Company's investments by increasing competition, by
increasing costs or by making gaming a relatively less attractive
activity for its customers as compared with other competing
activities.
To the extent the Company continues to do business in the gaming
industry, if at all, such competition and government regulation
could have an adverse effect on the Company's business by
increasing competition, by increasing costs, by making gaming a
relatively less attractive activity for its customers as compared
with other competing activities, and by imposing restrictions on
the Company s business activities. To the extent the Company s
activities in a particular jurisdiction are regulated, the
Company has complied, or has taken the appropriate steps to
comply, with any applicable regulations. To the extent the
Company commences gaming operations in other jurisdictions, it
will become subject to the regulatory systems in effect in those
jurisdictions.
No material portion of the business of the Company is seasonal.
No portion of the Company s business is subject to termination of
contracts or renegotiation of profits at the election of the
government. Compliance with federal, state and local
environmental regulations has not had and is not expected to have
a material effect upon the capital expenditures, earnings (or
losses) or competitive position of the Company. Inflation has not
had and is not expected to have a material effect on the
Company s business.
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SERVICE MARKS
The Company has registered the service mark for "MEGAPICK" with
the United States Patent and Trademark Office (the "PTO"). The
Company has granted to MegaBingo, Inc. the exclusive, paid-up
perpetual right and license to use the service mark "MEGAPICK" or
any variant thereof in connection with any and all bingo
operations (See "- Discontinued Ventures - Bingo"). The Company
has granted to AHC the right to use the names "Gamma", "Gamma
International" and variants thereof, provided however, that the
Company retains the right to continue to use the name "Gamma" or
any variant thereof for corporate, but not commercial, purposes
(See -"Discontinued Ventures - Keno"). The Company has
registrations pending with the PTO for the service marks "GOLD
SHORE CASINO" and "MISSISSIPPI GOLD SHORE CASINO", but intends to
abandon such registrations upon the liquidation of AMGAM.
EMPLOYEES
As of February 28, 1997, the Company had 3 employees, consisting
of 1 executive officer and 2 office personnel. All of the
Company's personnel are employed full-time.
For additional information concerning the Company and its
business and operations, see "Management s Discussion and
Analysis."
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Item 2. Description of Property
Headquarters. The Company s operations are located in West
Atlantic City, NJ. The property is currently in operative
condition and is sufficient for the Company s current
administrative and known operating needs. The property is leased
with an expiration term of September 13, 1998.
The Gold Coast Barge. The Gold Coast Barge measures 300 x 90
with two decks measuring 300 x 110 (approximately 33,000 square
feet each) and one deck measuring 300 x 40 (approximately
12,000 square feet). As discussed above, on February 17, 1995 the
Company entered into the Charter Agreement with PMCC to charter
the Gold Coast Barge to PMCC for use at PMCC's existing site in
Biloxi, Mississippi for annual rent of approximately $4,000,000,
although as discussed above, the Company and PMCC entered into
the PMCC Agreement for the period October 1996 through January
1997 (See "Description of Business - Liquidity and Continuation
of Business"). Shamrock has ship mortgages on the Gold Coast
Barge totaling approximately $35,062,000 related to loans
utilized to finance the construction and opening of the Gold
Shore Casino previously operated on the Gold Coast Barge. See
"Description of Business - Liquidity and Continuation of
Business" for a discussion of the status of the Bennett Debt
Exchange, pursuant to which the Gold Coast Barge was to be
transferred by the Company to Bennett Management in exchange for
cancellation of certain debt due Shamrock.
Nevada. As discussed above, the Company is obligated pursuant to
the HC Purchase Agreement to transfer to Shamrock all of the
Company's rights, title and interest in certain land leases
related to the Harolds Club by July 30, 1995 but such transfer
has not been completed pending the negotiation by the Company
with Shamrock relating to possible future sale or development of
the Harolds Club.
Alabama. The Company owns a former railroad station in Mobile,
Alabama (a second site in Alabama is scheduled to be sold on
March 27, 1997, see "Description of Business - Discontinued
Ventures - Prichard, Alabama").
See "Description of Business - Investments - Mississippi, -
Nevada, and - Mobile, Alabama."
For a description of the general competitive conditions related
to the above mentioned properties see "Description of Business -
Competition."
Management believes that all properties are adequately insured.
Item 3. Legal Proceedings
As discussed above, IGT is not receiving any payments from AMGAM
on AMGAM s debt to IGT for certain slot machines acquired by PMCC
formerly used in the operation of the Gold Shore Casino (See
"Description of Business - Investments - Mississippi"). Such
indebtedness by AMGAM to IGT has been guaranteed by the Company
pursuant to a guaranty agreement (the "IGT Guaranty") by the
Company to IGT. On November 2, 1995 IGT filed a complaint against
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the Company in the Circuit Court of Harrison County, Mississippi,
Second Judicial District seeking a judgment against the Company
under the IGT Guaranty of (i) the principal amount of
approximately $3,306,000 plus accrued interest due under an
installment sales contract and (ii) reasonable attorneys fees.
Although the Company has responded to such complaint by arguing
that the IGT Guaranty should be found to be unenforceable if IGT
has failed to properly perfect a security interest in such slot
machines, to the extent (i) funds are not paid to IGT pursuant to
the Term Sheet and the Plan and (ii) the IGT Guaranty is
enforceable against the Company, the Company s business and
financial condition would be materially adversely affected.
Management is unable, with any degree of certainty, to predict
the outcome, or to estimate the amount of liability, if any, that
may result from this action.
On September 20, 1995 AMGAM was informed by the U.S. Department
of Labor (the "DOL") that it had concluded an investigation of
the AMGAM Associates d/b/a Gold Shore Casino Associate Benefit
Plan (the "AMGAM Benefit Plan") for the period May 15, 1994
through September 20, 1995. As a result of such investigation,
the DOL has alleged that AMGAM and possibly certain related
parties and/or AMGAM officers violated, and continue to violate,
certain provisions of the Employee Retirement Income Security Act
of 1974 ("ERISA") with respect to the administration of the AMGAM
Benefit Plan. The DOL has indicated that AMGAM s failure to take
necessary corrective action may result in the referral of this
matter to the Office of the Solicitor of Labor for possible legal
action. In addition, whether or not any such referral is made,
AMGAM is and would remain liable to possible legal action by
other parties including plan fiduciaries and plan participants or
their beneficiaries. Certain violations of ERISA may also result
in the assessment of civil penalties by the Secretary of Labor
against the violating parties. The DOL has requested AMGAM to
discuss how such violations noted in the DOL s investigation may
be corrected and how to restore any losses to the AMGAM Benefit
Plan. The Company responded to such allegations on November 20,
1995, and advised the DOL (i) that AMGAM does not believe that
there have been any fiduciary violations or prohibited
transactions under ERISA, (ii) AMGAM intends to satisfy medical
claims due and payable under the AMGAM Benefit Plan to the extent
permitted by the Code and the Bankruptcy Court and intends to use
its best efforts to seek priority status under the Code for the
payment of such medical claims, and (iii) in no event will the
amount paid with respect to such medical claims be less than the
employee contributions collected under the AMGAM Benefit Plan
after March 28, 1995. Although the actions taken by AMGAM,
certain related parties and AMGAM officers with respect to the
AMGAM Benefit Plan will be vigorously defended, the outcome of
this matter is uncertain. Any legal action or civil penalties
arising out of this matter could materially affect the Company
and its business and financial condition.
The AMGAM Committee has filed the Motion which would result in a
combination of the assets and liabilities of AMGAM and AGRM into
one bankruptcy estate. The Bankruptcy Court has not scheduled a
hearing date on the Motion. AMGAM, AGRM and the Company presently
intend to oppose the Motion on the basis, among others, that
AMGAM, AGRM and the Company were separate entities with separate
ownership at the time most liabilities of AMGAM and AGRM were
incurred.
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The AMGAM Committee has also filed the Complaint seeking that (i)
the transfer of the ownership interests in the Gold Coast Barge
by AGRM and AMGAM to the Company be declared null and void, (ii)
the transfer of the leasehold interest in the Gold Coast Barge by
AMGAM to the Company be declared null and void, (iii) the Company
and Shamrock be required to deliver to AGRM and AMGAM their
respective interests in both the ownership and leasehold in the
Gold Coast Barge, (iv) the Company and Shamrock disgorge and
return to the respective AMGAM and AGRM estates all PMCC Payments
received, such funds to be deposited in an escrow account and not
expended without further order of the Bankruptcy Court, and (v)
PMCC be ordered and directed to immediately deposit all PMCC
Payments into an escrow account for the benefit of the creditors
of AMGAM and AGRM, such funds not to be expended without further
order of the Bankruptcy Court. The Bankruptcy Court has not
scheduled a hearing date on the Complaint. AMGAM, AGRM and the
Company presently intend to oppose the Complaint on the bases,
among others, that the transfer of the Gold Coast Barge from AGRM
to the Company involved contemporaneous exchanges of value and
that the Company and Shamrock were not insiders of AMGAM or AGRM
at the time such entities granted the Company and Shamrock
security interests in their assets, including the Gold Coast
Barge.
As discussed above (See "Description of Business - Liquidity and
Continuation of Business"), pursuant to the Plan, as currently
agreed upon pursuant to the terms of the Term Sheet, 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. The Motion would be
rendered moot because the Plan is a joint plan of liquidation.
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) the Motion 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 Bankruptcy 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 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.
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As discussed above (See "Description of Business - Liquidity and
Continuation of Business"), the Bankruptcy Court has entered the
Preliminary Injunction. The Preliminary Injunction was sought by
the Committees and the Company in connection with their
negotiations involving the Plan, but it is independent of the
Complaint which seeks, among other things, similar relief.
As discussed above (See "Description of Business - Investments -
Mississippi"), on January 31, 1997 AMGAM and the AMGAM Committee
filed suit in the Bankruptcy Court (Adv. No. 970868) against PMCC
and an affiliate seeking, among other relief, (i) payment of all
FF&E Payments currently due under the PMCC Order, (ii) compliance
by PMCC and such affiliate with the PMCC Order, (iii) a temporary
restraining order restraining PMCC, such affiliate and/or related
parties or agents from assigning, encumbering, transferring,
selling or disposing of the Acquired Equipment and (iv) a
preliminary injunction restraining PMCC, such affiliate and/or
related parties or agents from selling or disposing of the
Acquired Equipment. PMCC has agreed to provide the AMGAM
Committee with at least seven days advance written notice of any
proposed sale, conveyance, transfer, lien, mortgage or other
encumbrance of the Acquired Equipment. The Bankruptcy Court has
not yet scheduled a trial date on this lawsuit.
On September 16, 1996, two stockholders of the Company, who were
bondholders and stockholders of AGRM prior to 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.
In July 1996 and August 1996, in separate actions filed in the
Second Judicial District Court of the State of Nevada in and for
the County of Washoe (Case Nos. CV9604947, CV9604933, CV9604939,
CV9604997 and CV9604692), the five lessors of the Harolds Club
property have filed suit against, among others, the Company and
Shamrock seeking, variously, 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
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Shamrock to the extent necessary to satisfy the claims of
creditors of the Company, (iii) a court order prohibiting and
enjoining Shamrock 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 of suit. The Company
and four of the plaintiffs have stipulated to stay the respective
actions until April 15, 1997; the fifth action has been set for
trial commencing September 4, 1997. 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 May 3, 1996, a class action was filed in the United States
District Court, Northern District of New York (Case No. 96-CV-712)
against certain Bennett Entities and related parties for
using fraudulent representations and omissions of material facts
to offer and sell over $570,000,000 of purported assignments of
equipment leases and promissory notes issued by Bennett Funding
or its subsidiaries and seeking recession of such assignments and
compensatory, recessionary and statutory treble damages. The
Company was named as a defendant in such lawsuit based on
allegations that certain Bennett Entities and related parties
allegedly used funds acquired from the sale of such purported
assignments to loan money to the Company and based on the
ownership interest in and alleged control of the Company by
certain Bennett Entities. As discovery and depositions have not
yet commenced, Company counsel, 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.
In addition to the items set forth above, the Company is involved
in other legal proceedings and claims of various types. While
any litigation contains an element of uncertainty, it is the
opinion of management, after consultation with counsel, that the
outcome of each such other proceeding or claim which is pending
or known to be threatened, or all of them combined, can be
successfully defended or resolved. In addition, management is
unable, with any degree of certainty, to predict the outcome, or
to estimate the amount of any liability, if any, that may result
from these actions. However, management believes that none of
such other proceedings or claims will have a material adverse
effect on the Company's business or financial condition.
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Item 4. Submission Of Matters To A Vote Of Security Holders
Not Applicable. The last annual meeting of stockholders of the
Company was held on October 12, 1995. No meeting of stockholders
has been held since such date and the Company has no present
intention of holding a meeting of stockholders in 1997.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information. The Common Stock trades under the
symbol "AGEL". After May 9, 1995 the Common Stock has been traded
on the OTC Bulletin Board. From January 1, 1995 to May 7, 1995
the Common Stock was traded on The NASDAQ Small-Cap Market. The
following table sets forth, for the calendar periods indicated,
the high and low bid prices (which prices are interdealer prices
without retail markup, markdown or commissions, and may not
necessarily represent actual transactions) except for the 1995
first quarter and the 1995 second quarter prior to May 9, 1995
for which the high and low sales prices of the Common Stock for
the periods indicated as reported in published financial services
are shown.
Sales Price Per Share
Except as Indicated
Above
Calendar Periods High Low
1995
First Quarter $ 1.1875 $ 0.6250
Second Quarter
(through May 8, 1995) 0.9375 0.0938
Second Quarter
(after May 8, 1995) 1.1250 0.3438
Third Quarter 1.8750 0.6250
Fourth Quarter 0.7500 0.1250
1996
First Quarter $ 0.2188 $ 0.0313
Second Quarter 0.1406 0.0781
Third Quarter 0.1250 0.0625
Fourth Quarter 0.0781 0.0156
1997
First Quarter
(through February 28, 1997) $ 0.0625 $ 0.0156
(b) Holders. At February 28, 1997, there were approximately 264
holders of record of the Common Stock.
(c) Dividends.
(1) The Company has never declared or paid any dividends on
its Common Stock. The Board of Directors presently intends to
retain any and all earnings for use in the Company's business and
therefore does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future.
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(2) The terms of the Company s Series C Cumulative
Preferred Stock ("Series C Preferred Stock") provide that the
Company shall not declare or pay any dividends on the Common
Stock or Series A Preferred Stock if there are, at such time, any
cumulative accrued but unpaid dividends on the Series C Preferred
Stock. The Series C Preferred Stock ranks equally as to
dividends with all shares of the Company s Series D Cumulative
Preferred Stock ("Series D Preferred Stock"). The Company has
accrued and declared, but has not paid as of February 28, 1997
dividends totaling approximately $152,000 which were due and
payable on the outstanding shares of Series C Preferred Stock as
of December 31, 1994. The Company has accrued, but has not
declared or paid as of February 28, 1997 dividends totaling
approximately $675,000 on the outstanding shares of Series C
Preferred Stock from January 1, 1995 through December 31, 1996.
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 Preferred
Stock and the Series D 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.
(3) The terms of the Company s Series D Preferred Stock
provide that the Company shall not declare or pay any dividends
on the Company s Common Stock or Series A Preferred Stock if
there are, at such time, any cumulative accrued but unpaid
dividends on the Series D Preferred Stock. The Series D
Preferred Stock ranks equally as to dividends with all shares of
the Company s Series C Preferred Stock. The Company has accrued
and declared, but has not paid as of February 28, 1997 dividends
totaling approximately $152,000 which were due and payable on the
outstanding shares of Series D Preferred Stock as of December 31,
1994. The Company has accrued, but has not declared or paid as of
February 28, 1997 dividends totaling approximately $575,000 on
the outstanding shares of Series D Preferred Stock from January
1, 1995 through December 31, 1996. 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 Preferred Stock and the Series D 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.
Item 6. Management s Discussion and Analysis or Plan of
Operation
The following analysis of the results of operations and financial
condition of the Company should be read in conjunction with the
Company s financial statements, including the notes thereto,
contained elsewhere in this report.
32<PAGE>
<PAGE> 33
Results of Operations: Comparison of the year ended December 31,
1996 and December 31, 1995
Revenues
Consulting service and other revenues for year ended December 31,
1996 amounted to approximately $216,000, a decrease of
approximately $2,021,000 or approximately 90% from the year ended
December 31, 1995. The decrease for year ended December 31, 1996
compared to the year ended December 31, 1995 was primarily due to
approximately $1,308,000 attributable to keno revenues, $284,000
attributable to revenues from a video lottery management contract
and revenues from an assignment of funds received under a video
lottery consulting contract and $358,000 attributable to revenues
from PMCC Payments. The Company s keno assets and operations were
sold on March 28, 1996 and therefore keno revenues significantly
decreased for the year ended December 31, 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 year ended December 31, 1996.
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, 1996 have not been
recorded as revenue but have been recorded as PMCC/Bennett Debt.
Costs and Expenses
Direct operating expenses and cost of sales were approximately
$65,000 for year ended December 31, 1996, a decrease of
approximately $409,000 or approximately 86% compared to the year
ended December 31, 1996. The decrease was attributable to the
expenses and costs related to sales of keno systems sold during
the year ended December 31, 1996. The Company s keno assets and
operations were sold on March 28, 1996 and therefore such
expenses and costs significantly decreased for the year ended
December 31, 1996.
Selling, general and administrative expenses were approximately
$2,853,000 for the year ended December 31, 1996, a decrease of
approximately $930,000 or approximately 25% compared to the year
ended December 31, 1995. The decrease was primarily due to
decreases of approximately $323,000 related to the Company s keno
operations, which were sold on March 28, 1996 and a decrease of
approximately $1,552,000 due to the reorganization of the Company
and 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 receivable due from Shamrock
Holdings to the Company relating to Harolds Club expenses in the
amount of approximately $991,000 (which amount includes the
Unpaid Harolds Obligations) as of December 31, 1996.
Casino project development costs for the year ended December 31,
1996 were approximately $272,000, a decrease of approximately
$2,782,000 or approximately 91% compared to the year ended
December 31, 1995. Such decrease was primarily due to the
Company s change in business direction as discussed above.
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 totaling approximately $4,463,000 and therefore no such SCS
Lease expenses were recorded in 1996. On November 20, 1996 the
SCS Barge was sold by Shamrock. The Company believes that the
SCS Lease terminated on such date and accordingly reversed the
remaining lease payments due Bennett Management under the SCS
Lease from November 20, 1996 to the end of the lease term
totaling approximately $3,329,000.
33<PAGE>
<PAGE> 34
Depreciation and amortization costs were approximately $1,572,000
for the year ended December 31, 1996, a decrease of approximately
$1,267,000 or approximately 45% compared to the year ended
December 31, 1995. The decrease in depreciation and amortization
expense was principally due to a decrease of approximately
$608,000 as a result of the transfer of certain assets to PMCC in
September 1995 and a decrease of approximately $663,000 related
to the Company s keno assets which were sold on March 28, 1996.
Writedown of impaired assets was approximately $4,438,000 for the
year ended December 31, 1996, consisting primarily of writedowns
of $2,762,000, $750,000, $351,000 and $566,000 in the values of
the Company s investments in the Gold Coast Barge, in Empire,
real property in Mobile, Alabama and real estate in Prichard,
Alabama, respectively. For the year ended December 31, 1995, the
Company recognized writedowns of $2,250,000, $280,000 and
$543,000 to reflect the estimated sales values of the Company s
investments in Empire, real property in Mobile, Alabama and the
Harolds Club, respectively, if the Company were unable to develop
such assets as gaming projects. Also, during December 1995, the
Company wrote off approximately $368,000 in unamortized software
related to keno operations because such software had become
technologically obsolete.
Equity in losses of subsidiaries in bankruptcy related to the
results of operations for AMGAM and AGRM for the year ended
December 31, 1996 of approximately $2,250,000, representing a
decrease of approximately $5,918,000 or approximately 72% when
compared to the year ended December 31, 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 year ended December 31, 1996 was an
accrual of $2,250,000 as management s estimate of additional
settlement liabilities to be paid to unsecured creditors of AMGAM
and AGRM pursuant to the Term Sheet and the Plan.
Net interest expense for the year ended December 31, 1996 was
approximately $5,572,000, an increase of approximately $320,000
or approximately 6% compared to the year ended December 31, 1995.
Interest expense increased approximately $351,000 and interest
income increased approximately $31,000 for the year ended
December 31, 1996 compared to the year ended December 31, 1995.
The increase in interest expense was primarily due to increases
of approximately $549,000 attributable to PMCC Payments and
approximately $245,000 attributable to the Ship Mortgage,
partially offset by decreases of approximately $319,000
attributable to amortization of deferred financing fees and
approximately $137,000 attributable to repayments of the
Company s indebtedness to Shamrock.
During the year ended December 31, 1996, the Company wrote off
approximately $2,086,000 of deferred financing fees due to
Shamrock and approximately $1,418,000 of deferred financing and
commitment fees due to Shamrock because the amounts due under the
financing arrangements pursuant to which such fees were incurred
have been recorded as current liabilities and the Company has
determined that such fees have no future benefit. No such
writeoff was recorded for the year ended December 31, 1995.
34<PAGE>
<PAGE> 35
Net gain on sale of investments for the year ended December 31,
1996 was substantially due to a net gain of approximately
$948,000 on the sale of keno operations. During the year ended
December 31, 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.
Liquidity and Capital Resources
For a discussion of liquidity and capital resources, see
"Description of Business - Liquidity and Continuation of
Business."
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)
the Company s ability to obtain sufficient funds for its
operations, through the charter of the Gold Coast Barge, sales of
assets, or otherwise, (ii) obtaining Shamrock s and, if
necessary, Bennett Management s agreement to modify on terms
acceptable to the Company or terminate the Bennett Debt Exchange
(excluding Shamrock s assumption of the Ship Mortgage) and
restructure all other obligations due from the Company to
Shamrock and, if applicable, Bennett Management, (iii)
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, (iv) satisfactorily resolving the legal
proceedings filed against the Company (see "Legal Proceedings"),
and (v) the legal problems described above relating to certain
Bennett Entities (see "Description of Business - Liquidity and
Continuation of Business" and "Legal Proceedings").
Item 7. Financial Statements
See pages 51 through 91 following Item 13 below.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable.
35<PAGE>
<PAGE> 36
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Section 16(a) Beneficial Ownership Report Compliance.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Executive Officers and Directors
The executive officers and directors of the Company are as
follows:
DIRECTOR
NAME AGE SINCE POSITION
J. Douglas Wellington 43 1996 President and Chief
Executive Officer, General
Counsel, Secretary, Director
Paul L. Patrizio 40 1996 Chairman of the Board of
Directors
William R. Rafferty 58 1993 Director
Each of the Company's current directors serve until the next
annual meeting of stockholders and until his successor is duly
elected and qualified. The holders of the Series A Preferred
Stock are entitled to elect one director to the Board of
Directors, but have not elected a director. In connection with a
1994 restructuring of the Company s debt (the "1994
Restructuring"), the Company agreed that Shamrock would be
entitled to control the Board of Directors by designating for
election two of the then four directors to be elected by the
holders of Common Stock, in addition to electing one director as
the holder of Series A Preferred Stock. The Company believes
that, in connection with an amendment of the by-laws of the
Company reducing the total number of directors to four, Shamrock
currently has the right to designate for election one of the
three directors to be elected by the holders of Common Stock.
However, in accordance with the terms of the 1994 Restructuring,
such designee will only serve on the Board of Directors as a
designee of Shamrock until such time that (i) the Company has
raised $50 million in financing from sources other than Shamrock
and (ii) the management of the Company has invested $1,250,000
into equity of the Company (of which total the Company's
management, as of February 28, 1997 has invested $293,000 into
equity of the Company). Shamrock has not designated anyone for
election to the Board of Directors pursuant to such right under
the 1994 Restructuring. Mr. Wellington was elected to the Board
of Directors on April 11, 1996; Mr. Wellington has agreed to
serve as a director until such time as Shamrock designates
someone for election to the Board of Directors in his stead
pursuant to such right.
J. Douglas Wellington was elected Chief Executive Officer of the
Company in September 1996, after being elected President and
Chief Operating Officer in August 1996. Mr. Wellington joined the
Company in November 1993 as Corporate Counsel, was elected an
Assistant Secretary of the Company in December 1993, was elected
Secretary in May 1994 and was promoted to General Counsel in
December 1994. In April 1996, Mr. Wellington was elected to the
Board of Directors. Mr. Wellington was elected Controller (which
position he held until September 1996) and
36<PAGE>
<PAGE> 37
Principal Accounting Officer in May 1996 and was elected interim
President and Chief Operating Officer in July 1996. From November
1992 through December 1993, Mr. Wellington attended New York
University full-time completing the program for a LL.M. degree.
From May 1987 to October 1992, Mr. Wellington was an attorney at
Dillon, Bitar & Luther in Morristown, New Jersey.
Paul L. Patrizio was elected a director of the Company in April
1996 and was appointed the Company s Chairman of the Board of
Directors in September 1996. Mr. Patrizio has been, since July
1995, a partner at the law firm of Rick, Steiner & Tannenbaum,
P.C. in New York, New York. From June 1992 to June 1995, Mr.
Patrizio was a partner at Campbell & Fleming, P.C. in New York,
New York. From June 1989 to May 1992, Mr. Patrizio was an
attorney at Shea & Gould in New York, New York.
William R. Rafferty was elected a director of the Company in
October 1993. Mr. Rafferty has been, since 1978, President of
Rafferty Real Estate, Inc., a real estate brokerage firm
specializing in commercial real estate transactions, including
acquisitions of properties in Atlantic City, New Jersey for
companies engaged in the gaming industry and residential housing
developments.
(b) Significant Employees. None.
(c) Family Relationships. None.
(d) Involvement in Certain Legal Proceedings. None.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORT COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), requires the Company s officers and
directors, and persons who own more than 10% of a registered
class of the Company s equity securities, to file an initial
report of ownership of such securities on Form 3 and changes in
ownership of such securities on Form 4 or 5 with the Commission.
Such officers, directors and 10% stockholders are required to
furnish the Company with copies of all Section 16(a) forms they
file with the Commission.
Based solely on its review of the copies of such forms received
by it, or written representations from certain such reporting
persons that no Form 5 s were required for such persons, the
Company believes that, for the fiscal year ended December 31,
1996, all Section 16(a) filing requirements applicable to its
officers, directors and 10% stockholders were complied with
except as follows: Forms 3 and 4 filed late by Mr. Wellington and
Forms 3 filed late by Mr. Patrizio and Messrs. Robert C. Sprague
and Albert C. Cerimeli, former directors of the Company. All
transactions were filed on a timely basis except for two option
grants filed late by Mr. Wellington. Mr. Fasy, the Company s
former President and CEO, failed to report an option grant in
June 1996 which expired upon his termination on August 1, 1996.
37<PAGE>
<PAGE> 38
Item 10. Executive Compensation
The following tables set forth certain information respecting
the compensation awarded to, earned by, or paid to all
individuals serving as the Company s CEO during 1996. No other
individuals had a total annual compensation exceeding $100,000
for the year ended December 31, 1996.
<TABLE>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
Other Annual Securities All Other
Name and Principal Year Salary Bonus Compensation Underlying Compen-
Position ($) ($) ($) Options (#) sation ($)
<S> <C> <C> <C> <C> <C> <C>
J. Douglas Wellington, 1996 129,593 62,500 -- 500,000 2,000
CEO (1) 1995 80,000 -- -- -- --
1994 73,942 -- -- 43,500(2) --
William I. Fasy, Former 1996 102,932 -- -- -- --
CEO (3) 1995 100,000 15,000 -- -- --
1994 100,000 -- -- 58,500(4) --
______________________
(1) Mr. Wellington s employment with the Company began in November 1993.
(2) Includes options to purchase 18,750 shares of Common Stock granted in
1994 that were subsequently repriced in 1994.
(3) Mr. Fasy s employment with the Company began in June 1993 and terminated
on August 1, 1996.
(4) Includes options to purchase 50,000 shares of Common Stock granted in
1993 that were subsequently repriced in 1994.
</TABLE>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Number of Value of
Unexercised Unexercised in-the-
Options money Options at
Shares Value at FY-End (#) FY-End ($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
J. Douglas Wellington 0 $0 14,063/504,687 $0/$0
William I. Fasy (1) 0 $0 34,375/ 15,625 $0/$0
______________________
(1) Mr. Fasy s employment with the Company terminated on August 1, 1996.
</TABLE>
38<PAGE>
<PAGE> 39
Compensation of Directors
The Company s non-employee directors were each paid a fee of
$2,500 per month from January 1, 1996 through June 30, 1996 and
$4,000 per month effective July 1, 1996. as compensation for
services as a director. Directors who are employed by the Company
receive no such compensation. Every director is reimbursed for
out-of-pocket expenses incurred in connection with attendance at
meetings of the Board of Directors and other Company business.
Employment Contracts and Termination of Employment
The Company and Mr. Wellington executed an agreement dated as of
June 1, 1996, which agreement provided for (i) annual
compensation payable to Mr. Wellington of $125,000, (ii) a
payment of $14,799, equal to the amount of additional
compensation Mr. Wellington would received from January 1, 1996
through May 31, 1996 if his annual compensation had been $125,000
during such period, which amount was paid to Mr. Wellington upon
execution of such agreement and (iii) the grant of options to
purchase 150,000 shares of Common Stock. Such agreement was
superseded, except for the grant of options, by an agreement
dated as of September 12, 1996 (the "Wellington Employment
Agreement") executed by the Company and Mr. Wellington. The
Wellington Employment Agreement has a term of two years and
provides for annual compensation payable to Mr. Wellington of
$125,000. The Wellington Employment Agreement also provides for
(i) a signing bonus of $62,500, which amount was paid to Mr.
Wellington upon execution of the Wellington Employment Agreement,
(ii) a severance payment of $250,000 to be paid to Mr. Wellington
in the event (a) Mr. Wellington is terminated "without cause",
(b) a "substantial breach" occurs or (c) Mr. Wellington resigns
after a "change of control" (as such terms are defined in the
Wellington Employment Agreement), (iii) the issuance of an
irrevocable letter of credit in the amount of $62,500 to be paid
to Mr. Wellington in the event that (a) Mr. Wellington is
terminated "without cause", (b) the Company files for bankruptcy
protection or an involuntary case is filed against the Company,
(c) Mr. Wellington remains employed by the Company through
September 11, 1997, (d) a "substantial breach" occurs or (e) Mr.
Wellington resigns after a "change of control", (iv) the grant of
options to purchase 350,000 shares of Common Stock, and (v) a car
allowance of $500 per month.
The Company and Mr. Fasy executed an agreement dated as of
December 15, 1995, which agreement provided for annual
compensation payable to Mr. Fasy of $100,000. Pursuant to such
employment agreement, Mr. Fasy was also paid $15,000 on December
15, 1995 and received certain personal property of the Company
with a net book value of approximately $4,600 on such date. Such
agreement was superseded by an agreement dated as of June 1, 1996
(the "Fasy Employment Agreement") executed by the Company and Mr.
Fasy. The Fasy Employment Agreement provided for (i) annual
compensation payable to Mr. Fasy of $150,000, (ii) a payment of
$23,798, equal to the amount of additional compensation Mr. Fasy
would received from January 1, 1996 through May 31, 1996 if his
annual compensation had been $150,000 during such period, which
amount was paid to Mr. Fasy upon execution of the Fasy Employment
Agreement and (iii) the grant of options to purchase 300,000 of
Common Stock. The Fasy Employment Agreement terminated on August
1, 1996 and such options were forfeited on such date.
39<PAGE>
<PAGE> 40
Additionally, the Company and Mr. Fasy executed an escrow
agreement dated as of March 29, 1996 pursuant to which the
Company deposited $75,000 into an escrow account to secure the
compensation payable to Mr. Fasy under his employment agreements.
Such amount has been repaid to the Company.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information as of February 28,
1997 with respect to the only persons or groups known to the
Company who may be deemed to own beneficially more than 5% of the
Company s voting securities (i.e. Common Stock or Series A
Preferred Stock). Unless otherwise noted, each holder has sole
voting and investment power with respect to the shares of the
listed securities.
<TABLE>
Title of Class Name and Address Amount and Nature Percent of Class
of Beneficial Owner of Beneficial
Ownership (1)
<S> <S> <C> <C>
Common Stock Shamrock Holdings 5,823,019 (2) 41.8%
Group, Inc.
2 Clinton Square
Syracuse, NY 13202
Common Stock Richard C. Breedan, 494,993,730 (3) 98.7%
Trustee
c/o Shamrock
Holdings Group, Inc.
2 Clinton Square
Syracuse, NY 13202
Series A Shamrock Holdings 55,982.61 (4) 100%
Preferred Stock Group, Inc.
2 Clinton Square
Syracuse, NY 13202
Series A Richard C. Breedan, 55,982.61 (5) 100%
Preferred Stock Trustee
c/o Shamrock
Holdings Group, Inc.
2 Clinton Square
Syracuse, NY 13202
____________________
(1) Based on information supplied by persons listed or as reported on the
most recent Schedule 13D filed by any such persons. As used in this table,
"beneficial ownership" of securities means the sole or shared
40<PAGE>
<PAGE> 41
power to vote, or to direct the voting of, such securities, or the sole or
shared investment power with respect to such securities, including the
power to dispose of, or to direct the disposition of, such securities. In
addition, for purposes of this table, a person is deemed to have
"beneficial ownership" of any security that such person had the right to
acquire within 60 days after February 28, 1997 (see "- Changes in
Control").
(2) Includes 1,399,565 shares of Common Stock issuable upon the conversion
of Series A Preferred Stock.
(3) Includes the 5,823,019 shares of Common Stock beneficially owned by
Shamrock. The Company understands that Mr. Breedan is sole stockholder and
President of Shamrock. Includes 168,315,594 shares of Common Stock issuable
upon conversion of Series C Preferred Stock, 160,572,725 shares of Common
Stock issuable upon conversion of Series D Preferred Stock and 158,782,392
shares of Common Stock issuable upon conversion of Series E Preferred Stock
assuming that those conversions took place on February 28, 1997 and that
the Company amended its Certificate of Incorporation increasing the number
of authorized shares of Common Stock to 500,000,000 shares (see "- Changes
in Control").
(4) Each share of Series A Preferred Stock is convertible into 25 shares
of Common Stock.
(5) Includes the 55,982.61 shares of Series A Preferred Stock beneficially
owned by Shamrock. The Company understands that Mr. Breedan is sole
stockholder and President of Shamrock.
</TABLE>
41<PAGE>
<PAGE> 42
Security Ownership of Management
The following table sets forth information as of February 28,
1997 with respect to (i) each director, (ii) all individuals
serving as the Company s CEO during 1996, and (iii) all directors
and all such executive officers as a group. Unless otherwise
noted, each holder has sole voting and investment power with
respect to the shares of the listed securities. An asterisk (*)
indicates beneficial ownership of less than 1%.
COMMON STOCK
<TABLE>
Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Ownership
(1) (2) (3)
<S> <C> <C>
J. Douglas Wellington 264,063 2.06%
c/o American Gaming &
Entertainment, Ltd.,
Bayport One, Suite 300,
Yacht Club Drive, West
Atlantic City, New Jersey,
08232
William I. Fasy 28,125 *
c/o Delaware Park
777 Delaware Park Boulevard
Wilmington, DE 19804
Paul L. Patrizio 0 *
c/o Rick, Steiner & Tannenbaum
Three New York Plaza
New York, NY 10004
William R. Rafferty 0 *
c/o Rafferty Real Estate
10 N. California Avenue
Atlantic City, NJ 08401
Executive Officers and 292,278 2.28%
Directors as a group (5
persons)
(1) As used in this table, "beneficial ownership" of securities means the
sole or shared power to vote, or to direct the voting of, such securities,
and/or the sole or shared investment power with respect to such securities
(i.e., the power to dispose of, or to direct the disposition of, such
securities). In addition, for
42 <PAGE>
<PAGE> 43
purposes of this table, a person is deemed to have "beneficial ownership"
of any security which such person had the right to acquire within 60 days
after February 28, 1997.
(2) Includes for: J. Douglas Wellington, 264,063 shares; William I.
Fasy, 28,215 shares; and all executive officers and directors as a group,
292,278 shares of Common Stock that, in each case, are subject to presently
exercisable options or options which will become exercisable within 60 days
after February 28, 1997.
</TABLE>
Changes in Control.
Except as described below, the Company knows of no arrangements
the operation of which may at a subsequent date result in a
change of control.
Shamrock, of which the Trustee is the sole stockholder, owns (i)
4,423,454 shares of Common Stock, and (ii) 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 owns (i) an additional 1,500,000 shares of Common Stock
and (ii) all of the Company s outstanding Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock,
convertible as of February 28, 1997 into approximately
487,670,000 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 Preferred Stock, the Series
D 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
next annual meeting of the Company s stockholders. The Board of
Directors has not set a date for such annual meeting. Assuming
the Trustee converted as of February 28, 1997 that number of
shares of the Series C Preferred Stock, Series D 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
estates of certain Bennett Entities and Shamrock, 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 February 28, 1997 that
number of shares of the Series C Preferred Stock, the 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 487,467,898 shares of Common Stock
being issued to the Trustee as of such date), the Trustee, on
behalf of the estates of certain Bennett Entities and Shamrock,
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.
In addition to the right of Shamrock, as beneficial owner of 100%
of the Series A Preferred Stock, to elect one director to the
Board of Directors, in connection with the 1994 Restructuring,
43
<PAGE> 44
Shamrock was given the right to designate, and but has not so
designated, one additional director of the four present directors
to the Board of Directors (see "Directors, Executive Officers,
Promoters and Control Persons; Section 16(a) Beneficial Ownership
Report Compliance - Directors, Executive Officers, Promoters and
Control Persons - Executive Officers and Directors").
Item 12. Certain Relationships and Related Transactions
See "Security Ownership of Certain Beneficial Owners and
Management" for those persons or groups known to the Company who
may be deemed to own beneficially more than 5% of the Company s
voting securities (i.e. Common Stock or Series A Preferred
Stock). Bennett Funding and Bennett Management are assumed to be
affiliates of Shamrock. However, this should not be deemed to
constitute an admission that such entities are, in fact,
affiliates of Shamrock.
See "Description of Business - Liquidity and Continuation of
Business" for a description of certain relationships and related
transactions related to the Gold Coast Barge, the Charter
Agreement and PMCC Payments.
Current Transactions
On December 18, 1995, the Company, with the concurrence of
Bennett Management, sold 240 slot machines beneficially owned by
Bennett Management and utilized the proceeds of $384,000 for
working capital, which amount represents indebtedness due from
the Company to Bennett Management. The Company has not repaid
such indebtedness. Shamrock has orally represented to the Company
that Bennett Management, prior to its bankruptcy filing, assigned
to Shamrock all of Bennett Management s rights and obligations
with respect to such indebtedness.
As more fully described above, the Company and Shamrock entered
into the HC Purchase Agreement on May 31, 1995, the Harolds
Agreements as of August 15, 1995 and the HC Reimbursement
Agreement in September 1996 (see "Description of Business -
Investments in Gaming Ventures - Nevada").
On September 30, 1994, Shamrock and the Company consummated the
1994 Restructuring, pursuant to which Shamrock and the Company
agreed to, among other terms, (i) commencing November 15, 1994,
the provision by Shamrock to the Company of the 1994 Line of
Credit from Shamrock (of which 1994 Line of Credit the Company
had fully utilized as of December 31, 1995); (ii) the provision
by Shamrock to the Company of a $3,500,000 loan (which the
Company had fully utilized as of January 31, 1995) to assist the
Company in financing pertaining to the Gold Shore Casino secured
by the Second Mortgage; (iii) the conversion by Shamrock,
effective July 1, 1994, of the approximately $24,774,000 in debt
due from the Company to Shamrock with respect to the Gold Shore
Casino, secured by the Second Mortgage on the Gold Coast Barge,
into a 7-year note requiring interest payments only, at 13.75%
per annum, through December 1995 and thereafter principal and
interest payments based on a 15 year amortization but with a
balloon payment at the end of the seventh year, which debt
restructuring required payment of a
44
<PAGE>
<PAGE> 45
10% refinancing fee to Shamrock; and (iv) the election by
Shamrock of two additional persons to the Board of Directors
resulting in Shamrock s control of the Board of Directors until
such time that the Company's management invested an aggregate of
$1,250,000 in the equity of the Company and the Company has
raised from independent sources (i.e. excluding Shamrock, Bennett
Funding or Bennett Management) a minimum of $50,000,000 of
financing. Shamrock canceled $650,000 of the Company s
outstanding indebtedness owed under the 1994 Line of Credit
pursuant to the HC Purchase Agreement (see "Description of
Business - Investments - Nevada") and in February 1996, the
Company used a portion of the Bell Deposit to repay approximately
$183,000 of its indebtedness to Shamrock under the 1994 Line of
Credit (see "Description of Business - Discontinued Ventures -
California.")
The shares of Series A Preferred Stock, all of which outstanding
shares are held by Shamrock, are convertible at the holder's
option into 25 shares of Common Stock per share of Series A
Preferred Stock, bear the right to elect, but Shamrock has not so
elected, one director to the Board of Directors prior to the
first annual meeting of the Company's stockholders held after
June 30, 1997 and otherwise vote, and receive dividends, as one
class with the Common Stock as if converted into Common Stock,
are non-redeemable, and do not accrue or pay dividends or bear
any liquidation preference.
The shares of Series C Preferred Stock, Series D Preferred Stock
and the Series E Preferred Stock, all of which outstanding shares
are held by the Trustee, are senior to all other classes of the
Company s outstanding stock. Each of the Series C Preferred
Stock, Series D Preferred Stock and the Series E Preferred Stock
is convertible by the holder thereof into the number of shares of
Common Stock equal to the then-applicable redemption price for
each such Series (as described below) divided by an amount equal
to 75% of the average market price of Common Stock for the ten
consecutive business days prior to the conversion date.
Conversion of each of the Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock could result in
significant dilution to the ownership interest of the Company s
stockholders (see "Security Ownership of Certain Beneficial
Owners and Management - Changes in Control"). The Company has
the right to redeem all three series of Preferred Stock at any
time. The redemption price for each share of the three series of
Preferred Stock (which price is also used to determine the
conversion price) increases quarterly as follows: (i) for the
Series C Preferred Stock, from a redemption price of $1,177.99
per share as of January 1, 1997, $29.17 per share per quarter;
(ii) for the Series D Preferred Stock, from a redemption price of
$1,123.80 per share as of January 1, 1997, $29.17 per share per
quarter; and (iii) for the Series E Preferred Stock, from a
redemption price of $1,111.27 per share as of January 1, 1997,
$20.83 per share per quarter. The Series C Preferred Stock and
the Series D Preferred Stock each have a current cumulative
dividend rate of 7.5%. The Series E Preferred Stock has no
stated dividend rate.
Terminated or Superseded Agreements
On March 21, 1996 the Company invested $400,000 with Bennett
Funding. Such investment is evidenced by a demand promissory note
from Bennett Funding to the Company, which terms included
interest of 8% per annum on outstanding balances. On March 28,
1996 the Company
45
<PAGE>
<PAGE> 46
demanded payment of such note. Bennett Funding filed for
protection under the Code on March 29, 1996, and has not repaid
such note. The Company has set off the amount of such investment
against the remaining balance of the Company s indebtedness due
to Bennett Funding, as discussed below.
Pursuant to an agreement dated July 10, 1995, Shamrock agreed to
provide the July 1995 LC to the Company pursuant to which the
Company was permitted to borrow from time to time an aggregate
amount of up to $600,000 (of which total the Company utilized
approximately $585,000 as of December 31, 1995). The terms of the
July 1995 LC included (i) availability of the facility through
June 30, 1996, (ii) interest of 15% per annum on outstanding
balances, (iii) repayment of all outstanding principal and
accrued interest on June 30, 1996, and (iv) the grant by the
Company to Shamrock of a first priority security interest in the
Bell Deposit to secure any and all borrowings. In February 1996,
the Company used a portion of the Bell Deposit to repay the
balance of approximately $642,000 of its indebtedness, including
outstanding accrued interest, due Shamrock under the July 1995
LC. See "Description of Business - Discontinued Ventures -
California."
On March 28, 1995, Bennett Funding and the Company entered into
the 1995 Line of Credit pursuant to which the Company was
permitted to borrow from time to time an aggregate amount of up
to $1,000,000 (which the Company had fully utilized as of
December 31, 1995). The terms of the 1995 Line of Credit
included availability of the facility through December 31, 1995,
interest of 15% per annum on outstanding balances and repayment
of all outstanding principal and accrued interest on December 31,
1995. The Company granted Bennett Funding a senior security
interest in the Bell Deposit to secure any and all borrowings
under the 1995 Line of Credit. Pursuant to the HC Purchase
Agreement, $500,000 of the Company s outstanding indebtedness
owed to Bennett Funding under the 1995 Line of Credit was
canceled. In February 1996, the Company used a portion of the
Bell Deposit to repay approximately $175,000 of its indebtedness
to Bennett Funding under the 1995 Line of Credit. As discussed
above, in March 1996, the Company has set off an investment with
Bennett Funding in the principal amount of $400,000 against the
remaining balance of the Company s indebtedness, including
outstanding accrued interest, due to Bennett Funding under the
1995 Line of Credit. See "Description of Business - Investments -
Nevada", "Description of Business - Discontinued Ventures -
California".
The Company and Bennett Management entered into the SCS Lease
effective as of May 3, 1994 (see "Description of Business -
Discontinued Ventures - Sioux City Sue").
46<PAGE>
<PAGE> 47
Item 13. Exhibits And Reports On Form 8-K.
(a) Exhibits.
<TABLE>
EXHIBIT DESCRIPTION LOCATION
NO.
_______ ___________ _________
<S> <S> <C>
3.1 Restated Certificate of Incorporation (1) Exh. 3.1
3.2 Certificate of Amendment of Restated Certificate of (2) Exh. 3.3
Incorporation
3.3 Bylaws, as amended (3) Exh. 3.3
4.1 Specimen Common Stock Certificate (4) Exh. 4.1
10.1 Stock Option Plan (4) Exh 10.7;
(17)
10.2 Employment Agreement dated September 12, 1996 between (6) Exh. 10.71;
(17)
the Company and J. Douglas Wellington
10.3 Separation Agreement dated December 15, 1995 by and (7) Exh.10.116;
among the Registrant, Contract Employees (as defined (17)
therein) and AJL Corp.
10.4 Charter Agreement dated as of February 17, 1995 between (3) Exh. 10.3
the Company and President Mississippi Charter Corporation
10.5 Purchase Agreement dated as of June 16, 1995 by and (3) Exh. 10.4
between AMGAM Associates, the Company and President
Mississippi Charter Corporation
10.6 Preferred Ship Mortgage dated January 14, 1994, granted by (4) Exh. 10.28
American Gaming Corporation to Ship Mortgage, L.P.,
10.7 First Amendment of Preferred Ship Mortgage dated July 26, (4) Exh. 10.29
1994 from American Gaming Corporation to Ship Mortgage,
L.P.
10.8 Assumption and Second Amendment of Preferred Ship (4) Exh. 10.30
Mortgage dated January 31, 1995 made by the Company and
executed by American Gaming and Resorts of Mississippi,
Inc. in favor of Ship Mortgage, L.P.
10.9 First Preferred Ship Mortgage, dated May 6, 1994 granted (4) Exh. 10.33
by American Gaming Corporation to the Company
10.10 First Amendment to First Preferred Ship Mortgage dated (4) Exh. 10.34
July 28, 1994 from American Gaming Corporation to the
Company
10.11 Second Amendment to First Preferred Ship Mortgage dated (4) Exh. 10.35
December 15, 1994 granted by American Gaming and
Resorts of Mississippi, Inc. to the Company, together with
Assignment of First Preferred Ship Mortgage dated
December 15, 1994 from the Company to Shamrock, Inc.
47
<PAGE>
<PAGE>48
10.12 Assumption and Third Amendment of First Preferred Ship (4) Exh. 10.36
Mortgage dated as of January 31, 1995 made by the
Company and executed by AGRM in favor of Shamrock, Inc.
10.13 Agreement and Plan of Merger dated November 10, 1994 by (8) Exh. 10.91
and between the Company, American Gaming and Resorts
of Mississippi, Inc., AMGAM Associates and American
Gaming Corporation
10.14 Guaranty dated April 25, 1994 by the Company to IGT - (9) Exh. 10.113
North America.
10.15 AMGAM/AGRM Settlement Agreement & Term Sheet (16)
dated as of November 1, 1996 between AMGAM
Associates, American Gaming & Resorts of Mississippi, Inc.,
the Company, Shamrock Holdings Group, Inc. the Official
Committee of Unsecured Creditors of AMGAM Associates
and the Official Committee of Unsecured Creditors of
American Gaming & Resorts of Mississippi, Inc.
10.16 Irrevocable Proxy and Consent Agreement dated as of (7) Exh. 10.72
August 23, 1996 by and between Paul L. Partridge, Patrick
F. Daly, James A. Everatt, Charles E. Reisert, Jr., Eric C.
Jackson, the Company and RSR,LLC
10.17 Trust Agreement dated as of August 23, 1996 by and (7) Exh. 10.73
between the Company and NBD Bank, N.A.
10.18 Assignment and Transfer Agreement dated as of March 28, (3) Exh. 10.5
1996 by and between the Company, American Heartland
Corporation and Big Red Keno, Ltd.
10.19 Settlement Agreement dated September 25, 1995 by and (9) Exh. 10.110
between Edward P. D Ambra, the Company, VBT, Inc. and
Bennett Management and Development Company
10.20 Agreement dated April 30, 1993 by and among stockholders (11) Exh. 13
of Empire Cruise Lines, Ltd. (the Company, Patrick F. Daly,
and James A. Everatt) referencing Agreement dated April 26,
1993 by and between SS Aquarama, Inc. and Empire Cruise
Lines Ltd.
10.21 Stay Agreement dated as of June 30, 1995 by and between (12) Exh. 10.106
Winners Entertainment, Inc., Mountaineer Park, Inc. and the
Company
10.22 Assignment dated as of July 1, 1995 by and between (9) Exh. 10.107
American Newco, Inc. and the Company together with
Consulting Agreement dated as of July 1, 1995 by and
between Mountaineer Park, Inc. and American Newco, Inc.
10.23 Settlement Agreement dated as of June 30, 1995 by and (12) Exh. 10.108
between Winners Entertainment, Inc., Mountaineer Park, Inc.
and the Company
48
<PAGE>
<PAGE> 49
10.24 Agreement to Restructure and Cancel Debt dated as of April (4) Exh. 10.44
12, 1995 by and between Bennett Management and
Development Company and the Company
10.25 Assignment of Charter Agreement and Collateral Assignment (4) Exh. 10.45
Agreement dated as of April 13, 1995 by and between the
Company and Shamrock, Inc.
10.26 Security Agreement dated April 12, 1995 by and between (13) Exh. 10.101
Bennett Management and Development Company and the
Company.
10.27 Letter agreement, dated as of May 31, 1995, by and between (12) Exh. 10.102
the Company and Bennett Holdings, Inc.
10.28 Amendment to Agreement to Restructure and Cancel Debt (14) Exh. 10.104
and Assignment of Charter Agreement and Collateral
Assignment executed on July 10, 1995 by and between the
Company, Bennett Management and Development Company
and Bennett Holdings, Inc.
10.29 Letter agreement dated as of July 10, 1995 by and between (14) Exh. 10.105
the Company and Bennett Holdings, Inc.
10.30 Agreement dated as of August 15, 1995 by and between (9) Exh. 10.111
Bennett Holdings, Inc. and Emerald Gaming, Inc.
10.31 Exclusive Management Agreement dated as of August 15, (9) Exh. 10.112
1995 by and between Bennett Holdings, Inc. and Emerald
Gaming, Inc.
10.32 Letter Agreement dated September 26, 1996 between (10) Exh. 10.74
Shamrock Holdings Group, Inc. and the Company
10.33 Letter agreement dated September 20, 1994 by and between (15) Exh. 10.89
Bennett Holdings, Inc. and the Company
11 Statement re computations of per share earnings (16)
21 List of Subsidiaries (16)
23 Consent of Deloitte & Touche LLP (16)
27 Financial Data Schedule (16)
_____________________
(1) This exhibit is incorporated by reference to the Company's Current Report on Form
8-K dated June 24, 1994.
(2) This exhibit is incorporated by reference to the Company s Current Report on Form
8-K dated November 30, 1994.
(3) Each of these exhibits is incorporated by reference to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995.
(4) Each of these exhibits is incorporated by reference to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1994.
(5) [intentionally omitted]
(6) Each of these exhibits is incorporated by reference to the Company's Current
Report on Form 8-K dated August 23, 1996.
49
<PAGE>
<PAGE> 50
(7) This exhibit is incorporated by reference to the Company's Current Report on Form
8-K dated December 15, 1995.
(8) This exhibit is incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the period ended September 30, 1994.
(9) Each of these exhibits is incorporated by reference to the Company's Quarterly
Report on Form 10-QSB for the period ended September 30, 1995.
(10) This exhibit is incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the period ended September 30, 1996.
(11) This exhibit is incorporated by reference to the Company's Amendment No. 2 to
Registration Statement on Form S-3 (File No.33-57194) filed on June 22, 1993.
(12) This exhibit is incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the period ended June 30, 1995.
(13) Each of these exhibits is incorporated by reference to the Company's Quarterly
Report on Form 10-QSB for the period ended March 31, 1995.
(14) Each of these exhibits is incorporated by reference to the Company's Current
Report on Form 8-K dated June 18, 1995.
(15) This exhibit is incorporated by reference to the Company's Current Report on Form
8-K dated September 30, 1994.
(16) Enclosed herewith.
(17) Each of these exhibits is a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this Form 10-KSB.
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
fourth quarter of 1996.
50<PAGE>
<PAGE> 51
American Gaming & Entertainment, Ltd.
Form 10-KSB - Item 7
List of Financial Statements
The following financial statements are included in Item 7:
Independent Auditors' Report .............................................. 52
Consolidated Balance Sheets at December 31, 1996 and 1995 .......... 53 and 54
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995.......................................... 55
Consolidated Statements of Stockholders Deficiency for the years
ended December 31, 1996 and 1995.................................... 56
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 ......................................... 57
Notes to Consolidated Financial Statements...................... 58 through 91
51
<PAGE>
<PAGE> 52
To the Board of Directors and Stockholders of
American Gaming & Entertainment, Ltd.
West Atlantic City, New Jersey
We have audited the accompanying consolidated balance sheets of American
Gaming & Entertainment, Ltd. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders
deficiency and cash flows for the years then ended. These financial
statements are the responsibility of the Company s management. Our
responsibility is to express (or disclaim) an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our report.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company s recurring losses, negative
working capital, stockholders deficiency, defaults under its debt
agreements, uncertainties relating to the liquidation of its subsidiaries
(see Note 4) and uncertainties relating to the bankruptcy of, and charges
relating to affiliates of its major stockholder and creditor (see Note 5)
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 6. The financial statements do not include any additional adjustments
that might result from the outcome of these uncertainties.
Because of the possible material effects of the uncertainties referred to
in the preceding paragraph, we are unable to express, and we do not
express, an opinion on the financial statements for 1996 or 1995.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 21, 1997
52
<PAGE>
<PAGE> 53
<TABLE>
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1996 1995
____________ ____________
<S> <C> <C>
ASSETS
Current Assets
Cash $ 265,000 $ 487,000
Prepaid expenses 397,000 97,000
Investments - current 485,000 1,027,000
Inventories and other
current assets 293,000 25,000
_________ _________
Total current assets 1,440,000 1,636,000
Casino barge and improvements,
subject to lease, net of
accumulated depreciation of
$2,599,000 - 1996 and
$2,384,000 - 1995 (See Notes
1, 3, 4 and 9) 9,994,000 14,128,000
Furniture, fixtures and equipment,
net of accumulated depreciation
of $62,000 - 1996 and
$112,000 - 1995 19,000 152,000
Equipment under operating leases,
net of accumulated depreciation
of $1,470,000 - 1995 - 851,000
Investments 54,000 2,152,000
Deferred financing fees - 2,275,000
Other non-current assets 729,000 41,000
_________ _________
$ 12,236,000 $ 21,235,000
============ ============
</TABLE>
See Notes to Consolidated
Financial Statements
53<PAGE>
<PAGE> 54
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31, December 31,
1996 1995
____________ ____________
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Amounts due to related parties:
Accrued interest $ 11,217,000 $ 6,036,000
Dividends payable 1,353,000 778,000
Accrual for lease costts 2,701,000 1,567,000
Accrual for unutilized lease costs - 4,463,000
Current portion of long term debt 39,688,000 37,505,000
____________ ____________
54,959,000 50,349,000
Accounts payable 75,000 420,000
Accrued payroll and related expenses 13,000 48,000
Accrued expenses and other current
liabilities 1,553,000 1,933,000
Current portion of mortgage note
payable 27,000 24,000
____________ ____________
Total current liabilities 56,627,000 52,774,000
Long term portion of estimated net
liabilities for subsidiaries in
bankruptcy 4,500,000 2,250,000
Long term portion of mortgage note
payable 96,000 126,000
____________ ____________
61,223,000 55,150,000
Commitments and Contingencies
Stockholders' Deficiency
Preferred stock, 1,000,000 shares authorized:
Series A preferred stock, par value $.01 1,000 1,000
per share, 55,983 shares issued
Series C and D cumulative preferred 13,336,000 12,102,000
stock, and Series E preferred stock,
par value $.01 per share, 4,000 shares
authorized and issued for each series
Common stock, par value $.01 per share;
50,000,000 shares authorized 12,532,102
shares issued (including 24,035 shares
held in treasury) 126,000 126,000
Additional paid-in capital 45,154,000 46,963,000
Cost of shares held in treasury (25,000) (25,000)
Deferred financing and commitment fees - (1,547,000)
Accumulated deficit (107,579,000) (91,535,000)
_____________ ____________
(48,987,000) (33,915,000)
_____________ ____________
$ 12,236,000 $ 21,235,000
============ ============
</TABLE>
See Notes to Consolidated Financial
Statements
54<PAGE>
<PAGE> 55
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Years ended December 31,
_____________________________________
1996 1995
<S> <C> <C>
Consulting services and other revenues $ 216,000 $ 2,237,000
Costs and expenses
Direct operating and cost of sales 65,000 474,000
Selling, general and administrative 2,853,000 3,783,000
Casino project development costs 272,000 3,054,000
Acrual for (reversal of)
unutilized lease costs (3,329,000) 4,463,000
Depreciation and amortization 1,572,000 2,839,000
Writedown of impaired assets 4,438,000 3,671,000
Equity in losses of subsidiaries in
bankruptcy 2,250,000 8,168,000
______________ ________________
Total costs and expenses 8,121,000 26,452,000
Operating loss (7,905,000) (24,215,000)
______________ ________________
Other income (expense)
Interest income 69,000 38,000
Interest expense (5,641,000) (5,290,000)
Writeoff of deferred financing fees (3,504,000) -
Net gain on sale of investments 937,000 301,000
_____________ ___________
Total other income (expense) (8,139,000) (4,951,000)
Net loss (16,044,000) (29,166,000)
Dividends and accretion on preferred
stock 1,809,000 1,492,000
______________ ________________
Net loss for common stockholders $ (17,853,000) $ (30,658,000)
============== ================
Net loss per common share $ (1.42) $ (2.47)
============== ================
Weighted average number of common
shares outstanding 12,532,102 12,415,283
=============== ================
</TABLE>
See Notes to Consolidated Financial
Statements
55<PAGE>
<PAGE> 56
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
<TABLE>
Series A Series C,D&E
Preferred Stock Preferred Stock Common Stock
Shares Amount Shares Amount Shares Par Value
_______________ __________________ ___________________
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1995 55,983 $1,000 12,000 $11,086,000 12,347,049 $123,000
Issuance of
common stock 79,053 1,000
Stock options
exercised 106,000 2,000
Acquisition of
common stock for
treasury
Accrual of
dividends on
preferred stock
Accretion of
preferred stock 1,016,000
Amortization of unearned
compensation
Amortization of
deferred financing
performance shares
Net loss for common
stockholders
______ ______ ______ ___________ __________ ________
BALANCE AT DECEMBER
31, 1995 55,983 $1,000 12,000 $12,102,000 12,532,102 $126,000
Accrual of dividends
on preferred stock
Accretion of
preferred stock 1,234,000
Amortization and writeoff
of deferred financing
performance shares
Net loss for common
stockholders
______ ______ ______ ___________ ___________ ________
BALANCE AT DECEMBER
31, 1996 55,983 $1,000 12,000 $13,336,000 12,532,102 $126,000
===== ===== ===== ========== ========= =======
/TABLE
<PAGE>
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
<TABLE> Deferred
Additional Treasury Stock Financing and
Paid-In Commitment Accumulated
Capital Shares Amount Fees Deficit
__________ ______ _______ _____________ _____________
<S> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1995 $48,088,000 17,916 $(14,000) $(1,804,000) $( 62,369,000)
Issuance of
common stock 67,000
Stock options
exercised 33,000
Acquisition of
common stock
for treasury 6,119 (11,000)
Accrual of
dividends on
preferred stock (475,000)
Accretion of
preferred stock (1,016,000)
Amortization of
unearned
compensation 266,000
Amortization of
deferred financing
performance shares 257,000
Net loss for common
stockholders (29,166,000)
___________ ______ ________ ___________ ______________
BALANCE AT DECEMBER
31, 1995 $46,963,000 24,035 $(25,000) $(1,547,000) ($91,535,000)
Accrual of
dividends on
preferred stock (575,000)
Accretion of
preferred stock (1,234,000)
Amortization and
writeoff of
deferred financing
performance shares 1,547,000
Net loss for common
stockholders (16,044,000)
____________ ______ ________ ___________ ______________
BALANCE AT DECEMBER
31, 1996 $45,154,000 24,035 $(25,000) $ - $(107,579,000)
========== ===== ========= ========== ==============
</TABLE> 56<PAGE>
<PAGE> 57
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE> Years ended December 31,
_________________________
1996 1995
Operating Activities
<S> <C> <C>
Net loss $(16,044,000) $(29,166,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,572,000 2,839,000
Write-off of deferred financing costs 3,504,000 -
Amoritzation of deferred financing
costs 318,000 637,000
Write-off of impaired assets 4,438,000 3,671,000
Accrual for (reversal of) unutilized (3,329,000) 4,463,000
lease costs
Stock option and other non-cash
compensation expense - 335,000
Net gain on sale of keno operations (948,000) -
Net loss on sale of other investments 11,000 -
Equity in losses, writeoff and
estimated liabilities of subsidiaries
in bankruptcy 2,250,000 8,168,000
Changes in operating assets and liabilities
Inventories and other current assets (292,000) 1,057,000
Other non-current assets (75,000) 440,000
Accrued interest 5,181,000 4,411,000
Accounts payable, accrued expenses and
other current liabilities (774,000) (2,112,000)
___________ ___________
Net cash used in operating activities (4,188,000) (5,257,000)
___________ ___________
Investigating Activities
Capital dispositions (expenditures) 120,000 (236,000)
Investments - (919,000)
Proceeds from sale of keno operations 500,000 -
Proceeds from return of investment deposit 1,027,000 -
Amounts received under financing agreement - 209,000
___________
Net cash provided by (used in) investing
activities 1,647,000 (946,000)
__________ ___________
Financing Activities
Proceeds from notes payable and other
long-term obligations 163,000 3,461,000
Utilization of proceeds from charter
of casino barge 3,451,000 1,644,000
Principal payments on notes payable
<PAGE>
and other long-term obligations (1,295,000) (54,000)
Proceeds through issuance of common
stock - 34,000
___________ ____________
Net cash provided by financing activities 2,319,000 5,085,000
___________ ____________
Decrease in cash (222,000) (1,118,000)
Cash at beginning of year 487,000 1,605,000
___________ ____________
Cash at end of year $ 265,000 $ 487,000
=========== ============
</TABLE>
See Notes to Consolidated Financial Statements
57<PAGE>
<PAGE> 58
AMERICAN GAMING & ENTERTAINMENT, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 1 - Significant Accounting Policies
Basis of Presentation
The accompanying consolidated 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 6, 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 Shamrock Holdings Group, Inc.
("Shamrock") and certain related entities (The Bennett Funding Group, Inc.
("Bennett Funding") and Bennett Management and Development Corp. ("Bennett
Management", collectively, the "Bennett Entities") 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 its subsidiaries (see
Note 4) and uncertainties relating to the bankruptcy of, and charges relating
to certain related entities of its major stockholder and creditor (see Note 5)
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 6.
The financial statements do not include any additional adjustments that might
result from the outcome of these uncertainties.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Except as described below, all significant
intercompany accounts and transactions have been eliminated. These financial
statements reflect significant related party transactions which are described
throughout the notes to the consolidated financial statements.
As a result of the bankruptcy proceedings under Chapter 11 of the U.S.
Bankruptcy Code (the "Code") affecting the Company s wholly owned subsidiaries,
AMGAM Associates, a Mississippi partnership ("AMGAM") and American Gaming and
Resorts of Mississippi, Inc., ("AGRM") and the expected liquidation of these
subsidiaries in the near future, the Company s control of these entities is
likely to be temporary and therefore effective December 31, 1995, AMGAM and
AGRM are not included in the consolidated financial statements for financial
reporting purposes. The Company follows the equity method of accounting for
its investment in AMGAM and AGRM. (See Note 4).
Revenues
Consulting services and other revenues principally represent revenues from a
charter agreement, sales of keno game systems, revenues from lease agreements,
and fees earned under consulting contracts. Revenues from such charter
agreement were recognized prior to July 21, 1995 (the
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"BDE Date") (See Notes 3 and 6). Revenues from sales of keno systems are
recognized upon installation of the related machines.
Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization are
provided over the estimated useful lives of the assets using the straight-line
method based on the following:
Furniture, fixtures and equipment 3-10 years
Software 5 years
Equipment under operating leases are recorded at cost and amortized over the
related term of the lease agreement (See Note 7) or the estimated useful lives
of the assets which range from 3 to 15 years.
Leased assets at December 31, 1996 consist of the Gold Coast Casino barge and
related leasehold improvements (collectively, the "Gold Coast Barge"), net of
accumulated depreciation, calculated on the straight-line method over 10 and 5
year lives, respectively (See Note 9).
Investments
Investments are stated at cost and consist primarily of land, buildings and
assets which, at the respective times of purchase, were anticipated to be
utilized in casino gaming projects. Management periodically reviews the status
of such investments as well as the likelihood of gaming being legalized in the
jurisdiction related to the asset and, if necessary, adjusts the carrying value
of such assets to estimated fair market value (See Notes 8 and 9).
Deferred Financing Fees
Deferred financing fees represent direct costs incurred in connection with
financing activities and include deferred commitment fees. These fees were
being amortized on a straight-line basis over the term of the related
agreement. In the third quarter of 1996, the Company wrote off all deferred
financing fees because the amounts due under the financing arrangements
pursuant to which such fees were incurred have been recorded as current
liabilities and the Company has determined that such fees have no future
benefit (See Notes 9 and 10).
Net Loss Per Share
Net loss per share is based upon the weighted average number of outstanding
shares of the Company s Common Stock ($0.01 par value per share) ("Common
Stock"). The Series A Preferred Stock, Series C Cumulative Preferred Stock
("Series C Preferred Stock"), Series D Cumulative Preferred Stock ("Series D
Preferred Stock"), Series E Preferred Stock and Common Stock options and
warrants which are considered to be common stock equivalents have an anti-
dilutive effect on net loss per share and accordingly, are excluded from the
calculation.
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Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse (See Note 14).
Asset Impairment
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", assets are reviewed for
impairment on an annual basis in conjunction with the preparation of the annual
budget or when a specific event indicates that the carrying value of an asset
may not be recoverable. Recoverability is assessed based on estimates of future
cash flows expected to result from the use and eventual disposition of the
asset. If the sum of expected undiscounted cash flows is less than the
carrying value of the asset, an impairment loss is recognized. The impairment
loss is measured as the amount by which the carrying amount of the asset
exceeds its estimated fair value (See Notes 3, 8 and 9).
Fair Market Value of Financial Instruments
The amounts reported in the Consolidated Balance Sheets for cash and cash
equivalents, receivables, and payables approximate fair value. Because of the
related party nature of the Company s debt, determination of fair value would
be impractical.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of management s estimates and
assumptions. Management believes the estimates and assumptions used in the
preparation of these consolidated financial statements are reasonable based
upon currently available facts and known circumstances but recognizes that
actual results may differ from those estimates and assumptions. Such
differences, if any, are not expected to have a material impact on the
Company s financial condition, results of operations or liquidity.
Reclassifications
Certain reclassifications have been made to the 1995 amounts in order to
conform to the classifications used in 1996.
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Supplemental Cash Flow Information
The consolidated statement of cash flows excludes the effects of certain
noncash financing activities, as follows:
1996 1995
Forgiveness of debt by Shamrock
(See Note 10) - $1,150,000
Dividends on Series C and D Preferred
Stock 575,000 475,000
Accretion on Series C, D and E
Preferred Stock 1,234,000 1,017,000
The Company paid interest of approximately $11,000 and $2,000 in 1996 and 1995,
respectively. The Company paid no income taxes in 1996 and 1995 (See Note 14).
Note 2 - Nature of Business
The Company owns equity interests in various properties which, at the
respective times of purchase, were anticipated to be utilized in casino gaming
projects. The Company has a 4.9% beneficial equity interest in a riverboat
gaming and entertainment complex in Rising Sun, Indiana, which interest the
Company has agreed to sell by August 23, 1998 (See Note 8). The Company has
entered into an agreement (the "Charter Agreement"), with President Mississippi
Charter Corporation ("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 (See Note 3). The Company owns one site in
Alabama (a second site in Alabama is scheduled to be sold on March 27, 1997)
and a 15% equity interest in the S.S. Aquarama, which the Company believes are
suitable for use as casino gaming facilities if gaming legislation is enacted
by appropriate jurisdictions (See Note 8). Since December 1995, the Company is
no longer actively seeking to develop gaming projects and is currently managing
its equity interests. Given the Company's present financial and liquidity
position, the legal problems described below relating to The Bennett Funding
and Bennett Management and the Company s other litigation described below (see
Notes 4, 5, 6 and 15), the business of the Company is unlikely to continue to
be the ownership of equity interests in casino gaming ventures.
In 1995, the Company s business was the provision of development and management
services for, and the acquisition of equity ownership interests in, casino
gaming ventures, particularly in connection with the design, development,
financing and management of riverboat, dockside and land-based casinos. During
1995, the Company owned, managed and operated the Gold Shore Casino in Biloxi,
Mississippi and managed the video lottery and certain other gaming activities
at Mountaineer Park Racetrack and Resort in Chester, West Virginia (the
"Mountaineer Facility") (See Notes 3 and 7).
The gaming industry in which the Company invests is subject to extensive
government regulation by federal, state and local authorities and, accordingly,
regulatory and legislative changes,
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including gaming related taxes, could have an adverse effect on the Company's
investments by increasing competition, by increasing costs or by making gaming
a relatively less attractive activity for its customers as compared with other
competing activities.
To the extent the Company continues to do business in the gaming industry, if
at all, competition and government regulation could have an adverse effect on
the Company's business by increasing competition, by increasing costs, by
making gaming a relatively less attractive activity for its customers as
compared with other competing activities, and by imposing restrictions on the
Company s business activities. To the extent the Company s activities in a
particular jurisdiction are regulated, the Company has complied, or has taken
the appropriate steps to comply, with any applicable regulations. To the extent
the Company commences gaming operations in other jurisdictions, it will become
subject to the regulatory systems in effect in those jurisdictions.
Note 3 - AMGAM, AGRM and Gold Shore Casino
As a result of a merger transaction prior to 1995 (the "Merger"), the Company
became indirectly the sole owner of AMGAM and the sole owner of AGRM.
The Company provided AMGAM with approximately $18,947,000 to finance leasehold
improvement expenditures associated with the construction of the Gold Shore
Casino and the Gold Coast Barge. The Company has also loaned AMGAM (i)
approximately $6,970,000 as a supplemental loan, pursuant to the terms of
AMGAM's partnership agreement, bearing interest at 14% per annum, and (ii)
approximately $3,978,000 under a separate secured loan executed during the
third quarter of 1994 bearing interest at 14% per annum. These last two loans
were to be repaid through payments to the Company equal to 8.75% of AMGAM's
earnings before interest, rent, taxes, depreciation and amortization
("EBIRTDA") which payments were to have been made until such loans, together
with interest thereon, were repaid.
In connection with the formation of AMGAM, pursuant to a management agreement
between AMGAM and the Company, AMGAM agreed to employ the Company for a three
year term to manage the casino operations of the Gold Shore Casino. The
Company was entitled to receive a management fee, payable quarterly in arrears,
equal to a percentage of EBIRTDA plus a base amount of approximately $98,000
per quarter. The Gold Shore Casino did not generate EBIRTDA for any quarter
since its opening on June 20, 1994 through its closing on May 14, 1995 and,
accordingly, no management fees were earned or recognized by the Company
through the date of the closing of the Gold Shore Casino, as discussed below.
AGRM leased to the Company for a nominal fee of $1.00 per month, and, the
Company subleased to AMGAM (the "AMGAM Lease"), the Gold Coast Barge for a
three year term. Rental payments to the Company pursuant to the AMGAM Lease
were payable only to the extent that AMGAM had EBIRTDA. In addition, special
quarterly rent payments were to be made to the Company equal to 50% of
available cash flow (as such term is defined in the AMGAM Lease). The required
rental payments under the AMGAM Lease totaled approximately $23,000,000 over
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the term of the AMGAM Lease and consisted of 36 monthly payments of
approximately $648,000. No lease payments were made by AMGAM to the Company
in 1995 or 1996.
Because of cash flow difficulties encountered by AMGAM since June 1994, the
Company only recognized interest and rental income in amounts equal to actual
cash received from AMGAM. The Company has not received any payments for
interest on outstanding amounts due under the supplemental and secured loans,
and thus has not recognized any interest income since July 1, 1994.
As a result of AMGAM s continuing operating losses and liquidity problems
subsequent to the date of the Merger, as well as an inability on the part of
the Company to raise the financing required to address the operating and
liquidity problems of the Gold Shore Casino, the Company, on February 17, 1995,
entered into the Charter Agreement with PMCC to charter the Gold Coast Barge to
PMCC for use at PMCC's existing site in Biloxi, Mississippi for a monthly rent
of approximately $329,000 (the "PMCC Payments"). During 1995, the Gold Coast
Barge was transferred to the Company from AGRM in exchange for the cancellation
of AGRM s guaranty to the Company of certain unpaid lease obligations of AMGAM
to the Company, which transfer is being challenged by the committee for
unsecured creditors in the bankruptcy proceeding of AMGAM (the "AMGAM
Committee") as a fraudulent transfer or voidable preference under the Code (See
Note 4 for a description of the Motion and the Complaint (both as defined
below)). Pursuant to terms of the Charter Agreement, PMCC is responsible for
operating, insurance and maintenance costs of the Gold Coast Barge. The
Charter Agreement has an initial term of five years, which term may be extended
by PMCC for two additional five year terms. PMCC also has the option to
purchase the Gold Shore Casino for fair market value at any time during the
term of the Charter Agreement although the Company may reject any such offer
should it not meet certain financial criteria set forth in the Charter
Agreement. The Gold Shore Casino ceased operations on May 14, 1995 and the
Charter Agreement became effective on June 18, 1995.
Pursuant to a term sheet (the "Term Sheet") executed by the Company, Shamrock,
AMGAM, AGRM and the committees for the unsecured creditors in the bankruptcy
proceedings of AMGAM and AGRM (collectively, the "Committees"), more fully
described below, the Company and Shamrock have agreed, among other matters, to
have one collective general allowed unsecured claim against AMGAM and AGRM in
the amount of $33,000,000, which claim amount includes a first preferred ship
mortgage (the "Ship Mortgage") in the amount of approximately $2,278,000 held
by Shamrock (See Note 6).
The Company, Shamrock, AMGAM, AGRM and the Committees have executed the Term
Sheet for a proposed joint plan of liquidation (the "Plan"), more fully
described below, pursuant to which the PMCC Payments and payments (the "FF&E
Payments") with respect to substantially all of the furniture, fixtures and
equipment, including certain slot machines, acquired by PMCC from AMGAM
formerly used in the operation of the Gold Shore Casino (the "Acquired
Equipment") 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
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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 (as discussed and defined in Note
4), the Company will be allowed a monthly payment from the AMGAM/AGRM 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 (subject, however, to the PMCC Agreement,
defined below). 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. The Company and PMCC agreed, with the
concurrence of the Committees and Shamrock, (the "PMCC Agreement") (i) to allow
PMCC to pay 50% of the amounts of the PMCC Payments from October 1996 through
January 1997 (of which amounts the Company has received its portion), (ii) that
the acceptance of such payments would 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 January 31, 1997 all
declarations of default.
The Company has verbally agreed with Shamrock that, beginning with the February
1997 PMCC Payment, the Company shall repay Shamrock at least $100,000 per month
of the Company s indebtedness to Shamrock contingent upon the Company receiving
its portion of at least 75% of the monthly amount of the PMCC Payments. PMCC
has not made the February and March 1997 PMCC Payments and therefore the
Company has not repaid Shamrock any of the Company s indebtedness.
On March 4, 1997, the Company advised PMCC that PMCC was in default under the
Charter Agreement for failure to make the February 1997 and March 1997 PMCC
Payments when due and for failure to make the October 1996 through January 1997
PMCC Payments in full (collectively totaling approximately $1,316,000). On
March 5, 1997, PMCC alleged that the Company does not have standing to assert
any default under the Charter Agreement because the Preliminary Injunction
requires PMCC Payments to be deposited into the AMGAM/AGRM Escrow Account, and
not to be paid directly to the Company. Additionally, PMCC alleged that the
Company had breached the Charter Agreement by, among other defaults, (i)
failing to ensure PMCC s peaceful use and enjoyment of the Gold Coast Barge,
(ii) misrepresenting the Company s ownership of the Gold Coast Barge and (iii)
failing to disclose that the Gold Coast Barge was not in good condition. The
Company has advised PMCC that the Company believes that it has not breached the
Charter Agreement and will vigorously defend any allegations of default under
the Charter Agreement. The Company is attempting to negotiate a settlement of
this matter, but may need to litigate these issues. If the Company does not, by
some means, (i) receive its portion of the PMCC Payments due from PMCC under
the Charter Agreement or (ii) agree with PMCC, with the concurrence of the
Committees and Shamrock, on a mutually acceptable amended charter agreement,
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
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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.
In addition, pursuant to an order (the "PMCC Order") of the United States
Bankruptcy Court, Southern District of Mississippi (the "Bankruptcy Court"), on
September 21, 1995, PMCC acquired from AMGAM the Acquired Equipment in exchange
for the promise to make to AMGAM the FF&E Payments, consisting of an initial
payment of approximately $48,000 and twenty-six equal monthly payments of
approximately $121,000 through October 1, 1997 totaling approximately
$3,188,000, which is an amount substantially equal to the indebtedness of AMGAM
to IGT - North America ("IGT") for such machines. Pursuant to the PMCC Order
(a) commencing October 1, 1995 any such payments made by PMCC to AMGAM are
escrowed in the AMGAM bankruptcy proceeding pending a determination by the
Bankruptcy Court as to the disposition of such proceeds and (b) approximately
$22,000 was disbursed from such account in satisfaction of the secured claim of
one creditor in the AMGAM bankruptcy proceeding. As a result of the
establishment of such escrow, AMGAM has not been able to use such payments from
PMCC to pay its indebtedness to IGT and AMGAM is not otherwise able to repay
such indebtedness. The Company has guaranteed to IGT the repayment by AMGAM of
such indebtedness (See Note 4).
PMCC has not made any FF&E Payments from August 1996 through February 1997,
totaling approximately $845,000. On January 31, 1997 AMGAM and the AMGAM
Committee filed suit in the Bankruptcy Court against PMCC and an affiliate
seeking payment of all FF&E Payments currently due under the PMCC Order, among
other relief (See Note 4).
In April 1995 and July 1995, the Company, Shamrock and Bennett Management
executed the Bennett Debt Exchange (as described and defined in Note 6). The
Bennett Debt Exchange was to become effective on July 21, 1995, the scheduled
effective date of the Bennett Debt Exchange (the "BDE Date"), the day on which
Shamrock was licensed to own the Gold Coast Barge as a gaming facility by the
Mississippi Gaming Commission. However, the Company continued to utilize the
Charter Agreement rental payments for its operating needs after the BDE Date
because the Company s management determined on the BDE Date that, because of
the Company s liquidity problems, consummating the Bennett Debt Exchange and
transferring the Charter Agreement and related payments would prevent the
Company from meeting its obligations to its creditors. In the opinion of
management, consummating the Bennett Debt Exchange at that time would have
required the Company to file for protection under the Code. After the BDE Date
the Company utilized the PMCC Payments for working capital based initially on
an understanding which the Company believed it had with Shamrock to postpone
the consummation of the Bennett Debt Exchange.
However, on October 3, 1995, Shamrock notified the Company that the Company had
not fulfilled its obligations under the Bennett Debt Exchange to assign the
Charter Agreement and the Gold Coast Barge from the Company to Shamrock and
Bennett Management, respectively, and that Shamrock is entitled to all PMCC
Payments. Additionally, in June 1996, the Trustee (the "Trustee") for Bennett
Funding and Bennett Management under Chapter 11 of the Code, who,
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pursuant to information from the Trustee, is the sole owner of Shamrock, orally
notified the Company that Shamrock is entitled to all PMCC Payments to be
received by the Company as a result of Shamrock 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 the Barge Debt.
Accordingly, the Company has recorded the PMCC Payments received by the Company
from the BDE Date through December 31, 1996 (totaling approximately $5,096,000)
as indebtedness due to Shamrock ("PMCC/Bennett Debt"). In addition, the Company
has (a) recorded interest expense on such PMCC/Bennett Debt from the BDE Date
through December 31, 1995 and for the year ended December 31, 1996 (totaling
approximately $61,000 and $550,000, respectively) and (b) for the reasons set
forth below, continued to record for the years ended December 31, 1995 and 1996
(i) interest expense on approximately $22,722,000 in debt due Shamrock with
respect to the Gold Shore Casino (the "Barge Debt") that was to have been
canceled by Shamrock, or, if necessary, Bennett Management pursuant to the
Bennett Debt Exchange and (ii) depreciation and amortization expense on the
Gold Shore Barge that was to have been transferred to Shamrock pursuant to the
Bennett Debt Exchange (totaling approximately $1,997,000 and $1,388,000 for the
years ended December 31, 1995 and 1996, respectively) (although, as discussed
below, the Company is not recognizing any rental revenue associated with such
expenses). For the reasons set forth below, the Barge Debt is classified as
"Current Portion of Long Term Debt" in the accompanying Consolidated Balance
Sheets as of December 31, 1996 and December 31, 1995. Shamrock has not
rescinded such letter nor executed documents agreeing to a termination or
postponement of the Bennett Debt Exchange. The Company has not yet transferred
the Gold Shore Barge, the Charter Agreement and PMCC Payments received by the
Company from the BDE Date through December 31, 1996. Additionally, Shamrock or,
to the extent an assignment to Shamrock 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. If Shamrock, and, to the
extent an assignment to Shamrock 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 s 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, the Term Sheet
and the PMCC Agreement) (i) the Company would recognize as revenue amounts
previously recorded as PMCC/Bennett Debt from the BDE Date through December 31,
1996 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 to allow the Company to utilize and retain the PMCC Payments while the
Company and Shamrock were negotiating the terms of a comprehensive
restructuring and (b) the course of conduct of Shamrock from January 1, 1996
through June 1996, the Company utilized, retained and initially recorded as
revenues the PMCC Payments from January 1, 1996 through June 30, 1996.
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However, because there is no agreement with the Trustee allowing the Company to
utilize and retain the PMCC Payments from January 1, 1996 through June 1996, in
the fourth quarter of 1996 the Company (1) reversed as revenue the PMCC
Payments from January 1, 1996 through June 30, 1996, (2) recorded such payments
as additional PMCC/Bennett Debt and (3) recorded interest expense on such
PMCC/Bennett Debt.
The Gold Coast Barge (with a value on the Company s books of approximately
$9,994,000 net of accumulated depreciation and amortization, as of December
31, 1996) that was to have been transferred to Bennett Management pursuant to
the Bennett Debt Exchange and the Barge Debt (totaling approximately
$22,722,000 as of December 31, 1996, and accrued interest on such debt of
approximately $4,442,000 from the BDE Date through December 31, 1996) that was
to have been canceled by Shamrock or, if necessary, Bennett Management pursuant
to the Bennett Debt Exchange are shown as assets and liabilities, respectively,
of the Company as of December 31, 1996 and December 31, 1995. Such amounts are
shown on the accompanying Consolidated Balance Sheets as of December 31, 1996
and December 31, 1995 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 or, if necessary, Bennett Management all
in accordance with the terms of the Bennett Debt Exchange. The related revenues
for the year ended December 31, 1996 however were not recognized as such and
instead are recorded as PMCC/Bennett Debt because (i) in June 1996 the Trustee
notified the Company that Shamrock is entitled to all PMCC Payments to be
received by the Company and (ii) as of December 31, 1996 Shamrock 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. Additionally, the related revenues for the year ended December 31,
1995 were not recognized as such and are instead are recorded as PMCC/Bennett
Debt because as of December 31, 1995 Shamrock 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. In the
third quarter of 1996, the Company 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 9).
Note 4 - Subsidiary Bankruptcies and Related Legal Proceedings
On May 5, 1995, AMGAM was served by certain creditors with a petition filed in
the Bankruptcy Court seeking liquidation of AMGAM under Chapter 7 of the Code.
On May 25, 1995, AMGAM responded to such petition by requesting the Bankruptcy
Court to convert the case into a reorganization under Chapter 11 of the Code,
which request was granted by the Bankruptcy Court. On February 1, 1996, the
Bankruptcy Court approved the sale of the leases comprising the Gold Shore
Casino site to a third party for the sum of $750,000 plus the assumption and
payment of all outstanding liabilities relating to and arising from such
leases. On March 12 and 13, 1996, the personal property of AMGAM was sold at
auction for the net sum of $337,000.
On June 1, 1995, AGRM filed a voluntary petition for reorganization under
Chapter 11 of the Code with the Bankruptcy Court. On December 20, 1995 the
Bankruptcy Court lifted the
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automatic stay to allow an action of foreclosure on one of two parcels of
property in Vicksburg, Mississippi owned by AGRM which served as collateral for
certain borrowing agreements. In the first quarter of 1996, the creditors under
such borrowing agreements foreclosed on such property. On April 18, 1996 the
Bankruptcy Court lifted the automatic stay to allow an action of foreclosure on
the second parcel of property in Vicksburg, Mississippi owned by AGRM which
served as collateral for certain borrowing agreements and the creditors under
such borrowing agreements subsequently foreclosed on such parcel. Additionally,
on March 14, 1996 the Bankruptcy Court approved the rejection by AGRM of its
lease with the lessor of the parcel constituting the remainder of the property
in Vicksburg, Mississippi.
The AMGAM Committee has filed a motion (the "Motion") with the Bankruptcy Court
requesting that the AMGAM and AGRM bankruptcy proceedings be substantively
consolidated due to such entities common ownership, which would result in a
combination of the assets and liabilities of both entities. The Bankruptcy
Court has not scheduled a hearing on the Motion. AMGAM, AGRM and the Company
will oppose the Motion on the basis, among others, that AMGAM, AGRM and the
Company were separate entities with separate ownership at the time most
liabilities of AMGAM and AGRM were incurred.
The AMGAM Committee has also filed an adversary complaint (the "Complaint")
with the Bankruptcy Court seeking that (i) the transfer of the ownership
interests in the Gold Coast Barge by AGRM and AMGAM to the Company be declared
null and void, (ii) the transfer of the leasehold interest in the Gold Coast
Barge by AMGAM to the Company be declared null and void, (iii) the Company and
Shamrock be required to deliver to AGRM and AMGAM their respective interests in
both the ownership and leasehold in the Gold Coast Barge, (iv) the Company and
Shamrock disgorge and return to the respective AMGAM and AGRM estates all PMCC
Payments, such funds to be deposited in an escrow account and not expended
without further order of the Bankruptcy Court, and (v) PMCC be ordered and
directed to immediately deposit all PMCC Payments into an escrow account for
the benefit of the creditors of AMGAM and AGRM, such funds not to be expended
without further order of the Bankruptcy Court. The Bankruptcy Court has not
scheduled a hearing date on the Complaint. AMGAM, AGRM and the Company will
oppose the Complaint on the bases, among others, that the transfer of the Gold
Coast Barge from AGRM to the Company involved contemporaneous exchanges of
value and that the Company and Shamrock were not insiders of AMGAM or AGRM at
the time such entities granted the Company and Shamrock security interests in
their assets, including the Gold Coast Barge.
The Company, Shamrock, 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) 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 68<PAGE>
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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, 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 AMGAM/AGRM Escrow Account, (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 s unsecured claims and the Ship Mortgage (in the collective
claimed amount of $33,000,000) would be paid from the balance of (a) the
monthly PMCC Payments (approximately $259,000) 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 shall
advise AMGAM, AGRM and the Committees of the allocation between the Company and
Shamrock 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 the
Confirmation Date. 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.
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.
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
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AMGAM and AGRM bankruptcy proceedings in accordance with the provisions of the
Code or thereafter confirmed by the Bankruptcy Court and (ii) the Motion 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 Bankruptcy
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 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 April 29, 1996, a preliminary injunction (the "Preliminary Injunction"),
which was agreed upon by the Committees and the Company, was entered by the
United States Bankruptcy Court, Southern District of Mississippi (the
"Bankruptcy Court"), (i) to require the PMCC Payments from May 1996 through
July 1996 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 the
AMGAM/AGRM Escrow Account to the Company in the amount of $304,000 for the
Company s monthly operating expenses.
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 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 the AMGAM/AGRM Escrow
Account to the Company in the amount of approximately $282,000 for the
Company s monthly operating expenses (subject, however, to the Term Sheet and
the PMCC Agreement). 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").
As discussed above (See Note 3), on January 31, 1997 AMGAM and the AMGAM
Committee filed suit in the Bankruptcy Court (Adv. No. 970868) against PMCC and
an affiliate seeking, among other relief, (i) payment of all FF&E Payments
currently due under the PMCC Order, (ii) compliance by PMCC and such affiliate
with the PMCC Order, (iii) a temporary restraining order restraining PMCC, such
affiliate and/or related parties or agents from assigning, encumbering,
transferring, selling or disposing of the Acquired Equipment and (iv) a
preliminary injunction restraining PMCC, such affiliate and/or related parties
or agents from selling or disposing of the Acquired Equipment. PMCC has agreed
to provide the AMGAM Committee with at least seven
70<PAGE>
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days advance written notice of any proposed sale, conveyance, transfer, lien,
mortgage or other encumbrance of the Acquired Equipment. The Bankruptcy Court
has not yet scheduled a trial date on this lawsuit.
As described in Note 3, the Company and PMCC entered into the PMCC Agreement,
PMCC has failed to to make the February 1997 and March 1997 PMCC Payments when
due and has failed to make the October 1996 through January 1997 PMCC Payments
in full. (See Note 6).
As discussed in Note 3, IGT is not receiving any payments from AMGAM on AMGAM s
debt to IGT for certain slot machines acquired by PMCC formerly used in the
operation of the Gold Shore Casino. Such indebtedness by AMGAM to IGT has been
guaranteed by the Company pursuant to a guaranty agreement (the "IGT Guaranty")
by the Company to IGT. A portion of this indebtedness as of December 31, 1996
and December 31, 1995 has been accrued and classified as "Long Term Portion of
Estimated Net Liabilities for Subsidiaries in Bankruptcy" and a portion as
"Accrued Expenses and Other Liabilities" in the accompanying Consolidated
Balance Sheets. On November 2, 1995 IGT filed a complaint against the Company
in the Circuit Court of Harrison County, Mississippi, Second Judicial District
seeking a judgment against the Company under the IGT Guaranty of (i) the
principal amount of approximately $3,306,000 plus accrued interest due under an
installment sales contract and (ii) reasonable attorneys fees. Although the
Company has responded to such complaint by arguing that the IGT Guaranty should
be found to be unenforceable if IGT has failed to properly perfect a security
interest in such slot machines, to the extent (i) such escrowed proceeds are
not paid to IGT and (ii) the IGT Guaranty is enforceable against the Company,
the Company s business and financial condition would be materially adversely
affected. Management is unable, with any degree of certainty, to predict the
outcome, or to estimate the amount of liability, if any, that may result from
this action.
On September 20, 1995 AMGAM was informed by the U.S. Department of Labor (the
"DOL") that it had concluded an investigation of the AMGAM Associates d/b/a
Gold Shore Casino Associate Benefit Plan (the "AMGAM Benefit Plan") for the
period May 15, 1994 through September 20, 1995. As a result of such
investigation, the DOL has alleged that AMGAM and possibly certain related
parties and/or AMGAM officers violated, and continue to violate, certain
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA")
with respect to the administration of the AMGAM Benefit Plan. The DOL has
indicated that AMGAM s failure to take necessary corrective action may result
in the referral of this matter to the Office of the Solicitor of Labor for
possible legal action. In addition, whether or not any such referral is made,
AMGAM is and would remain liable to possible legal action by other parties
including plan fiduciaries and plan participants or their beneficiaries.
Certain violations of ERISA may also result in the assessment of civil
penalties by the Secretary of Labor against the violating parties. The DOL has
requested AMGAM to discuss how such violations noted in the DOL s investigation
may be corrected and how to restore any losses to the AMGAM Benefit Plan. The
Company responded to such allegations on November 20, 1995, and advised the DOL
(i) that AMGAM does not believe that there have been any fiduciary violations
or prohibited transactions under ERISA, (ii) AMGAM intends to satisfy medical
claims due and payable under the AMGAM Benefit Plan to the extent permitted by
the Code and the Bankruptcy Court and intends to use its
71<PAGE>
<PAGE> 72
best efforts to seek priority status under the Code for the payment of such
medical claims, and (iii) in no event will the amount paid with respect to such
medical claims be less than the employee contributions collected under the
AMGAM Benefit Plan after March 28, 1995. Although the actions taken by AMGAM,
certain related parties and AMGAM officers with respect to the AMGAM Benefit
Plan will be vigorously defended, the outcome of this matter is uncertain. Any
legal action or civil penalties arising out of this matter could materially
affect the Company and its business and financial condition.
On September 16, 1996, two stockholders of the Company, who were bondholders
and stockholders of AGRM prior to 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.
The Company has determined that, because of AMGAM and AGRM Chapter 11
bankruptcy filings and the expected liquidation in the near future of AMGAM and
AGRM under a consolidated plan of liquidation, it would be appropriate to
deconsolidate AMGAM and AGRM. A combined condensed balance sheet of these
entities as of December 31 is as follows:
72<PAGE>
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<TABLE>
Assets 1996 1995
<S> <C> <C>
Current Assets and Other $3,897,000 $3,024,000
Property and Equipment, Net 41,000 5,706,000
Land - 10,000,000
__________ __________
Total Assets $3,938,000 $18,730,000
========== ===========
Liabilities and Stockholders Deficiency
Current Liabilities $25,005,000 $22,740,000
Amounts Due to Parent 12,147,000 30,138,000
Stockholders Deficiency (33,214,000) (34,148,000)
____________ ____________
Total Liabilities and Stockholders Deficiency $3,938,000 $18,730,000
=========== ===========
</TABLE>
In addition, in connection with the Plan, the Company has accrued approximately
$5,000,000 as management s estimate of the settlement liabilities to be paid to
unsecured creditors of AMGAM and AGRM pursuant to the Term Sheet and the Plan.
It is reasonably possible that the Company s ultimate settlement of these
liabilities will change in the near term due to the uncertainties regarding the
bankruptcies of AMGAM and AGRM, the charter of the Gold Coast Barge and
potential sale, if at all, of the Gold Coast Barge, and that the effect of such
uncertainties could be material to the Company s financial statements. The
Company has classified the long term portion of this liability in the
accompanying Consolidated Balance Sheet as of December 31, 1996 in the amount
of $4,500,000 as "Long Term Portion of Estimated Net Liabilities for
Subsidiaries in Bankruptcy".
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 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.
Note 5 - Related Party Developments
On March 28, 1996, Mr. Patrick Bennett, the Chief Financial Officer of Bennett
Funding and Bennett Management, was charged by the federal government with,
among other charges, (a) fraud and making material misstatements and omissions
in connection with the purchase and sale of up to $80,000,000 of notes issued
by a wholly-owned subsidiary of Bennett Funding and (b) perjury in testimony
before the U.S. Securities and Exchange Commission (the "Commission").
Additionally, on or about March 28, 1996, Mr. Patrick Bennett, Bennett Funding,
Bennett Management and two wholly-owned subsidiaries of Bennett Funding were
charged by the Commission with, among other charges, using misrepresentations
and omissions of material facts to offer and sell over $570,000,000 of
purported assignments of equipment leases and promissory notes issued by
Bennett Funding or such subsidiaries. On March 29, 1996, Bennett Funding and
Bennett Management filed for protection under Chapter 11 of the Code. The
Company s management believes, based on recent court filings, that, at the time
of filing for protection under
73<PAGE>
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Chapter 11 of the Code, Bennett Funding was owned by members of the Bennett
family and Bennett Management was owned by Mr. Patrick Bennett. The Company
understands that, based upon certain oral representations made by Shamrock and
a review of public records, Shamrock has not filed for protection under the
Code, although the Company has not received from Shamrock written confirmation
of such understanding. The ultimate impact, if any, of these allegations on the
accompanying consolidated financial statements can not presently be determined.
Note 6 - Liquidity and Continuation of Business
The Company has sustained recurring operating losses since its inception,
including significant losses related to the Gold Shore Casino (See Note 3).
The Company also has had a history of insufficient liquidity and has been
dependent upon Shamrock, 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 and the filing of
securities charges by the Commission against Bennett Funding and Bennett
Management (see Note 5), the Company does not anticipate receiving any
additional funds from the Bennett Entities. As of December 31, 1996 the Company
owed approximately $53,909,000 to Shamrock, which amount includes (i)
approximately $2,701,000 under an 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 "SCS Barge", collectively with
the "Sioux City Sue" riverboat vessel, the "Vessels") which SCS Lease, as
discussed below, Shamrock has orally represented to the Company that Bennett
Management, prior to its bankruptcy filing, assigned to Shamrock (See Note 7)
and (ii) accrued and declared dividends collectively totaling approximately
$303,000 which are due and payable on the Series C Preferred Stock and Series D
Preferred Stock (excluding accrued but undeclared dividends collectively
totaling approximately $1,050,000 on the Series C Preferred Stock and Series D
Preferred Stock) (See Notes 11 and 12).
The Company s only present sources of net cash flow and liquidity are the PMCC
Payments being received by the Company (See Notes 3 and 4) and the Keno Note
payments (as discussed and defined in Note 7). See Note 4 for a discussion on
the possible effects of the bankruptcies of AMGAM and AGRM on the Company s
liquidity and continuation of business.
As discussed below, the Company is seeking the modification or termination of
certain agreements (excluding Shamrock s assumption of the obligation related
to the Ship Mortgage on the Gold Coast Barge of approximately $2,278,000, which
assumption has been consummated) executed between the Company, Shamrock and
Bennett Management in April 1995 and July 1995, 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 and Bennett
Management, respectively, for cancellation of the Barge Debt and Shamrock s
assumption of the Ship Mortgage (collectively, the "Bennett Debt Exchange") and
a restructuring of all other obligations due from the Company to Shamrock
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
74<PAGE>
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were required to be paid to Shamrock and (ii) the Company is otherwise unable
to service the debt or repay the principal due to Shamrock under all other such
obligations.
Shamrock has orally represented to the Company that Bennett Management, prior
to its bankruptcy filing, assigned to Shamrock 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 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 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.
There can be no assurance that Shamrock 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 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.
The Company is delinquent in the payment of interest due on its various
obligations to Shamrock totaling approximately $11,217,000 as of December 31,
1996 and is therefore in default with respect to such payments under the
Company s various loan agreements with Shamrock. If Shamrock 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 $2,701,000 as of December 31, 1996 under the SCS Lease. Shamrock
or Bennett Management, to the extent an assignment to Shamrock 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 and, if necessary,
Bennett 75<PAGE>
<PAGE> 76
Management will agree on and execute an agreement restructuring the Company s
obligations to Shamrock 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
Bennett Funding and Bennett Management, and certain related parties, and the
transfer of all of the outstanding stock of Shamrock by Mr. Michael Bennett to
the Trustee, the Company has had preliminary negotiations with the Trustee on a
restructuring of the Company s obligations to Shamrock 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 and, if applicable, Bennett
Management, as restructured.
The Company has not experienced any success in raising debt or equity financing
from sources independent of the Bennett Entities 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 raising 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 15), 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 to (i) obtain sufficient funds for its operations,
through the charter of the Gold Coast Barge, sales of assets, or otherwise,
(ii) obtain Shamrock s and, if necessary, Bennett Management s agreement to
modify on terms acceptable to the Company or terminate the Bennett Debt
Exchange (excluding Shamrock s assumption of the Ship Mortgage) and restructure
all other obligations due from the Company to Shamrock and, if applicable,
Bennett Management, (iii) 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
(iv) satisfactorily resolve the litigation filed against the Company (see Note
15). However, there can be no assurance the Company will be successful in
obtaining Shamrock s and, if necessary, Bennett Management s agreement to
modify on terms acceptable to the Company or terminate the Bennett Debt
Exchange (excluding Shamrock s assumption of the Ship Mortgage) and restructure
all other obligations due from the Company to Shamrock 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.
76<PAGE>
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Note 7 - Discontinued Ventures
Keno
Under the terms of a financing agreement (the "BRK Agreement") with Big Red
Keno, Ltd., a licensed keno operator in Omaha, Nebraska ("BRK"), the Company
provided equipment, technical services, and financing to BRK as well as a
working capital loan with an original balance of $800,000. In return, the
Company was entitled to repayment of the working capital loan through April
1996, which had a balance of approximately $70,000 at December 31, 1995, and to
receive 100% of all excess cash distributions, as defined, from BRK until the
Company had been repaid in full for all capital, services, and equipment
supplied to BRK, after which the Company was to receive 50% of all such
distributions.
As of December 31, 1995, the net amortized capitalized cost of the equipment
provided to the operator was approximately $851,000, and is included in the
caption "Equipment under Operating Leases, Net" in the accompanying
Consolidated Balance Sheet and was being depreciated over the life of lottery
operator agreements held by BRK. Cash distributions received by the Company
were recognized as revenues when received and amounted to approximately
$119,000 from January 1, 1996 through March 28, 1996 and $787,000 for the year
ended December 31, 1995.
On March 28, 1996 the Company entered into an assignment and transfer agreement
with American Heartland Corporation ("AHC"), and BRK, pursuant to which: (i)
the Company assigned, and AHC assumed, all of the Company s rights and
obligations under the BRK Agreement: (ii) the Company transferred and assigned
to AHC all of the Company s right, title and interest to all of the assets
utilized by the Company in the conduct of its keno gaming activities (the "Keno
Assets"), including, without limitation, all maintenance and servicing
agreements with the licensed operators for stations and locations at which the
Company s computerized keno system is utilized and the Company s computerized
keno system; (iii) the Company agreed not to compete, directly or indirectly,
with AHC or BRK as a distributor, manufacturer or maintainer of keno equipment
or software, other than in the normal course of any casino operations of the
Company for a period of five years; (iv) AHC paid the Company $500,000 on March
29, 1996; and (v) AHC issued and delivered its promissory note to the Company
in the principal amount of approximately $1,112,000 (the "Keno Note"). The Keno
Note requires principal and interest payments, at an interest rate of 8% per
annum, based on a fifty-three month amortization with payments commencing on
April 28, 1996. The Company received principal and interest payments totaling
$225,000 for the year ended December 31, 1996. The Keno Note is secured by the
Keno Assets and is guaranteed by BRK, which guarantee is secured by keno
equipment previously provided to BRK by the Company. The non-current portion of
the Keno Note of approximately $717,000 is included in "Other Non-current
Assets" in the accompanying Consolidated Balance Sheet at December 31, 1996.
Sioux City Sue
Prior to 1995, Bennett Management consummated the purchase of the Vessels from
a third party. The Company believed, at such time, the Vessels were suitable
for riverboat gaming operations
77<PAGE>
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and planned to use the Vessels for such operations if successful in obtaining a
gaming license in any of a number of jurisdictions in which riverboat gaming
has been legalized or is being considered for legalization.
In conjunction therewith, the Company entered into the SCS Lease with Bennett
Management whereby the Company leased the Vessels for casino gaming purposes at
a monthly rental of $106,250 plus operating and maintenance expenses. The SCS
Lease was approved by a special committee of the Board of Directors which makes
recommendations to the Board of Directors concerning potential transactions
between the Company and entities which may be deemed affiliates of the Company
and such action was ratified by the Board of Directors of the Company. In 1995
the Company determined that it did not have the necessary financing to renovate
the vessels to make them suitable for use as gaming vessels and had no present
intention of utilizing the Vessels as gaming vessels. As a result of the
Company s determination in 1995 that there was a substantial likelihood that
the Company would not record any revenues from the Vessels through the end of
the SCS Lease term to offset the remaining lease payments due Bennett
Management under the SCS Lease from January 1, 1996 to the end of the lease
term totaling approximately $4,463,000, such remaining lease payments were
recognized as a liability as of December 31, 1995 by the Company. The Company
has been advised by Shamrock that the SCS Barge was sold by Shamrock on
November 20, 1996. The Company has advised Shamrock that it believes that the
SCS Lease terminated on such date and accordingly reversed the remaining lease
payments due Bennett Management under the SCS Lease from November 20, 1996 to
the end of the lease term totaling approximately $3,329,000. The Company has
not paid approximately $2,701,000 in rent to Bennett Management due under the
SCS Lease as of December 31, 1996. Such amount is included in "Current Portion
of Long Term Debt" in the accompanying Consolidated Balance Sheet at December
31, 1996.
Shamrock has orally represented to the Company that Bennett Management, prior
to its bankruptcy filing, assigned to Shamrock all of Bennett Management s
rights and obligations under 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 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.
78
<PAGE>
<PAGE> 79
Mountaineer Racetrack and Resort
The Company had been engaged by Mountaineer Park, Inc. ("Mountaineer") pursuant
to a management agreement (the "Mountaineer Park Management Agreement") to
provide management services for the video lottery and other gaming activities
of Mountaineer which may be permitted from time to time under West Virginia law
other than pari-mutuel horse racing and off-track betting on horse racing (the
"Managed Activities") at Mountaineer Park Racetrack and Resort in Chester, West
Virginia (the "Mountaineer Facility"). The provision of such services began in
a prior year.
Under the Mountaineer Park Management Agreement, the Company was entitled to
receive a management fee of 3% of the gross revenues of the Managed Activities
at the Mountaineer Facility. In addition, the Company was entitled to receive
8% of the earnings before interest, taxes, depreciation and amortization of all
businesses conducted at or, in the case of off-track betting, generated as a
result of, the Mountaineer Facility, including the Managed Activities and all
pari-mutuel horse racing and off-track betting on horse racing. Pursuant to
the Mountaineer Park Management Agreement, the Company recorded revenue of
approximately $284,000 for the period January 1, 1995 through June 30, 1995.
On June 30, 1995, the Company, Mountaineer and Winners Entertainment, Inc., the
parent of Mountaineer, entered into an agreement pursuant to which the
Mountaineer Park Management Agreement and all relationships established, and
all obligations arising, thereunder were permanently stayed. American Newco,
Inc. ("Newco"), a corporation owned by the Company s then President and Chief
Executive Officer, was contemporaneously retained by Mountaineer pursuant to a
Consulting Agreement (the "MP Consulting Agreement") to consult with
Mountaineer concerning marketing services, operation of gaming activities and
construction of the Mountaineer Facility, among other matters. Under the MP
Consulting Agreement, Newco is entitled to receive a base fee of $10,000 per
month and additional compensation of not less than $30,000 for each three month
period commencing July 1, 1995. Newco agreed to remit to the Company any such
funds received pursuant to an assignment agreement (the "Assignment"), which
obligation was terminated pursuant to a separation agreement (the "Separation
Agreement") dated December 15, 1995 executed by the Company and such then
President and Chief Executive Officer, among others. For the period from July
1, 1995 through December 15, 1995, the date of the Separation Agreement, the
Company received approximately $60,000 from Newco pursuant to the Assignment.
Bingo
Prior to 1995, the Company sold substantially all of the assets utilized by the
Company in the conduct of its high stakes bingo gaming activities to MegaBingo,
Inc. The sales price (including adjustments) was approximately $1,735,000, plus
the assumption by MegaBingo, Inc. of certain specified liabilities. Prior to
1995, MegaBingo, Inc. paid or assigned to the Company amounts aggregating
approximately $941,000 and delivered its promissory note (the "MegaBingo Note")
to the Company in the amount of $852,000, which accrued interest at the rate of
9 1/2% per annum. The MegaBingo Note required an initial installment of
principal in the amount of $220,000, which was received by the Company on March
15, 1995, a further installment of
79<PAGE>
<PAGE> 80
principal in the amount of approximately $206,000 due April 15, 1995, and
additional monthly installments commencing June 15, 1995 equal to 20% of net
cash generated by the business acquired for the prior calendar month to be
applied, first, to interest, and then to principal, with all remaining amounts
due on April 15, 1996. The MegaBingo Note was restructured on March 22, 1995
by the Company and MegaBingo, Inc., pursuant to which restructuring, the
Company received a principal payment of approximately $206,000 plus accrued
interest on such date. The Company received a final installment of principal
in the amount of approximately $301,000 plus accrued interest and 12,500 shares
of Series A Preferred Stock of Multimedia Games, Inc., the parent of MegaBingo,
Inc., having a face value of $125,000 on August 24, 1995. Such preferred stock
is voting, convertible preferred stock with a cumulative quarterly dividend of
$0.275 per share. The Company has fully reserved for such shares as no market
currently exists for such preferred stock.
Bell City Card Club Casino
Prior to 1995, the Company executed a Memorandum of Understanding ("MOU") with
International Marine and Gaming, Inc. ("IMG") to jointly pursue the potential
development of a card club casino in Bell, California, and deposited $1,027,000
in trust with the City of Bell in order to participate as a 25% interest holder
in the card club casino project. The Company withdrew from such project in
January 1996 and received its investment of $1,027,000 from the City of Bell
without interest in February 1996. These funds were utilized to repay Shamrock
and Bennett Funding outstanding principal and interest under various lines of
credit granted by Shamrock and Bennett Funding to the Company.
Note 8 - Investments
<TABLE>
Investments consists of the following at December 31:
1996 1995
<S> <C> <C>
Rising Sun $ 54,000 $ -
S.S. Aquarama - 750,000
Alabama 485,000 1,402,000
Bell City Card Club (see Note 7) - 1,027,000
539,000 3,179,000
Current ________ _________
485,000 1,027,000
________ _________
Non-Current $54,000 $2,152,000
======== ==========
</TABLE>
Rising Sun
The Company owns a 24.5% beneficial equity interest (the "RSR Interest") in
RSR, LLC ("RSR"), a limited liability company formed by the Company and a group
of non-affiliated individuals, 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"). Effective August 23,
1996, the Company transferred legal title to the RSR Interest to NBD Bank,
N.A., as trustee, ("NBD"). Additionally, at such time, the Company granted a
80<PAGE>
<PAGE> 81
irrevocable proxy to the other members of RSR (collectively, the "Remaining
Members") to vote the RSR 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 RSR Interest or
the ability to sell or otherwise transfer the RSR Interest. Prior to August 23,
1998, the Company may instruct NBD to sell any portion of the RSR 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 RSR 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.
S.S. Aquarama
In a prior year, the Company invested $3,000,000 in cash to acquire a 15%
initial equity interest (with the right to increase its percentage ownership to
30%) in Empire Cruise Lines, Ltd., a Delaware corporation ("Empire"), which has
acquired ownership of the S.S. Aquarama, a U.S. flag cruise ship suitable for
refurbishment as a gaming vessel. Under an agreement with Empire, the Company
has committed to use its best efforts to obtain up to $75,000,000 in financing
to refurbish and equip the S.S. Aquarama in exchange for which Empire has
agreed to engage the Company as manager of any future casino operations of the
vessel for a term equivalent to the term of the financing arranged by the
Company. In exchange for its management services, the Company would receive a
fee equal to 10% of earnings before interest, depreciation and taxes ("EBIDT")
up to EBIDT of $120 million in total at which point no more fees will be paid
until interest costs associated with such financing have been earned on a net
operating basis. The Company does not have, nor does it anticipate having, the
financial ability or personnel to manage such property as a gaming or other
facility. The Company is currently assessing opportunities to sell its equity
ownership in Empire. Additionally, the Company, on behalf of Empire, is
currently seeking opportunities to sell the S.S. Aquarama. In the second
quarter of 1995, the Company recognized a writedown of $2,250,000 in the
carrying value of its investment in Empire to reflect the estimated net scrap
metal proceeds which would be received by the Company if the S.S. Aquarama was
unable to be developed as a gaming project and instead sold for its scrap metal
value. As a result of the Company s determination in the fourth quarter of 1996
that there (i) is a substantial likelihood that the S.S. Aquarama will not be
able to be utilized as a gaming project and (ii) the outstanding carrying costs
of the S.S. Aquarama exceed its estimated net scrap metal value, the Company
wrote off its investment of $750,000 in Empire (See Note 9).
Alabama
In a prior year, the Company acquired, for $1,006,000 in cash, a former
railroad station in Mobile, Alabama, which the Company believes is suitable for
use as a casino gaming facility if the State of Alabama enacts gaming
legislation. In the second quarter of 1995, as a result of the Company s
determination that there is a substantial likelihood that the former railroad
station will not be able to be utilized as a gaming facility in
the next few years, the Company recognized a write down of $280,000 in the
value of its investment in the former railroad station to reflect its estimated
sale value if it is unable to be developed as a gaming facility. In the third
quarter of 1996, the
81<PAGE>
<PAGE> 82
Company recognized an additional 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 (See Note 9). The Company does not have, nor does it
anticipate having, the financial ability or personnel to develop such property
as a gaming or other facility, and is therefore assessing opportunities to sell
such property.
The Company purchased seven adjoining parcels of real estate in Prichard,
Alabama for a total of approximately $676,000 for possible development in
connection with a casino gaming facility. The Company completed those
purchases in 1995. In addition, the Company has a lease through July, 1997 for
another parcel at a rent of approximately $22,000 per year. In the fourth
quarter of 1996, the Company recognized a writedown of $566,000 in the value of
its investment in real property in Prichard, Alabama to reflect an appraisal of
its fair market value (See Note 9). The Company has agreed to sell its seven
parcels of real estate to the City of Prichard for $110,000; closing is
currently scheduled for March 27, 1997. The net sales proceeds of approximately
$98,000 will be used to repay a portion of a promissory note in the outstanding
principal amount as of February 28, 1997 of approximately $121,000 payable to a
former employee of the Company related to expenses that such employee incurred
during his employment with the Company, which note was secured by the seven
parcels of real estate in Prichard, Alabama owned by the Company (See Note 10).
The Company does not intend to renew the lease of the other parcel of real
estate in Prichard, Alabama.
Harolds Club Casino
On May 31, 1995, the Company consummated an agreement with Fitzgerald's Reno,
Inc. to purchase the Harolds Club casino in Reno, Nevada (which is not
presently operating as a casino and which would require significant additional
funding for sufficient renovations and equipment purchases to enable it to
operate as a casino) for a purchase price of $8,900,000, consisting of
$1,150,000 previously paid into escrow by the Company and $7,750,000 provided
by Shamrock. The Company did not have sufficient funds to complete the
purchase. To prevent the Company from forfeiting the escrowed funds because of
a failure to consummate the purchase by the date required in the agreement,
Shamrock agreed to provide the additional financing in exchange for the
transfer to it by the Company of the property constituting the Harolds Club,
all as more fully described below.
Pursuant to an agreement between Shamrock and the Company (the "HC Purchase
Agreement") under which Shamrock provided the necessary funds to the Company to
close the purchase of the Harolds Club casino, the Company transferred to
Shamrock title to the land and the building related to the Harolds Club,
Shamrock canceled $650,000 of the Company s then outstanding indebtedness to
Shamrock 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 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 relating to possible future sale
or development of the Harolds Club. Although the Company is obligated until
such transfer to make all lease payments under such leases and notwithstanding
that such
82<PAGE>
<PAGE> 83
leases have not yet been assigned to Shamrock, since July 30, 1995 Shamrock 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 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 and the
lessors under such leases that Shamrock has not made lease payments from April
1996 through February 1997 due under such leases or quarterly property taxes
due under such leases, collectively totaling approximately $732,000. 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 $584,000, $548,000 and $548,000 for 1997, 1998
and 1999, subject to increase based upon increases in the Consumer Price Index,
and have terms ending between June 1997 and October 2022. If the lease expiring
June 1997 is not renewed (and such lease requires the lease to be in full force
and effect at the time of any renewal), sale or development of the Harolds Club
could be adversely affected. The Company has recorded the unpaid lease payments
and property taxes from April 1996 through December 1996 totaling approximately
$638,000 (the "Unpaid Harolds Obligations") as current liabilities as of
December 31, 1996. The Company has also recorded the amount of the Unpaid
Harolds Obligations as a receivable due from Shamrock as of December 31, 1996,
but, as a result of the Company s determination as of December 31, 1996 that
there is a substantial likelihood that such amount will be uncollectible, wrote
off such amount as of December 31, 1996. In September 1996, Shamrock and the
Company entered into an agreement (the "HC Reimbursement Agreement") pursuant
to which Shamrock 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 15), and (iii) all reasonable costs and expenses
incurred by the Company in connection with the operation and maintenance of the
Harolds Club.
Pursuant to agreements between Shamrock and the Company dated as of August 15,
1995, the Company has the right to (i) lease Harolds Club from Shamrock for an
initial term of one hundred twenty (120) months with monthly lease payments of
$172,000 (subject to increase based upon agreed performance criteria with
respect to Shamrock s funding of any renovations required to enable Harolds
Club to operate as a casino) or (ii) under certain circumstances, manage the
Harolds Club. The Company does not have, nor does it anticipate having, the
financial ability or personnel to exercise the above described lease option.
Additionally, the Company has no current intention of exercising such lease
option or managing the Harolds Club.
The Company is precluded from conducting casino operations in the Harolds prior
to receipt of a gaming license from the Nevada State Gaming Control Board. In
January 1996, the Company withdrew, without prejudice to reapply, a previously
filed licensing application. Accordingly, as of December 31, 1995, the Company
wrote off approximately $543,000 which represented all
83<PAGE>
<PAGE> 84
related costs previously capitalized as investments (including application fees
for such gaming license) (See Note 9).
Note 9 - Writedown of Impaired Assets
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 (See Note 8), and (iii) wrote off
$2,086,000 of deferred financing fees due to Shamrock and $1,418,000 of
deferred financing and commitment fees due to Shamrock because the amounts due
under the financing arrangements pursuant to which such fees were incurred have
been recorded as current liabilities and the Company has determined that such
fees have no future benefit (See Note 10). In December 1996, the Company
recognized writedowns of (i) $750,000 related to its investment in Empire as a
result of the Company s determination that there (a) is a substantial
likelihood that the S.S. Aquarama will not be able to be utilized as a gaming
project and (b) the outstanding carrying costs of the S.S. Aquarama exceed its
estimated net scrap metal value, (ii) $566,000 in the value of its investment
in real property in Prichard, Alabama to reflect an appraisal of its fair
market value (See Note 8) and (iii) $616,000 related to certain Acquired
Equipment which was sold to PMCC in 1995 and which had been incorrectly
classified as "Casino Barge and Improvements" in the accompanying Consolidated
Balance Sheet as of December 31, 1995.
As discussed in Note 8, during 1995, the Company recognized a writedown in the
value of its investments in the S.S. Aquarama, the former railroad station in
Mobile, Alabama and Harolds Club Casino in the amount of $2,250,000, $280,000
and $543,000, respectively, to reflect their respective estimated sale values
if the Company is unable to develop such assets as gaming projects. These
assets, exclusive of Harolds Club, which was fully written off, are classified
as "Investments" in the accompanying Consolidated Balance Sheets.
December 1995, the Company determined that its investment in site improvements
to the wharf in Biloxi, Mississippi was worthless and unrecoverable. The
Company had invested approximately $3,830,000 in the site (See Note 3).
Also, during December 1995, the Company wrote off approximately $368,000 in
unamortized software which was acquired through a purchase transaction
completed in a prior year. As a result of changes in technology, the software
had become obsolete.
The above writedowns, except for the write off of deferred financing fees which
have been separately classified, have been classified as "Writedown of Impaired
Assets" in the accompanying Consolidated Statements of Operations for the years
ended December 31, 1996 and December 31, 1995.
84<PAGE>
<PAGE> 85
Note 10 - Long Term Debt
Debt consists of the following at December 31:
<TABLE>
1996 1995
<S> <C> <C>
Obligations payable to Shamrock
and certain related entities (a) $39,688,000 $ 37,505,000
Note payable (b) 123,000 150,000
___________ ___________
39,811,000 37,655,000
Current maturities (39,715,000) (37,529,000)
___________ ___________
$96,000 $126,000
======= ========
</TABLE>
(a) At December 31, 1996 and 1995, the total amount payable to Shamrock
and certain related entities was $39,688,000 and $37,505,000, respectively.
The balance at December 31, 1996 and 1995 is comprised of approximately (i)
$1,066,000 and $2,335,000, respectively, related to a working capital line of
credit, (ii) $2,041,000, at the end of each year, related to a term loan to
assist the Company in financing pertaining to the Gold Shore Casino, (iii)
$5,096,000 and $1,644,000, respectively, of PMCC/Bennett Debt, (iv) $384,000,
at the end of each year, related to the Company s utilization of slot machine
sales proceeds, which slot machines were beneficially owned by Bennett
Management and (v) $31,101,000, at the end of each year, related to project
financing for the Gold Shore Casino. The term loan is secured by the Ship
Mortgage and the project financing loan is secured by the Second Mortgage. Of
such project financing debt outstanding, $24,774,000 pertained to a previous
project financing facility which was restructured in 1994 into one 7-year note
requiring only interest payments through December 1995, and thereafter
principal and interest payments based on a 15 year amortization, but with a
balloon payment at the end of the seventh year. Such restructuring also
required the Company to pay a refinancing fee equal to 10% of the balance of
the amounts encompassed by the restructuring. The payment of the financing fee
bore the same terms as the 7-year note. In connection with this transaction,
the Company recorded a refinancing fee of $2,797,000, which fee was being
amortized as an expense over the term of the financing pertaining to the Gold
Shore Casino. In the third quarter of 1996, the Company wrote off such fee
because the amounts due under such restructuring have been recorded as current
liabilities and the Company has determined that such fees have no future
benefit (See Note 9).
The above amounts do not included approximately $2,701,000 and $1,567,000
as of December 31, 1996 and 1995, respectively, in rent due under the SCS Lease
(See Note 7).
The weighted average rate of interest (stated or accrued) on all
outstanding amounts due to Shamrock and certain related entities at December
31, 1996 and 1995 was 13.83% and 13.76%, respectively. Accrued and unpaid
interest at December 31, 1996 and 1995 was $11,217,000 and $6,036,000,
respectively. The Company is currently delinquent in the
85<PAGE>
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payment of interest due on its obligations to Shamrock and certain related
entities. Accordingly, the Company has classified all of the outstanding debt
to Shamrock and certain related entities as current as of December 31, 1996.
(b) Note payable represents a mortgage note payable in the principal amount
of $157,000 to an individual to fund the settlement of a lawsuit between that
individual and the Company. The note requires monthly principal and interest
payments in the amount of approximately $3,000 through August 1, 1998 with a
balloon payment of approximately $74,000 due September 1, 1998. Interest is
charged at the rate of 8% and is secured by a first deed of trust on real
estate located in Prichard, Alabama. The Company has agreed to sell such real
estate and use the net sales proceeds of approximately $98,000 to repay a
portion of the note (See Note 8). The Company is making its required payments
on this note.
Note 11 - Other Transactions with Shamrock and the Trustee
As of December 31, 1996, the Trustee and Shamrock, of which the Trustee is the
sole stockholder, collectively own 100% of the outstanding shares of the
Company s Series A Preferred Stock and approximately 47.3% of the outstanding
shares of the Common Stock and thereby owning approximately 52.6% of the total
voting power represented by the Company s outstanding voting securities.
Additionally, the Trustee owns all of the outstanding shares of the Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock (see
Note 12).
Note 12 - Stockholders Equity
The shares of Series A Preferred Stock, all of which outstanding shares are
held by Shamrock, are convertible at the holder's option into 25 shares of
Common Stock per share of Series A Preferred Stock, bear the right to elect,
but Shamrock has not so elected, one director to the Board of Directors prior
to the first annual meeting of the Company's stockholders held after June 30,
1997 and otherwise vote, and receive dividends, as one class with the Common
Stock as if converted into Common Stock, are non-redeemable, and do not accrue
or pay dividends or bear any liquidation preference.
The shares of Series C Preferred Stock, Series D Preferred Stock and the Series
E Preferred Stock, all of which outstanding shares are held by the Trustee, are
senior to all other classes of the Company s outstanding stock. Each of the
Series C Preferred Stock, Series D Preferred Stock and the Series E Preferred
Stock is convertible by the holder thereof into the number of shares of Common
Stock equal to the then-applicable redemption price for each such Series (as
described below) divided by an amount equal to 75% of the average market price
of Common Stock for the ten consecutive business days prior to the conversion
date. Conversion of each of the Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock could result in significant dilution to the
ownership interest of the Company s stockholders. The Company has the right to
redeem all three series of Preferred Stock at any time. The redemption price
for each share of the three series of Preferred Stock (which price is also used
to determine the conversion price) increases quarterly as follows: (i) for the
Series C Preferred Stock, from a redemption price of
86<PAGE>
<PAGE> 87
$1,177.99 per share as of January 1, 1997, $29.17 per share per quarter; (ii)
for the Series D Preferred Stock, from a redemption price of $1,123.80 per
share as of January 1, 1997, $29.17 per share per quarter; and (iii) for the
Series E Preferred Stock, from a redemption price of $1,111.27 per share as of
January 1, 1997, $20.83 per share per quarter. The Series C Preferred Stock
and the Series D Preferred Stock each have a current cumulative dividend rate
of 7.5%. The Series E Preferred Stock has no stated dividend rate.
Note 13 - Stock Options, Warrants and Other Compensation
The Company maintains a stock option plan (the "Stock Option Plan") for
employees which provides for the issuance of both incentive and nonqualified
stock options to purchase shares of Common Stock at exercise prices not less
than the fair market value of the Common Stock on the date of grant. Options
outstanding vest over varying time periods, ranging from being fully vested
upon issuance to being fully vested in March 1998, in accordance with the
individual's stock option agreements. These options expire up to ten years
from the date of grant. At December 31, 1996, and December 31, 1995 the
Company has reserved 5,250,000 shares, for the exercise of options granted
under the Stock Option Plan. Transactions related to the Stock Option Plan were
as follows:
<TABLE>
Weighted Average Weighted Average
Exercise Price Per Exercise Price Per
1996 Share 1995 Share
<S> <C> <C> <C> <C>
Options
outstanding at
beginning of year 1,885,399 $3.40 2,163,774 $3.15
Options granted 830,000 $0.07 - -
Options exercised - - (106,000) $0.32
Options canceled (1,191,493) $1.43 (172,375) $2.24
___________ _________
Options
outstanding at end
of year 1,523,906 $3.12 1,885,399 $3.40
========= =========
</TABLE>
87<PAGE>
<PAGE> 88
At December 31, 1996, 842,344 options were exercisable under the Stock Option
Plan. Significant option groups outstanding at December 31, 1996 were as
follows:
<TABLE>
Weighted
Weighted Average
Average Remaining
Exercise Price Contractual
Per Share of Life of
Options Options Options
Grant Dates Outstanding Exercise Price Range Outstanding Outstanding
___________ ___________ ____________________ ___________ ___________
<S> <C> <C> <C> <C>
Pre-1993 393,281 $7.75 to $21.00 $8.49 3 years
1994 600,625 $0.32 to $2.3125 $2.30 8 years
1996 530,000 $0.0625 to $0.08 $0.07 10 years
_______
Total 1,523,906
=========
</TABLE>
Weighted
Average
Exercise
Price Per
Share of
Options Options
Grant Dates Exercisable Exercisable
___________ ___________ ___________
Pre-1993 393,281 $8.49
1994 449,063 $2.29
1996 0 N/A
_______
Total 842,344
=======
The Company has determined that it will continue to account for
employee stock-based transactions under APB No. 25. Accordingly,
no compensation cost has been recognized for options issued with
an exercise price equal to the market value of the Common Stock
at the date of grant. The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
SFAS No. 123 defines a fair value method of accounting for stock
options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on
the fair value of the award and is recognized over the service
period, which is usually the vesting period. The Company granted
830,000 options during the year ended December 31, 1996, of which
300,000 were canceled during such year. The remaining 530,000
options were granted with exercise prices ranging from $0.0625 to
$0.08, with vesting periods ranging from January 1, 1997 to March
12, 1998. The market price for the Common Stock ranged from $0.02
to $0.22 during the year ended December 31, 1996. Accordingly,
the Company believes that had compensation cost been determined
based on the fair value at the grant dates for option grants in
88 <PAGE>
<PAGE> 89
1996 consistent with the provisions of SFAS No. 123 there would
have been no material effect on the Company s net loss and net
loss per share for the year ended December 31, 1996.
For those options issued with an exercise price less than market
value of the Common Stock at the date of grant, the Company
recognized compensation expense in 1995 of approximately $293,000
(no such expense was recognized in 1996). In connection with the
execution of the Separation Agreement, certain officers released
the Company from all obligations under their respective
employment contracts which resulted in the reversal of the
remaining unamortized, unearned compensation expense in the
amount of $406,000. In December 1995, the Company s former
President and Chief Executive Officer received a bonus of
approximately $15,000 plus the ownership rights to certain
equipment valued at approximately $4,600. Such amounts were
recognized as compensation expense in their respective periods.
In September 1996, the Company s President and Chief Executive
Officer received a bonus of $62,500, which amount was recognized
as compensation expense in 1996, and was issued an irrevocable
letter of credit in the amount of $62,500 to be paid in certain
events, including remaining employed by the Company through
September 11, 1997, which amount is being recognized as
compensation expense over such one year period.
In the normal course of business, the Company issues warrants on
a one for one basis, from time to time, for the purchase of
shares of Common Stock. The exercise prices of the warrants are
no less than the fair market values of the Common Stock on the
dates of grant. The estimated fair market value of the warrants
are measured on the date of grant (measurement date), if any, and
accounted for as part of the related transaction.
Transactions related to stock purchase warrants are summarized
and more fully discussed below:
<TABLE> Exercise Exercise
1996 Price Range 1995 Price Range
<S> <C> <C> <C> <C>
Warrants outstanding
at beginning of year 355,942 $3.00 to $16.03 814,762 $3.00 to $35.00
Warrants expired or
canceled 12,500 $4.00 458,820 $3.00 to $35.00
_______ _______
Warrants outstanding
at end of year 343,442 $3.00 to $16.03 355,942 $3.00 to $16.03
======= =======
</TABLE>
An equal number of shares of Common Stock have been reserved for
future issuance in connection with the warrants. No warrants were
issued or exercised in 1996 or 1995. All warrants outstanding at
December 31, 1996 are exercisable.
Note 14 - Income Taxes
The Company has not provided for any tax benefit for net
operating losses incurred because realization is not more likely
than not. At December 31, 1996, the Company has net operating
loss carry forwards for income tax purposes of approximately
$55,404,000 that expire through the year 2011. In total, the
Company has deductible temporary differences for differences
89<PAGE>
<PAGE> 90
between the reported amounts and the tax basis of its assets and
liabilities of approximately $32,500,000. The difference between
the reported amounts and the tax basis, principally relates to
certain start-up costs capitalized for tax purposes, allowances
for amounts not collectible under financing agreements and other
receivables, accrued expenses and different methods of
depreciation. For financial reporting purposes, a valuation
allowance has been recognized to completely offset the deferred
tax assets related to the carry forwards and deductible
differences. The change in valuation allowance during 1996
relates primarily to net operating losses generated for the year.
As a result of changes in ownership of the Company's stock there
will be significant annual limitations imposed on the Company's
use of pre-ownership change net operating losses for federal tax
purposes.
Note 15 - Other Commitments and Contingencies
Leases
The Company leases certain gaming property under a noncancelable
operating lease agreement. Future minimum lease payments under
noncancelable operating lease agreements at December 31, 1996,
including, as of such date, a noncancelable operating lease for
the Company s office facilities (which has since been amended to
give the Company the right to cancel such lease at any time),
are as follows:
1997 $ 40,000
1998 1,000
Later Years 0
______
Total minimum lease payments $ 41,000
=========
Rental expenses under operating leases amounted to approximately
$255,000 and approximately $538,000 in 1996 and 1995,
respectively.
Other Litigation
See Note 4 for a discussion of litigation related to AMGAM and
AGRM.
In July 1996 and August 1996, in separate actions filed in the
Second Judicial District Court of the State of Nevada in and for
the County of Washoe (Case Nos. CV9604947, CV9604933, CV9604939,
CV9604997 and CV9604692), the five lessors of the Harolds Club
property have filed suit against, among others, the Company and
Shamrock seeking, variously, 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 to the
extent necessary to satisfy the claims of creditors of the
Company, (iii) a court order prohibiting and enjoining Shamrock
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
90<PAGE>
<PAGE> 91
costs of suit. The Company and four of the plaintiffs have
stipulated to stay the respective actions until April 15, 1997;
the fifth action has been set for trial commencing September 4,
1997. 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 May 3, 1996, a class action was filed in the United States
District Court, Northern District of New York (Case No. 96-CV-712)
against certain Bennett Entities and related parties for
using fraudulent representations and omissions of material facts
to offer and sell over $570,000,000 of purported assignments of
equipment leases and promissory notes issued by Bennett Funding
or its subsidiaries and seeking recession of such assignments and
compensatory, recessionary and statutory treble damages. The
Company was named as a defendant in such lawsuit based on
allegations that certain Bennett Entities and related parties
allegedly used funds acquired from the sale of such purported
assignments to loan money to the Company and based on the
ownership interest in and alleged control of the Company by
certain Bennett Entities. As discovery and depositions have not
yet commenced, Company counsel, 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.
In addition to the items set forth above, the Company is involved
in other legal proceedings and claims of various types. While
any litigation contains an element of uncertainty, it is the
opinion of management, after consultation with counsel, that the
outcome of each such other proceeding or claim which is pending
or known to be threatened, or all of them combined, can be
successfully defended or resolved. In addition, management is
unable, with any degree of certainty, to predict the outcome, or
to estimate the amount of any liability, if any, that may result
from these actions. However, management believes that none of
such other proceedings or claims will have a material adverse
effect on the Company's business or financial condition.
91<PAGE>
<PAGE> 92
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
American Gaming & Entertainment, Ltd.
Date: 3/26/97 By: /s/ J. Douglas Wellington
_____________________________________ _________________________________
J. Douglas Wellington, President
and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ J. Douglas Wellington Date: 3/26/97 /s/ Paul L. Patrizio Date: 3/26/97
_________________________________________ _______________________________
J. Douglas Wellington, President and Chief Paul L. Patrizio, Chairman of
Executive Officer, General Counsel and the Board of Directors
Secretary, Principal Financial Officer and
Principal Accounting Officer and Director
/s/ William R. Rafferty Date: 3/26/97
_______________________________________________
William R. Rafferty, Director
92<PAGE>
<PAGE> 93
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
NO.
3.1 Restated Certificate of Incorporation *
3.2 Certificate of Amendment of Restated Certificate of *
Incorporation
3.3 Bylaws, as amended *
4.1 Specimen Common Stock Certificate *
10.1 Stock Option Plan *
10.2 Employment Agreement dated September 12, 1996 between
the Company and J. Douglas Wellington *
10.3 Separation Agreement dated December 15, 1995 by and
among the Registrant, Contract Employees (as defined
therein) and AJL Corp. *
10.4 Charter Agreement dated as of February 17, 1995
between the Company and President Mississippi
Charter Corporation *
10.5 Purchase Agreement dated as of June 16, 1995 by and
between AMGAM Associates, the Company and President
Mississippi Charter Corporation *
10.6 Preferred Ship Mortgage dated January 14, 1994, granted by
American Gaming Corporation to Ship Mortgage,
L.P., *
10.7 First Amendment of Preferred Ship Mortgage dated July 26,
1994 from American Gaming Corporation to Ship Mortgage,
L.P. *
10.8 Assumption and Second Amendment of Preferred Ship
Mortgage dated January 31, 1995 made by the Company and
executed by American Gaming and Resorts of Mississippi,
Inc. in favor of Ship Mortgage, L.P. *
10.9 First Preferred Ship Mortgage, dated May 6, 1994 granted
by American Gaming Corporation to the Company *
10.10 First Amendment to First Preferred Ship Mortgage dated
July 28, 1994 from American Gaming Corporation to the
Company *
10.11 Second Amendment to First Preferred Ship Mortgage dated
December 15, 1994 granted by American Gaming and
Resorts of Mississippi, Inc. to the Company, together
with Assignment of First Preferred Ship Mortgage dated
December 15, 1994 from the Company to Shamrock, Inc. *
93<PAGE>
<PAGE> 94
10.12 Assumption and Third Amendment of First Preferred Ship
Mortgage dated as of January 31, 1995 made by the
Company and executed by AGRM in favor of Shamrock,
Inc. *
10.13 Agreement and Plan of Merger dated November 10, 1994 by
and between the Company, American Gaming and Resorts
of Mississippi, Inc., AMGAM Associates and American
Gaming Corporation *
10.14 Guaranty dated April 25, 1994 by the Company to IGT -
North America. *
10.15 AMGAM/AGRM Settlement Agreement & Term Sheet
dated as of November 1, 1996 between AMGAM
Associates, American Gaming & Resorts of Mississippi, Inc.,
the Company, Shamrock Holdings Group, Inc. the Official
Committee of Unsecured Creditors of AMGAM Associates
and the Official Committee of Unsecured Creditors of
American Gaming & Resorts of Mississippi, Inc. 96
10.16 Irrevocable Proxy and Consent Agreement dated as of
August 23, 1996 by and between Paul L. Partridge, Patrick
F. Daly, James A. Everatt, Charles E. Reisert, Jr., Eric C.
Jackson, the Company and RSR,LLC *
10.17 Trust Agreement dated as of August 23, 1996 by and
between the Company and NBD Bank, N.A. *
10.18 Assignment and Transfer Agreement dated as of March 28,
1996 by and between the Company, American Heartland
Corporation and Big Red Keno, Ltd. *
10.19 Settlement Agreement dated September 25, 1995 by and
between Edward P. D Ambra, the Company, VBT, Inc. and
Bennett Management and Development Company *
10.20 Agreement dated April 30, 1993 by and among stockholders
of Empire Cruise Lines, Ltd. (the Company, Patrick F. Daly,
and James A. Everatt) referencing Agreement dated April 26,
1993 by and between SS Aquarama, Inc. and Empire Cruise
Lines Ltd. *
10.21 Stay Agreement dated as of June 30, 1995 by and between
Winners Entertainment, Inc., Mountaineer Park, Inc. and the
Company *
10.22 Assignment dated as of July 1, 1995 by and between
American Newco, Inc. and the Company together with
Consulting Agreement dated as of July 1, 1995 by and
between Mountaineer Park, Inc. and American Newco, Inc. *
10.23 Settlement Agreement dated as of June 30, 1995 by and
between Winners Entertainment, Inc., Mountaineer Park,
Inc. and the Company *
94<PAGE>
<PAGE> 95
10.24 Agreement to Restructure and Cancel Debt dated as of April
12, 1995 by and between Bennett Management and
Development Company and the Company *
10.25 Assignment of Charter Agreement and Collateral Assignment
Agreement dated as of April 13, 1995 by and between the
Company and Shamrock, Inc. *
10.26 Security Agreement dated April 12, 1995 by and between
Bennett Management and Development Company and the
Company. *
10.27 Letter agreement, dated as of May 31, 1995, by and between
the Company and Bennett Holdings, Inc. *
10.28 Amendment to Agreement to Restructure and Cancel Debt
and Assignment of Charter Agreement and Collateral
Assignment executed on July 10, 1995 by and between the
Company, Bennett Management and Development Company and
Bennett Holdings, Inc. *
10.29 Letter agreement dated as of July 10, 1995 by and between
the Company and Bennett Holdings, Inc. *
10.30 Agreement dated as of August 15, 1995 by and between
Bennett Holdings, Inc. and Emerald Gaming, Inc. *
10.31 Exclusive Management Agreement dated as of August 15,
1995 by and between Bennett Holdings, Inc. and Emerald
Gaming, Inc. *
10.32 Letter Agreement dated September 26, 1996 between
Shamrock Holdings Group, Inc. and the Company *
10.33 Letter agreement dated September 20, 1994 by and between
Bennett Holdings, Inc. and the Company *
11 Statement re computations of per share earnings 105
21 List of Subsidiaries 106
23 Consent of Deloitte & Touche LLP 107
27 Financial Data Schedule 108
* Incorporated by reference.
95
<PAGE> 96
Exhibit 10.15
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
96<PAGE>
<PAGE> 97
G. Bennett
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
97<PAGE>
<PAGE> 98
AmGam estate and shall be dedicated to and used to pay expenses of
administration and other allowed unsecured claims in the AmGam estate;
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
98<PAGE>
<PAGE> 99
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 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):
99<PAGE>
<PAGE> 100
(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
(b) 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
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
100<PAGE>
<PAGE> 101
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;
(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.
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
101<PAGE>
<PAGE> 102
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.
102 <PAGE>
<PAGE> 103
AGREED THIS THE 1st day of November, 1996.
AMGAM ASSOCIATES, DEBTOR
BY: /s/ J. Douglas Wellington
__________________________
ITS: Management Committee
AMERICAN GAMING & RESORTS OF
MISSISSIPPI, INC., DEBTOR
BY: /s/ J. Douglas Wellington
___________________________
ITS: President
AMERICAN GAMING & ENTERTAINMENT,
LTD, A DELAWARE CORP.
BY: /s/ J. Douglas Wellington
___________________________
ITS: President & CEO
AND
BYRD & WISER
BY: /s/ Robert A. Byrd
___________________________
ITS COUNSEL
103<PAGE>
<PAGE> 104
SHAMROCK HOLDINGS GROUP,
INC., A DELAWARE CORP.
BY: /s/ Richard C. Breedan
_________________________
ITS: President
AND
BAKER & BOTTS L.L.P.
BY: /s/ Brenda T. Rhoades
_________________________
ITS COUNSEL
OFFICIAL COMMITTEE OF
UNSECURED CREDITORS OF
AMGAM
ASSOCIATES
BY: /s/ Patricia J. Joyner
__________________________
ITS: Chairperson
OFFICIAL COMMITTEE OF
UNSECURED CREDITORS OF
AMERICAN GAMING AND
RESORTS OF MISSISSIPPI, INC.
BY: /s/ Tim Foulkes
__________________________
ITS: Chairman
104
<PAGE> 105
Exhibit 11
AMERICAN GAMING & ENTERTAINMENT, LTD.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
PRIMARY AND FULLY-DILUTED
December 31,
1996 1995
Weighted average shares for computation 12,532,102 12,415,283
__________ __________
Net loss $(16,044,000) $(29,166,000)
Dividends accrued and accretion on
preferred stock 1,809,000 1,492,000
___________ ____________
Net loss for common stockholders $(17,853,000) $(30,658,000)
============== =============
Net loss per share $(1.42) $(2.47)
105
<PAGE> 106
Exhibit 22
AMERICAN GAMING & ENTERTAINMENT, LTD.
SUBSIDIARIES
STATE OF DATE OF
COMPANY INCORPORATION INCORPORATION
American Gaming and Resorts
of Mississippi, Inc. Mississippi 04-27-92
Gamma International Systems, Inc. Delaware 07-08-91
VBT, Inc. Alabama 08-11-93
Emerald Gaming, Inc. Nevada 06-10-94
106
<PAGE> 107
Exhibit 23
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in the Registration Statements of
American Gaming & Entertainment, Ltd. on Form S-8 (Registration Nos. 33-57194,
33-80714 and 33-87790) of our report dated March 21, 1997 (which report does
not express an opinion on the 1996 or 1995 financial statements), appearing in
this Annual Report on Form 10-KSB of American Gaming & Entertainment, Ltd. for
the year ended December 31, 1996.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 26, 1997
107
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN GAMING & ENTERTAINMENT, LTD. FOR
THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 265,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,440,000
<PP&E> 12,674,000
<DEPRECIATION> 2,661,000
<TOTAL-ASSETS> 12,236,000
<CURRENT-LIABILITIES> 56,627,000
<BONDS> 96,000
0
13,336,000
<COMMON> 126,000
<OTHER-SE> (62,450,000)
<TOTAL-LIABILITY-AND-EQUITY> 12,236,000
<SALES> 0
<TOTAL-REVENUES> 216,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,450,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,641,000
<INCOME-PRETAX> (16,044,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,044,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,853,000)
<EPS-PRIMARY> (1.42)
<EPS-DILUTED> (1.42)
</TABLE>
