<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 2000.
REGISTRATION NO. 333-49798
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
ANCHOR GAMING
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
NEVADA 7993 88-0304253
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
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815 PILOT ROAD, SUITE G
LAS VEGAS, NEVADA 89119
(702) 896-7568
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
T.J. MATTHEWS, CHAIRMAN
ANCHOR GAMING
815 PILOT ROAD, SUITE G
LAS VEGAS, NEVADA 89119
(702) 896-7568
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
WITH A COPY TO:
GLEN J. HETTINGER
HUGHES & LUCE, L.L.P.
1717 MAIN STREET, SUITE 2800
DALLAS, TEXAS 75201
(214) 939-5500
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
1. If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, please check the following box. / /
2. If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
3. If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
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--------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
Each of the following subsidiaries of Anchor Gaming, and each other
subsidiary that is or becomes a guarantor of the securities registered hereby,
is hereby deemed to be a registrant.
<TABLE>
<CAPTION>
PRIMARY STANDARD
STATE OF INDUSTRIAL I.R.S. EMPLOYER
INCORPORATION CLASSIFICATION IDENTIFICATION
NAME OR FORMATION NUMBER NUMBER
<S> <C> <C> <C>
Anchor Coin.................................. Nevada 7993 88-0239706
Anchor Native American Gaming Corporation.... Nevada 7993 88-0438613
Anchor Pala Development LLC.................. Delaware 7993 88-0438612
Anchor Pala Management LLC................... Delaware 7993 88-0438615
Automated Wagering International, Inc........ Delaware 7999 13-3666192
C.G. Investments, Inc........................ Nevada 7993 88-0272080
DD Stud, Inc................................. Nevada 7993 88-0265702
Dynatote of Pennsylvania, Inc................ Pennsylvania 7999 52-1170589
Green Mountain Entertainment, Inc............ Nevada dormant 88-0329095
Nuevo Sol Turf Club, Inc..................... New Mexico 7948 85-0349163
Powerhouse Technologies, Inc................. Delaware 7993 81-0470853
Raven's D&R Music Systems, Inc............... Montana 7993 81-0454914
United Tote Company.......................... Montana 7999 81-0365105
United Wagering Systems, Inc................. Delaware 7999 81-0473080
VLC, Inc..................................... Montana 3999 81-0434694
VLC of Nevada, Inc........................... Nevada 3999 88-0323640
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant files
a further amendment which specifically states that this Registration Statement
will thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement becomes
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), determines.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 5, 2000
PROSPECTUS
ANCHOR GAMING
[ANCHOR GAMING LOGO]
OFFER TO EXCHANGE
ALL OUTSTANDING 9 7/8% SENIOR
SUBORDINATED NOTES DUE 2008
FOR 9 7/8% SENIOR SUBORDINATED
EXCHANGE NOTES DUE 2008
------------------
GUARANTEED BY:
ANCHOR COIN
ANCHOR NATIVE AMERICAN GAMING CORPORATION
ANCHOR PALA DEVELOPMENT LLC
ANCHOR PALA MANAGEMENT LLC
AUTOMATED WAGERING INTERNATIONAL, INC.
C.G. INVESTMENTS, INC.
DD STUD, INC.
DYNATOTE OF PENNSYLVANIA, INC.
GREEN MOUNTAIN ENTERTAINMENT, INC.
NUEVO SOL TURF CLUB, INC.
POWERHOUSE TECHNOLOGIES, INC.
RAVEN'S D&R MUSIC SYSTEMS, INC.
UNITED TOTE COMPANY
UNITED WAGERING SYSTEMS, INC.
VLC, INC.
VLC OF NEVADA, INC.
------------------
We are offering to exchange all validly tendered and not validly withdrawn
9 7/8% Senior Subordinated Notes due 2008 (old notes) for an equal amount of
9 7/8% Senior Subordinated Exchange Notes due 2008 (exchange notes) registered
under the Securities Act of 1933, as amended.
The terms of the exchange notes we will issue in exchange for the old notes
are substantially identical to those of the old notes, except that some of the
transfer restrictions and registration rights relating to the old notes will not
apply to the exchange notes.
The exchange offer will expire at 5:00 p.m., New York City time, on
- , 2000, unless extended.
You may withdraw old notes tendered for exchange at any time prior to the
expiration of the exchange offer.
We will not receive any proceeds from the exchange offer.
Before participating in the exchange offer, please refer to the section
"Risk Factors" beginning on page 15 for a discussion of some of the factors that
you should consider.
Neither the Nevada Gaming Commission, the Nevada State Gaming Control Board,
the Mississippi Gaming Commission, nor any other gaming regulatory authority has
passed upon the adequacy or accuracy of this prospectus or the investment merits
of the exchange notes. Any representation to the contrary is unlawful.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities or passed upon the
accuracy or adequacy of the disclosures in this prospectus. Any representation
to the contrary is a criminal offense.
The date of this prospectus is - , 2000.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any person to provide you
with any information or represent anything not contained in this prospectus, and
if given or made, any such other information or representation should not be
relied upon as having been authorized by us. We are not making an offer to sell
these notes in any jurisdiction where an offer or sale is not permitted.
------------------------
TABLE OF CONTENTS
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PAGE
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Forward-Looking Statements.................................. 3
Prospectus Summary.......................................... 4
Risk Factors................................................ 16
The Exchange Offer.......................................... 25
Use of Proceeds............................................. 33
Capitalization.............................................. 34
Unaudited Pro Forma Condensed Consolidated Financial
Statements................................................ 35
Selected Historical Consolidated Financial Data............. 41
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 44
Business.................................................... 59
Government Regulation....................................... 69
Management.................................................. 79
Principal Stockholders...................................... 82
Certain Relationships and Related Transactions.............. 83
Description of Certain Indebtedness......................... 84
Description of the Exchange Notes........................... 86
Certain Federal Tax Considerations.......................... 131
Plan of Distribution........................................ 134
Legal Matters............................................... 135
Experts..................................................... 135
Available Information and Incorporation by Reference........ 135
Index to Consolidated Financial Statements.................. F-1
Independent Auditors' Report................................ F-2
</TABLE>
2
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, both as amended. All statements other than statements of
historical fact are "forward-looking statements" for purposes of federal and
state securities laws, including any projections of earnings, revenues or other
financial items; any statements of the plans, strategies and objectives of
management for future operation; any statements concerning proposed new
products, services or developments; any statements regarding future economic
conditions or performance; any statements of belief; and any statements of
assumptions underlying any of the foregoing. Forward-looking statements may
include the words "may," "will," "estimate," "intend," "continue," "believe,"
"expect" or "anticipate" and other similar words. Such forward-looking
statements may be contained in the sections "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," among other places.
Although we believe that the expectations reflected in any of our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to change and to inherent risks and
uncertainties, such as those disclosed in this prospectus. We do not intend, and
undertake no obligation, to update any forward-looking statement.
Presently-known risk factors include, but are not limited to, the following
factors:
- We have a significant amount of debt, which could restrict our future
operating and strategic flexibility and expose us to the risks of
financial leverage.
- Our ability to meet our debt service obligations on the exchange notes and
our other debt will depend on our future performance, which will be
subject to many factors that are beyond our control.
- The popularity of our games may decline relative to the popularity of our
competitors' games, and we may be unable to develop new games that achieve
commercial success.
- Revenues of our casinos in Colorado could be negatively affected by the
presence of several new large competitors in the Colorado market.
- We derive a large portion of our revenues and profits from the Anchor-IGT
joint venture. Because our revenues and profits from the Anchor-IGT joint
venture are integral to the continued success of our business, it is
important that we maintain a strong relationship with IGT.
We urge you to review carefully the section "Risk Factors" in this
prospectus for a more complete discussion of the risks of participating in the
exchange offer.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE FINANCIAL DATA AND RELATED
NOTES, BEFORE MAKING AN INVESTMENT DECISION. UNLESS THE CONTEXT INDICATES
OTHERWISE, ALL REFERENCES TO "ANCHOR," "WE," "OUR," "OURS" AND "US" REFER TO
ANCHOR GAMING AND ITS CONSOLIDATED SUBSIDIARIES.
THE COMPANY
OVERVIEW. We are a diversified, global gaming company. We operate
principally in three business segments: gaming machines, gaming operations and
gaming systems. We have equipment and systems operating in the United States,
Canada, Asia, Australia, Europe, South America, South Africa and the West
Indies.
GAMING MACHINES
OVERVIEW. Our gaming machines segment focuses on the development and
distribution of proprietary games. We develop or acquire the rights to
proprietary gaming machines and place them with casino customers free of any
initial charge, allowing the casino to avoid up-front purchase costs, through a
variety of arrangements that provide us with recurring revenue streams. We
design our proprietary games to increase the level of play by providing more
entertainment than competing machines. We believe our games earn a higher win
per machine than the typical casino house average, while at the same time
generating a recurring cash flow stream for us through our revenue-sharing
arrangements with our casino customers.
- PROPRIETARY GAMES. We have an installed machine base of approximately
17,100 units within our established customer base of over 300 casinos,
which represents most casinos in most domestic gaming jurisdictions.
- GAME DEVELOPMENT. Through the approximately 100 employees we have
dedicated to game development, we are continually engaged in the
development of new proprietary games and the improvement of existing
proprietary games.
- INTELLECTUAL PROPERTY. We have secured important exclusive intellectual
property rights in our games. These include patents for bonusing features
related to our market-leading "game within a game" concept, introduced in
our Wheel of Gold-TM- game in 1995, which incorporates into a slot machine
the opportunity to activate a three-dimensional wheel with significant
additional potential winnings, thus providing a secondary game event and
additional excitement to casino patrons.
In September 1996, we entered into a strategic alliance in the form of a
joint venture with International Game Technology, the largest manufacturer of
computerized casino gaming products in the world. Through the Anchor-IGT joint
venture, we primarily develop and install wide area progressive, or WAP, gaming
machines based on both our existing proprietary games and new game designs. The
first WAP machine, the spinning reel version of Wheel of Fortune-TM-,
incorporated our "game within a game" concept and was introduced by the
Anchor-IGT joint venture in December 1996. The machine's mass-market appeal and
success with customers led to the introduction of video Wheel of Fortune-TM- in
September 1999, and together they are two of the top games in the industry. The
Anchor-IGT joint venture agreement extends through December 15, 2015.
STRATEGY. Our strategy for the gaming machines segment is to capitalize on
recurring revenue opportunities and increase our installed base of machines. We
will continue to effect this strategy through new product development, continued
rollout of popular existing games and software conversion upgrades for existing
games.
4
<PAGE>
- NEW PRODUCTS. With committed orders of approximately 1,200 units, the
Anchor-IGT joint venture introduced its newest game, I Dream of
Jeannie-TM-, to the market in October 2000.
- CONTINUED ROLLOUT OF EXISTING GAMES. We have placed over 4,600 units of
our video Wheel of Fortune-TM- game in casinos since its introduction, and
we have a current production backlog of over 1,000 units.
- CONVERSION GAMES. We developed the conversion kit concept for modifying
existing gaming machines, which includes both software and hardware
upgrades, with the introduction of our Double Down Stud-TM- game and,
through the Anchor-IGT joint venture, expect to upgrade a substantial
number of the more than 200,000 spinning reel machines installed in North
America into multi-line, multi-coin games.
In addition to these efforts, we seek to capitalize on our established
distribution infrastructure, base of existing casino customers and licenses in
most domestic gaming jurisdictions to further expand and develop the market for
proprietary games distributed under revenue-sharing arrangements. Through our
VLC Casino business unit, we also sell gaming machines directly to casinos.
GAMING OPERATIONS
OVERVIEW. Our gaming operations segment consists of two casinos in
Colorado, route operations in Nevada and Montana and our development and
management agreements for a casino in California with the Pala Band of Mission
Indians.
- COLORADO CASINOS. We operate the Colorado Central Station Casino in Black
Hawk, Colorado and the Colorado Grande Casino in Cripple Creek, Colorado.
We believe that the Colorado Central Station Casino is a market leader and
experiences a higher daily win per machine than its significant
competitors.
- ROUTE OPERATIONS. We are one of the largest route operators in the State
of Nevada with 885 machines in 66 locations. We believe that our Nevada
route operation experiences a higher daily win per machine than any of our
significant route competitors. In Montana, we operate 1,250 video gaming
machines and 750 amusement machines.
- CALIFORNIA NATIVE AMERICAN AGREEMENTS. We have a 50% interest in
development and management agreements with the Pala Band of Mission
Indians for the design, construction, financing, operation and management
of PALA, a casino and entertainment facility in northern San Diego County,
California. Construction on the facility began in June 2000, and we expect
it to open in the early spring of 2001. We will earn a management fee for
operating PALA's gaming operations over a seven-year period.
STRATEGY. Our strategy for the gaming operations segment is to focus on
operating businesses within niche markets that have an emphasis on the operation
of gaming machines. We believe that our expertise in the development and
distribution of proprietary gaming machines provides us with a unique
understanding of player preferences and tendencies that is particularly useful
in the operation of our casinos and routes.
GAMING SYSTEMS
OVERVIEW. Our gaming systems segment consists of on-line lottery systems
and operations, video lottery central systems and terminals and pari-mutuel
wagering systems and products.
- ON-LINE LOTTERY. We develop, manufacture, sell, install and operate or
license computer-based on-line lottery systems through our Automated
Wagering International, Inc., or AWI, subsidiary. We operate the second
largest on-line lottery business in the United States, with lottery
systems in 8 of 38 domestic jurisdictions: Delaware, Florida, Indiana,
Maryland, Minnesota, Pennsylvania,
5
<PAGE>
South Dakota and West Virginia. We have international lottery customers in
Canada, Chile, China, Norway, Switzerland, Vietnam and the West Indies.
- VIDEO LOTTERY. Through our VLC Government business unit, we are a leader
in developing, manufacturing and marketing video lottery central systems
and terminals primarily to government customers who seek to enhance
revenues for states and other lottery jurisdictions. We have designed and
installed our Advanced Gaming System software for video lottery central
control systems in Delaware, New Mexico, South Dakota, Australia, Canada
and Iceland.
- PARI-MUTUEL. We develop, manufacture, sell, install and operate or license
computerized pari-mutuel wagering systems and products, through our United
Tote subsidiary, to over 120 horse and greyhound racetracks, off-track
betting facilities and jai alai frontons in North America, South America,
the Philippines, Spain and the West Indies. Our pari-mutuel gaming
business is the second largest in the United States.
STRATEGY. Our strategy for the gaming systems segment is to selectively
pursue new opportunities for our on-line lottery, video lottery and pari-mutuel
businesses domestically and internationally. We believe that we have won our
existing contracts on the merits of technology and execution, and that
potentially significant international opportunities exist in each of our gaming
systems businesses.
ADDRESS AND TELEPHONE NUMBER
Our principal executive offices are located at 815 Pilot Road, Suite G, Las
Vegas, Nevada 89119, and our telephone number is (702) 896-7568.
RECENT DEVELOPMENTS
STOCK PURCHASE AND RACETRACK ASSET SALE TRANSACTIONS WITH MEMBERS OF THE FULTON
FAMILY, AND RELATED FINANCING TRANSACTIONS
On October 17, 2000, we completed the acquisition of approximately
9.2 million shares of our common stock from our then Chairman, Stanley Fulton,
and members of his family and their affiliates, for a purchase price of $33.306
per share. Effective upon completion of this stock purchase transaction, Stanley
Fulton, his son, Michael Fulton, and his daughter, Elizabeth Jones resigned from
their positions on our board of directors. After the closing of this stock
purchase transaction, the Fulton family members and their affiliates retained
ownership of approximately 1,079,200 shares. The purchase consideration for the
shares comprised $240.2 million in cash and $66.0 million aggregate principal
amount of promissory notes that Stanley Fulton received for a portion of his
shares.
In conjunction with the stock purchase transaction with the Fulton family,
we entered into an agreement with Stanley Fulton to sell him substantially all
of the assets relating to our Sunland Park Racetrack & Casino, located in New
Mexico, and our 25% interest in a Massachusetts horse racing facility. Stanley
Fulton has agreed to pay $66.0 million for these assets by canceling our
obligations under the promissory notes. We expect to complete the sale of these
racetrack assets to Mr. Fulton by the end of March 2001, subject to regulatory
approvals and the satisfaction of other conditions. After the sale of these
assets, we will retain the right to manage gaming operations at the
Massachusetts racetrack if casino gaming is legalized in Massachusetts.
In order to complete the stock purchase transaction, we obtained an
amendment to our existing senior credit facility. We financed the stock purchase
transaction through the net proceeds from the offering of the old notes and
borrowings under our senior credit facility.
6
<PAGE>
STOCK SPLIT
On September 25, 2000, we announced that our board of directors had
authorized a 2-for-1 stock split. As a result of the stock split, stockholders
of record as of October 31, 2000 received one additional share of our common
stock for every share then owned. The new shares were issued on November 15,
2000. As of October 31, 2000, we had approximately 14.2 million shares
outstanding, exclusive of treasury shares and giving effect to the stock split
described herein. Information provided in this prospectus has been adjusted to
reflect the stock split.
POWERHOUSE ACQUISITION
On June 29, 1999, we completed the acquisition of 100% of the outstanding
common stock of Powerhouse Technologies, Inc. for approximately $220 million
plus Powerhouse net debt of $68 million pursuant to a merger agreement. Our
gaming systems segment consists primarily of assets acquired in the Powerhouse
acquisition. The Powerhouse acquisition was funded through a combination of cash
and borrowings under our senior credit facility. The closing of the Powerhouse
acquisition occurred virtually concurrently with the end of our fiscal year
ended June 30, 1999 and, as a result, our financial statements for the years
ended June 30, 1999 and earlier do not include any results of operations for
Powerhouse with the exception of the acquired in-process research and
development charge recorded for the year ended June 30, 1999.
7
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
The following is a summary of the principal terms of the exchange offer. A
more detailed description is contained in the section "The Exchange Offer." The
term "old notes" refers to the outstanding 9 7/8% Senior Subordinated Notes due
2008, and the term "exchange notes" refers to the 9 7/8% Senior Subordinated
Exchange Notes due 2008. The term "indenture" refers to the indenture that
governs both the old notes and the exchange notes.
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<S> <C>
The Exchange Offer................ We are offering to exchange $1,000 principal amount of our exchange
notes, which have been registered under the Securities Act of 1933,
for each $1,000 principal amount of our unregistered old notes. We
issued the old notes on October 17, 2000 in a private offering.
In order to exchange your old notes, you must properly tender them
before the expiration of the exchange offer. All old notes that are
validly tendered and not validly withdrawn will be exchanged. We
will issue the exchange notes on or promptly after the expiration
of the exchange offer.
You may tender your old notes for exchange in whole or in part in
integral multiples of $1,000 principal amount.
Registration Rights Agreement..... We sold the old notes on October 17, 2000 to a group of initial
purchasers, which included Banc of America Securities LLC, Lehman
Brothers Inc., Wasserstein Perella Securities, Inc., Bear, Stearns
& Co., Inc., CIBC World Markets Corp., Deutsche Bank Securities
Inc., Scotia Capital Markets (USA) Inc. and Wells Fargo Brokerage
Services, LLC. Simultaneously with that sale, we signed a
registration rights agreement relating to the old notes with these
initial purchasers, which requires us to conduct this exchange
offer.
You have the right under the registration rights agreement to
exchange your old notes for exchange notes with substantially
identical terms. This exchange offer is intended to satisfy those
rights. After this exchange offer is complete, you will no longer
be entitled to any exchange or registration rights with respect to
your old notes.
For a description of the procedures for tendering old notes, see
the section "The Exchange Offer" under the heading "Procedures for
Tendering Old Notes."
Consequences of Failure to
Exchange Your Old Notes......... If you do not exchange your old notes for exchange notes in the
exchange offer, you will still have the restrictions on transfer
provided in the old notes and in the indenture. In general, the old
notes may not be offered or sold unless registered or exempt from
registration under the Securities Act of 1933, or in a transaction
not subject to the Securities Act and applicable state securities
laws. We do not plan to register the old notes under the Securities
Act.
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8
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<TABLE>
<S> <C>
Expiration Date................... The exchange offer will expire at 5:00 p.m., New York City time, on
- , 2000, unless we extend it. If we do extend the exchange
offer, the expiration date will be the latest date and time to
which we extend the exchange offer. See the section "The Exchange
Offer" under the heading "Expiration Date; Extensions; Amendments."
Conditions to the Exchange
Offer........................... The exchange offer is subject to conditions that we may waive at
our sole discretion. The exchange offer is not conditioned upon any
minimum principal amount of old notes being tendered for exchange.
See the section "The Exchange Offer" under the heading "Conditions
to the Exchange Offer."
We reserve the right in our sole and absolute discretion, subject
to applicable law, at any time and from time to time:
- to delay the acceptance of the old notes;
- to terminate the exchange offer if specified conditions have
not been satisfied;
- to extend the expiration date of the exchange offer and
retain all tendered old notes subject, however, to the right
of tendering holders to withdraw their tender of old notes;
and
- to waive any condition or otherwise amend the terms of the
exchange offer in any respect.
See the section "The Exchange Offer" under the heading "Expiration
Date; Extensions; Amendments."
Procedures for Tendering Old
Notes........................... If you wish to tender your old notes for exchange, you must:
- complete a sign a letter of transmittal according to the
instructions contained in the letter of transmittal; and
- forward the letter of transmittal by mail, facsimile
transmission or hand delivery, together with any other
required documents, to the exchange agent, either with the
old notes to be tendered or in compliance with the specified
procedures for guaranteed delivery of such old notes.
Specified brokers, dealers, commercial banks, trust companies and
other nominees may also effect tenders by book-entry transfer.
Please do not send your letter of transmittal or certificates
representing your old notes to us. Those documents should only be
sent to the exchange agent. Questions regarding how to tender and
requests for information should be directed to the exchange agent.
See the section "The Exchange Offer" under the heading "Exchange
Agent."
</TABLE>
9
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<TABLE>
<S> <C>
Special Procedures for Beneficial
Owners.......................... If your old notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee, we urge you to
contact such person promptly if you wish to tender your old notes.
See the section "The Exchange Offer" under the heading "Procedures
for Tendering Old Notes."
Withdrawal Rights................. You may withdraw the tender of your old notes at any time before
the expiration date. To do this, you should deliver a written
notice of your withdrawal to the exchange agent according to the
withdrawal procedures described in the section "The Exchange Offer"
under the heading "Withdrawal Rights."
Resales of Exchange Notes......... We believe that you will be able to offer for resale, resell or
otherwise transfer the exchange notes issued in the exchange offer
without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that:
- you are acquiring the exchange notes in the ordinary course
of your business;
- you are not participating, and have no arrangement or
understanding with any person to participate, in the
distribution of the exchange notes; and
- you are not an affiliate of Anchor Gaming.
Our belief is based on interpretations by the staff of the
Securities and Exchange Commission, as shown in no-action letters
issued to third parties unrelated to us. The staff of the
Securities and Exchange Commission has not considered the exchange
offer in the context of a no-action letter, and we cannot assure
you that the staff of the Securities and Exchange Commission would
make a similar determination with respect to this exchange offer.
If our belief is not accurate and you transfer an exchange note
without delivering a prospectus meeting the requirements of the
Securities Act or without an exemption from such requirements, you
may incur liability under the Securities Act. We do not and will
not assume, or indemnify you against, such liability. Each broker-
dealer that receives exchange notes for its own account in exchange
for old notes that such broker-dealer acquired as a result of
market-making or other trading activities must acknowledge that it
will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such exchange
notes. A broker-dealer may use this prospectus for an offer to
sell, resale or other transfer of exchange notes. See the section
"Plan of Distribution."
</TABLE>
10
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<TABLE>
<S> <C>
Exchange Agent.................... The exchange agent for the exchange offer is U.S. Trust Company,
National Association. The address, telephone number and facsimile
number of the exchange agent are provided in the section "The
Exchange Offer" under the heading "Exchange Agent," as well as in
the letter of transmittal.
Use of Proceeds................... We will not receive any cash proceeds from the issuance of the
exchange notes. See the section "Use of Proceeds."
Certain Federal Income Tax
Consequences.................... Your acceptance of an exchange offer and the related exchange of
your old notes for exchange notes will not be a taxable exchange
for United States federal income tax purposes. You should not
recognize any taxable gain or loss or any interest income as a
result of the exchange.
</TABLE>
SUMMARY OF THE TERMS OF THE EXCHANGE NOTES
The following is a summary of the principal terms of the exchange notes. A
more detailed description is contained in the section "Description of the
Exchange Notes."
<TABLE>
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Issuer............................ Anchor Gaming, a Nevada corporation.
Securities........................ $250.0 million in principal amount of 9 7/8% senior subordinated
exchange notes due 2008.
Maturity.......................... October 15, 2008.
Interest.......................... Annual rate: 9 7/8%.
Payment frequency: every six months on April 15 and October 15.
First payment: April 15, 2001.
Sinking Fund...................... None.
Guarantees........................ All of our wholly-owned subsidiaries with domestic operations will
be guarantors of the exchange notes on a senior subordinated basis.
Ranking........................... The exchange notes and the guarantees will be general unsecured
senior subordinated obligations of Anchor Gaming and each
guarantor, respectively, and will rank junior to all existing and
future senior debt and equal to or senior to all other existing or
future debt of Anchor Gaming and each guarantor, respectively.
Assuming we had consummated the stock purchase and racetrack asset
sale transactions and related financing transactions on
September 30, 2000, and applied the net proceeds as intended, the
exchange notes and guarantees would have been subordinated to
$207.1 million of senior debt.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Optional Redemption............... On or after October 15, 2004, we may redeem some or all of the
exchange notes at any time at the redemption prices described in
the section "Description of the Exchange Notes" under the heading
"Optional Redemption."
Prior to October 15, 2003, we may redeem up to 35% of the exchange
notes with the net cash proceeds from specified equity offerings at
the redemption price listed in the section "Description of the
Exchange Notes" under the heading "Optional Redemption." We may,
however, only make such redemptions if at least $150 million of the
aggregate principal amount of exchange notes remains outstanding
after such redemptions.
Regulatory Redemption............. The exchange notes are subject to redemption requirements imposed
by gaming laws and regulations of the state of Nevada and other
jurisdictions as more fully described in the section "Description
of the Exchange Notes" under the heading "Mandatory Disposition
Pursuant to Gaming Laws."
Mandatory Offer To Repurchase..... If we experience specific kinds of changes in control, we must
offer to purchase the exchange notes and, under some circumstances,
if we sell assets, we must offer to repurchase some of the exchange
notes, in both cases at the prices listed in the section
"Description of the Exchange Notes" under the heading "Repurchase
at the Option of Holders."
Certain Covenants................. The indenture governing the exchange notes restricts our ability
and the ability of our restricted subsidiaries to:
- borrow money;
- pay dividends or redeem or repurchase our stock;
- make investments;
- create liens;
- engage in transactions with affiliates; and
- sell assets or merge with companies.
See the section "Description of the Exchange Notes" under the
heading "Certain Covenants."
</TABLE>
YOU SHOULD REFER TO THE SECTION "RISK FACTORS" FOR AN EXPLANATION OF SOME
RISKS THAT YOU SHOULD CONSIDER BEFORE EXCHANGING ANY OLD NOTES FOR EXCHANGE
NOTES.
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial data presented below as of
June 30, 1999 and 2000 and for the three years in the period ended June 30, 2000
have been derived from our audited consolidated financial statements contained
elsewhere in this prospectus. The summary historical consolidated financial data
presented below as of June 30, 1998 have been derived from our audited
consolidated financial statements not contained in this prospectus. The closing
of the Powerhouse acquisition occurred virtually concurrently with the end of
our fiscal year ended June 30, 1999 and, as a result, our financial statements
for the years ended June 30, 1999 and earlier do not include any Powerhouse
results of operations in the accompanying table with the exception of the
acquired in-process research and development charge recorded for the year ended
June 30, 1999. The summary historical financial information for the three months
ended September 30, 1999 and 2000 and as of September 30, 2000 has been derived
from our unaudited consolidated financial statements contained elsewhere in this
prospectus. We have prepared the unaudited consolidated financial statements on
a basis consistent with the audited financial statements. The unaudited
consolidated financial statements include, in our opinion, all normal recurring
adjustments necessary for a fair presentation of the information. Operating
results for the three months ended September 30, 2000 are not necessarily
indicative of the results we will achieve for future periods, including the
entire fiscal year ending June 30, 2001.
The accompanying summary pro forma financial data as of and for the year
ended June 30, 2000 give effect to the stock purchase and racetrack asset sale
transactions and the related financing transactions as described in this section
under the heading "Recent Developments." The accompanying summary pro forma
financial data for the year ended June 30, 1999 give effect to such transactions
and the Powerhouse acquisition as described in this section under the heading
"Recent Developments," and exclude non-recurring charges for acquired in-process
research and development and the cumulative effect of a change in accounting
principle. The pro forma balance sheet data as of September 30, 2000 are
presented on the assumption that the stock purchase and racetrack asset sale
transactions and the related financing transactions occurred on September 30,
2000. The pro forma income statement data for the year ended June 30, 2000 are
presented on the assumption that the stock purchase and racetrack asset sale
transactions and the related financing transactions occurred on July 1, 1999.
The pro forma income statement data for the year ended June 30, 1999 are
presented on the assumption that the stock purchase and racetrack asset sale
transactions, the related financing transactions and the Powerhouse acquisition
occurred on July 1, 1998. All share amounts have been adjusted to reflect the
stock split that was distributed on November 15, 2000.
13
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, THREE MONTHS
---------------------------------------------------- ENDED
ACTUAL PRO FORMA SEPTEMBER 30,
------------------------------ ------------------- -------------------
1998 1999 2000 1999 2000 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Gaming machines............................ $113,677 $123,698 $154,680 $150,729 $154,680 $ 40,412 $ 47,170
Gaming operations.......................... 118,255 125,233 189,938 142,371 144,399 47,368 47,748
Gaming systems............................. -- -- 180,585 155,564 180,585 39,221 43,832
-------- -------- -------- -------- -------- -------- --------
Total revenues........................... 231,932 248,931 525,203 448,664 479,664 127,001 138,750
-------- -------- -------- -------- -------- -------- --------
Costs of revenues:
Gaming machines............................ 25,054 34,401 35,892 53,318 35,892 12,557 5,982
Gaming operations.......................... 62,721 70,419 124,529 82,460 93,569 29,184 31,928
Gaming systems............................. -- -- 105,083 90,972 105,083 20,625 30,848
-------- -------- -------- -------- -------- -------- --------
Total costs of revenues.................. 87,775 104,820 265,504 226,750 234,544 62,366 68,758
-------- -------- -------- -------- -------- -------- --------
Gross margin................................. 144,157 144,111 259,699 221,914 245,120 64,635 69,992
-------- -------- -------- -------- -------- -------- --------
Other costs:
Selling, general and administrative........ 23,343 24,243 69,343 62,834 64,952 19,572 16,814
Research and development................... 1,922 1,173 16,528 11,038 16,528 3,972 3,634
Acquired in-process research and
development(1)........................... -- 17,500 -- -- -- -- --
Impairment and restructuring charges(2).... -- -- 2,641 -- 2,641 -- --
Depreciation and amortization.............. 12,661 17,380 50,951 40,536 47,891 11,736 15,095
-------- -------- -------- -------- -------- -------- --------
Total other costs........................ 37,926 60,296 139,463 114,408 132,012 35,280 35,543
-------- -------- -------- -------- -------- -------- --------
Income from operations....................... 106,231 83,815 120,236 107,506 113,108 29,355 34,449
Interest income.............................. 2,989 3,850 1,998 2,216 1,939 518 689
Interest expense............................. (226) (113) (16,475) (46,074) (46,074) (3,681) (4,603)
Other income (expense)(3).................... 446 (623) 1,611 (585) 1,547 (44) (224)
-------- -------- -------- -------- -------- -------- --------
Income before provision for income taxes..... 109,440 86,929 107,370 63,063 70,520 26,148 30,311
Provision for income taxes................... 41,040 39,422 42,411 24,428 27,671 10,374 11,973
-------- -------- -------- -------- -------- -------- --------
Income before cumulative effect of change in
accounting principle....................... 68,400 47,507 64,959 38,635 42,849 15,774 18,338
Cumulative effect of change in accounting
principle, net of taxes of $81............. -- -- -- -- -- -- 124
-------- -------- -------- -------- -------- -------- --------
Net income................................... $ 68,400 $ 47,507 $ 64,959 $ 38,635 $ 42,849 $ 15,774 $ 18,462
======== ======== ======== ======== ======== ======== ========
Diluted shares outstanding................... 26,322 24,856 24,022 15,664 14,830 24,298 23,698
Diluted earnings per share, before cumulative
effect of change in accounting principle... $ 2.60 $ 1.91 $ 2.70 $ 2.47 $ 2.89 $ 0.65 $ 0.77
Cumulative effect of change in accounting
principle, net of taxes.................... -- -- -- -- -- -- 0.01
-------- -------- -------- -------- -------- -------- --------
Diluted earnings per share................... $ 2.60 $ 1.91 $ 2.70 $ 2.47 $ 2.89 $ 0.65 $ 0.78
======== ======== ======== ======== ======== ======== ========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, THREE MONTHS
---------------------------------------------------- ENDED
ACTUAL PRO FORMA SEPTEMBER 30,
------------------------------ ------------------- -------------------
1998 1999 2000 1999 2000 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Gaming machines EBITDA(4)................ $ 90,201 $ 91,900 $113,970 $ 94,595 $113,970 $ 26,091 $ 42,058
Gaming operations EBITDA(4).............. 39,969 39,997 43,706 40,253 33,518 12,556 10,702
Gaming systems EBITDA(4)................. -- -- 42,143 32,526 42,143 10,470 3,334
Corporate EBITDA(4)...................... (5,967) (4,393) (14,650) (10,523) (14,650) (5,752) (3,203)
-------- -------- -------- -------- -------- -------- --------
Consolidated EBITDA(4)................... $124,203 $127,504 $185,169 $156,851 $174,981 $ 43,365 $ 52,891
======== ======== ======== ======== ======== ======== ========
Gaming machines capital expenditures..... $ 20,649 $ 8,753 $ 9,369 $ 3,643 $ 3,068
Gaming operations capital expenditures... 3,659 5,063 6,490 1,935 1,842
Gaming systems capital expenditures...... -- -- 63,354 16,253 9,438
Corporate capital expenditures........... 113 141 3,373 213 700
-------- -------- -------- -------- --------
Consolidated capital expenditures........ $ 24,421 $ 13,957 $ 82,586 $ 22,044 $ 15,048
======== ======== ======== ======== ========
Ratio of total debt to consolidated EBITDA.......................................... 2.7x
Ratio of consolidated EBITDA to interest expense.................................... 3.8x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF SEPTEMBER 30,
------------------------------ --------------------------
ACTUAL PRO FORMA ACTUAL
------------------------------ ---------- -------------
1998 1999 2000 2000 2000
-------- -------- -------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 73,187 $ 32,835 $ 25,883 $ 27,376 $ 27,376
Total assets............................................ 245,134 507,169 548,719 509,273 553,146
Total debt.............................................. -- 216,856 224,294 455,314 203,152
Stockholders' equity (deficiency)....................... 210,482 220,353 270,520 (19,694) 294,841
</TABLE>
--------------------------
(1) We recorded a charge of $17.5 million for acquired in-process research and
development in fiscal 1999 related to the value of research and development
projects that were in various stages of completion at the date of the
Powerhouse acquisition.
(2) We incurred impairment and restructuring charges of $2.6 million in fiscal
2000 in connection with the restructuring of our VLC subsidiary.
(3) Other income (expense) consists of minority interest in earnings of
consolidated subsidiary and other income (expense).
(4) Segment EBITDA amounts are calculated before corporate allocation. Corporate
EBITDA includes corporate activity and corporate eliminations. EBITDA
consists of operating income plus depreciation and amortization (including
our share of joint venture depreciation of $5.3 million, $8.8 million, and
$11.3 million for the years ended June 30, 1998, 1999, and 2000,
respectively, and $2.3 million and $3.3 million for the three months ended
September 30, 1999 and 2000, respectively), impairment charges of
$2.6 million for the year ended June 30, 2000 and an in-process research and
development charge of $17.5 million for the year ended June 30, 1999. You
should not construe EBITDA as a substitute for operating income or a better
indicator of liquidity than cash flow from operating, investing and
financing activities, which are determined in accordance with accounting
principles generally accepted in the United States of America. We have
included EBITDA to provide additional information with respect to our
ability to meet our future debt service, capital expenditures and working
capital requirements. Although EBITDA is not necessarily a measure our
ability to fund our cash needs, we believe that EBITDA is a useful tool for
measuring our ability to service our debt. Our definition of EBITDA may not
be the same as that of similarly captioned measures used by other companies.
15
<PAGE>
RISK FACTORS
BEFORE YOU PARTICIPATE IN THE EXCHANGE OFFER, YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING FACTORS IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
RISKS RELATED TO THE EXCHANGE NOTES
THERE ARE CONSEQUENCES ASSOCIATED WITH FAILING TO EXCHANGE THE OLD NOTES FOR THE
EXCHANGE NOTES.
If you do not exchange your old notes for exchange notes in the exchange
offer, you will still have the restrictions on transfer provided in the old
notes and in the indenture. In general, the old notes may not be offered or sold
unless registered or exempt from registration under the Securities Act of 1933,
as amended, or in a transaction not subject to the Securities Act of 1933 and
applicable state securities laws. We do not plan to register the old notes under
the Securities Act of 1933.
LEVERAGE MAY IMPAIR OUR FINANCIAL CONDITION AND WE MAY INCUR SIGNIFICANT
ADDITIONAL DEBT.
After the issuance of the old notes, we have a significant amount of debt.
As of September 30, 2000, after giving effect to the offering of the old notes,
the borrowings under our senior credit facility, the issuance of notes to
Stanley Fulton in connection with the stock purchase transaction and the
application of the proceeds of the old notes and such borrowings, our total
consolidated debt would have been $521.3 million. See the section
"Capitalization."
Our significant debt could have important consequences for the holders of
the exchange notes, including:
- increasing our vulnerability to general adverse economic and industry
conditions;
- limiting our ability to obtain additional financing to fund future working
capital, capital expenditures, acquisitions and other general corporate
requirements;
- requiring a substantial portion of our cash flow from operations for the
payment of interest on our debt and reducing our ability to use our cash
flow to fund working capital, capital expenditures, acquisitions and
general corporate requirements;
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry; and
- placing us at a competitive disadvantage to other less leveraged
competitors.
In addition, we may incur significant additional debt. Subject to specified
limitations, the indenture permits us and our subsidiaries to incur substantial
additional debt and our senior credit facility will permit additional
borrowings.
SERVICING OUR DEBT WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, AND OUR ABILITY TO
GENERATE SUFFICIENT CASH DEPENDS ON MANY FACTORS, SOME OF WHICH ARE BEYOND OUR
CONTROL.
Our ability to make payments on and refinance our debt and to fund planned
capital expenditures depends on our ability to generate cash flow in the future.
This, to some extent, is subject to general economic, financial, competitive,
legislative and regulatory factors and other factors that are beyond our
control. In addition, the ability to borrow funds under our senior credit
facility in the future will depend on our meeting the financial covenants in the
agreements, including a minimum interest coverage test and a maximum leverage
ratio test. We cannot assure you that our business will generate cash flow from
operations or that future borrowings will be available to us under our senior
credit facility in an amount sufficient to enable us to pay our debt or to fund
other liquidity needs. As a result, we may need to refinance all or a portion of
our debt on or before maturity. Our senior credit
16
<PAGE>
facility matures in June 2004. We cannot assure you that we will be able to
refinance any of our debt on favorable terms, or at all. Any inability to
generate sufficient cash flow or refinance our debt on favorable terms could
have a material adverse effect on our financial condition.
In conjunction with the stock purchase transaction, we have agreed to sell
two racetrack assets to Stanley Fulton. As consideration for the two racetrack
assets, Mr. Fulton will cancel two one-year promissory notes in the aggregate
amount of $66.0 million, which we have issued to him as partial consideration
for his shares of our common stock. If the sale of these racetrack assets does
not receive regulatory approval, or if any other condition to the sale is not
satisfied, we will be obligated to pay Stanley Fulton $66.0 million plus
interest in cash. If we are required to pay this amount in cash, our cash
available for other purposes would be reduced.
COVENANT RESTRICTIONS UNDER OUR SENIOR CREDIT FACILITY AND THE INDENTURE MAY
LIMIT OUR ABILITY TO OPERATE OUR BUSINESS.
Our senior credit facility, the indenture and certain of our other
agreements regarding debt contain, among other things, covenants that may
restrict our and the subsidiary guarantors' ability to finance future operations
or capital needs or to engage in other business activities. Our senior credit
facility and the indenture restrict, among other things, our and the guarantors'
ability to: borrow money; pay dividends or distributions; purchase or redeem
stock; make investments and extend credit; engage in transactions with
affiliates; engage in sale-leaseback transactions; consummate certain asset
sales; effect a consolidation or merger or sell, transfer, lease, or otherwise
dispose of all or substantially all of our assets; and create liens on our
assets.
In addition, our senior credit facility requires us to maintain specified
financial ratios and satisfy certain financial condition tests that may require
that we take action to reduce our debt or to act in a manner contrary to our
business objectives. Events beyond our control, including changes in general
economic and business conditions, may affect our ability to meet those financial
ratios and financial condition tests. We cannot assure you that we will meet
those tests or that the lenders will waive any failure to meet those tests. A
breach of any of these covenants would result in a default under our senior
credit facility and the indenture. If an event of default under our senior
credit facility occurs, the lenders could elect to declare all amounts
outstanding thereunder, together with accrued interest, to be immediately due
and payable. See the sections "Description of Certain Indebtedness" and
"Description of the Exchange Notes."
YOUR RIGHT TO RECEIVE PAYMENT ON THE EXCHANGE NOTES AND THE GUARANTEES IS JUNIOR
TO ALL OF OUR AND THE GUARANTORS' SENIOR DEBT.
The exchange notes will be general unsecured obligations, junior in right of
payment to all existing and future senior debt of Anchor Gaming and each
guarantor, respectively, including obligations under our senior credit facility.
The exchange notes will not be secured by any of our or the guarantors' assets,
and as such will be effectively subordinated to any secured debt that we or the
guarantors may have now or may incur in the future to the extent of the value of
the assets securing that debt.
In the event that Anchor Gaming or a guarantor is declared bankrupt, becomes
insolvent or is liquidated or reorganized, any debt that ranks ahead of the
exchange notes and the guarantees will be entitled to be paid in full from our
assets or the assets of the guarantor, as applicable, before any payment may be
made with respect to the exchange notes or the affected guarantees. In any of
the foregoing events, we cannot assure you that we would have sufficient assets
to pay amounts due on the exchange notes. As a result, holders of the exchange
notes may receive less, proportionally, than the holders of debt senior to the
exchange notes and the guarantees. The subordination provisions of the indenture
also provide that we can make no payment to you during the continuance of
payment defaults on our senior debt, and payments to you may be suspended for a
period of up to 180 days if a
17
<PAGE>
nonpayment default exists under our senior debt. See the section "Description of
the Exchange Notes" under the heading "Subordination."
In addition, the exchange notes will be structurally subordinated to all of
the liabilities of any of our subsidiaries that do not guarantee the exchange
notes. In the event of a bankruptcy, liquidation or reorganization of any of the
non-guarantor subsidiaries, holders of their debt and their trade creditors will
generally be entitled to payment of their claims from the assets of those
subsidiaries before any assets are made available for distribution to Anchor
Gaming. The non-guarantor subsidiaries generated less than 3% of our revenues
for the quarter ended September 30, 2000.
At September 30, 2000, assuming the offering of the old notes and the
exchange offer, and the stock purchase and racetrack asset sale transactions and
related financing transactions, had been completed at that time, the exchange
notes and the guarantees would have ranked junior to $207.1 million of senior
debt of Anchor Gaming and its subsidiaries. In addition, our senior credit
facility and the indenture permit, subject to specified limitations, the
incurrence of additional debt, some or all of which may be senior debt. See the
section "Description of the Exchange Notes" under the heading "Certain
Covenants" and the section "Description of Certain Indebtedness."
THE ANCHOR-IGT JOINT VENTURE WILL NOT BE A GUARANTOR OF THE EXCHANGE NOTES, AND
YOUR RIGHTS UNDER THE EXCHANGE NOTES WOULD BE SUBORDINATE TO CREDITORS OF THE
ANCHOR-IGT JOINT VENTURE.
For the quarter ended September 30, 2000, the Anchor-IGT joint venture
accounted for 66% of our EBITDA. Because we own only a 50% interest in the
Anchor-IGT joint venture, it is not a subsidiary of ours for the purposes of the
indenture and therefore will not be a guarantor of the exchange notes. In the
event of a bankruptcy, liquidation or reorganization of the Anchor-IGT joint
venture, holders of its debt and its trade creditors will generally be entitled
to payment of their claims from the assets of the Anchor-IGT joint venture
before any assets of the Anchor-IGT joint venture would be available to us to
discharge the exchange notes. As of the date of this prospectus, the Anchor-IGT
joint venture has no outstanding debt.
THE EXCHANGE NOTES AND GUARANTEES MAY NOT BE ENFORCEABLE BECAUSE OF FRAUDULENT
CONVEYANCE LAWS.
Our incurrence of debt, such as the old notes and the exchange notes, as
well as our subsidiaries' guarantees, may be subject to review under U.S.
federal bankruptcy law or relevant state fraudulent conveyance laws if a
bankruptcy case or lawsuit is commenced by or on behalf of our or the
guarantors' unpaid creditors. Under these laws, if in such a case or lawsuit a
court were to find that, at the time we or a guarantor incurred debt (including
debt represented by the old notes and the exchange notes or the guarantee of
such guarantor):
- we, or a guarantor, incurred this debt with the intent of hindering,
delaying or defrauding current or future creditors; or
- we, or a guarantor, received less than reasonably equivalent value or fair
consideration for incurring this debt and we or a guarantor, as the case
may be:
- were insolvent or were rendered insolvent by reason of the stock
purchase or racetrack asset sale transactions, or the related financing
transactions;
- were engaged, or about to engage, in a business or transaction for
which its remaining assets constituted unreasonably small capital to
carry on its business; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay as these debts matured (as all of the foregoing terms
are defined in or interpreted under the relevant fraudulent transfer or
conveyance statutes);
18
<PAGE>
then such court could avoid the old notes or the exchange notes or such
guarantee or subordinate the amounts owing under the old notes or the exchange
notes or such guarantee to our or such guarantor's presently existing or future
debt or take other actions detrimental to you.
It may be asserted that we received less than reasonable equivalent value or
fair consideration for the obligations under the old notes because the proceeds
of the old notes were distributed to some of our stockholders rather than being
utilized in our business. In addition, the guarantors may be subject to the
allegation that since they incurred their guarantees for the benefit of Anchor
Gaming, they incurred the obligations under the guarantees for less than
reasonably equivalent value or fair consideration.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, a company would be considered insolvent if, at the
time it incurred the debt or issued the guarantee, either:
- the sum of its debts (including contingent liabilities) is greater than
its assets, at fair valuation, or
- the present fair saleable value of its assets is less than the amount
required to pay the probable liability on its total existing debts and
liabilities (including contingent liabilities) as they become absolute and
matured.
We believe that, at the time we and the guarantors initially incurred the
debt represented by the old notes and the guarantees and consummated the stock
purchase transaction, we and the guarantors were not insolvent or rendered
insolvent by the incurrence, were not lacking sufficient capital to run our
businesses effectively, and were not unable to pay obligations on the old notes
and the guarantees as they matured or became due.
In reaching the foregoing conclusions, we have relied upon our analyses of
internal cash flow projections and estimated values of assets and liabilities of
us and the guarantors. We cannot assure you, however, that a court passing on
the same questions would reach the same conclusions.
If an exchange note or guarantee is avoided as a fraudulent conveyance or
found to be unenforceable for any other reason, you will not have a claim
against that obligor and will only be a creditor of Anchor Gaming or any
guarantor whose obligation was not set aside or found to be unenforceable.
We will not receive any proceeds from the offering of the exchange notes,
and the proceeds from the offering of the old notes were used to purchase shares
of our common stock from some of our major stockholders. Accordingly, no funds
will be available either from this exchange offer or from the issuance of the
old notes to discharge our obligations under the exchange notes.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE EXCHANGE
NOTES.
There is no established trading market for the exchange notes and we cannot
assure you that a market for the exchange notes will develop in the future. If
such a market were to develop, the exchange notes could trade at prices that are
higher or lower than the initial offering prices depending on many factors,
including the number of holders of the exchange notes, the overall market for
similar securities, our financial performance and prospects and prospects for
companies in our industry generally. The initial purchasers of the old notes
have informed us that they currently intend to make a market in the exchange
notes. However, the initial purchasers have no obligation to do so and may
discontinue making a market at any time without notice. Therefore, we cannot
assure you as to the liquidity of any trading market for the exchange notes. We
do not intend to apply (and are not obligated to apply) for listing of the
exchange notes on any securities exchange or any automated quotation system.
19
<PAGE>
YOU MUST COMPLY WITH THE PROCEDURES FOR THE EXCHANGE OFFER IN ORDER TO RECEIVE
THE EXCHANGE NOTES.
You are responsible for complying with all exchange offer procedures. You
will only receive exchange notes in exchange for your old notes if, prior to the
expiration date, you deliver the following to the exchange agent:
- certificate for the old notes or a book-entry confirmation of a book-entry
transfer of the old notes into the exchange agent's account at the
Depository Trust Company ("DTC");
- the letter of transmittal (or a facsimile thereof), properly completed and
duly executed by you, together with any required signature guarantees; and
- any other documents required by the letter of transmittal.
You should allow sufficient time to ensure that the exchange agent receives
all required documents before the expiration date. Neither we nor the exchange
agent has any duty to inform you of defects or irregularities with respect to
the tender of your old notes for exchange. See the section "The Exchange Offer."
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon a change of control, we are required to offer to repurchase all
outstanding old notes and exchange notes at 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase.
The source of funds for any such purchase of old notes and exchange notes
will be our available cash or cash generated from our subsidiaries' operations
or other sources, including borrowing, sales of assets, sales of equity or funds
provided by a new controlling person. We can give you no assurance that
sufficient funds will be available at the time of any change of control to make
any required repurchases of notes tendered. In addition, the terms of our senior
credit facility limit our ability to purchase the notes in those circumstances.
Any of our future debt agreements may contain similar restrictions and
provisions. If the holders of the old notes and the exchange notes exercise
their right to require us to repurchase all of such notes upon a change of
control, the financial effect of this repurchase could cause a default under our
other debt, even if the change in control itself would not cause a default.
Accordingly, it is possible that we will not have sufficient funds at the time
of the change of control to make the required repurchase of old notes and
exchange notes or that restrictions in our senior credit facility will not allow
such repurchases. See the section "Description of the Exchange Notes" under the
heading "Change of Control" and the section "Description of Certain
Indebtedness."
WE MAY REQUIRE YOU TO DISPOSE OF YOUR EXCHANGE NOTES OR REDEEM YOUR EXCHANGE
NOTES IF REQUIRED BY APPLICABLE GAMING REGULATIONS.
Gaming authorities in any jurisdiction in which we or any of our
subsidiaries are or may become subject have the power to investigate any of our
debt security holders. These gaming authorities may, in their discretion,
require a holder of any of our debt securities to file applications, be
investigated and be found suitable to own our debt securities. Any person who
fails or refuses to apply for a finding of suitability or a license within
30 days after being ordered to do so by such gaming authorities may be found
unsuitable. Under certain circumstances, we have the right, at our option, to
cause a holder to dispose of its exchange notes or to redeem its exchange notes
in order to comply with gaming laws to which we are subject. See the section
"Government Regulation" and the section "Description of the Exchange Notes"
under the heading "Mandatory Disposition Pursuant to Gaming Laws."
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GAMING AUTHORITY APPROVAL IS REQUIRED FOR FILING AN EXCHANGE OFFER OR SHELF
REGISTRATION STATEMENT WITH RESPECT TO THE EXCHANGE NOTES.
The filing of an exchange offer registration statement or shelf registration
statement with respect to the exchange notes constitutes a public offering of
securities of Anchor Gaming that requires the prior approval of the Nevada
Commission and the Mississippi Gaming Commission. See the section "Government
Regulation." In June 1999 and March 2000, the Nevada Commission and the
Mississippi Gaming Commission, respectively, granted us shelf approvals to make
public offerings of securities for a period of two years, subject to some
conditions. Each such shelf approval may be rescinded for good cause without
prior notice upon the issuance of any interlocutory stop order by the chairman
of the Nevada Control Board or the Executive Director of the Mississippi Gaming
Commission, as applicable. Our shelf approval in Nevada expires on June 30,
2001, and our shelf approval in Mississippi expires on March 16, 2002. If either
of these shelf approvals is rescinded, then the exchange offer or shelf
registration will require the separate prior approval of the Nevada Commission
or the Mississippi Gaming Commission, as applicable. We can give you no
assurance that, if separate prior approvals are required, such approvals will be
granted in a timely fashion, or at all.
Additionally, the filing of an exchange offer registration statement or
shelf registration statement with respect to the exchange notes may constitute a
public offering of securities that may require prior approval in the province of
Mpumalanga, South Africa. There can be no assurance that such approval will be
granted. We believe that any failure to gain such approval will not be material
to us or our financial results.
RISKS RELATED TO OUR BUSINESS
OUR SUCCESS IN THE GAMING INDUSTRY DEPENDS IN LARGE PART ON OUR ABILITY TO
DEVELOP INNOVATIVE PRODUCTS AND SYSTEMS.
The popularity of any of our existing gaming machines may decline over time
as consumer preferences change or as our competitors introduce new games, and we
could fail to develop new games that achieve market acceptance. We can give you
no assurance that our existing and future games will be able to successfully
compete with those of our competitors.
If we are unable to develop innovative products or systems in the future, or
if our current products or systems become obsolete, our ability to sustain
current revenues with existing customers or to generate revenue from new
customers would be affected. This could reduce our current profitability or
potential growth.
Our strategy of creating recurring revenues from our proprietary games by
placing them in casinos under a royalty, revenue participation, fixed daily
rental fee or similar arrangement involves a departure from casinos' traditional
practice of purchasing gaming machines. Because our pricing methodology includes
revenue-sharing arrangements, we are under pressure to reduce the share of
revenues we receive. We believe this pressure will increase if consolidation
trends in the casino markets continue.
If the popularity of any of our gaming machines were to decline relative to
the popularity of competitors' gaming machines, we might be unable to retain our
revenue-sharing model. Additionally, if our competitors decide to pursue a
revenue-sharing strategy and offer products or terms that are more favorable
than ours, we may not be able to successfully pursue our revenue-sharing
strategy. If either one of these conditions were to occur, our operations and
revenues would be materially and adversely affected.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY.
We compete with domestic and foreign manufacturers of gaming equipment and
providers of traditional on-line lottery systems, many of whom are larger than
we are and have access to greater financial resources. Our failure to
continually adapt our products to consumer preferences could negatively affect
our ability to effectively compete in this industry.
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Our casinos in Colorado face increasing competition from existing, new and
planned casino properties in the immediate vicinity. In particular, in the Black
Hawk, Colorado market, a number of competitors have opened large facilities in
excellent locations with more available parking and a larger number of gaming
machines than we operate, and several more large casinos are in the planning
stages. We expect that the increased competition will have a continued negative
effect on our revenues, as well as on costs of gaming operations, such as
promotions, and costs related to retaining and recruiting employees.
Additionally, the completion of a planned new road into Central City, Colorado
could negatively affect our business in that market by altering existing traffic
patterns, thereby making the location of our casino less desirable.
Our most significant route operations are in southern Nevada, an area which
has recently experienced significant population growth. We cannot be certain
that this growth trend will continue. If it does not continue, or if we face
increased competition from expanding grocery store chains and local casinos, the
profitability of our route operations could be negatively affected.
Our on-line lottery business faces competition from other on-line lottery
system providers, instant lottery ticket manufacturers and other competitors,
some of whom have substantially greater financial resources than we do. On-line
lottery business is acquired through contracts with state lottery authorities,
which are awarded through a competitive bidding process. We cannot guarantee
that we will be successful in obtaining or maintaining contracts with state
lottery authorities.
OUR GAMING MACHINES SEGMENT DEPENDS ON MAINTAINING A STRONG RELATIONSHIP WITH
IGT.
We derive a large portion of our revenues and profits from the Anchor-IGT
joint venture. In addition to being our joint venture partner, IGT is also a
significant competitor of ours in several of our businesses and, in particular,
competes in some respects with the Anchor-IGT joint venture. Because our
revenues and profits from the Anchor-IGT joint venture are integral to the
continued success of our business, it is important that we maintain a strong
relationship with IGT.
GOVERNMENT REGULATION COULD HAVE A NEGATIVE EFFECT ON OUR BUSINESS.
Our operations are subject to extensive state and local regulation in most
jurisdictions, as discussed in the section "Government Regulation." We can give
you no assurances that regulatory authorities will renew our required licenses
or permits in the future or that they will approve any required filings to
conduct business in other gaming jurisdictions.
The majority of gaming jurisdictions require the testing and approval of the
gaming machines that we manufacture or supply. We can give you no assurances
that regulatory authorities will approve our new game submissions or that games
currently approved will continue to meet new standards imposed by changes to any
gaming laws or regulations.
We sometimes manufacture games pending regulatory approval, which subjects
us to the risk of having to either retrofit or abandon inventory upon
noncompliance with or modification of gaming laws and regulations. If games do
not receive regulatory approval, costs incurred in their manufacture would
result in additional expense.
In the United States and many other countries, wagering and lotteries must
be expressly authorized by law. Once authorized, the wagering industry and the
operations of lotteries are subject to extensive and evolving governmental
regulation. We can give you no assurances that additional jurisdictions will
approve the operation of gaming machines, on-line lottery systems, pari-mutuel
wagering systems, video lottery or other forms of wagering or lottery systems or
that those jurisdictions that currently permit these wagering and lottery
activities will continue to permit such activities.
WE RELY ON THIRD-PARTY SUPPLIERS AND CONTRACT MANUFACTURERS.
The use of outside vendors, some of which are our competitors, to
manufacture a significant portion of our proprietary game machines and parts may
limit our ability to develop machines at costs
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that will result in acceptable operating margins. Any inability to obtain gaming
machines and components, production parts and replacement parts on reasonable
terms will adversely affect our operating margins, and any inability to obtain
such components and parts on a timely basis may hinder our ability to introduce
new gaming machines on schedule, delaying revenue from the games.
OUR BUSINESS DEPENDS ON THE PROTECTION OF OUR INTELLECTUAL PROPERTY AND
PROPRIETARY INFORMATION.
Our success depends, in part, on protecting our intellectual property, which
includes patents and trademarks, as well as some proprietary or confidential
information that is not subject to patent or similar protection. Competitors may
independently develop similar or superior products, software, systems or
business models. Such independent development may, in the case of our
intellectual property that is not protected by an enforceable patent, result in
a significant reduction in the value of our intellectual property.
We cannot assure you that we will be able to protect our intellectual
property or that unauthorized third parties will not try to copy our products,
business models or systems or use our confidential information to develop
competing products.
We also cannot assure you that our business activities and products will not
infringe upon the proprietary rights of others, or that other parties will not
assert infringement claims against us. Any such claims and any resulting
litigation, should it occur, could subject us to significant liability for
damages and could result in invalidation of our proprietary rights, distract
management, and require us to enter into costly and burdensome royalty and
licensing agreements. Such royalty and licensing agreements, if required, may
not be available on terms acceptable to us, or may not be available at all. We
may also need to file lawsuits to defend the validity of our intellectual
property rights and trade secrets, or to determine the validity and scope of the
proprietary rights of others. Such litigation, whether successful or
unsuccessful, could result in substantial costs and diversion of resources.
We also rely on technologies that we license from third parties. We cannot
assure you that these third-party licenses will continue to be available to us
on commercially reasonable terms.
We also generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to,
and the distribution of, our product designs, documentation and other
proprietary information, as well as the designs, documentation and other
information we license from others. We also may take other steps to protect
these rights and information. Despite our efforts to protect these proprietary
rights, unauthorized parties may copy, develop independently or otherwise obtain
and use our products or technology.
OUR LOTTERY OPERATIONS ARE DEPENDENT ON RENEWABLE CONTRACTS WITH PERFORMANCE
REQUIREMENTS.
We conduct our lottery operations under contracts with state lottery
authorities that are renewable at the option of the lottery authority. Upon the
expiration of a lottery contract, lottery authorities usually award the new
contract through a competitive bidding process. Contracts representing over 16%
of our fiscal 2000 revenues from on-line lottery operations are scheduled to
expire or reach optional extension dates during the next three years. We cannot
assure you that our current lottery contracts will be extended or that we will
be awarded new lottery contracts.
In addition, lottery contracts to which we are a party frequently contain
exacting implementation schedules and performance requirements. If we fail to
meet these schedules and requirements, we could be subject to substantial
contractual liquidated damages claims, some as high as $1.0 million per day, as
well as possible contract termination. These liquidated damage claims are
typically negotiated at the time of the alleged breach. Such damages or contract
terminations could have a material adverse effect on our financial performance.
Our lottery contracts also generally require us to post performance bonds, which
in some cases may be substantial, securing our performance under such contracts.
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WE RELY ON OUR SENIOR EXECUTIVES AND KEY EMPLOYEES.
Our future success will depend upon, among other things, our ability to keep
our senior executives and to hire other highly qualified employees at all
levels. We compete with other potential employers for employees, and we may not
succeed in hiring and retaining the executives and other employees that we need.
Our loss of or inability to hire key employees could have a material adverse
effect on our business, financial condition and results of operations.
WE HAVE OBLIGATIONS UNDER AGREEMENTS WITH THE PALA BAND OF MISSION INDIANS THAT
SUBJECT US TO JOINT VENTURE AND SOVEREIGN IMMUNITY RISKS.
We recently entered into agreements with the Pala Band of Mission Indians to
develop and manage PALA, a casino in northern San Diego County, California. As
part of our development and management agreements with the Pala tribe, we have
agreed to guarantee the tribe's $100.0 million credit facility. If PALA is not
successful, we may incur substantial expense in meeting this guarantee
obligation. We cannot predict whether PALA will be profitable.
Development of PALA involves significant construction risks. As part of our
development and management agreements with the Pala tribe, we have agreed to
fund PALA's construction cost overruns up to a total amount of $25.0 million. If
development of PALA costs more than our current budget of $115.0 million, or if
we encounter delays in completing the development of PALA, our prospects for
profitable operation of PALA could be affected. Additionally, the compact
between the Pala tribe and the State of California provides that PALA's current
allocation of between 1,500 and 2,000 gaming machines will revert to a pool for
future allocation by the State of California if the casino is not operational by
May 15, 2001. If we do not meet this deadline, we could be required to rebid for
a gaming machine allocation, and we can give no assurances that we would again
receive an allocation at our currently anticipated level of at least 1,500
machines, or that we would not face significant additional costs to reacquire
our allocation from the State of California.
Our development and management agreements with regard to PALA are with the
sovereign nation of the Pala Band of Mission Indians. Thus, the contracts may
not be enforceable legal obligations of the Pala tribe, and in the event the
Pala tribe were to default under the development and management agreements, our
legal recourse could be inadequate to cover our damages.
The term of our management agreement with the Pala tribe is seven years from
the opening date of PALA. We cannot give you any assurances that the management
agreement will be extended beyond its initial seven-year term.
WE MAY BE SUBJECT TO ADVERSE DETERMINATIONS IN PENDING LITIGATION.
At present, we are a party to pending litigation matters with GTECH Holdings
Corporation (action by GTECH challenging the validity of our lottery contract
with the State of Florida and the Florida Department of Lottery) and Acres
Gaming (action against Acres alleging infringement of our secondary-events
patents and related counterclaim by Acres), in addition to being involved in
several securities class action lawsuits filed against us and some of our
current and former officers and directors. These matters are more fully
described in the section "Business" under the heading "Litigation." We can give
you no assurance that we will achieve favorable results in any existing or
future litigation.
OUR GAMING MACHINES AND GAMING OPERATIONS SEGMENTS ARE AFFECTED BY SEASONS AND
WEATHER CONDITIONS.
The second quarter of our fiscal year, which includes the months of October,
November and December, generally produces lower levels of profitability than
other quarters, because of a lack of tourist traffic during those months in most
of the markets in which we operate. Our business during the winter months could
also face the additional negative effects of inclement weather and accompanying
poor road conditions, which would make it more difficult for customers to travel
to our Colorado casinos.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the old notes, we entered into a registration
rights agreement with the initial purchasers of the old notes, pursuant to which
we agreed to file and to use our best efforts to cause to become effective with
the Securities and Exchange Commission a registration statement with respect to
the exchange of the old notes for exchange notes with terms identical in all
material respects to the terms of the old notes. A copy of the registration
rights agreement has been filed as an exhibit to the registration statement of
which this prospectus is a part. The exchange offer is being made to satisfy our
contractual obligations under the registration rights agreement.
By tendering old notes in exchange for exchange notes, each holder
represents to us that:
(1) any exchange notes to be received by such holder are being acquired in
the ordinary course of such holder's business;
(2) such holder has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act)
of exchange notes;
(3) such holder is not an "affiliate" of Anchor Gaming (within the meaning
of Rule 405 under the Securities Act), or if such holder is an affiliate,
that such holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable;
(4) such holder has full power and authority to tender, exchange, sell,
assign and transfer the tendered old notes;
(5) we will acquire good, marketable and unencumbered title to the tendered
old notes, free and clear of all liens, restrictions, charges and
encumbrances; and
(6) the old notes tendered for exchange are not subject to any adverse
claims or proxies.
Each tendering holder also warrants and agrees that it will, upon request,
execute and deliver any additional documents deemed by us or the exchange agent
to be necessary or desirable to complete the exchange, sale, assignment and
transfer of the old notes tendered pursuant to the exchange offer. Each
broker-dealer that receives exchange notes for its own account in exchange for
old notes pursuant to the exchange offer, where such old notes were acquired by
such broker-dealer as a result of market-making or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any resale
of such exchange notes. See "Plan of Distribution."
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or the acceptance of the exchange notes would be in violation of the
securities or blue sky laws of that jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to an
exchange offer means any person in whose name the old notes are registered on
the books of Anchor Gaming or any other person who has obtained a properly
completed bond power from the registered holder, or any participant in DTC whose
name appears on a security position listing as a holder of old notes (which, for
purposes of the exchange offer, include beneficial interests in the old notes
held by direct or indirect participants in DTC and old notes held in definitive
form).
TERMS OF THE EXCHANGE OFFER
We hereby offer, upon the terms and subject to the conditions described in
this prospectus and in the accompanying letter of transmittal, to exchange
$1,000 principal amount of senior subordinated exchange notes due 2008 for each
$1,000 principal amount of old senior subordinated notes due 2008,
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properly tendered before the expiration date and not properly withdrawn
according to the procedures described below. Holders may tender their old notes
in whole or in part in integral multiples of $1,000 principal amount.
The form and terms of the exchange notes are the same as the form and terms
of the old notes, except that:
(1) the exchange notes have been registered under the Securities Act and
therefore are not subject to the restrictions on transfer applicable to
the old notes; and
(2) holders of the exchange notes will not be entitled to some of the rights
of holders of the old notes under the registration rights agreement.
The exchange notes evidence the same indebtedness as the old notes (which
they replace) and will be issued pursuant to, and entitled to the benefits of,
the indenture.
The exchange offer is not conditioned upon any minimum principal amount of
old notes being tendered for exchange. We reserve the right in our sole
discretion to purchase or make offers for any old notes that remain outstanding
after the expiration date or, as described under the heading "Conditions to the
Exchange Offer," to terminate the exchange offer and, to the extent permitted by
applicable law, purchase old notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the exchange offer. As of the date of this prospectus,
$250.0 million principal amount of old notes is outstanding.
Holders of the old notes do not have any appraisal or dissenters' rights in
connection with the exchange offer. Old notes that are not tendered for, or are
tendered by not accepted in connection with, the exchange offer will remain
outstanding. See the section "Risk Factors" under the heading "You must comply
with the procedures of the exchange offer in order to receive exchanges notes."
If any tendered old notes are not accepted for exchange because of an
invalid tender, the occurrence of particular other events described in this
prospectus or otherwise, certificates for any such unaccepted old notes will be
returned, without expense, to the tendering holder thereof promptly after the
expiration date.
Holders who tender old notes in connection with the exchange offer will not
be required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of the
old notes in connection with the exchange offer. We will pay all charges and
expenses, other than specified applicable taxes. See the heading "Fees and
Expenses."
WE MAKE NO RECOMMENDATION TO THE HOLDERS OF THE OLD NOTES AS TO WHETHER TO
TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES IN THE
EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF THE OLD NOTES MUST MAKE THEIR OWN DECISION AS TO
WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER, AND, IF SO, THE AGGREGATE
AMOUNT OF OLD NOTES TO TENDER, AFTER READING THIS PROSPECTUS AND THE LETTER OF
TRANSMITTAL AND CONSULTING WITH THEIR ADVISORS, IF ANY, BASED ON THEIR FINANCIAL
POSITIONS AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date for the exchange offer is 5:00 p.m., New York City time,
on - , 2000, unless we extend the exchange offer. (If we extend the
exchange offer, the expiration date will be the latest date and time to which
the exchange offer is extended.)
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We expressly reserve the right in our sole and absolute discretion, subject
to applicable law, at any time and from time to time:
(1) to delay the acceptance of the old notes for exchange;
(2) to terminate the exchange offer (whether or not any old notes have
already been accepted for exchange) if we determine, in our sole and
absolute discretion, that any of the events or conditions referred to
under the heading "Conditions to the Exchange Offer" has occurred or
exists or has not been satisfied;
(3) to extend the expiration date and retain all old notes tendered pursuant
to the exchange offer, subject, however, to the right of holders of old
notes to withdraw their tendered old notes as described under the heading
"Withdrawal Rights"; and
(4) to waive any condition or otherwise amend the terms of the exchange
offer in any respect.
If we amend the exchange offer in a manner we determine constitutes a
material change, or if we waive a material condition of the exchange offer, we
will promptly disclose such amendment by means of a prospectus supplement that
will be distributed to the registered holders of the affected old notes, and we
will extend the exchange offer to the extent required by Rule 14e-1 under the
Exchange Act.
Any such delay in acceptance, termination, extension or amendment will be
followed promptly by oral or written notice thereof to the exchange agent (any
such oral notice to be promptly confirmed in writing) and by making a public
announcement, and such announcement in the case of an extension will be made no
later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date. Without limiting the manner in which we
may choose to make any public announcement, and subject to applicable laws, we
will have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to an appropriate news
agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the exchange offer, we will
exchange, and will issue to the exchange agent, exchange notes for old notes
validly tendered and not withdrawn (pursuant to the withdrawal rights described
under the heading "Withdrawal Rights") promptly after the expiration date.
In all cases, delivery of exchange notes in exchange for old notes tendered
and accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of:
(1) old notes or a book-entry confirmation of a book-entry transfer of old
notes into the exchange agent's account at DTC;
(2) the letter of transmittal (or facsimile thereof), properly completed and
duly executed, with any required signature guarantees; and
(3) any other documents required by the letter of transmittal.
Accordingly, the delivery of exchange notes might not be made to all
tendering holders at the same time, and will depend upon when old notes,
book-entry confirmations with respect to old notes and other required documents
are received by the exchange agent.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of old notes into the exchange agent's account at DTC.
Subject to the terms and conditions of the exchange offer, we will be deemed
to have accepted for exchange, and thereby exchanged, old notes validly tendered
and not withdrawn as, if and when we give
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oral or written notice to the exchange agent (any such oral notice to be
promptly confirmed in writing) of our acceptance of such old notes for exchange
pursuant to the exchange offer. Our acceptance for exchange of old notes
tendered pursuant to any of the procedures described above will constitute a
binding agreement between the tendering holder and us upon the terms and subject
to the conditions of the exchange offer. The exchange agent will act as agent
for us for the purpose of receiving tenders of old notes, letters of transmittal
and related documents, and as agent for tendering holders for the purpose of
receiving old notes, letters of transmittal and related documents and
transmitting exchange notes to holders who validly tendered old notes. Such
exchange will be made promptly after the expiration date of the exchange offer.
If for any reason the acceptance for exchange or the exchange of any old notes
tendered pursuant to the exchange offer is delayed (whether before or after our
acceptance for exchange of old notes), or we extend the exchange offer or are
unable to accept for exchange or exchange old notes tendered pursuant to the
exchange offer, then, without prejudice to our rights set forth in this
prospectus and in the letter of transmittal, the exchange agent may,
nevertheless, on our behalf and subject to Rule 14e-1(c) under the Exchange Act,
retain tendered old notes and such old notes may not be withdrawn except to the
extent tendering holders are entitled to withdrawal rights as described under
the heading "Withdrawal Rights."
PROCEDURES FOR TENDERING OLD NOTES
VALID TENDER
Except as set forth below, in order for old notes to be validly tendered
pursuant to the exchange offer, either:
(1) (a) a properly completed and duly executed letter of transmittal (or
facsimile thereof), with any required signature guarantees and any other
required documents, must be received by the exchange agent at the address
set forth under the heading "Exchange Agent" prior to the expiration
date, and (b) tendered old notes must be received by the exchange agent,
or such old notes must be tendered pursuant to the procedures for
book-entry transfer set forth below and a book-entry confirmation must be
received by the exchange agent, in each case prior to the expiration
date; or
(2) the guaranteed delivery procedures set forth below must be complied
with.
If less than all of the old notes are tendered, a tendering holder should
fill in the amount of old notes being tendered in the appropriate box on the
letter of transmittal. The entire amount of old notes delivered to the exchange
agent will be deemed to have been tendered unless otherwise indicated.
If any letter of transmittal, endorsement, bond power, power of attorney or
any other document required by the letter of transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing. Unless waived by us, evidence satisfactory to
us of such person's authority to so act must also be submitted.
Any beneficial owner of old notes that are held by or registered in the name
of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the exchange offer.
The method of delivery of old notes, the letter of transmittal and all other
required documents is at the option and sole risk of the tendering holder.
Delivery will be deemed made only when actually received by the exchange agent.
Instead of delivery by mail, it is recommended that holders use an overnight or
hand delivery service. In all cases, sufficient time should be allowed to assure
timely delivery and proper insurance should be obtained. No letter of
transmittal or old notes should be sent
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to Anchor Gaming. Holders may request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect these transactions for
them.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the applicable old notes at DTC for purposes of the exchange offer within two
business days after the date of this prospectus. Any financial institution that
is a participant in DTC's book-entry transfer facility system may make a
book-entry delivery of the old notes by causing DTC to transfer such old notes
into the exchange agent's account at DTC in accordance with DTC's procedures for
transfers. However, although delivery of old notes may be effected by book-entry
transfer into the exchange agent's account at DTC, the letter of transmittal (or
facsimile thereof), properly completed and duly executed, any required signature
guarantees and any other required documents must in any case be delivered to and
received by the exchange agent at its address set forth under the heading
"Exchange Agent" prior to the expiration date, or the guaranteed delivery
procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
SIGNATURE GUARANTEES
Certificates for old notes need not be endorsed and signature guarantees on
a letter of transmittal or a notice of withdrawal, as the case may be, are
unnecessary unless:
(1) a certificate for old notes is registered in a name other than that of
the person surrendering the certificate; or
(2) a registered holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the letter of
transmittal.
In the case of (1) or (2) above, such certificates for old notes must be
duly endorsed or accompanied by a properly executed bond power, with the
endorsement or signature on the bond power and on the letter of transmittal or
the notice of withdrawal, as the case may be, guaranteed by a firm or other
entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible
guarantor institution," including (as such terms are defined therein): (a) a
bank, (b) a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer, (c) a credit union, (d) a national securities
exchange, registered securities association or clearing agency, or (e) a savings
association that is a participant in a Securities Transfer Association. See
Instruction 1 to the letter of transmittal.
GUARANTEED DELIVERY
If a holder desires to tender old notes pursuant to an exchange offer and
the certificates for such old notes are not immediately available or time will
not permit all required documents to reach the exchange agent before the
expiration date, or the procedures for book-entry transfer cannot be completed
on a timely basis, such old notes may nevertheless be tendered, provided that
all of the following guaranteed delivery procedures are complied with:
(1) such tenders are made by or through an eligible guarantor institution;
(2) prior to the expiration date, the exchange agent receives from such
eligible guarantor institution a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form accompanying the
letter of transmittal, setting forth the name and address of the holder
of old notes and the amount of old notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York
Stock Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates
29
<PAGE>
for all physically tendered old notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, and any other documents
required by the letter of transmittal will be deposited by the eligible
guarantor institution with the exchange agent. The Notice of Guaranteed
Delivery may be delivered by hand, or transmitted by facsimile or mail to
the exchange agent and must include a guarantee by an eligible guarantor
institution in the form set forth in the Notice of Guaranteed Delivery;
and
(3) the certificates (or book-entry confirmation) representing all tendered
old notes, in proper form for transfer, together with a properly
completed and duly executed letter of transmittal, with any required
signature guarantees and any other documents required by the letter of
transmittal, are received by the exchange agent within three New York
Stock Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery.
DETERMINATION OF VALIDITY
All questions as to the form of documents, validity, eligibility (including
time of receipt) and acceptance for exchange of any tendered old notes will be
determined by us, in our sole discretion, which determination will be final and
binding on all parties. We reserve the absolute right, in our sole and absolute
discretion, to reject any and all tenders we determine not to be in proper form
or the acceptance for exchange of which may, in the view of our counsel, be
unlawful. We also reserve the absolute right, subject to applicable law, to
waive any of the conditions of the exchange offer as set forth under the heading
"Conditions to the Exchange Offer" or any defect or irregularity in any tender
of old notes of any particular holder, whether or not similar defects or
irregularities are waived in the case of other holders.
Our interpretation of the terms and conditions of the exchange offer
(including the letter of transmittal and its instructions) will be final and
binding on all parties. No tender of old notes will be deemed to have been
validly made until all defects or irregularities with respect to such tender
have been cured or waived. None of Anchor Gaming, any of our affiliates, the
exchange agent or any other person will be under any duty to give any
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification.
RESALES OF EXCHANGE NOTES
Based on interpretations by the staff of the Securities and Exchange
Commission, as set forth in no-action letters issued to third parties unrelated
to us, we believe that holders of old notes who exchange their old notes for
exchange notes may offer for resale, resell and otherwise transfer such exchange
notes without compliance with the registration and prospectus delivery
provisions of the Securities Act. This would not apply, however, to any holder
that is a broker-dealer that acquired old notes as a result of market-making
activities or other trading activities or directly from us for resale under an
available exemption under the Securities Act. Also, resale would only be
permitted for exchange notes that (1) are acquired in the ordinary course of a
holder's business, (2) where such holder has no arrangement or understanding
with any person to participate in the distribution of such exchange notes, and
(3) such holder is not an "affiliate" of Anchor Gaming. The staff of the
Securities and Exchange Commission has not considered the exchange offer in the
context of a no-action letter, and there can be no assurance that the staff of
the Securities and Exchange Commission would make a similar determination with
respect to the exchange offer. Each broker-dealer that receives exchange notes
for its own account in exchange for old notes under the exchange offer, where
such old notes were acquired by such broker-dealer as a result of market-making
or other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such exchange notes. See the section "Plan of
Distribution."
30
<PAGE>
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time prior to the expiration date of the exchange offer. In order for a
withdrawal to be effective, such withdrawal must be in writing and timely
received by the exchange agent at its address set forth under the heading
"Exchange Agent" prior to the expiration date. Any such notice of withdrawal
must specify the name of the person who tendered the old notes to be withdrawn,
and (if certificates for such old notes have been tendered) the name of the
registered holder of the old notes as set forth on the old notes, if different
from that of the person who tendered such old notes. If certificates for old
notes have been delivered or otherwise identified to the exchange agent, the
notice of withdrawal must specify the serial numbers on the particular
certificates for the old notes to be withdrawn and the signature on the notice
of withdrawal must be guaranteed by an eligible guarantor institution, except in
the case of old notes tendered for the account of an eligible guarantor
institution. If old notes have been tendered pursuant to the procedures for
book-entry transfer set forth under the heading "Procedures for Tendering Old
Notes," the notice of withdrawal must specify the name and number of the account
at DTC to be credited with the withdrawal of old notes and must otherwise comply
with the procedures of DTC. Withdrawals of tenders of old notes may not be
rescinded. Old notes properly withdrawn will not be deemed validly tendered for
purposes of the exchange offer, but may be retendered at any subsequent time
prior to the expiration date of the exchange offer by following any of the
procedures described above under the heading "Procedures for Tendering Old
Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by us, in our sole
discretion, which determination will be final and binding on all parties.
Neither Anchor Gaming, any of our affiliates, the exchange agent or any other
person will be under any duty to give any notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. Any old notes that have been tendered but that are
withdrawn will be returned to the holder promptly after withdrawal.
INTEREST ON THE EXCHANGE NOTES
Interest on the exchange notes will be payable every six months on April 15
and October 15 of each year at the rate of 9 7/8% per annum, commencing on
April 15, 2001. The exchange notes will mature on October 15, 2008.
CONDITIONS TO THE EXCHANGE OFFER
If any of the following conditions has occurred or exists or has not been
satisfied prior to the expiration date of the exchange offer, we will not be
required to accept for exchange any old notes and will not be required to issue
exchange notes in exchange for any old notes. In addition, we may, at any time
and from time to time, terminate or amend the exchange offer (whether or not any
old notes have already been accepted for exchange) or may waive any conditions
to or amend the exchange offer.
- A change in the current interpretation by the staff of the Securities and
Exchange Commission that permits resale of exchange notes as described
above under the heading "Resales of Exchange Notes."
- The institution of threat of an action or proceeding in any court or by or
before any governmental agency or body with respect to the exchange offer
that, in our judgment, would reasonably be expected to impair our ability
to proceed with the exchange offer.
- The adoption or enactment of any law, statute, rule or regulation that, in
our judgment, would reasonably be expected to impair our ability to
proceed with the exchange offer.
31
<PAGE>
- The issuance of a stop order by the Securities and Exchange Commission,
any state securities authority or any gaming authority suspending the
effectiveness of the registration statement, or proceedings for that
purpose.
- Failure to obtain any governmental approval that we consider necessary for
the consummation of the exchange offer as contemplated hereby.
- Any change or development involving a prospective change in our business
or financial affairs that we think might materially impair our ability to
proceed with the exchange offer.
If we determine in our sole and absolute discretion that any of the
foregoing events or conditions has occurred or exists or has not been satisfied
at any time prior to the expiration date, we may, subject to applicable law,
terminate the exchange offer (whether or not any old notes have already been
accepted for exchange) or may waive any such condition or otherwise amend the
terms of the exchange offer in any respect. If such waiver or amendment
constitutes a material change to the exchange offer, we will promptly disclose
such waiver or amendment by means of a prospectus supplement that will be
distributed to the registered holders of the old notes. In this case, we will
extend the exchange offer to the extent required by Rule 14e-1 under the
Exchange Act.
EXCHANGE AGENT
U.S. Trust Company, National Association, has been appointed as the exchange
agent. Delivery of the letter of transmittal and any other required documents,
questions, requests for assistance and requests for additional copies of this
prospectus or of the letter of transmittal should be directed to the exchange
agent addressed as follows:
BY HAND
U.S. Trust Company, National Association
c/o United States Trust Company of New York
30 Broad Street, B Level
Corporate Trust Window
New York, New York 10004-2304
BY MAIL
U.S. Trust Company, National Association
c/o United States Trust Company of New York
P.O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attn: Muni Bond Redemptions
BY OVERNIGHT COURIER
U.S. Trust Company, National Association
c/o United States Trust Company of New York
30 Broad Street, 14th Floor
New York, New York 10004-2304
Attn: Corporate Trust Operations
BY FACSIMILE (FOR ELIGIBLE GUARANTOR INSTITUTIONS ONLY):
(646) 458-8111
CONFIRM BY TELEPHONE:
1-800-548-6565
DELIVERY TO OTHER THAN THE ABOVE ADDRESSES OR FACSIMILE NUMBER WILL NOT
CONSTITUTE A VALID DELIVERY.
32
<PAGE>
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail. Additional solicitation may be made personally or by
telephone or other means by our officers, directors or employees.
We have not retained any dealer-manager or similar agent in connection with
the exchange offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the exchange offer. We have agreed to pay the exchange
agent reasonable and customary fees for its services and will reimburse it for
reasonable out-of-pocket expenses in connection therewith. We will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this prospectus
and related documents to the beneficial owners of old notes, and in handling or
tendering for their customers.
Holders who tender their old notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that if exchange notes are to
be delivered to, or are to be issued in the name of, any person other than the
registered holder of the old notes tendered, or if a transfer tax is imposed for
any reason other than the exchange of old notes in connection with the exchange
offer, then the amount of any such transfer tax (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such transfer tax or exemption therefrom
is not submitted with the letter of transmittal, the amount of such transfer tax
will be billed directly to such tendering holder.
USE OF PROCEEDS
The exchange offer is intended to satisfy certain obligations of Anchor
Gaming under the registration rights agreement. We will not receive any proceeds
from the issuance of the exchange notes or the closing of the exchange offer.
In consideration for issuing the exchange notes as contemplated in this
prospectus, we will receive, in exchange, an equal number of old notes in like
principal amount. The form and terms of the exchange notes are identical in all
material respects to the form and terms of the old notes, except as otherwise
described in the section "The Exchange Offer" under the heading "Terms of the
Exchange Offer." The old notes surrendered in exchange for the exchange notes
will be retired and canceled and cannot be reissued. The proceeds from the
offering of the old notes have been used to finance a portion of the cost to
purchase approximately 9.2 million shares of our common stock from some of our
major stockholders and to pay fees and expenses associated with this stock
purchase transaction and the related racetrack asset sale and financing
transactions, as described in the section "Prospectus Summary" under the heading
"Recent Developments."
33
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2000
(1) on an actual basis and (2) on a pro forma basis after giving effect to the
offering of the old notes and the application of the proceeds of the offering of
the old notes as described in the section "Use of Proceeds." You should read
this table in conjunction with the section "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
2000
--------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt (including current maturities):
Senior credit facility(1)............................. $200,500 $204,358
9 7/8% senior subordinated notes due 2008, net of
discount............................................ -- 248,304
Other................................................. 2,652 2,652
-------- --------
Total long-term debt................................ 203,152 455,314
Stockholders' equity (deficiency)(2).................... 294,841 (19,694)
-------- --------
Total capitalization.................................... $497,993 $435,620
======== ========
</TABLE>
------------------------
(1) As of October 31, 2000, we had outstanding borrowings under our senior
credit facility of approximately $199 million. We have obtained an amendment
to our senior credit facility, which provided for the stock purchase and
racetrack asset sale transactions and the offering of the old notes. We have
also amended our senior credit facility to increase the maximum borrowings,
subject to compliance with specified covenants, to $325.0 million.
(2) Stockholders' equity (deficiency), on a pro forma basis, reflects (i) the
purchase of approximately 9.2 million shares of our common stock valued at
$306.2 million including applicable transaction costs related to the stock
purchase of $3.1 million, and (ii) a net after tax book loss of
$5.2 million associated with the racetrack asset sales (after consideration
of $0.9 million of asset disposition costs).
34
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying pro forma condensed consolidated financial statements
present pro forma information after giving effect to the stock purchase and
racetrack asset sale transactions and related financing transactions. These pro
forma condensed consolidated financial statements are based on our historical
consolidated financial statements for the year ended June 30, 2000 and as of
September 30, 2000 (unaudited) and for the quarter ended September 30, 2000
(unaudited).
The accompanying pro forma condensed consolidated income statement for the
year ended June 30, 2000 and for the quarter ended September 30, 2000 has been
presented as if the stock purchase and racetrack asset sale transactions and
related financing transactions occurred on July 1, 1999. The accompanying pro
forma condensed consolidated balance sheet as of September 30, 2000 has been
presented as if the stock purchase and racetrack asset sale transactions and
related financing transactions occurred on September 30, 2000.
The pro forma adjustments are based on currently available information and
upon assumptions that we believe are reasonable under the circumstances.
We provide the accompanying pro forma condensed consolidated financial
statements for informational purposes only. They are not necessarily indicative
of the results that will be achieved for future periods. The accompanying pro
forma condensed consolidated financial statements do not purport to represent
what our results of operations or financial position would actually have been if
the stock purchase and racetrack asset sale transactions and related financing
transactions had, in fact, occurred on July 1, 1999 and September 30, 2000. You
should read the accompanying pro forma condensed consolidated financial
statements and the related notes in conjunction with our consolidated financial
statements included elsewhere in this prospectus. All share amounts have been
adjusted to reflect the stock split that was distributed on November 15, 2000.
35
<PAGE>
ANCHOR GAMING
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
-----------------------------------------
ADJUSTMENTS
AND
HISTORICAL ELIMINATIONS PRO FORMA
---------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 27,376 $ 27,376
Accounts and notes receivable, net........................ 43,262 43,262
Inventory, net............................................ 16,132 16,132
Assets held for sale...................................... 51,873 $ (51,873)(c) --
Other current assets...................................... 8,947 8,947
--------- --------- ---------
Total current assets.................................... 147,590 (51,873) 95,717
Property and equipment, net................................. 177,473 177,473
Goodwill, net............................................... 86,113 86,113
Other intangible assets, net................................ 43,821 43,821
Investments in unconsolidated affiliates.................... 70,372 70,372
Other long-term assets...................................... 27,777 8,000 (b) 35,777
--------- --------- ---------
Total assets............................................ $ 553,146 $ (43,873) $ 509,273
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 18,852 $ 18,852
Current portion of long-term debt......................... 1,513 1,513
Income tax payable........................................ 1,840 $ 18,500 (d) 20,340
Other current liabilities................................. 30,251 30,251
--------- --------- ---------
Total current liabilities............................... 52,456 18,500 70,956
--------- --------- ---------
Long-term debt, net of current portion and discount......... 201,639 240,162 (a)
12,000 (b)
66,000 (a)
(66,000)(c) 453,801
Minority interest in consolidated subsidiary................ 4,210 4,210
--------- --------- ---------
Total liabilities and minority interest in consolidated
subsidiary............................................ 258,305 270,662 528,967
--------- --------- ---------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, 0 shares issued and outstanding............. -- --
Common stock, $.005 par value, 50,000,000 shares
authorized.............................................. 142 142
Treasury stock at cost.................................... (115,342) (306,162)(a)
(3,126)(b) (424,630)
Additional paid-in capital................................ 130,216 130,216
Retained earnings......................................... 279,825 14,127 (c)
(874)(b)
(18,500)(d) 274,578
--------- --------- ---------
Total stockholders' equity (deficiency)................. 294,841 (314,535) (19,694)
--------- --------- ---------
Total liabilities and stockholders' equity
(deficiency).......................................... $ 553,146 $ (43,873) $ 509,273
========= ========= =========
</TABLE>
See notes to pro forma condensed consolidated balance sheet.
36
<PAGE>
ANCHOR GAMING
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
The accompanying pro forma condensed consolidated balance sheet reflects the
following adjustments:
(a) The repurchase of 9,192,400 outstanding shares of common stock at
$33.306 per share, which was funded through new borrowing of
$252.1 million and two promissory notes totaling $66.0 million.
(b) The payment of $12.0 million transaction costs, representing
(1) $3.1 million related to the repurchase of outstanding common shares,
(2) $0.9 million related to the sale of assets, and (3) $8.0 million of
costs related to proceeds from new borrowings, which will be deferred and
amortized over the term of the exchange notes.
(c) The elimination of Sunland Park Racetrack & Casino historical assets and
the related deferred tax liability, which were derived from separately
maintained accounting records, and our 25% interest in Ourway Realty,
LLC, with a book value of $2.5 million. Concurrently with the sale of
these assets, the $66.0 million in two promissory notes are canceled, and
transaction costs of $0.9 million are recognized as a cost of sale of
assets.
(d) The incremental tax expense and related liability to be recognized in
conjunction with the sale of the racetrack assets.
37
<PAGE>
ANCHOR GAMING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 2000
-------------------------------------------
ADJUSTMENTS AND
HISTORICAL ELIMINATIONS PRO FORMA
---------- --------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Gaming machines........................................... $154,680 $154,680
Gaming operations......................................... 189,938 $(45,539)(a) 144,399
Gaming systems............................................ 180,585 180,585
-------- -------- --------
Total revenues.......................................... 525,203 (45,539) 479,664
-------- -------- --------
Costs of revenues:
Gaming machines........................................... 35,892 35,892
Gaming operations......................................... 124,529 (30,960)(a) 93,569
Gaming systems............................................ 105,083 105,083
-------- -------- --------
Total costs of revenues................................. 265,504 (30,960) 234,544
-------- -------- --------
Gross margin................................................ 259,699 (14,579) 245,120
-------- -------- --------
Other costs:
Selling, general and administrative....................... 69,343 (4,391)(a) 64,952
Research and development.................................. 16,528 16,528
Acquired in-process research and development.............. -- --
Impairment and restructuring charges...................... 2,641 2,641
Depreciation and amortization............................. 50,951 (3,060)(a) 47,891
-------- -------- --------
Total other costs....................................... 139,463 (7,451) 132,012
-------- -------- --------
Income from operations...................................... 120,236 (7,128) 113,108
-------- -------- --------
Other income (expense):
Interest income........................................... 1,998 (59)(a) 1,939
Interest expense.......................................... (16,475) (29,599)(b) (46,074)
Other income.............................................. 2,219 (64)(a) 2,155
Minority interest in earnings of consolidated
subsidiary.............................................. (608) (608)
-------- -------- --------
Total other income (expense)............................ (12,866) (29,722) (42,588)
-------- -------- --------
Income before provision for income taxes.................... 107,370 (36,850) 70,520
Income tax provision........................................ 42,411 (14,740)(c) 27,671
-------- -------- --------
Net income.................................................. $ 64,959 $(22,110) $ 42,849
======== ======== ========
Basic earnings per share.................................... $ 2.74 $ 2.96
======== ========
Weighted average shares outstanding......................... 23,666 (9,192) 14,474
Diluted earnings per share.................................. $ 2.70 $ 2.89
======== ========
Weighted average common and common equivalent shares
outstanding............................................... 24,022 (9,192) 14,830
</TABLE>
See notes to pro forma condensed consolidated statements of income.
38
<PAGE>
ANCHOR GAMING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------------
ADJUSTMENTS AND
HISTORICAL ELIMINATIONS PRO FORMA
---------- --------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Gaming machines........................................... $ 47,170 $ 47,170
Gaming operations......................................... 47,748 $(11,092)(a) 36,656
Gaming systems............................................ 43,832 43,832
-------- -------- --------
Total revenues.......................................... 138,750 (11,092) 127,658
-------- -------- --------
Costs of revenues:
Gaming machines........................................... 5,982 5,982
Gaming operations......................................... 31,928 (7,606)(a) 24,322
Gaming systems............................................ 30,848 30,848
-------- -------- --------
Total costs of revenues................................. 68,758 (7,606) 61,152
-------- -------- --------
Gross margin................................................ 69,992 (3,486) 66,506
-------- -------- --------
Other costs:
Selling, general and administrative....................... 16,814 (1,104)(a) 15,710
Research and development.................................. 3,634 3,634
Depreciation and amortization............................. 15,095 (723)(a) 14,372
-------- -------- --------
Total other costs....................................... 35,543 (1,827) 33,716
-------- -------- --------
Income from operations...................................... 34,449 (1,659) 32,790
-------- -------- --------
Other income (expense):
Interest income........................................... 689 (18)(a) 671
Interest expense.......................................... (4,603) (6,610)(b) (11,213)
Other income.............................................. 32 (1)(a) 31
Minority interest in earnings of consolidated
subsidiary.............................................. (256) (256)
-------- -------- --------
Total other income (expense)............................ (4,138) (6,629) (10,767)
-------- -------- --------
Income before provision for income taxes.................... 30,311 (8,288) 22,023
Income tax provision........................................ 11,973 (3,315)(c) 8,658
-------- -------- --------
Income before cumulative effect of change in accounting
principle................................................. $ 18,338 (4,973) $ 13,365
======== ======== ========
Basic earnings per share, before cumulative effect of change
in accounting principle................................... $ 0.79 $ 0.95
Weighted average shares outstanding......................... 23,236 (9,192) 14,044
Diluted earnings per share, before cumulative effect of
change in accounting principle............................ $ 0.77 $ 0.92
Weighted average common and common equivalent shares
outstanding............................................... 23,698 (9,192) 14,506
</TABLE>
See notes to pro forma condensed consolidated statements of income.
39
<PAGE>
ANCHOR GAMING
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED JUNE 30, 2000 AND QUARTER ENDED SEPTEMBER 30, 2000
The accompanying pro forma condensed consolidated statements of income
reflects the following adjustments:
(a) The elimination of Sunland Park Racetrack & Casino historical income and
expenses, which were derived from separately maintained accounting
records.
(b) To reflect additional interest expense on the notes at an effective rate
of 10% per annum, additional interest expense on our existing senior
credit facility at the current expected interest rate on these
borrowings, and the amortization of the estimated debt issue costs on a
straight line basis over eight years. An increase in the assumed interest
rate of one-eighth percent (0.125%) with respect to total borrowings
would increase pro forma interest expense and decrease pro forma net
income by $596,000 and $358,000, respectively, for the fiscal year ended
June 30, 2000. An increase in the assumed interest rate of one-eighth
percent (0.125%) with respect to total borrowings would increase pro
forma interest expense and decrease pro forma income before cumulative
effect of change in accounting principle by $146,000 and $87,000,
respectively for the quarter ended September 30, 2000.
(c) To reflect a reduction of income taxes as a result of the pro forma
adjustments at an assumed statutory tax rate of 40%.
40
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data presented below as of
June 30, 1999 and 2000 and for the three years ended June 30, 2000 have been
derived from our audited consolidated financial statements contained elsewhere
in this prospectus. The selected historical consolidated financial data
presented below as of June 30, 1998 and as of and for the years ended June 30,
1996 and 1997 have been derived from our audited consolidated financial
statements not contained herein. The selected historical consolidated financial
data for the three months ended September 30, 1999 and 2000 and as of
September 30, 2000 have been derived from our unaudited consolidated financial
statements. We have prepared the unaudited consolidated financial statements on
a basis consistent with the audited financial statements. The unaudited
consolidated financial statements include, in our opinion, all normal recurring
adjustments necessary for a fair presentation of the information. Operating
results for the three months ended September 30, 2000 are not necessarily
indicative of the results that will be achieved for future periods, including
the fiscal year ending June 30, 2001. The closing of the Powerhouse acquisition
occurred virtually concurrently with the end of our fiscal year ended June 30,
1999 and, as a result, our financial statements for the years ended June 30,
1999 and earlier do not include any Powerhouse results of operations in the
accompanying table with the exception of the acquired in-process research and
development charge recorded for the year ended June 30, 1999. You should read
the following financial data in conjunction with the section "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and related notes included elsewhere in
this prospectus. All share amounts have been adjusted to reflect the stock split
that was distributed on November 15, 2000.
41
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------------------- -------------------
1996 1997 1998 1999 2000 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Gaming machines........... $21,457 $49,716 $113,677 $123,698 $154,680 $ 40,412 $ 47,170
Gaming operations......... 95,009 104,033 118,255 125,233 189,938 47,368 47,748
Gaming systems............ -- -- -- -- 180,585 39,221 43,832
------- ------- -------- -------- -------- -------- --------
Total revenues.......... 116,466 153,749 231,932 248,931 525,203 127,001 138,750
------- ------- -------- -------- -------- -------- --------
Costs of revenues:
Gaming machines........... 12,113 11,397 25,054 34,401 35,892 12,557 5,982
Gaming operations......... 45,288 54,639 62,721 70,419 124,529 29,184 31,928
Gaming systems............ -- -- -- -- 105,083 20,625 30,848
------- ------- -------- -------- -------- -------- --------
Total costs of
revenues.............. 57,401 66,036 87,775 104,820 265,504 62,366 68,758
------- ------- -------- -------- -------- -------- --------
Gross margin................ 59,065 87,713 144,157 144,111 259,699 64,635 69,992
Other costs:
Selling, general and
administrative.......... 21,074 21,581 23,343 24,243 69,343 19,572 16,814
Research and
development............. -- 2,023 1,922 1,173 16,528 3,972 3,634
Acquired in-process
research and
development(1).......... -- -- -- 17,500 -- -- --
Project cost
write-downs............. -- 2,117 -- -- -- -- --
Impairment and
restructuring
charges(2).............. -- -- -- -- 2,641 -- --
Depreciation and
amortization............ 4,110 8,798 12,661 17,380 50,951 11,736 15,095
------- ------- -------- -------- -------- -------- --------
Total other costs....... 25,184 34,519 37,926 60,296 139,463 35,280 35,543
------- ------- -------- -------- -------- -------- --------
Income from operations...... 33,881 53,194 106,231 83,815 120,236 29,355 34,449
Interest income............. 2,028 3,793 2,989 3,850 1,998 518 689
Interest expense............ (429) (288) (226) (113) (16,475) (3,681) (4,603)
Other income (expense)(3)... 43 (22) 446 (623) 1,611 (44) (224)
------- ------- -------- -------- -------- -------- --------
Income before provision for
income taxes.............. 35,523 56,677 109,440 86,929 107,370 26,148 30,311
Provision for income
taxes..................... 13,188 21,001 41,040 39,422 42,411 10,374 11,973
------- ------- -------- -------- -------- -------- --------
Income before cumulative
effect of change in
accounting principle...... 22,335 35,676 68,400 47,507 64,959 15,774 18,338
Cumulative effective of
change in accounting
principle, net of taxes of
$81....................... -- -- -- -- -- -- 124
------- ------- -------- -------- -------- -------- --------
Net income.................. $22,335 $35,676 $ 68,400 $ 47,507 $ 64,959 $ 15,774 $ 18,462
======= ======= ======== ======== ======== ======== ========
Diluted shares
outstanding............... 24,076 27,084 26,322 24,856 24,022 24,298 23,698
Diluted earnings per share,
before cumulative effect
of change in accounting
principle................. $ 0.93 $ 1.32 $ 2.60 $ 1.91 $ 2.70 $ 0.65 $ 0.77
Cumulative effect of change
in accounting principle,
net of taxes.............. -- -- -- -- -- -- 0.01
------- ------- -------- -------- -------- -------- --------
Diluted earnings per
share..................... $ 0.93 $ 1.32 $ 2.60 $ 1.91 $ 2.70 $ 0.65 $ 0.78
======= ======= ======== ======== ======== ======== ========
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------------------- -------------------
1996 1997 1998 1999 2000 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Gaming machines EBITDA(4).................... $ 7,140 $33,117 $ 90,201 $ 91,900 $113,970 $ 26,091 $ 42,058
Gaming operations EBITDA(4).................. 34,150 35,156 39,969 39,997 43,706 12,556 10,702
Gaming systems EBITDA(4)..................... -- -- -- -- 42,143 10,470 3,334
Corporate EBITDA(4).......................... (3,299) (3,676) (5,967) (4,393) (14,650) (5,752) (3,203)
------- ------- -------- -------- -------- -------- --------
Consolidated EBITDA(4)....................... $37,991 $64,597 $124,203 $127,504 $185,169 $ 43,365 $ 52,891
======= ======= ======== ======== ======== ======== ========
Net cash provided by operating activities.... $28,769 $43,392 $ 68,183 $ 86,655 $110,710 $ 14,663 $ 34,787
Net cash used in investing activities........ (31,827) (41,976) (25,020) (85,416) (108,281) (21,227) (16,178)
Net cash provided by (used in) financing
activities................................. 55,038 (13,102) (36,403) (41,591) (9,381) 631 (17,116)
Gaming machines capital expenditures......... $13,252 $29,612 $ 20,649 $ 8,753 $ 9,369 $ 3,643 $ 3,068
Gaming operations capital expenditures....... 14,914 8,892 3,659 5,063 6,490 1,935 1,842
Gaming systems capital expenditures.......... -- -- -- -- 63,354 16,253 9,438
Corporate capital expenditures............... 24 93 113 141 3,373 213 700
------- ------- -------- -------- -------- -------- --------
Consolidated capital expenditures............ $28,190 $38,597 $ 24,421 $ 13,957 $ 82,586 $ 22,044 $ 15,048
======= ======= ======== ======== ======== ======== ========
Ratio of earnings to fixed charges(5)........ 10.9x 13.6x 21.3x 21.8x 5.1x 7.0x 5.1x
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30, SEPTEMBER 30,
---------------------------------------------------- -------------
1996 1997 1998 1999 2000 2000
-------- -------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $78,113 $66,427 $73,187 $32,835 $25,883 $ 27,376
Total assets................................... 162,312 188,876 245,134 507,169 548,719 553,146
Total debt..................................... 3,750 2,800 -- 216,856 224,294 203,152
Stockholders' equity........................... 146,307 171,331 210,482 220,353 270,520 294,841
</TABLE>
------------------------------
(1) We recorded a charge of $17.5 million for acquired in-process research and
development in fiscal 1999 related to the value of research and development
projects that were in various stages of completion at the date of the
Powerhouse acquisition.
(2) We incurred impairment and restructuring charges of $2.6 million in fiscal
2000 in connection with the restructuring of our VLC subsidiary.
(3) Other income (expense) consists of minority interest in earnings of
consolidated subsidiary, and other income (expense).
(4) Segment EBITDA amounts are included before corporate allocation. Corporate
EBITDA includes corporate activity and corporate eliminations. EBITDA
consists of operating income plus depreciation and amortization (including
our share of joint venture depreciation of $5.3 million, $8.8 million, and
$11.3 million for the years ended June 30, 1998, 1999, and 2000,
respectively and $2.3 million and $3.3 million for the three months ended
September 30, 1999 and 2000, respectively), impairment charges of
$2.6 million for the year ended June 30, 2000 and an in-process research and
development charge of $17.5 million for the year ended June 30, 1999. You
should not construe EBITDA as a substitute for operating income or a better
indicator of liquidity than cash flow from operating, investing and
financing activities, which are determined in accordance with accounting
principles generally accepted in the United States of America. We have
included EBITDA to provide additional information with respect to our
ability to meet our future debt service, capital expenditures and working
capital requirements. Although EBITDA is not necessarily a measure our
ability to fund our cash needs, we believe that EBITDA is a useful tool for
measuring our ability to service our debt. Our definition of EBITDA may not
be the same as that of similarly captioned measures used by other companies.
(5) The ratio of earnings to fixed charges has been computed as earnings divided
by fixed charges. Earnings consist of net income before fixed charges,
income taxes, minority interests in consolidated subsidiaries and income
from equity investments, adjusted to include amortization of capitalized
interest and distributed income of equity investments and exclude
capitalized interest. Fixed charges consist of interest, whether expensed or
capitalized, amortization of debt issue costs, our proportionate share of
the interest cost of equity investments, and the estimated interest
component of rental expense.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
section "Selected Consolidated Financial Data" and the consolidated financial
statements and related notes included elsewhere in this prospectus.
OVERVIEW
We are a diversified, global gaming company operating principally through
three business segments:
- Gaming Machines, which includes the design, development and distribution
of proprietary gaming machines.
- Gaming Operations, which includes the operations of two casinos in
Colorado, slot machine routes in Nevada and Montana, and a 50% interest in
the development contract and seven-year management contract to develop and
manage a California Native American casino that we expect to open in
March 2001.
- Gaming Systems, which includes the design, manufacture and sale of video
gaming machines and central control systems and the design, manufacture,
sale, installation and operation of on-line lottery systems and
computerized pari-mutuel wagering systems.
On June 29, 1999, we completed our acquisition of Powerhouse
Technologies, Inc. for approximately $220 million plus Powerhouse net debt of
$68 million. We funded the Powerhouse acquisition through a combination of cash
and borrowing under our $300 million senior credit facility. We accounted for
the Powerhouse acquisition using the purchase method of accounting. Because the
closing of the Powerhouse acquisition occurred virtually concurrently with the
end of our fiscal year, our financial statements for the year ended June 30,
1999 do not include any results of operations or cash flows for Powerhouse,
except for a non-recurring charge for acquired in-process research and
development that was recorded in fiscal 1999.
In September 1999, we announced the signing of development and management
agreements with the Pala Band of Mission Indians for the design, construction,
financing, operation and management of PALA, a casino and entertainment facility
on the federally recognized Pala reservation in northern San Diego County,
California. The management agreement is for a period of seven years commencing
on the opening date of the casino facility, which we expect to be in the spring
of 2001. The Pala tribe secured a $100 million credit facility through a loan
agreement and ancillary financial documents finalized on June 15, 2000. As a
condition to the financing, we agreed to guarantee the full payment and
performance of the obligations of the Pala tribe under the loan agreement.
In the fourth quarter of fiscal 2000, we restructured the operations of our
VLC subsidiary. As a result, we now manage and account for the VLC subsidiary as
two separate business units, VLC Government and VLC Casino. VLC Government
focuses on sales of central systems and video lottery gaming machines to
governmental jurisdictions under our gaming systems segment. VLC Casino, which
was formerly based in Bozeman, Montana, and is now based in Las Vegas, focuses
on the development and sales of gaming machines to casinos under our gaming
machines segment. In conjunction with this restructuring, we have changed our
financial reporting segments from four segments to the three segments outlined
above.
On October 17, 2000, we completed the acquisition of approximately
9.2 million shares of our common stock from our then Chairman, Stanley Fulton,
and members of his family and their affiliates, for a purchase price of $33.306
per share. Effective upon completion of this stock purchase transaction, Stanley
Fulton, his son, Michael Fulton, and his daughter, Elizabeth Jones resigned from
their positions
44
<PAGE>
on our board of directors. The purchase consideration for the shares comprised
$240.2 million in cash and $66.0 million aggregate principal amount of
promissory notes that Stanley Fulton received for a portion of his shares. To
fund this transaction, on October 17, 2000, we completed the sale of
$250.0 million of 9 7/8% Senior Subordinated Notes due 2008 that were priced to
yield 10% and amended the senior credit facility to increase the commitment to
$325.0 million.
In conjunction with the stock purchase transaction with the Fulton family,
we entered into an agreement with Stanley Fulton to sell him substantially all
of the assets relating to our Sunland Park Racetrack & Casino, located in New
Mexico, and our 25% interest in a Massachusetts horse racing facility. Stanley
Fulton has agreed to pay $66.0 million for these assets by canceling our
obligations under the promissory notes. We expect to complete the sale of these
racetrack assets to Mr. Fulton by the end of March 2001, subject to regulatory
approvals and the satisfaction of other conditions. After the sale of these
assets, we will retain the right to manage gaming operations at the
Massachusetts racetrack if casino gaming is legalized in Massachusetts.
The following tables and discussion present pro forma figures for 1999 as if
the Powerhouse acquisition occurred on July 1, 1998 and exclude non-recurring
items such as charges for acquired in-process research and development and the
cumulative effect of a change in accounting principle. Prior to the Powerhouse
acquisition in June 1999, we had no gaming systems business.
<TABLE>
<CAPTION>
ACTUAL FISCAL YEAR 1998 ACTUAL FISCAL YEAR 1999
---------------------------- ----------------------------
REVENUES COSTS OF REVENUES REVENUES COSTS OF REVENUES
-------- ----------------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Gaming machines........................... $113,677 $25,054 $123,698 $ 34,401
Gaming operations......................... 118,255 62,721 125,233 70,419
Gaming systems............................ -- -- -- --
-------- ------- -------- --------
Total................................... $231,932 $87,775 $248,931 $104,820
======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA FISCAL YEAR 1999 ACTUAL FISCAL YEAR 2000
----------------------------- ----------------------------
REVENUES COSTS OF REVENUES REVENUES COSTS OF REVENUES
--------- ----------------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Gaming machines........................... $150,729 $ 53,318 $154,680 $ 35,892
Gaming operations......................... 159,632 96,145 189,938 124,529
Gaming systems............................ 155,564 90,972 180,585 105,083
-------- -------- -------- --------
Total................................... $465,925 $240,435 $525,203 $265,504
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
---------------------------- ----------------------------
REVENUES COSTS OF REVENUES REVENUES COSTS OF REVENUES
-------- ----------------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Gaming machines........................... $ 40,412 $12,557 $ 47,170 $ 5,982
Gaming operations......................... 47,368 29,184 47,748 31,928
Gaming systems............................ 39,221 20,625 43,832 30,848
-------- ------- -------- -------
Total................................... $127,001 $62,366 $138,750 $68,758
======== ======= ======== =======
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------------------------- -------------------
ACTUAL 1998 ACTUAL 1999 PRO FORMA 1999 ACTUAL 2000 1999 2000
----------- ----------- -------------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SOURCES OF REVENUES:
Gaming machines............... 49% 50% 32% 30% 31.8% 34.0%
Gaming operations............. 51 50 34 36 37.3 34.4
Gaming systems................ -- -- 34 34 30.9 31.6
--- --- --- --- ----- -----
Total....................... 100% 100% 100% 100% 100.0% 100.0%
=== === === === ===== =====
GROSS MARGIN:
Gaming machines............... 78% 72% 65% 77% 68.9% 87.3%
Gaming operations............. 47 44 40 34 38.4 33.1
Gaming systems................ -- -- 42 42 47.4 29.6
Consolidated gross margin... 62% 58% 48% 49% 50.9% 50.4%
</TABLE>
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1999
GAMING MACHINES
The gaming machines segment accounted for 34% and 32% of total revenues and
53% and 86% of EBITDA (as defined) during the three-month periods ended
September 30, 2000 and 1999, respectively. Revenues for this segment were $47.2
million for the period ended September 30, 2000, an increase of $6.8 million
from $40.4 million for the same period in the prior year. The increase in
segment revenues can be attributed to increased equity earnings in the
Anchor-IGT joint venture, which, for accounting purposes, are recorded net of
expense partially offset by decreases in revenues from VLC Casino as well as
decreases in our non-joint venture, or stand-alone, proprietary games.
Revenues from the Anchor-IGT joint venture increased $12.4 million, or 57%
from $21.8 million for the three months ended September 30, 1999 to $34.2
million for the same three-month period in the current year. At September 30,
2000 there were approximately 13,100 games, primarily Wheel of Fortune,
operating within the Anchor-IGT joint venture, compared to approximately 6,900
games at September 30, 1999. VLC Casino revenues decreased $5.0 million, or 66%,
resulting from declines in machine sales as we redirect our focus on the casino
gaming market in favor of recurring revenue arrangements. Revenues from
stand-alone proprietary games decreased $671,000, or 6%, for the three-month
period ending September 30, 2000 compared to the same period in the prior year.
Since September 30, 1999, our installed base of stand-alone proprietary games,
without regard to the Anchor-IGT joint venture games, decreased approximately
7%.
Costs of gaming machines revenues were $6.0 million for the first fiscal
quarter of 2001, a decrease of $6.6 million compared to the first fiscal quarter
of 2000. This decrease was a result of the decline in VLC Casino unit sales as
discussed above, a lower level of write-downs related to gaming machines within
our stand-alone proprietary games operations, and decreases in royalty expenses
as a result of decreased revenues from our stand-alone games and an overall
decrease in the royalty expense rate. The VLC Casino machine sales realized in
previous years had a higher relative cost of sales than our current revenue mix.
The gaming machines segment gross margin increased to 87% during the quarter
ended September 30, 2000 from 69% in the corresponding prior-year period. Within
the segment, in this period, gross margins were 99% for the Anchor-IGT joint
venture (due to its accounting treatment under the equity method), 58% for the
stand-alone proprietary games operating unit and 55% for VLC Casino.
46
<PAGE>
Changes in interest rates could have an effect on the earnings of the
Anchor-IGT joint venture. Since jackpot expense is a function of the present
value of future jackpot payments, future changes in the interest rate
environment will affect the profitability of the Anchor-IGT joint venture.
Specifically, decreases in interest rates will increase the current period's
jackpot expense of the Anchor-IGT joint venture while future increases in
interest rates will decrease the current period's jackpot expense of the
Anchor-IGT joint venture.
GAMING OPERATIONS
The gaming operations segment accounted for 34% and 37% of total revenues
and 26% and 22% of EBITDA (as defined) during the three-month periods ended
September 30, 2000 and 1999, respectively. Revenues for this segment were $47.7
million for the period ended September 30, 2000, an increase of $380,000 from
$47.4 million for the same period in the prior year. A $939,000 increase in
revenues at Sunland Park Racetrack & Casino as well as a slight increase in the
Nevada route operation were offset by decreases in the Montana route operation
and slight decreases in revenues at the Colorado casinos.
Costs of gaming operations revenues were $31.9 million for the first three
months of fiscal 2001, an increase of $2.7 million or 9% from $29.2 million in
the first three months of fiscal 2000. The increase is due primarily to
increased costs of $2.5 million at our Colorado casinos resulting from increased
competition. In addition, costs at Sunland Park Racetrack & Casino increased
primarily due to the cost associated with the increased revenues as discussed
above.
The gaming operations segment gross margin decreased to 33% during the
quarter ended September 30, 2000 from 38% in the corresponding prior-year
period. The decrease in gross margin is primarily due to increased costs in the
Colorado casinos as a result of increased competition.
GAMING SYSTEMS
The gaming systems segment accounted for 32% and 31% of total revenues and
21% and 7% of EBITDA (as defined) during the three-month periods ended
September 30, 2000 and 1999, respectively. Revenues for this segment were $43.8
million for the period ended September 30, 2000, an increase of $4.6 million
from $39.2 million for the same period in the prior year. The increase over the
same period in fiscal year 2000 is primarily due to increases in AWI's domestic
lottery revenues related to the Indiana and West Virginia lottery contracts. The
Indiana and West Virginia lotteries commenced operating in October 2000 and
July 2000, respectively. Increases in domestic lottery revenues were partially
offset by decreased equipment sales internationally for a net increase in
revenues of $4.8 million, or 17%, at AWI. VLC Government's revenues decreased
$416,000 in the current quarter compared to the same quarter in the prior year
due primarily to a decrease in systems revenues partially offset by an increase
in machine sales. United Tote's pari-mutuel systems revenues increased slightly
compared to the prior year.
Costs of gaming systems revenues were $30.8 million for the first three
months of fiscal 2001, an increase of $10.2 million from $20.6 million in the
first three months of fiscal 2000. The increase is due to a $5.2 million
increase in domestic lottery costs as well as a $3.7 million increase in costs
related to international lottery equipment sales. In addition, costs of sales at
VLC Government increased $1.3 million and costs of sales at United Tote slightly
increased. The gross margin decreased from 47% during the quarter ended
September 30, 1999 to 30% in the quarter ended September 30, 2000. The decrease
in gross margin is due primarily to decreased margins on AWI domestic and
international contracts and on VLC Government's revenues.
47
<PAGE>
OTHER COSTS
Selling, general and administrative ("SG&A") expenses were $16.8 million for
the quarter ended September 30, 2000, a decrease of $2.8 million or 14% from the
quarter ended September 30, 1999. SG&A expenses as a percentage of total
revenues decreased to 12% during the September 2000 quarter compared to 15%
during the September 1999 quarter. We have been able to reduce costs through the
consolidation of corporate duties in Las Vegas and the resulting reduction of
corporate staff and other overhead in Montana. In addition, SG&A decreases have
been realized in the gaming machines and gaming operations segments. These
decreases were partially offset by increased SG&A in the gaming systems segment.
Research and development ("R&D") expenses were $3.6 million for the quarter
ended September 30, 2000, a decrease of $338,000 or 9% from the quarter ended
September 30, 1999. The decrease is a result of reduced R&D expenses in the
gaming machines segment partially offset by increased R&D in the gaming systems
segment. In addition to the R&D expenses reflected on our financial statements,
R&D costs related to the Anchor-IGT joint venture are accounted for on the books
of the Anchor-IGT joint venture and are not included in the amounts disclosed as
R&D in our financial statements.
Depreciation and amortization expense was $15.1 million for the quarter
ended September 30, 2000, an increase of $3.4 million or 29% from the quarter
ended September 30, 1999. The increase in depreciation and amortization expense
over the quarter ended September 30, 1999 is primarily related to capital
expenditures related to the Florida lottery as well as capital expenditures
related to other domestic lottery jurisdictions.
INCOME FROM OPERATIONS. As a result of the factors discussed above, income
from operations was $34.4 million for the quarter ended September 30, 2000, an
increase of $5.1 million or 17%. As a percentage of total revenues, income from
operations increased to 25% during the quarter ended September 30, 2000 from 23%
for the quarter ended September 30, 1999.
OTHER INCOME (EXPENSE). The $931,000 change in other expense for the
quarter ended September 30, 2000 as compared to the quarter ended September 30,
1999 is attributable to increased interest expense. The increase in interest
expense is due primarily to higher interest rates in the current quarter as well
as an increase in the average debt outstanding during the current quarter as
compared to the prior-year period.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. During the current
quarter we adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activity" ("SFAS 133"). This statement establishes accounting and
reporting standards for derivative instruments and requires that all derivatives
be marked-to-market on an ongoing basis. Our current use of derivatives is
limited to an interest rate swap arrangement for a notional amount of $100
million that we entered into in fiscal 2000. During the quarter ended September
30, 2000, we recorded an asset related to this swap and a cumulative effect of
change in accounting principle in the amount of $124,000, which is net of taxes
of $81,000. The interest rate swap was canceled in October 2000, and we do not
believe that SFAS 133 will have a significant effect on our consolidated results
of operations or financial position in future periods.
NET INCOME AND EARNINGS PER SHARE. As a result of the factors discussed
above, net income was $18.5 million for the quarter ended September 30, 2000, an
increase of $2.7 million or 17% from the quarter ended September 30, 1999.
Diluted earnings per share of $0.78 for the quarter ended September 30, 2000
increased $0.13 or 20% from the quarter ended September 30, 1999.
48
<PAGE>
FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999
GAMING MACHINES
Gaming machines accounted for 50% and 30% of total revenues and 70% and 57%
of EBITDA (as defined) during the years ended June 30, 1999 and 2000,
respectively. On a pro forma basis this segment accounted for 32% of total
revenues and 56% of EBITDA (as defined) during the year ended June 30, 1999.
Revenues from gaming machines were $154.7 million for the year ended
June 30, 2000, an increase of $31.0 million or 25% from $123.7 million for the
year ended June 30, 1999. The increase in segment revenues can be primarily
attributed to the increased equity earnings in the Anchor-IGT joint venture,
which, for accounting purposes, are recorded net of expense. The increase is
also due to the addition of VLC Casino revenues of approximately $15.9 million
related to the Powerhouse acquisition and was offset by net decreases in
revenues from our non-joint venture, or stand-alone, proprietary games. Revenues
from the Anchor-IGT joint venture increased $21.9 million or 29% from
$76.5 million in fiscal 1999 to $98.4 million in fiscal 2000. At June 30, 2000,
there were approximately 11,300 games, primarily Wheel of Fortune-TM-, operating
within the Anchor-IGT joint venture, compared to approximately 6,400 games at
June 30, 1999. Revenues from stand-alone proprietary games decreased
$6.8 million or 14% from $47.6 million in fiscal 1999 to $40.8 million in fiscal
2000. During the year ended June 30, 2000, our installed base of stand-alone
proprietary games, without regard to our Anchor-IGT joint venture games,
increased 7% from the year ended June 30, 1999. However, a decrease in the
average net win per unit for the installed base of stand-alone proprietary games
during the same period resulted in an overall 14% decline in stand-alone
revenues.
On a pro forma basis, revenues from gaming machines for the year ended
June 30, 2000, increased $4.0 million or 3% from the pro forma revenues of
$150.7 million for the year ended June 30, 1999. This increase is primarily a
result of the increase in revenues from the Anchor-IGT joint venture, as
discussed above, offset by decreased machine sales at VLC Casino and stand-alone
proprietary game revenues. Revenues from VLC Casino decreased $11.1 million or
42% from $27.0 million in fiscal 1999 to $15.9 million in fiscal 2000. The
decrease in VLC Casino machine sales results from declines in machine sales to
governmental jurisdictions, as we lessen our focus on sales to the casino gaming
market in favor of recurring revenue arrangements.
Costs of gaming machines were $35.9 million for fiscal year 2000, an
increase of $1.5 million or 4% from $34.4 million for the historical fiscal year
1999. The addition of VLC Casino in the Powerhouse acquisition accounted for an
increase in historical costs by contributing approximately $10.6 million to
costs of gaming machines during fiscal year 2000. This increase was offset by a
lower level of write-downs related to gaming machines within our stand-alone
proprietary games operations, and to a lesser extent, by decreases in royalty
expenses as a result of decreased revenues from our stand-alone games and an
overall decrease in the royalty expense rate.
Gaming machines segment gross margin increased to 77% during fiscal year
2000 from 72% during fiscal year 1999. Within the segment, in fiscal 2000, gross
margins were 97% for the Anchor-IGT joint venture (due to its accounting
treatment under the equity method), 46% for the stand-alone proprietary games
division and 33% for VLC Casino. In fiscal 1999 gross margins were 93% for the
Anchor-IGT joint venture, 39% for stand-alone proprietary games and 30% for VLC
Casino.
On a pro forma basis, gaming machines segment costs decreased $17.4 million
or 33% from $53.3 million in 1999 due to the decreased historical proprietary
games costs and due to decreases in costs related to decreased revenues from VLC
Casino. Gaming machines segment gross margin increased to 77% during the year
ended June 30, 2000 from 65% during the pro forma year ended June 30, 1999. This
is due primarily to the increase in equity earnings and the decrease in machine
49
<PAGE>
sales from VLC Casino, which has achieved lower margins historically when
compared to the margins achieved in the proprietary games operations, including
the Anchor-IGT joint venture.
Changes in interest rates could have an effect on the earnings of the
Anchor-IGT joint venture. Since jackpot expense is a function of the present
value of future jackpot payments, future changes in the interest rate
environment will affect the profitability of the Anchor-IGT joint venture.
Specifically, decreases in interest rates will increase the then current
period's jackpot expense of the Anchor-IGT joint venture while future increases
in interest rates will decrease the then current period's jackpot expense of the
Anchor-IGT joint venture.
GAMING OPERATIONS
Gaming operations accounted for 50% and 36% of total revenues and 30% and
22% of EBITDA (as defined) during the years ended June 30, 1999 and 2000,
respectively. On a pro forma basis this segment accounted for 34% of total
revenues and 25% of EBITDA (as defined) during the year ended June 30, 1999.
Total revenues from the gaming operations segment were $189.9 million for
fiscal year 2000, an increase of $64.7 million or 52% from $125.2 million for
historical year 1999. The additions of slot machine operations at Sunland Park
Racetrack & Casino and the Montana route operation, which occurred due to the
Powerhouse acquisition, accounted for the increase in historical revenues by
contributing approximately $66.0 million to revenues in fiscal year 2000. The
commencement of casino operations in February 1999 at Sunland Park contributed
$28.3 million of revenues for this period. In addition, our Nevada route
operation increased by approximately $3 million. This increase was offset by
decreased revenues at our Colorado casinos of approximately $3 million as a
result of the increased competition in these markets.
On a pro forma basis, revenues from gaming operations for the year ended
June 30, 2000 increased $30 million or 19% from pro forma revenues for the year
ended June 30, 1999. This increase is primarily due to the commencement of slot
machine operations at Sunland Park, as discussed above, which contributed
increased revenues of $28.3 million.
Costs of gaming operations revenue were $124.5 million for fiscal year 2000,
an increase of $54.1 million or 77% from $70.4 million in fiscal year 1999.
Gaming operations gross margin decreased to 34% during fiscal year 2000 from 44%
during fiscal year 1999. The addition of Sunland Park and the Montana route
operation contributed approximately $46.6 million to costs of gaming operations
during the fiscal year 2000. The remaining increase is due primarily to
increased costs of approximately $4.3 million at our Colorado casinos resulting
from increased competition, and to a lesser extent, increased costs of
approximately $1.8 million in the Nevada route operation as a result of
increased revenues.
On a pro forma basis, costs of gaming operations increased $28.4 million or
30% during the year ended June 30, 2000 versus pro forma costs of $96.1 million
for the year ended June 30, 1999. This increase is due primarily to the
commencement of casino operations at Sunland Park in February 1999. Gaming
operations gross margin decreased to 34% during the year ended June 30, 2000
from 40% during the pro forma year ended June 30, 1999. This is due primarily to
the commencement of casino operations at the Sunland Park and the growth in
Nevada route operation costs, both of which have lower margins than the Colorado
casino operations that historically accounted for a greater percentage of gaming
operations revenue. The decrease in gross margin is also the result of decreased
margins at our Colorado casinos, which are the result of increased competition.
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GAMING SYSTEMS
Gaming systems accounted for 34% of total revenues and 21% of EBITDA (as
defined) during the year ended June 30, 2000. We had no gaming systems business
prior to the Powerhouse acquisition. On a pro forma basis this segment accounted
for 34% of total revenues and 19% of EBITDA (as defined) during the year ended
June 30, 1999.
Revenues from gaming systems were $180.6 million for the year ended
June 30, 2000, an increase of $25.0 million or 16% from pro forma revenues of
$155.6 million for the year ended June 30, 1999. The increase over 1999 pro
forma revenues is primarily due to increases in revenues from one-time equipment
sales of approximately $24.6 million in China, Switzerland and the West Indies
during the year ended June 30, 2000, as well as domestic lottery revenue
increases. During the year ended June 30, 2000, we started and continued work on
our Switzerland contract implementation, and completed the installation of a
lottery system in China and the West Indies. Domestically, increased revenues
resulted from the commencement of operations under our on-line lottery contract
with the Hoosier Lottery in Indiana and strong results in Florida. The resulting
increase in revenue was partially offset by the loss of the Montana lottery
contract, which was terminated during the fourth quarter of fiscal 1999.
Costs of gaming systems were $105.1 million during the year ended June 30,
2000, an increase of $14 million or 16% on a pro forma basis from the pro forma
costs for the year ended June 30, 1999, due primarily to increased revenues. The
gross margin remained constant at 42% in fiscal 2000 and the pro forma
1999 year.
OTHER COSTS
Selling, general and administrative ("SG&A") expenses were $69.3 million for
fiscal year 2000, an increase of $45.1 million or 186% from $24.2 million for
fiscal year 1999. SG&A expenses as a percentage of total revenue increased to
13% during fiscal year 2000 compared to 10% during fiscal year 1999.
During the year ended June 30, 2000, businesses acquired in the Powerhouse
acquisition constituted $42.5 million, or 61%, of SG&A expenses. The remaining
increase was due primarily to additional payroll and promotional costs at our
Colorado Central Station Casino. On a pro forma basis, SG&A expenses for the
year ended June 30, 2000 increased $4.7 million or 7% over the pro forma year
ended June 30, 1999, due primarily to the historical increase noted above as
well as the commencement of casino operations at Sunland Park, and to a lesser
extent, increased labor costs and professional fees in our gaming systems
segment.
Research and development ("R&D") expenses were $16.5 million for fiscal year
2000, an increase of $15.4 million from $1.2 million for fiscal year 1999.
During the year ended June 30, 2000, businesses acquired in the Powerhouse
acquisition contributed $13.5 million in R&D expenses. To a lesser extent, the
increase reflects higher R&D expenses in our proprietary games business within
our gaming machines segment. The remaining increase resulted primarily from a
one-time settlement received from the Ontario provincial government in the prior
year, which reduced R&D expense for fiscal 1999. The Province of Ontario has
mandated that the terms of the settlement be held in confidence. On a pro forma
basis, R&D expenses for the year ended June 30, 2000 increased $5.5 million or
50% from $11.0 million for the pro forma year ended June 30, 1999, resulting
from increased R&D expenses of the acquired operations within the gaming
machines operations, as well as the historical increase noted above. In addition
to the R&D expenses reflected in our financial statements, R&D costs related to
the Anchor-IGT joint venture are recorded within the Anchor-IGT joint venture
and are not included in the amounts disclosed as R&D in our financial
statements.
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In the fourth quarter of fiscal 2000, we implemented a plan, which was not
contemplated at the time of the acquisition, to restructure our VLC subsidiary.
Impairment and restructuring charges of $2.6 million were incurred in fiscal
2000 in connection with the restructuring of VLC. See Note 4 to the consolidated
financial statements.
Acquired in-process research and development of $17.5 million in fiscal year
1999 was incurred in connection with the Powerhouse acquisition. This
non-recurring expense represents the value of the research and development
projects that were in various stages of completion at the date of the
acquisition. There was no income tax benefit as a result of this expense,
thereby increasing our effective tax rate for fiscal 1999. See Note 3 to the
consolidated financial statements.
Depreciation and amortization expense was $51.0 million for fiscal year
2000, an increase of $33.6 million or 193% from $17.4 million for historical
fiscal year 1999. During the year ended June 30, 2000, businesses acquired from
Powerhouse contributed $29.8 million in depreciation and amortization expense.
The remaining historical increase resulted from increased depreciation expense
incurred in the gaming machine operations. On a pro forma basis, depreciation
and amortization for the year ended June 30, 2000 increased $9.0 million or 22%
from the pro forma year ended June 30, 1999, due primarily to increased
depreciation and amortization expense incurred at AWI and Sunland Park.
Depreciation increased at AWI primarily due to the capital expenditures
associated with fiscal 2000 domestic contract implementations. The Sunland Park
increase related to the commencement of gaming operations in February 1999.
INCOME FROM OPERATIONS. As a result of the factors discussed above, income
from operations was $120.2 million for fiscal year 2000, an increase of
$36.4 million or 44% from $83.8 million for historical fiscal year 1999 and
$12.4 or 12% on a pro forma basis from the year ended June 30, 1999. Excluding
the $17.5 million charge for acquired in-process research and development,
income from operations for fiscal year 1999 would have been $101.3 million. As a
percentage of total revenues, income from operations remained constant at 23%
during fiscal year 2000 and fiscal year 1999.
OTHER INCOME (EXPENSE). Interest income was $2.0 million for fiscal year
2000, a decrease of $1.9 million or 48% from $3.9 million for historical fiscal
year ended 1999. The decrease is due to decreased cash balances for investment
as a result of spending for the Powerhouse acquisition. Interest expense of
$16.5 million for fiscal year 2000, an increase of $16.4 million from historical
fiscal year 1999, is the result of borrowings associated with the Powerhouse
acquisition. As a result of the factors discussed above, net other expense was
$12.9 million for fiscal year 2000 compared to net other income of $3.1 million
for fiscal year 1999.
NET INCOME AND EARNINGS PER SHARE. As a result of the factors discussed
above, net income was $65.0 million for fiscal year 2000, an increase of
$17.5 million or 37% from $47.5 million for fiscal year 1999. On a pro forma
basis, net income for fiscal 2000 increased $7.5 million or 13% from the pro
forma fiscal 1999 year.
Diluted earnings per share were $2.70 for fiscal year 2000, an increase of
$0.79 per share from the $1.91 diluted earnings per share for fiscal year 1999
primarily due to the $17.5 million in-process research and development charge in
fiscal 1999.
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
GAMING MACHINES
Gaming machines accounted for 49% and 50% of total revenues and 69% and 70%
of EBITDA (as defined) during the years ended June 30, 1998 and 1999,
respectively.
Revenues from gaming machines were $123.7 million for the fiscal year ended
June 30, 1999, an increase of $10.0 million or 9% from $113.7 million for the
fiscal year ended June 30, 1998. Revenues
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from the Anchor-IGT joint venture rose $19.7 million or 35% from $56.8 million
in fiscal 1998 to $76.5 million in fiscal 1999. Revenues from stand-alone games
decreased $8.7 million or 16% from $56.3 million in fiscal 1998 to
$47.6 million in fiscal 1999. The increase in segment revenues was primarily due
to increased equity earnings in the Anchor-IGT joint venture, which, for
accounting purposes, is recorded net of expense. The increase in revenues was
also due to increased revenues from our proprietary games CashBall-TM- and
SafeBuster-TM-. These increases were offset to some extent by decreased revenues
generated from the Wheel of Gold-TM-, Totem Pole-TM- and Clear Winner-TM- games
as well as decreased revenues from the sale of tokens for the proprietary game
Silver Strike-TM-. At June 30, 1999 there were approximately 6,400 games,
primarily Wheel of Fortune-TM-, operating within the Anchor-IGT joint venture,
compared to approximately 5,600 games at June 30, 1998.
Costs of gaming machine revenues were $34.4 million for the fiscal year
1999, an increase of $9.3 million or 37% from $25.1 million for the fiscal year
1998. The increase in the cost of proprietary games revenues was due primarily
to increased machine parts used in our operations outside the Anchor-IGT joint
venture, increased costs of production and service payroll and shipping and
handling. During fiscal year 1999, we engaged in extensive improvements and
modifications to existing proprietary games in order to maintain performance
levels of the games. The costs associated with the upgrades and regular
maintenance of games in operation are expensed as incurred. These increases were
offset to some extent by decreased costs and expenses relating to the sale of
tokens for the proprietary game Silver Strike-TM-.
Gaming machines segment gross margin decreased to 72% during fiscal year
1999 from 78% during fiscal year 1998. Within the segment, in fiscal 1998 gross
margins were 100% for the Anchor-IGT joint venture (due to its accounting
treatment under the equity method) and 76% for stand-alone proprietary games. In
fiscal 1999, gross margins were 93% for the Anchor-IGT joint venture and 39% for
stand-alone proprietary games.
GAMING OPERATIONS
Gaming operations accounted for 51% and 50% of total revenues and 31% and
30% of EBITDA (as defined) during the year ended June 30, 1998 and 1999,
respectively.
Total revenues from gaming operations were $125.2 million for fiscal year
1999, an increase of $7.0 million or 6% from $118.3 million for fiscal year
1998. This increase was primarily due to a $4.3 million increase in route
revenues coupled with increased slot revenues at the Colorado Central Station
Casino and, to a lesser extent, increased slot revenues at the Colorado Grande
Casino. The increase in route revenues was due to the increased number of
machines on route and increased performance of the machines on the route due to
machine mix enhancements. Machines on route increased by 41 machines or 5% to
883 at June 30, 1999 from 842 machines at June 30, 1998. Average machines on
route during fiscal 1999 increased 39 or 5% to 866 from 827 average machines in
fiscal 1998. Increases in route revenues were realized from both participation
locations and space lease locations. The year-over-year increase in casino slot
revenues was realized almost entirely during the first six months of fiscal year
1999 with the second six months of fiscal year 1999 resulting in flat
year-over-year comparisons.
Costs of gaming operations revenue were $70.4 million for fiscal year 1999,
an increase of $7.7 million or 12% from $62.7 million for fiscal year 1998.
Gaming operations gross margin decreased to 44% during fiscal year 1999 from
47.0% during fiscal year 1998. We incurred increased marketing and personnel
related costs in order to sustain year-over-year revenue levels within our
Colorado casino operations.
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OTHER COSTS
SG&A expenses were $24.2 million for fiscal year 1999, an increase of
$0.9 million or 4% from $23.3 million for fiscal year 1998. SG&A expenses as a
percentage of total revenue remained constant at 10% during fiscal year 1999 and
fiscal year 1998. The increase in SG&A expenses was primarily due to increased
tax and licensing costs within our gaming machines segment, increased costs and
expenses for advertising in our gaming operations segment and increased
administrative payroll at the corporate level.
Research and development expenses were $1.2 million for fiscal year 1999, a
decrease of $700,000 or 37% from $1.9 million for fiscal year 1998. The decrease
is due to reduced expenses in fiscal year 1999 for development at the corporate
level, offset to some extent by increases in the proprietary games business
within the gaming machines segment. The decrease in corporate development
resulted primarily from reduced development costs related to the Canadian
charity-based casino initiative that was canceled by the Ontario provincial
government on June 26, 1998. In addition to the research and development
expenses reflected on our financial statements, research and development costs
related to the Anchor-IGT joint venture are accounted for on the books of the
Anchor-IGT joint venture and are not included in the amounts disclosed as
research and development in our financial statements.
Acquired in-process research and development of $17.5 million in fiscal year
1999 was incurred in connection with the Powerhouse acquisition. This
non-recurring expense represents the value of the research and development
projects that were in various stages of completion at the date of the
acquisition. There was no income tax benefit as a result of this expense,
thereby increasing our effective tax rate for fiscal 1999.
Depreciation and amortization expense was $17.4 million for fiscal year
1999, an increase of $4.7 million or 37% from $12.7 million for fiscal year
1998. This increase was primarily due to increased depreciation and amortization
expense incurred in our proprietary games operations and, to a lesser extent, at
our Colorado Central Station Casino and in our route operations due to the use
of shortened lives for all gaming machines.
INCOME FROM OPERATIONS. As a result of the factors discussed above, income
from operations was $83.8 million for fiscal year 1999, a decrease of
$22.4 million or 21% from $106.2 million for fiscal year 1998. Excluding the
$17.5 million charge for acquired in-process research and development, income
from operations for fiscal year 1999 would have been $101.3 million, a decrease
of only $4.9 million or 5% from fiscal year 1998. As a percentage of total
revenues, income from operations decreased to 34% during fiscal year 1999 from
46% during fiscal year 1998.
OTHER INCOME (EXPENSE). Interest income was $3.9 million for fiscal year
1999, an increase of $900,000 or 30% from $3.0 million for fiscal year 1998. The
increase was due to increased short-term investments resulting from higher
average cash balances during the year. Other income decreased $1.1 million from
fiscal year 1998. This was primarily due to reduced net gains on asset disposals
in fiscal year 1999 versus fiscal 1998.
NET INCOME AND EARNINGS PER SHARE. As a result of the factors discussed
above, net income was $47.5 million for fiscal year 1999, a decrease of
$20.9 million or 31% from $68.4 million for fiscal year 1998.
Diluted earnings per share were $1.91 for fiscal year 1999, a decrease of
$0.69 per share from the $2.60 diluted earnings per share for fiscal year 1998.
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we maintained $27.4 million in cash and cash
equivalents, $43.3 million in working capital (excluding $51.9 million of
current assets held for sale), and $97.1 million available under a revolving
credit facility, compared with cash and equivalents at June 30, 2000 of $25.9
million, working capital of $47.2 million, and $75.9 million available under a
revolving credit facility. To fund the acquisition of Powerhouse Technologies,
Inc., in June 1999, we borrowed $210 million on a $300 million senior unsecured
reducing revolving credit facility. Amounts drawn on the senior credit facility
bear interest at variable rates based on LIBOR plus an applicable margin or
prime rate plus an applicable margin, at our option. All borrowings under the
senior credit facility are due on June 30, 2004. We have agreed to maintain
certain financial and non-financial covenants customary with lending
arrangements of this type. We believe we are in compliance with applicable
covenants at September 30, 2000. Additionally, we have amended our existing $300
million senior credit facility to increase the maximum borrowings, subject to
certain covenants, to $325 million.
We believe that cash provided by operations will remain a significant source
of cash flows, and anticipate that both operations and draws on our senior
credit facility will provide the capital needed for continued business growth.
On October 17, 2000 we acquired approximately 9.2 million shares of Anchor
Gaming stock owned by the Fulton family, at $33.306 per share. To fund this
transaction, on October 17, 2000, we completed the sale of $250 million of
9.875% senior subordinated notes due October 2008 that were priced to yield 10%.
We also amended our existing $300 million senior credit facility to increase the
maximum borrowings, subject to certain covenants, to $325 million. The credit
facility contains a reducing feature whereby the total amount of the available
facility is reduced quarterly by $12.5 million per quarter beginning
September 30, 2001, until the total facility has been reduced to $150 million.
Stanley Fulton, his son Michael Fulton, and his daughter, Elizabeth Jones
resigned their positions on the board of directors upon completion of the stock
purchase transaction.
The purchase consideration for the shares was comprised of $240 million in
cash and $66 million in promissory notes that Stanley Fulton received for a
portion of the shares he is selling. The promissory notes will be canceled
through certain racetrack asset transfers (see below) which we expect to
complete by the end of March 2001.
RACETRACK ASSET SALE TRANSACTION
In conjunction with the stock purchase transaction with the Fulton family,
we have entered into an agreement with Stanley Fulton to sell him substantially
all of the assets relating to Sunland Park Racetrack & Casino, located in New
Mexico, and the Company's 25% interest in a Massachusetts horse racing facility.
Stanley Fulton has agreed to pay $66 million for these assets by canceling our
obligations under the promissory notes. We expect to complete the sale of these
racetrack assets to Mr. Fulton by the end of March 2001, subject to regulatory
approvals and the satisfaction of other conditions. After the sale of these
assets, we will retain the right to manage gaming operations at the
Massachusetts racetrack if casino gaming is legalized in Massachusetts. The book
value of the assets to be sold, excluding certain cash accounts, was
approximately $51.9 million at September 30, 2000. We expect to record a pre-tax
gain of $11.9 million, net of applicable transaction costs. The tax expense
associated with this transaction is expected to be approximately $18.5 million.
CASH FLOWS. During the quarter ended September 30, 2000, operating
activities provided $34.8 million in cash flows on $18.5 million in net income,
compared with $14.7 million in cash flows on $15.8 million in net income during
the quarter ended September 30, 1999. Net income in the quarter ended September
30, 2000 included non-cash expenses (including depreciation and amortization) of
approximately $16.2 million compared with non-cash expenses in the quarter ended
September 30, 1999 of approximately $12.9 million. Also in the quarter ended
September 30, 2000, we recognized earnings
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in the Anchor-IGT joint venture that were approximately $5.8 million greater
than cash distributions to us, whereas in the same quarter in 1999, we received
cash distributions which were $2.4 million greater than our share of earnings in
the Anchor-IGT joint venture. During the quarter ended September 30, 2000,
changes in working capital resulted in a net cash inflow of $5.9 million
compared to a net cash outflow of $16.4 million in the same period of the prior
year. The difference is primarily due to the payment of costs associated with
the Powerhouse acquisition in the prior-year quarter.
During fiscal year 2000, operating activities provided $110.7 million in
cash flows on $65.0 million in net income, compared with $86.7 million in cash
flows on $47.5 million in net income during fiscal year 1999. Net income in
fiscal year 2000 included non-cash expenses (including depreciation and
amortization) of approximately $63.7 million compared with non-cash expenses in
fiscal year 1999 of approximately $43.1 million. The significant non-cash
expenses in 2000 were approximately $51.0 million of depreciation and
amortization. Also in fiscal 2000, we recognized earnings in the Anchor-IGT
joint venture that were approximately $13.1 million greater than cash
distributions to us.
INVESTING ACTIVITIES AND CAPITAL EXPENDITURES. During the quarter ended
September 30, 2000, cash outflows for investing activities of $16.2 million were
primarily related to the purchase and installation of assets for domestic
lottery contracts in Florida, West Virginia and other jurisdictions. We
selectively pursue opportunities to win additional and retain existing on-line
wagering contracts. If successful in obtaining new state lottery contracts,
depending on the size of the jurisdictions served, we may be required to secure
additional funding for the related capital expenditures. In the quarter ended
September 30, 1999, cash outflows for investing activities of $21.2 million were
primarily related to the purchase and installation of assets for domestic
lottery contracts in Indiana, Florida, Pennsylvania, South Dakota and other
jurisdictions.
In fiscal year 2000, we had cash outflows for investing activities of
$108.3 million primarily related to the purchase and installation of assets for
domestic and international lottery jurisdictions. In addition, during fiscal
2000 we contributed $22.2 million to the Anchor-IGT joint venture and
$5.3 million to Anchor Partners, LLC and Ourway Realty, LLC. In fiscal year
1999, we had cash outflows for investing activities of $85.4 million primarily
related to the acquisition of Powerhouse.
Our capital expenditure budget for fiscal 2001 is estimated to be between
$45 and $55 million. We believe that cash flows from operations, borrowings
under our senior credit facility, and existing cash balances will be adequate to
satisfy our anticipated uses of capital during fiscal year 2001. We are,
however, continually evaluating our financing needs. If more attractive
financing alternatives or expansion, development or acquisition opportunities
become available to us, we may amend our financing plans assuming such financing
would be permitted under our debt agreements.
Substantial funds are required for the operation of our gaming systems
segment and may also be required for other future projects. The source of funds
required to meet our working capital needs (including maintenance capital
expenditures) is expected to be cash flow from operations and availability under
our senior credit facility. The source of funds for our future projects may come
from cash flow from operations and availability under our senior credit
facility, additional debt or equity offerings, joint venture partners or other
sources. No assurance can be given that additional financing will be available
or that, if available, such financing will be obtainable on favorable terms.
The gaming systems segment operates in a capital intensive industry, in
which wagering terminals, computer systems and applications and communications
software must be installed throughout a jurisdiction, often beginning up to one
year before revenues are earned on the long-term contract. When a new
jurisdiction is added to our customer base, capital required to obtain and
install hardware and software can be significant. Generally, initial contract
terms are from five to nine years, often with one or more one to three year
extension options. Upon expiration of a contract and its extensions, the
jurisdiction typically requires vendors to rebid their services and, if
successful, replace existing equipment with new terminals. An incumbent vendor
may have some benefit due to the
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communications infrastructure already in place, but most often, a significant
portion of the initial capital expenditures must be replaced upon the reawarding
of a lottery contract.
PALA GUARANTEE. Under the terms of our development and management
agreements with the Pala Band of Mission Indians, which we executed in
September 1999, we agreed to assist the Pala tribe in obtaining financing for
the construction and operation of PALA and to advance funds during the design
and development stages. The Pala tribe secured a $100.0 million credit facility
through a loan agreement and ancillary financial documents finalized on
June 15, 2000. As a condition to receiving financing, we agreed to guarantee the
full payment and performance of the obligations of the Pala tribe under the loan
agreement. We executed a guarantee that remains in effect until the earlier of
either repayment in full of all guaranteed financial obligations under the loan
agreement or delivery to lenders of a leasehold mortgage on PALA if it has been
in operation for at least twelve months and specified financial and leverage
thresholds have been met. The guarantee will also be released 60 days following
the date on which we or any of our affiliates cease to be the manager of PALA,
unless lenders have demanded payment of outstanding obligations from the Pala
tribe during such period. In addition, we have agreed to fund PALA project cost
overruns up to a total amount of $25.0 million.
Anchor Pala Development LLC, our wholly-owned subsidiary, will receive a
development fee based on the actual total project costs and a project fee based
on net gaming and non-gaming PALA revenues. As additional consideration for all
costs, risks, restrictions and expenses associated with providing the guarantee,
we will receive fees based primarily on a percentage of the outstanding loan
balance.
LIQUIDATED DAMAGES UNDER ON-LINE LOTTERY CONTRACTS. Our lottery contracts
typically permit termination of the contract by the lottery authority at any
time for our failure to perform or for other specified reasons and generally
contain demanding implementation schedules and performance schedules. Failure to
perform under such contracts may result in substantial monetary liquidated
damages, as well as contract termination. Many of our lottery contracts also
permit the lottery authority to terminate the contract at will and do not
specify the compensation, if any, to which we would be entitled should such
termination occur. Some of our United States lottery contracts have contained
provisions for up to $1.0 million a day in liquidated damages for late system
start-up and have provided for up to $15,000 per minute or more in penalties for
system downtime in excess of a stipulated grace period, and some of our
international customers similarly reserve the right to assess monetary damages
in the event of contract termination or breach. Although such liquidated damages
provisions are customary in the lottery industry and the actual liquidated
damages imposed are generally subject to negotiation, such provisions in our
lottery contracts present an ongoing potential for substantial expense. Our
lottery contracts generally require us to post a performance bond, which in some
cases may be substantial, securing our performance under such contracts. We do
not believe that we have any exposure relative to liquidated damages at
September 30, 2000.
STOCK REPURCHASE PROGRAM. In April 1997, the board of directors authorized
a repurchase of up to 2,000,000 shares of common stock. The board of directors
authorized additional repurchases of up to 1,028,000 shares in December 1997,
1,280,000 shares in October 1998, and 2,000,000 shares in March 2000. We did not
repurchase any shares during the September 2000 quarter but we have repurchased
140,000 shares since September 30, 2000, that were not related to the stock
repurchase transaction with the Fulton family. We have 1,502,000 authorized
shares remaining under the stock repurchase program. From the initial
authorization of the program through September 30, 2000, we have repurchased
5,048,000 shares of common stock at a cost of $115.3 million. Under our senior
credit facility, we may repurchase during the fiscal year 50% of our prior
fiscal year net income, plus an additional one-time $35 million during the term
of the facility.
WORKING CAPITAL REQUIREMENTS. In addition to cash requirements needed for
the purchase and construction of capital equipment, we require working capital
to finance customer receivables and
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inventory levels. At September 30, 2000, notes receivable from customers totaled
$19.4 million, primarily resulting from gaming machine sales. Because we expect
the continued growth of the gaming machines segment and intend to continue
financing sales when advantageous to us, notes receivable balances may increase.
Financing gaming machine sales over short periods is common in the gaming
machine sales industry, and most of our customer notes range from one to two
years, with interest rates of up to 14%. Some international and domestic
receivables have repayment periods of up to nine years.
We continually seek opportunities to expand our gaming-oriented businesses
in new and existing gaming jurisdictions. If successful in pursuing another
opportunity in any gaming-oriented business and depending on the amount of
funding required, we may be required to obtain additional financing.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." In June 2000, the Securities and Exchange Commission staff amended
SAB 101 to provide registrants with additional time to implement SAB 101. We
will be required to adopt SAB 101 by the fourth quarter of fiscal 2001.
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BUSINESS
We are a diversified, global gaming company. We operate principally in three
business segments: gaming machines, gaming operations and gaming systems. We
have equipment and systems operating in the United States, Canada, Asia,
Australia, Europe, South America, South Africa and the West Indies.
GAMING MACHINES
GENERAL
Our gaming machines segment includes proprietary game development and
distribution and gaming machine sales. Our proprietary games business unit
focuses on the development of game software and the use of our gaming machines
to generate recurring revenue streams through lease, participation, royalty
revenue or other similar arrangements with our casino customers. Our VLC Casino
business unit manufactures and sells gaming machines.
PROPRIETARY GAMES
GENERAL. Our proprietary games are designed to increase gaming customer
play levels by providing more entertainment than competing games. We believe our
games provide a higher win per machine on average than our competitors' existing
gaming machines, while generating recurring streams of revenue from royalty,
revenue participation, fixed daily rental fee or other similar revenue-sharing
arrangements with our casino customers. We have games installed on a
revenue-sharing basis in most casinos in most domestic jurisdictions where
gaming is legal. We seek to capitalize on our established marketing
infrastructure, base of existing casino customers and licenses in most major
domestic gaming jurisdictions to further expand and develop the market for
proprietary games distributed under recurring-revenue arrangements.
We develop or acquire the rights to stand-alone proprietary gaming machines
and place them with casino customers free of any initial charge, allowing the
casino to avoid up-front purchase costs, through a variety of arrangements that
provide us with recurring revenue streams. We utilize numerous unique concepts
and designs in order to increase overall gaming customer play levels. For
example, our Wheel of Gold-TM- incorporates the opportunity to activate a
three-dimensional wheel with significant potential winnings, providing a
secondary game event and additional excitement to the customer through our "game
within a game" concept.
In September 1996, we entered into a strategic alliance in the form of a
joint venture with International Game Technology, the largest manufacturer of
computerized casino gaming products, in order to enhance our ability to develop
and distribute proprietary games on a recurring-revenue basis. Through the
Anchor-IGT joint venture, Anchor and IGT develop and install wide area
progressive, or WAP, gaming machines based on both existing proprietary games
and other game designs. The first WAP machine introduced by the Anchor-IGT joint
venture was Wheel of Fortune-TM-, a game that is very similar to our Wheel of
Gold-TM-. There are currently approximately 6,500 Wheel of Fortune-TM- machines
installed in casino locations. The joint venture began distributing the
multi-line, multi-coin video Wheel of Fortune-TM- in September 1999, and there
are currently approximately 4,600 video Wheel of Fortune-TM- machines installed
in casino locations. The video Wheel of Fortune-TM- machine's popularity with
customers has caused a current production backlog of approximately 1,000
machines. In January 2000, Anchor and IGT cross-licensed "coin-free" related
rights and patents and added the I Dream of Jeannie-TM- gaming machine to the
Anchor-IGT joint venture. The I Dream of Jeannie-TM- gaming machine, which we
introduced into the market in October 2000, currently has committed orders for
approximately 1,200 machines. We believe that the Anchor-IGT joint venture has
facilitated both the expansion of our proprietary games business and our ability
to develop and distribute additional proprietary games.
In addition to developing and distributing proprietary games, we have also
developed and have begun introducing conversion games to our casino customers
through the Anchor-IGT joint venture. The conversion business involves upgrading
existing casino-owned IGT gaming machines with both
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software and hardware upgrades in exchange for a fixed portion of the future
incremental revenue stream generated by the conversion. This upgrade generally
takes the form of placing a secondary bonusing type of event on or in the
existing base unit. As of June 30, 2000, we have received regulatory approval in
Nevada and several other jurisdictions for several different conversion games
and have placed some of the games in casinos on a limited basis. We have also
received regulatory approval in Nevada and several other jurisdictions that
allows us to convert slot machines to accept up to 45 coins per wager. This
provides the player with a multi-line, multi-coin spinning reel slot machine
experience. We introduced this multi-coin feature on the conversion platform
during the quarter ended September 30, 1999. We currently have approximately
1,000 conversion games placed in casinos.
Anchor and IGT share in the management and generally share equally in the
profits and losses of the Anchor-IGT joint venture. Property, including
intellectual property, developed through the Anchor-IGT joint venture is owned
by the Anchor-IGT joint venture. The joint venture agreement had an initial
duration of ten years, expiring in September 2006. In 1999, Anchor and IGT
extended the joint venture agreement through December 15, 2015. After the 2015
expiration, unless the parties agree to a further extension, either party may
terminate the Anchor-IGT joint venture upon at least one year's prior notice.
The Anchor-IGT joint venture does not acquire any rights to the individual
intellectual property rights of Anchor or IGT that are developed outside of the
Anchor-IGT joint venture. In March 1999, Anchor granted IGT a non-exclusive
right under its secondary event patents. In exchange, IGT agreed to not make or
distribute gaming machines covered by the claims of the Anchor patents other
than on behalf of the Anchor-IGT joint venture. In addition, IGT granted the
Anchor-IGT joint venture the exclusive rights to the stand-alone Barcrest line
of gaming machines and IGT agreed to develop a multi-line, multi-coin
video-based game with the Wheel of Fortune-TM- as a secondary event for the
exclusive use of the Anchor-IGT joint venture.
DEVELOPMENT. We are continually engaged in the development of new
proprietary games and in the improvement of existing games. After we have
identified the basic concept for a new game, we work to refine the new game to
maximize player appeal. Our efforts include computer-simulated studies of the
game probabilities to determine the optimal pay schedules; research of, and
application for, any significant intellectual property rights that can be
claimed; design of packaging for the game; establishment of a pricing strategy
for the game; and application for the necessary regulatory approvals. We then
solicit feedback from potential casino customers to further refine the game. At
the production stage, we and the manufacturer refine the technology and
construction of the game. Prior to the release of any new game, we must receive
necessary regulatory approvals.
DISTRIBUTION. We have an established sales organization with offices in
Nevada, Missouri, Mississippi, Louisiana, Indiana and New Jersey, servicing an
established customer base of over 300 casinos as of June 30, 2000. We distribute
our proprietary games primarily through a direct sales effort in which sales
representatives call on casinos and other potential customers. We also use
distributors in a limited number of jurisdictions. In deciding whether to use a
distributor in a new jurisdiction, we consider a variety of factors, including
existing relationships with operators and location owners, the ability of a
distributor to service the market after the sale, the distributor's financial
condition, any regulatory constraints and the long-term economics to us of
direct sales as opposed to sales to distributors.
MACHINE SALES
We develop and manufacture video gaming machines to sell to casino gaming
venues through our VLC Casino business unit. We hold licenses to sell gaming
machines in numerous jurisdictions, including Nevada, Mississippi and New
Jersey, the three largest casino markets in the U. S., as well as in most other
major North American gaming jurisdictions.
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GAMING OPERATIONS
GENERAL
Our gaming operations segment consists of Colorado Central Station Casino,
Colorado Grande Casino and gaming machine route operations in Nevada and
Montana. Additionally, we have a 50% interest in a development contract and
seven-year management contract with the Pala Band of Mission Indians to develop
and manage PALA, a casino, dining and entertainment complex currently under
construction in northern San Diego County, California, which we currently expect
to open in the spring of 2001.
COLORADO CASINO OPERATIONS
In November 1990, the State of Colorado approved limited stakes gaming
($5.00 or less per wager) in two historic gold mining areas: Black Hawk/Central
City and Cripple Creek. We opened a casino in each of these areas. Our casinos
in Colorado emphasize gaming machine play, as opposed to table game play.
COLORADO CENTRAL STATION CASINO. We opened the Colorado Central Station
Casino in December 1993. It is located in Black Hawk, Colorado, which is
contiguous with Central City, and serves approximately three million people
living within a 100-mile radius, including residents of Denver and Boulder,
Colorado. We believe that the Colorado Central Station Casino is a market leader
and experiences a higher daily win per machine than its significant competitors.
This casino is approximately 40 miles from Denver and 10 miles from Interstate
70, the main highway connecting Denver to many of Colorado's major ski resorts,
and benefits from a favorable location, as it is one of the first casinos
encountered by customers traveling from Denver to the Black Hawk/Central City
area. The casino features approximately 750 gaming machines, 9 blackjack tables,
6 poker tables, and a food & beverage operation, and offers more than 600
parking spaces.
COLORADO GRANDE CASINO. We operate the Colorado Grande Casino, which we
opened in November 1991, through an 80% owned subsidiary. It is located in
Cripple Creek, Colorado, and serves approximately two million people living
within a 100-mile radius, including residents of Colorado Springs and Pueblo,
Colorado. This casino is approximately 55 miles from Colorado Springs and 75
miles from Pueblo, and is located at one of the principal intersections in
Cripple Creek. It features more than 210 gaming machines, 44 adjacent parking
spaces, and a full service restaurant and bar.
ROUTE OPERATIONS
We are one of the largest gaming machine route operators in Nevada, with 885
gaming machines in 66 locations at June 30, 2000. We believe we have a higher
win per unit per day than any of our significant route competitors. At June 30,
2000, 771 of our 885 gaming machines in Nevada were located in or near Las
Vegas, which has been one of the fastest growing cities in the United States in
recent years. Our route operations also include video gaming machines and
amusement machines in business establishments located in three areas in southern
Montana. At June 30, 2000, we had over 1,250 video gaming machines and 750
amusement machines in Montana. We believe that our route operation contracts
provide us with a stable long-term revenue source.
Our gaming machine route operations involve the installation, operation, and
service of gaming machines (virtually all video poker machines) under space
leases with retail chains and revenue participation agreements with local
taverns and retail stores. Space leases require payments of fixed monthly fees
on a per store basis. Revenue participation agreements provide for payment to
the location owner of a percentage of revenues generated by our machines at such
location. Both types of agreements generally give us the exclusive right to
install gaming machines at such locations, and both generally require us to pay
all installation, maintenance and insurance expenses related to our operations
at each location. We pay all applicable taxes under space leases, and generally
share such taxes on the same basis as revenues under revenue participation
arrangements. Our largest route
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contract is a space lease with Smith's Food and Drug Centers, Inc. At June 30,
2000, it covered 359 machines, and it extends through 2010. The contract with
Smith's grants us the exclusive right to install gaming machines at all Smith's
stores in Nevada, including any stores opened in the future.
Our marketing strategy in our route operations is to attract and retain
gaming machine patrons by offering an attractive selection of gaming machines.
Prior to installing machines at a location, we study the market potential and
customer base of the location in order to determine the appropriate mix of
gaming machines. We also offer progressive jackpots at most of our route
locations. Our strategy for attracting and retaining location owners is to offer
quality service. We operate and service our machines using our own employees,
who routinely repair and maintain our gaming machines in order to improve
reliability and in-service time. In addition to physical service of the gaming
machines, our employees remove coins and bills from the machines, refill
machines that have exhausted their supply of coins, and provide payment of
jackpots in excess of machine limits. We also operate change booths at most of
our retail store locations.
AGREEMENTS WITH PALA BAND OF MISSION INDIANS
In September 1999, we announced the signing of development and management
agreements with the Pala Band of Mission Indians for the design, construction,
financing, operation, and management of PALA, a 187,000 square-foot casino,
dining and entertainment complex and parking structure on the federally
recognized Pala reservation near San Diego, California. PALA will be located in
a densely populated area of northern San Diego County, closer to the residences
of approximately 700,000 potential casino patrons than any other existing, new
or planned casino. The facility will include more than 1,500 slot machines, 46
table games, five food and beverage outlets and two entertainment venues. We
believe this is the first master-planned, Las Vegas-style casino in Southern
California. We currently expect the facility to open in the early spring of
2001.
The National Indian Gaming Commission approved our agreements with the Pala
tribe in August 2000. The management agreement, pursuant to which we will
receive management fees, extends for a period of seven years from the opening
date of the facility. Our agreements with the Pala tribe remain subject to the
continuing oversight and approval of various regulatory agencies.
Under the terms of the agreements, we agreed to assist the Pala tribe in
obtaining financing for the construction and operation of PALA and to advance
funds during the design and development stages. The Pala tribe secured a
$100.0 million credit facility through a loan agreement and ancillary financial
documents finalized on June 15, 2000. As a condition to receiving financing, we
agreed to guarantee the full payment and performance of the obligations of the
Pala tribe under the loan agreement. In addition, we have agreed to fund PALA
project cost overruns up to a total amount of $25.0 million. Under agreements we
have entered into with Jerry Turk, a longtime casino principal and executive, we
will pay to Mr. Turk monthly consulting fees for development and management
assistance, and 50% of the management and development fees and project costs
incurred prior to the assignment of a prior agreement.
Anchor Pala Development LLC, our wholly-owned subsidiary, will receive a
development fee based on the actual total project costs and a project fee based
on net gaming and non-gaming PALA revenues. As additional consideration for all
costs, risks, restrictions, and expenses associated with providing the
guarantee, we will receive fees based primarily on a percentage of the
outstanding loan balance.
RACETRACK ASSET SALES
In connection with the stock purchase and racetrack asset sale transactions
with some of our major stockholders that are more fully described in the section
"Prospectus Summary" under the heading "Recent Developments," we are currently
holding for disposition two assets that were formerly included in our gaming
operations segment. We expect the sale of these assets to be completed by the
end of March 2001. These assets include substantially all of the assets of Nuevo
Sol Turf Club, Inc.,
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which owns Sunland Park Racetrack & Casino in New Mexico, and our 25% equity
interest in Ourway Realty, LLC, which owns the Plainridge Racetrack in
Plainville, Massachusetts. After the disposition of these assets, we will retain
the rights to manage gaming operations at the Massachusetts location.
Sunland Park Racetrack & Casino, which is adjacent to El Paso, Texas, serves
approximately two million people living within a 100-mile radius of Sunland
Park, including residents of El Paso, Texas, Las Cruces, New Mexico, and Juarez,
Mexico. Sunland Park has operated as a racetrack since 1959, and its casino,
which was the first in New Mexico after the 1997 legalization of casino-style
gaming at racetracks by the New Mexico legislature, opened in February 1999. The
facility includes a 10,000 square foot gaming area, 1-mile racetrack,
grandstand, bar, restaurants, stables, and office space on 152 acres of improved
land. Live horse racing is conducted from November through early April, and both
the live and the non-live seasons feature simulcast racing from tracks
throughout North America. We currently operate 300 gaming machines, the maximum
permitted by law, including a mix of traditional reel and video terminals.
GAMING SYSTEMS
GENERAL
Our gaming systems segment consists of on-line lottery operations and
systems, video lottery systems and pari-mutuel wagering systems and products.
ON-LINE LOTTERY
We develop, manufacture, install and operate or license computer-based
on-line lottery systems through our subsidiary Automated Wagering
International, Inc. On-line lotteries are conducted through a computerized
lottery system in which lottery terminals are connected to a central computer,
usually by dedicated telephone lines. In 1971, AWI designed and installed the
country's first on-line lottery system for the New Jersey State Lottery. Since
that time, we have developed and installed many system and service features that
have subsequently become common in the lottery industry. In our lottery systems
segment, in addition to designing new and innovative lottery games, we design,
manufacture and distribute lottery terminals, central computers and software,
and have developed the expertise to interface these products with a wide range
of communications networks including telephone lines and alternate
communications systems. An on-line lottery system includes both the hardware and
software needed to process lottery transactions. The hardware consists of
terminals located in retail outlets, a telecommunications network and a central
computer system. Software components include communications applications, as
well as the software that operates the system and processes sales and validation
of lottery game tickets.
In the United States, we typically market our products and services to state
lottery authorities through long-term contracts awarded through a competitive
bidding process. Under this system, we maintain ownership of the lottery system
and operate it for the state in return for a percentage of lottery ticket sales.
Once a contract is awarded to a lottery vendor, that vendor is typically the
sole provider of on-line lottery services and operations to that jurisdiction
for a specified time period within a defined geographic area. In contrast, in
foreign jurisdictions and a minority of United States jurisdictions, lottery
equipment and systems are generally sold, and related software is licensed to
lottery authorities. In addition to providing equipment, we also train lottery
personnel in the operation of the system for a fixed fee or a fixed plus
percentage of handle fee, and offer add-on services, such as system
enhancements, equipment maintenance and ticket stock production, under separate
contracts.
We generally install and commence operations of a lottery network within six
to twelve months after being awarded a new lottery contract and, following the
start-up of the lottery network, we are responsible for all aspects of the
network's operations. We operate lottery systems in each jurisdiction with two
or more central computer systems. In addition, we employ a dedicated workforce
in each jurisdiction, which consists of a site manager, computer and hotline
operators and customer service and terminal replacement and repair technicians.
The equipment used in any jurisdiction must comply with
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specifications established by that jurisdiction, and new contracts typically
require new equipment of recent manufacture. We depreciate the equipment and
related implementation costs over the term of the related contract, including
extensions upon their exercise by the lottery authority.
Our on-line lottery revenues fluctuate depending on the relative sizes of
jackpots, the number of terminals on-line and the volume of tickets sold in the
jurisdictions in which we operate. All of our current domestic lottery contracts
are facilities management contracts under which we install, operate and maintain
a lottery network while retaining ownership or control of the lottery terminal
network. The facilities management contracts have initial terms of approximately
five to nine years, and generally contain one or more options permitting the
lottery authority to extend the initial contract term. Prior to the expiration
of the initial or extended term, a lottery authority is generally required by
law to commence a competitive bidding process for a new lottery contract. The
table below sets forth information regarding the term of each of our domestic
lottery contracts and, as of June 30, 2000, the approximate number of retail
terminals installed in each jurisdiction.
<TABLE>
<CAPTION>
ORIGINAL CURRENT EXPIRATION
CONTRACT CONTRACT DATE OF LOTTERY AUTHORITY ON-LINE
EFFECTIVE EFFECTIVE CURRENT EXTENSION TERMINALS AT
JURISDICTION DATE DATE CONTRACT(1) OPTIONS JUNE 30, 2000
------------ --------- --------- ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Delaware............................. 1/24/78 4/26/94 9/30/02 none 345
Florida(2)........................... 1/8/88 10/29/98 12/31/04 2 two-year 8,503
Indiana.............................. 1/13/99 1/13/99 8/28/06 3 one-year 3,981
Maryland(3).......................... 12/6/95 12/6/95 7/5/06 none 4,165
Minnesota............................ 5/25/90 3/27/97 8/12/02 5 one-year 1,968
Pennsylvania......................... 3/1/77 2/23/98 12/31/05 3 one-year 5,530
South Dakota......................... 7/17/90 3/12/99 9/30/06 3 one-year 356
West Virginia(4)..................... 2/29/00 2/29/00 7/1/05 2 one-year 1,399
</TABLE>
------------------------
(1) Expiration dates do not reflect the exercise of the lottery authorities'
extension options.
(2) In March 1999, the Department of Lottery of the State of Florida
renegotiated and signed an amended contract for on-line lottery system and
related services whereby we will design, install and operate a new statewide
on-line lottery system for five years and three months, with 2 two-year
renewal options. See the section "Business" under the heading "Litigation."
(3) In August 2000, the Maryland Board of Public Works granted us the maximum
5-year extension.
(4) The contract for provision of services to the West Virginia Lottery was
awarded in 1999 and operations commenced July 1, 2000.
In the United States, revenues from lottery ticket sales have grown, and
many states have become increasingly dependent on their lotteries as significant
funding sources. In 1970, only two states had authorized traditional lotteries,
selling an aggregate of approximately $49.2 million in tickets. According to
recent industry statistics, as of June 30, 2000, 38 jurisdictions in the United
States were operating lottery systems, with aggregate lottery sales in excess of
approximately $35 billion. Internationally, governments in approximately 80
countries have authorized lottery games, primarily as a means of generating
non-tax revenues. Over 200 lotteries are operating worldwide, many of which are
government-operated or privately licensed. We currently operate lottery systems
for eight states, and have sold to and currently support or maintain lottery
systems for customers in Canada, Chile, China, Norway, Switzerland, Vietnam and
the West Indies. We believe that we are well positioned to take advantage of
anticipated future growth in the on-line lottery market, both in the United
States and around the world.
VIDEO LOTTERY
Video lottery gaming is the use of video gaming machines to provide low
stakes gaming entertainment to enhance revenue for states and other lottery
jurisdictions. The machines, offering
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games including poker, blackjack, bingo, keno, as well as spinning reel games,
are generally located in age-restricted establishments. The stakes on video
lottery gaming machines typically range from $0.25 to $2.50 per play, and
payoffs typically are capped at $100 to $1,000. Currently, eight U.S. states
(Delaware, Louisiana, Montana, New Mexico, Oregon, South Dakota, Rhode Island,
and West Virginia), five states in Australia, eight Canadian provinces, Iceland,
Norway, Sweden and South Africa have authorized various levels and forms of
video lottery gaming.
Video lottery gaming machines can be operated either through a central
control system controlled by a governmental authority or on a stand-alone basis.
In every domestic video lottery gaming jurisdiction except Montana, the gaming
machines are connected to a central control system. We believe that the greater
control and monitoring ability offered through central control systems will
encourage new jurisdictions to adopt a video lottery program and use such
systems. Casinos also use similar technology to monitor and manage progressive
systems.
We provide central control systems for video lottery gaming to government
entities through our VLC Government business unit. We derive revenues from our
central control system software through the granting of licenses to use the
software and by providing installation and maintenance services with respect to
the software. We have designed and installed software for video lottery central
control systems for Delaware, New Mexico, South Dakota, Loto Quebec, the
Atlantic Lottery Commission's multi-jurisdictional system now covering four
provinces in eastern Canada, Tattersall's and TABCORP in Victoria, Australia,
Independent Gaming Corporation in South Australia, the Northern Territory
Racing & Gaming Authority of Northern Territory, Australia, and the Icelandic
Gaming Fund Raising in Iceland.
Our central control systems incorporate state-of-the-art technology, and are
designed with features intended to appeal to the concerns of the operator,
including: security of communications, central control of gaming machines on the
system, the compatibility of our central control system with gaming machines
made by other manufacturers, economy of operation due to the ability to use a
dial-up format (as opposed to requiring dedicated lines), on-demand generation
of reports and audits, the capability to transfer funds electronically and the
flexibility to meet the needs of markets of various sizes, accommodate
regulatory changes and adapt to new game designs and features. Our Advanced
Gaming System software is modular in design, and allows for the addition of new
features, such as player tracking, wide-area progressives and downloadable
software to gaming machines. We market our central control system software
through our direct sales force, generally beginning when a legislative body is
considering the adoption of video lottery enabling legislation.
PARI-MUTUEL
Pari-mutuel wagering is pooled wagering in which a central system totals the
amounts wagered and adjusts the payouts to reflect the relative amounts bet on a
racing event's various outcomes. The pooled wagers are paid out to bettors as
winnings, to the applicable regulatory or taxing authorities, and as purses to
the owners and trainers of the horses or greyhounds to encourage them to enter
the racetrack's live races. The balance of the pooled wagers is retained by the
wagering facility.
Pari-mutuel wagering is currently authorized in 42 U. S. states, all
provinces in Canada, and many foreign countries, and is conducted at horse and
greyhound racetracks, off-track betting facilities and jai alai frontons. We
provide pari-mutuel wagering services, through our United Tote subsidiary, to
over 120 of the approximately 350 pari-mutuel facilities in North America, as
well as to facilities in South America, the Philippines, Spain and the West
Indies. We have the ability to manage large volume pari-mutuel operations, as
demonstrated by the fact that our largest pari-mutuel customer is currently
Churchill Downs, one of the most prominent horse racetracks in the United
States.
While on-track attendance and handle from pari-mutuel wagering at live
events in the United States has markedly decreased over the last decade, this
decline has been more than offset by the increase in simulcast and off-track
wagering handle during the same period. For example, according to recent
industry statistics, pari-mutuel horse-racing wagering handle in the United
States grew from
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$9.9 billion in 1994 to $13.7 billion in 1999, a compound annual growth rate of
7%. The increase in remote wagering has resulted in increased pari-mutuel handle
by facilitating around-the-clock wagering availability, year-round racing events
upon which to wager (previously impracticable due to the seasonal nature of
regional racing activity), and the consolidation of "live" racing. In addition
to opportunities in the pari-mutuel business, we also expect that our
relationships with pari-mutuel facilities could provide us with gaming machine
placement opportunities in the future if, as current trends in some
jurisdictions indicate may be the case, jurisdictions that currently permit only
pari-mutuel wagering decide to permit gaming machine activity in pari-mutuel
facilities.
In addition to providing, maintaining and operating pari-mutuel systems, we
also design products used in those systems. These products include
high-performance computer hardware and software systems that are used in
pari-mutuel terminals, as well as the terminals themselves. Our terminals
feature an enhanced display and a built in magnetic card reader. Some of our
terminals are portable and wireless, and others allow telephone wagering.
Approximately 8,500 of our terminals are presently in service at customer
locations.
COMPETITION
GAMING MACHINES. We compete with domestic and foreign manufacturers of
video gaming equipment and providers of traditional on-line lottery systems and
casino-based gaming machines. Among our competitors in this market are Alliance
Gaming, Aristocrat, Atronic, Casino Data Systems, GTECH, IGT, Silicon Gaming,
Spielo Gaming International and WMS Industries. We must continually adapt our
products to consumer preferences in order to effectively compete in this market,
particularly since many of our competitors are larger than we are and have
access to greater financial resources.
GAMING OPERATIONS. Our casinos in Colorado face competition from several
large new casinos that have opened in their areas within the past few years, and
we are aware of several other casino projects in various stages of planning. Our
route operations in Nevada must compete with the broad gaming opportunities that
are available in Nevada, and our Montana route operations compete directly with
other machine route businesses and with companies selling video lottery gaming
machines directly to location owners.
GAMING SYSTEMS. Relatively few new or rebid on-line lottery contracts are
awarded each year, and lottery contract awards in the United States are often
challenged by unsuccessful bidders through litigation. Our principal competitor
in the on-line lottery business, GTECH, is significantly larger than we are,
currently supplying lottery systems to 26 of the 38 United States on-line
lottery jurisdictions. GTECH also has a substantial international presence.
Other lottery competitors include Autotote Corporation, EssNet/Alcatel,
International des Jeux (Lotto France), International Lottery and Totalizer
Systems and several other companies. In jurisdictions with both on-line and
video lottery gaming products, the products may compete with each other for
wagering market share. Our principal pari-mutuel competitors are AmTote,
Autotote and, at some facilities, a limited number of other smaller, local and
regional companies. Pari-mutuel competition outside of North America is more
fragmented, with competition provided by several international and regional
companies. No single pari-mutuel company maintains a dominant market position
internationally, although some companies possess regional strengths.
INTELLECTUAL PROPERTY RIGHTS
We have secured, and endeavor to secure, to the extent possible, exclusive
rights in some of our proprietary gaming machines, on-line lottery systems and
pari-mutuel products, primarily through federal and foreign intellectual
property rights, such as patents and trademarks. The United States Patent and
Trademark Office has issued patents to us covering various games and concepts,
all of which extend until at least 2008. The most notable of our patents is our
patent on bonusing features related to our market-leading "game within a game"
concept, which incorporates into a slot machine a "secondary event." This is the
concept that we use in the Wheel of Gold-TM- and Wheel of Fortune-TM-
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gaming machines. We have also filed patent applications and trademark
applications in strategically selected foreign countries. We are not aware of
any pending claims of infringement or other challenges to our right to use our
patents, trademarks or other intellectual property in any of our current
businesses.
MANUFACTURING AND SUPPLIERS
Almost all of our gaming machines are manufactured by third parties,
including Bally Gaming International, Casino Data Systems, IGT and Sigma Games.
We expect to continue our reliance on third parties for the manufacture of our
proprietary games. Our primary manufacturing facility for on-line lottery and
pari-mutuel systems and products is located in Bozeman, Montana. The
manufacturing operations at this location consist primarily of assembly and
testing of lottery system terminals, gaming system machines and pari-mutuel
systems machines.
EMPLOYEES
At June 30, 2000, we employed approximately 2,790 persons, the substantial
majority of whom are non-management personnel. None of our employees is covered
by a collective bargaining agreement, and we believe that we have satisfactory
employee relations.
PROPERTIES
Our principal properties consist of the following:
AWI FACILITY. Our Clifton, New Jersey facility is a 140,000 square foot
leased facility used in the gaming systems segment.
BOZEMAN, MONTANA MANUFACTURING FACILITY. Our Bozeman, Montana facility
houses our on-line lottery and pari-mutuel terminal manufacturing operations, as
well as administrative and engineering functions. We own this facility, which
includes nearly 80,000 square feet of manufacturing and office space. In
addition, we lease 73,500 square feet of warehouse, manufacturing and office
space in Bozeman and the surrounding area.
COLORADO CENTRAL STATION CASINO. The Colorado Central Station Casino, which
is owned by us and used in the gaming operations segment, is situated on
approximately 1.8 acres of land on the south end of Black Hawk, near Main Street
and Colorado State Highway 119.
COLORADO GRANDE CASINO. The Colorado Grande Casino, which is a leased
facility used in the gaming operations segment, is located 55 miles from
Colorado Springs and 75 miles from Pueblo, Colorado.
CORPORATE HEADQUARTERS. Our Las Vegas headquarters facility is located in
Las Vegas, which is leased, includes 34,000 square feet of office space and
30,000 square feet of sub-assembly and warehouse space. We use the facility for
executive offices, as well as for the Nevada route operations, proprietary games
business and certain administrative and engineering functions.
SUNLAND PARK RACETRACK & CASINO. Sunland Park Racetrack & Casino is located
on 152 acres of improved land in New Mexico, adjacent to El Paso, Texas and near
Juarez, Mexico. Sunland Park is managed under our gaming operations segment and
is currently being held for disposition in connection with the transactions
described in the section "Prospectus Summary" under the heading "The
Transactions."
We have additional leases of various small facilities throughout the
jurisdictions in which we operate for sales and customer service functions. We
believe that the properties described above will be adequate for our business
needs for the foreseeable future.
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LITIGATION
On February 17, 2000, we filed a complaint in U.S. District Court, District
of Nevada against former officers of Powerhouse Technologies, Inc. and other
parties. The complaint questions certain specified accounting practices that
were used prior to the acquisition.
In February 1999, GTECH Holdings Corporation filed a complaint for
declaratory judgment, injunction, and violation of the Public Records Law
against the State of Florida, Department of Lottery and AWI, a subsidiary of
ours, in the Circuit Court, Second Judicial Circuit, in Leon County, Florida.
The complaint requests the Circuit Court to declare the contract between AWI and
the Florida Lottery void in the event the First District Court of Appeal of
Florida upholds the Florida Lottery's decision to award the on-line lottery
services contract to AWI. Subsequent to the execution of the renegotiated
contract between AWI and the Florida Lottery in March 1999, GTECH Holdings
Corporation amended the complaint.
On January 28, 2000 the Circuit Court of Leon County granted GTECH Holdings
Corporation's cross motion for summary judgment on Count II of the complaint
filed by GTECH in March 1999. Count II of GTECH's complaint challenges the
validity of the amended contract entered into on March 9, 1999 between the State
of Florida, the Department of Lottery, and AWI, on the grounds that, among other
things, the amended contract is materially different from the proposal which AWI
submitted. The ruling declares null and void the amended contract between the
Florida Lottery and AWI effective February 2, 2000. The Florida Lottery filed an
appeal on February 2, 2000 and as a result, an automatic stay of the prior order
took place. The Florida Lottery and AWI filed an appeal on March 27, 2000. The
appeal is currently pending. AWI continues to provide its on-line gaming
services and products to the Florida Lottery under the terms of the amended
contract. We will vigorously defend and protect AWI's rights under this lottery
agreement. There can be no assurance, however, that our AWI subsidiary will be
successful in its efforts or that the ultimate results of this litigation will
be favorable to us. As of the date of this prospectus, we have invested
approximately $35 million in equipment and systems for the Florida Lottery. If
we are unsuccessful in this litigation, this capital expenditure may be
jeopardized.
In February 1999, we and the Anchor-IGT joint venture filed an action in U.
S. district court, District of Nevada, against Acres Gaming, Inc. ("Acres"). The
complaint alleges infringement of our secondary event patents as well as various
contract breaches by Acres. In April 1999, Acres responded to our lawsuit by
filing an answer and counterclaim against us and the Anchor-IGT joint venture.
Additionally, in April 1999, Acres filed an action in Oregon state circuit court
against us and the Anchor-IGT joint venture alleging wrongful use of Acres
intellectual property and breach of fiduciary duties. We believe Acres'
counterclaim and state circuit court lawsuit are without merit and intend to
vigorously contest the claims. The Oregon state circuit court action has been
moved to the U.S. District Court, District of Oregon, and has been stayed
pending the outcome of the Nevada actions.
Several securities class action lawsuits have been filed against us and
certain of our current and former officers and directors. The lawsuits were
filed in various jurisdictions following our announcement in early
December 1997 that our results for the December quarter might not meet analysts'
expectations. The lawsuits have been brought on behalf of a purported class of
purchasers of our stock and allege violations of state and/or federal securities
laws arising out of alleged misstatements and omissions to state material facts
over various periods of time covered by the suits. The lawsuits were
consolidated in Nevada, both in federal and state court. The consolidated
federal action, captioned In re Anchor Gaming Securities Litigation, Civil
Action No. CV-S-97-01751-PMP (RJJ), was dismissed on January 6, 1999 with the
court entering a judgment in our favor. The consolidated state action, captioned
Ryan, et al. v. Anchor Gaming, et al., Civil No. 98-A383456-C, has been stayed
by order of the court. Certain other actions have been transferred and/or
dismissed. We believe that the claims are without merit, and we intend to
vigorously contest the lawsuits. We cannot presently state the nature of further
proceedings, if any, in the state or federal actions.
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GOVERNMENT REGULATION
OVERVIEW OF GAMING REGULATION
The manufacture and distribution of gaming machines and the operation of
gaming facilities are subject to extensive federal, state, provincial and local
regulation. While the regulatory requirements vary from jurisdiction to
jurisdiction, virtually all jurisdictions require licenses, findings of
suitability and other required approvals with respect to us, our key personnel
and products. These authorizations typically involve rigorous background
investigations of officers, directors, and key personnel and a comprehensive
review of our business transactions and operations. Gaming machines and
associated equipment must also be tested and approved to ensure compliance with
required standards of operation and play. The gaming laws and regulations of
substantially all jurisdictions require beneficial owners of more than 5% of our
outstanding common stock to file reports and may require them, at the discretion
of the gaming regulatory authorities, to file an application for a finding of
suitability depending on the amount of stock ownership and the person's ability
to influence or control our management.
Laws of the various gaming regulatory agencies generally serve to protect
the public and ensure that gaming related activity is conducted honestly,
competitively, and free of corruption and unsuitable persons. Gaming regulatory
authorities may bring an action to revoke, suspend, condition, or restrict a
license for any cause determined to be in violation of its laws or regulations.
Fines for violation of gaming laws or regulations may be levied against the
holder of a license and persons involved.
The regulation of state video lottery programs is similar to the regulatory
oversight in casino jurisdictions. In general, licenses, product testing, and
findings of suitability are required of manufacturers, distributors, and
operators of video lottery terminals, or VLTs, by the state lottery or
governmental agency administering the video lottery program. There are presently
eight video lottery operations authorized under state law in the United States.
We manufacture and market VLTs and central monitoring systems for
government-sponsored video lottery programs in the United States and
international jurisdictions. Generally, maximum wagers and prize awards are
limited to smaller amounts than those authorized in casino jurisdictions. VLTs
are typically linked to a central computer for accounting and security purposes
and are monitored by state lotteries or other government agencies.
CASINO OPERATIONS
Our Colorado Grande Casino and the Colorado Central Station Casino located
and operating in Cripple Creek and Black Hawk, Colorado, respectively, are
subject to the licensing and regulatory control of the Colorado Limited Gaming
Control Commission (the "Colorado Commission") and the Colorado Division of
Gaming (the "Colorado Division"), (collectively the "Colorado Authorities").
Each casino in Colorado requires a retail gaming license, which must be renewed
annually.
Our Sunland Park Racetrack & Casino located and operating in Sunland Park,
New Mexico is subject to the licensing and regulatory control of the New Mexico
Racing Commission and New Mexico Gaming Control Board (collectively the "New
Mexico Authorities"). The casino requires a current license to conduct
pari-mutuel wagering at the racetrack facility and a gaming operator's license,
both of which are renewable annually. The sale of alcoholic beverages at our
casinos is subject to licensing, control, and regulation by the applicable state
and local authorities. All alcoholic beverage licenses are revocable and are not
transferable. Alcoholic beverages are not permitted in the casino area of the
Sunland Park facility.
The legislation and regulations governing the Colorado and New Mexico casino
operations mandate investigations for findings of suitability, registration and
other approvals which are similar to those required of other gaming
jurisdictions discussed above. These include, but are not limited to, findings
of suitability for officers directors and key personnel; individuals accruing
beneficial stock ownership in our publicly traded shares; approval of the
placement and operation of gaming machines;
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and notification and approval of any change in ownership or corporate officers
and directors us or our subsidiaries.
Additionally, the casino operations are subject to extensive scrutiny and
regulation in certain areas of the operations for which procedures and plans
must be developed and approved by the Colorado and New Mexico Authorities. These
include, but are not limited to: administrative, accounting, security, prize
payouts, age requirements for patrons; game placement, purchase of approved
gaming machines and associated equipment; business operations, licensing of all
casino employees; and internal controls. New Mexico is the first state to
mandate responsible gambling guidelines for the industry as part of their
licensing requirements. Applicants for a license must develop a Compulsive
Gambling Assistance Plan ("Plan") to assist in the prevention, education and
treatment of compulsive gambling for submission and state approval. The Plan
must include a detailed description of the program, its estimated costs for
administration, and educational training sessions for the licensee's employees
that address methods of recognizing compulsive gambling behavior, intervention
techniques and other subjects as determined by the Board. The New Mexico
Authorities approved our Plan in the granting of Sunland's gaming operator's
license. We have a Director of Responsible Gaming, who is responsible for
administering the responsible gaming program and Plan at Sunland Park
Racetrack & Casino as well as for other areas of our operation. In addition,
.25% of net win is paid to support a state administered problem gaming fund.
The Colorado and New Mexico Authorities have broad discretion to revoke,
suspend, not renew, condition, limit, or fine a licensee for failure to satisfy
the requirements for licensure or any violation of the state gaming statutes or
regulations. Our licenses have been renewed each year since they were initially
received in 1991 for the Colorado Grande Casino, 1993 for the Colorado Central
Station Casino, and 1999 for the Sunland Park Casino. We can give no assurances,
however, that these Authorities will give or renew such required licenses,
permits or approvals in the future, and their failure to do so would have a
material adverse effect on our operations.
In addition to the annual license fees, we must pay gaming taxes on a
percentage of the net proceeds generated at our three casino locations. Casino
gaming operators in New Mexico are taxed at 25% of the net take, which is
defined under New Mexico law as the total amount wagered and other compensation
received for operating games less the total amount paid out in prizes and
amounts paid to purchase annuities for progressive jackpots. Gaming machines are
limited to 300 at each casino location. Effective July 1 of each year, the
Colorado Gaming Commission establishes the gross gaming revenue tax for the
following 12 months. Effective July 1, 1999, the Colorado Gaming Commission
approved a revised tax structure reducing the annual tax on adjusted gross
proceeds ("AGP"), defined under Colorado law as the total amount wagered minus
the total amount paid out in prizes. Gaming taxes for the period of July 1, 1999
through June 30, 2001 have been set at .25% of the first $2.0 million of AGP, 2%
from $2.0 million to $4.0 million of AGP, 4% from $4.0 million to $5.0 million
of AGP, 11% from $5.0 million to $10.0 million of AGP, 16% from $10.0 million to
$15.0 million AGP, and 20% of amounts in excess of $15.0 million of AGP. The tax
rate from October 1996 through June 1999 for casino operations was set by the
Colorado Gaming Commission at 2% of the first $2.0 million of AGP, 4% from
$2.0 million to $4.0 million of AGP, 14% from $4.0 million to $5.0 million of
AGP, 18% from $5.0 million to $10.0 million of AGP, and 20% of amounts in excess
of $10.0 million of AGP.
The City of Cripple Creek currently imposes a two-tiered quarterly device
fee of $225 per device on the first 50 devices and $300 per device on devices of
51 or more. Black Hawk's annual fee per device is $750.00. Black Hawk and
Cripple Creek also impose liquor licensing fees, restaurant fees, and parking
impact fees. Further, we have paid, and in the future may be required to pay,
local parking and other municipal "impact fees" based on the square footage of
our facilities. Under the Colorado Constitution, the Commission is authorized to
increase the gaming tax rate to as much as 40%.
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There can be no assurance that the taxes or fees applicable to our casino
operations will not be increased in the future, either by the electorate,
legislation, or action by the New Mexico or Colorado Gaming Authorities
resulting in an adverse effect on our operations. Also, there can be no
assurances that future initiatives or other legislative changes imposing
additional restrictions or prohibitions on gaming in the two states will not be
introduced. If passed, such measures could cause a significant adverse affect on
our operations in Colorado and New Mexico.
LOTTERY OVERVIEW
There are currently 38 lotteries operating in the United States and District
of Columbia. All the lotteries operate under legislative authorization of each
respective state and offer various forms of lotto and instant scratcher games.
We provide on-line systems, terminals, technical operations and marketing
services to the following state lotteries: Delaware; Florida; Indiana; Maryland;
Minnesota; Pennsylvania; South Dakota; and West Virginia. We also provide
on-line systems and services to lotteries in Chile, China, Norway, Switzerland,
Vietnam and the West Indies. Policy and management decisions of lottery
operations in the United States are generally governed by a commission appointed
by the governor or other official of each state with the day-to-day operations
of the lottery administered by a director appointed either by the governor or
lottery commission.
To ensure the integrity of their lottery operations, most United States
jurisdictions require detailed background disclosure and investigations of
vendors providing goods and services under a contract award for a major
procurement, which typically include: on-line systems, terminals, and services;
instant ticket printing; ticket validation systems; drawing equipment; and
advertising services. Background investigations typically are conducted on
company subsidiaries, affiliates, officers, directors, and stockholders who own
5% or more of our outstanding capital stock for purposes of meeting suitability
standards defined under statutes and regulations of each jurisdiction.
Additionally, jurisdictions require vendors to meet comprehensive standards as
described in a lottery's request for proposals or invitation for bid for the
goods and services contracted. Failure on the part of a vendor to meet the
described suitability standards or provider requirements could jeopardize the
award of a lottery contract to us or provide grounds for the termination of an
existing lottery contract. Additionally, we are subject to the imposition of
liquidated damages by the lottery regulators for central system and terminal
downtime and have made payments to some state lotteries under the liquidated
damages provisions of our contract.
The award of lottery contracts and ongoing operations of lotteries in
international jurisdictions are also often highly regulated, although the
operations typically vary from lotteries in the United States. In addition,
foreign jurisdictions may impose restrictions on United States corporations
seeking to do business in those jurisdictions.
We regularly engage public affairs advisors and lobbyists in various United
States jurisdictions to advise legislators and the public in connection with
lottery legislation, and to advise us in connection with contract proposals.
In recent years, it has become increasingly common in the United States for
procurement procedures to allow an unsuccessful lottery provider to appeal a
decision to award the lottery to another party. Appeals typically take the form
of an administrative hearing, or a judicial hearing or both. Once an appeal is
filed, it may be several years before the outcome of the appeal is finally known
assuming the appellant exercises all available avenues of appeal. This
introduces an element of unpredictability into the on-line lottery market that
may continue long after procurements have been awarded.
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PARI-MUTUEL RACING REGULATION
Our operations in the manufacturing, sale and operation of live and
simulcast wagering systems for pari-mutuel wagering facilities in certain
jurisdictions are also subject to extensive state regulatory and licensing
requirements similar to our on-line lottery, video lottery and gaming machine
subsidiaries.
The most extensive pari-mutuel regulation affecting us is in the State of
New Mexico, the only venue in which our subsidiaries are licensed as a racetrack
operator and a supplier of pari-mutuel wagering equipment. These operations are
subject to the licensing and regulation of the New Mexico Racing Commission. The
NMRC annually approves licenses to conduct live quarter horse and thoroughbred
race meets and to participate in simulcasting based upon applications submitted
by the racetrack. In the horse racing industry, simulcasting involves sending
and receiving audio and video signals of live races to and from off-track
facilities, including other racetracks, for the purpose of wagering.
We can give no assurances that these jurisdictions will renew our required
licenses or permits in the future or approve any additional required filings to
enable us to engage in pari-mutuel wagering operations.
FEDERAL REGULATION AND RELATED DEVELOPMENTS
The Federal Gambling Devices Act of 1962 (the "Federal Act") makes it
unlawful, in general, for a person to manufacture, deliver or receive gaming
machines, gaming machine devices and components across interstate lines unless
that person has first registered with the Attorney General of the United States.
We and those subsidiaries involved in gaming activities are registered and must
renew their registrations annually. In addition, various record keeping and
equipment identification requirements are imposed by the Federal Act. Violation
of the Federal Act may result in seizure or forfeiture of equipment, as well as
other penalties.
NEVADA REGULATORY MATTERS
The manufacturing and distribution of gaming devices and the ownership and
operation of gaming machine routes in Nevada are subject to (i) the Nevada
Gaming Control Act and the regulations promulgated thereunder (collectively, the
"Nevada Act") and (ii) various local regulations. Generally, gaming activities
may not be conducted in Nevada unless licenses are obtained from the Nevada
Gaming Commission (the "Nevada Commission") and appropriate county and city
licensing agencies. The Nevada Commission, the Nevada State Gaming Control Board
(the "Nevada Board"), and the various county and city licensing agencies are
collectively referred to as the "Nevada Gaming Authorities."
The laws, regulations, and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things, (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping, and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the prevention of
cheating and fraudulent practices; and (v) providing a source of state and local
revenues through taxation and licensing fees. Changes in such laws, regulations,
and procedures could have an adverse effect on us.
Anchor Gaming is registered by the Nevada Commission as a publicly traded
corporation ("Registered Corporation") and has been found suitable as the sole
stockholder of Anchor Coin and Powerhouse Technologies, Inc. Powerhouse
Technologies is registered by the Nevada Commission as an Intermediary Company
and has been found suitable as the sole stockholder of VLC of Nevada, Inc. and
VLC, Inc. (f/k/a Video Lottery Consultants, Inc.) Anchor Coin, a wholly-owned
subsidiary of
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Anchor Gaming, is licensed as a manufacturer, distributor, and operator of a
slot machine route by the Nevada Gaming Authorities. VLC of Nevada, Inc., a
wholly-owned subsidiary of Powerhouse Technologies, is licensed as a
manufacturer, distributor, and slot machine route operator in the State of
Nevada. VLC, Inc., a wholly-owned subsidiary of Powerhouse Technologies, is also
licensed by the Nevada Authorities as a manufacturer and distributor.
For purposes of this section regarding Nevada Regulatory matters, Powerhouse
Technologies is referred to as the "Intermediary Company." Anchor Coin,
VLC, Inc. and VLC of Nevada, Inc. are collectively referred to as "Gaming
Subsidiaries." Gaming licenses held by the Gaming Subsidiaries require the
periodic payment of fees and taxes and are not transferable. As a Registered
Corporation, we are required to periodically submit detailed financial and
operating reports to the Nevada Commission and furnish any other information
that the Nevada Commission may require. No person may become a stockholder of,
or receive any percentage of profits from the Intermediary Company or the
licensed Gaming Subsidiaries without first obtaining licenses and approvals from
the Nevada Gaming Authorities. We, Intermediary Company and Gaming Subsidiaries
have obtained the various registrations, approvals, permits, findings of
suitability and licenses from the Nevada Gaming Authorities required to engage
in the manufacture and distribution of gaming devices and operation of slot
routes in Nevada.
All gaming devices and cashless wagering systems that are manufactured, sold
or distributed for use or play in Nevada, or for distribution outside of Nevada,
must be manufactured by licensed manufacturers and distributed or sold by
licensed distributors. All gaming devices manufactured for use or play in Nevada
must be approved by the Nevada Commission before distribution or exposure for
play. The approval process for gaming devices includes rigorous testing by the
Nevada Board, a field trial and a determination as to whether the gaming device
meets strict technical standards that are set forth in the regulations of the
Nevada Commission. Associated equipment must be administratively approved by the
Chairman of the Nevada Board before it is distributed for use in Nevada.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which gaming operations are to be conducted. Depending
upon the particular fee or tax involved, these fees and taxes are payable
monthly, quarterly or annually and are based upon either: (i) a percentage of
the gross revenues received; or (ii) the number of gaming devices operated.
Annual fees are also payable to the State of Nevada for renewal of licenses as a
manufacturer, distributor and operator of a slot machine route.
Legislation amending the Nevada Act was passed in 1999 that requires any
person, including an operator of an inter-casino linked system, who is
authorized to receive a share of the revenue from any slot machine or gaming
device operated on the premises of a licensee, to remit and be liable to the
licensee for that person's proportionate share of the license fees and tax paid
by the licensee. The legislation did not increase the tax, which for
unrestricted locations ranges from 3% to 6% of gross revenues (the difference
between amounts wagered by casino patrons and payments made to casino patrons).
The legislation will have some impact on our operations in those revenue
participation arrangements where the associated costs of fees and taxes have not
been shared. Historically, however, our gaming subsidiary, Anchor Coin, has paid
all taxes and fees under lease agreements with retail chains in its slot route
operations. In the operation of gaming machines under a number of participation
arrangements, taxes and fees are typically shared on the same basis as revenues.
Significant increases in the fixed fees or taxes currently levied per machine or
the tax currently levied on gross revenues could have a material adverse effect
on us.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, us, Intermediary Company
or licensed Gaming Subsidiaries in order to determine whether such individual is
suitable or should be licensed as a business associate of a gaming licensee.
Officers, directors, and certain key employees of the licensed Gaming
Subsidiaries must file
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applications with the Nevada Gaming Authorities and are required to be licensed
by the Nevada Gaming Authorities. Officers, directors, and key employees of us
and Intermediary Company who are actively and directly involved in the gaming
activities of the licensed Gaming Subsidiaries may be required to be licensed or
found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities
may deny an application for licensing or a finding of suitability for any cause
they deem reasonable. A finding of suitability is comparable to licensing, and
both require submission of detailed personal and financial information followed
by a thorough investigation. The applicant for licensing or a finding of
suitability must pay all the costs of the investigation. Changes in licensed
positions must be reported to the Nevada Gaming Authorities, and, in addition to
their authority to deny an application for a finding of suitability or
licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director, or key
employee unsuitable for licensing or to have a continuing relationship with us,
Intermediary Company or a licensed Gaming Subsidiary, the companies involved
would have to sever all relationships with such person. In addition, the Nevada
Commission may require us, Intermediary Company or licensed Gaming Subsidiaries
to terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
We and licensed Gaming Subsidiaries are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities, and similar financing transactions
by Anchor Coin must be reported to or approved by, the Nevada Commission.
If it were determined that a licensed Gaming Subsidiary violated the Nevada
Act, the gaming licenses it holds could be limited, conditioned, suspended, or
revoked, subject to compliance with certain statutory and regulatory procedures.
In addition, we, Intermediary Company, licensed Gaming Subsidiaries and the
persons involved could be subject to substantial fines for each separate
violation of the Nevada Act at the discretion of the Nevada Commission.
Limitation, conditioning, or suspension of any gaming license or the appointment
of a supervisor could (and revocation of any gaming license would) materially
and adversely affect Anchor.
Any beneficial holder of our voting securities, regardless of the number of
shares owned, may be required to file an application, be investigated, and have
his or her suitability as a beneficial holder of our voting securities
determined if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the state of
Nevada. The applicant must pay all costs of investigation incurred by the Nevada
Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of more
than five percent of our voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of our voting securities apply to the Nevada Commission for a finding of
suitability within thirty days after the Chairman of the Nevada Board mails a
written notice requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, that acquires more than
10% but not more than 15% of our voting securities, may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor will not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of our board of directors, any change in our corporate charter or
bylaws, management, policies, or our operations or any of our gaming affiliates,
or any other action that the Nevada Commission finds to be inconsistent with
holding our voting securities for investment purposes only. Activities that are
not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders;
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(ii) making financial and other inquiries of management of the type normally
made by securities analysts for informational purposes and not to cause a change
in its management, policies, or operations; and (iii) such other activities as
the Nevada Commission may determine to be consistent with such investment
intent. If the beneficial holder of voting securities that must be found
suitable is a corporation, partnership, or trust, it must submit detailed
business and financial information including a list of its beneficial owners.
The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board, may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identity
the beneficial owner. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the common stock of a Registered
Corporation beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. We are subject to disciplinary
action if, after we receive notice that a person is unsuitable to be a
stockholder or to have any other relationship with us, Intermediary Company or
licensed Gaming Subsidiaries, we do any of the following: (i) pay that person
any dividend or interest upon our voting securities; (ii) allow that person to
exercise, directly or indirectly, any voting right conferred through securities
held by that person; (iii) pay remuneration in any form to that person for
services rendered or otherwise; or (iv) fail to pursue all lawful efforts to
require such unsuitable person to relinquish his or her voting securities for
cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation, such as the old notes and the exchange
notes, to file applications, be investigated, and be found suitable to own the
debt security of a Registered Corporation. If the Nevada Commission determines
that a person is unsuitable to own such security, then pursuant to the Nevada
Act, the Registered Corporation can be sanctioned, including the loss of its
approvals, if without the prior approval of the Nevada Commission, it: (i) pays
to the unsuitable person any dividend, interest, or any distribution whatsoever;
(ii) recognizes any voting right by such unsuitable person in connection with
such securities; (iii) pays the unsuitable person remuneration in any form; or
(iv) makes any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation, or similar transaction.
We are required to maintain a current stock ledger in Nevada that may be
examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. We are also required to render maximum assistance in determining the
identity of the beneficial owner. The Nevada Commission has the power to require
our stock certificates to bear a legend indicating that such securities are
subject to the Nevada Act.
We may not make a public offering of our securities without the prior
approval of the Nevada Commission if the securities or the proceeds therefrom
are intended to be used to construct, acquire, or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. Such
approval, if given, does not constitute a finding, recommendation or approval by
the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities. Any representation to the
contrary is unlawful. The filing of an exchange offer registration statement or
shelf registration statement with respect to the notes constitutes a public
offering of our securities that requires the prior approval of the Nevada
Commission. On June 24, 1999, the Nevada Commission granted us prior approval to
make public offerings for a period of two years, subject to certain conditions
("Shelf Approval"). However, the Shelf Approval may be rescinded for good cause
without prior notice upon the issuance of an interlocutory stop order by the
Chairman of the Nevada Board and must be renewed at the end of the two year
approval period. The Shelf Approval also applies to any affiliated company
wholly-owned by us (an "Affiliate") which is a publicly
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traded corporation or would thereby become a publicly traded corporation
pursuant to a public offering. The Shelf Approval also includes approval for our
gaming subsidiaries to guarantee any security issued by, or to hypothecate their
assets to secure the payment or performance of any obligations evidenced by a
security issued by, us or one of our affiliates in a public offering under the
Shelf Approval. The Shelf Approval also includes approval to place restrictions
upon the transfer of, and to enter into agreements not to encumber the equity
securities of our gaming subsidiaries (collectively, "Stock Restrictions"). The
Shelf Approval does not constitute a finding, recommendation or approval by the
Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities offered. Any
representation to the contrary is unlawful. The exchange offer for the notes
will constitute a public offering (as defined in the Nevada Act) and will be
made pursuant to the Shelf Approval. Any Stock Restrictions in respect of the
exchange notes are covered by the Shelf Approval. However, any Stock
Restrictions in respect of the old notes are not covered by the Shelf Approval
and will require the prior approval of the Nevada Commission in order to be
effective. Although we have filed an application for such approval, there can be
no assurance that such approval will be granted.
Changes in our control through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby such person obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and the Nevada Commission
concerning a variety of stringent standards prior to assuming control of such
Registered Corporation. The Nevada Commission may also require controlling
stockholders, officers, directors, and other persons having a material
relationship or involvement with the entity proposing to acquire control to be
investigated and licensed as part of the approval process of the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities, and corporate defense tactics
affecting Nevada gaming licensees and Registered Corporations that are
affiliated with those operations may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates;
(ii) preserve the beneficial aspects of conducting business in the corporate
form; and (iii) promote a neutral environment for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before we can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by our board of
directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purpose of acquiring control of the
Registered Corporation.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of the Licensees' participation in such foreign gaming. The
revolving fund is subject to increase or decrease in the discretion of the
Nevada Commission. Thereafter, Licensees are also required to comply with
certain reporting requirements imposed by the Nevada Act. Licensees are also
subject to disciplinary action by the Nevada Commission if they knowingly
violate any laws of the foreign jurisdiction pertaining to the foreign gaming
operation, fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations, engage
in activities or enter into associations that are harmful to the state of Nevada
or its ability to collect gaming taxes and fees, or employ, contract with or
associate with a person in the
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foreign operation who has been denied a license or a finding of suitability in
Nevada on the ground of unsuitability.
NATIVE AMERICAN GAMING REGULATIONS
We, through our various gaming subsidiaries, manufacture and supply gaming
equipment to several Native American tribes and are engaged in the development
of a Class III gaming and entertainment facility on the reservation land of the
Pala Band of Mission Indians. Gaming on Native American lands is extensively
regulated under federal law, tribal-state compacts and tribal law. The Indian
Gaming Regulatory Act of 1988 ("IGRA") provides the framework for federal and
state control over all gaming on Native American lands. IGRA regulates the
conduct of gaming on Native American lands and the terms and conditions of
contracts with third parties for management of gaming operations. IGRA
established the National Indian Gaming Commission ("NIGC") to operate as an
independent agency, within the U. S. Department of the Interior, to exercise
primary federal regulatory responsibility over certain tribal gaming activities.
The NIGC has authority to issue regulations governing tribal gaming activities,
approve tribal ordinances for regulating Class II and Class III gaming, approve
management agreements for gaming facilities, conduct investigations and monitor
tribal gaming generally. The IGRA is subject to interpretation by the NIGC and
may be subject to judicial and legislative clarification or amendment.
The IGRA classifies games that may be conducted on Native American lands
into three categories. "Class I Gaming" includes social games solely for prizes
of minimal value, or traditional forms of Native American Gaming engaged in by
individuals as part of, or in connection with, tribal ceremonies or
celebrations. "Class II Gaming" includes bingo, pulltabs, lotto, punch boards,
tip jars, instant bingo, other games similar to bingo and certain card games, if
those games are played at the same location as bingo is played. "Class III
Gaming" includes all other commercial forms of gaming, such as table games,
slots, video casino games, and other commercial gaming (e.g., sports betting and
pari-mutuel wagering).
Class I Gaming on Native American lands is within the exclusive jurisdiction
of the Native American tribes and is not subject to the provisions of IGRA.
Class II Gaming is permitted on Native American lands if (a) the state in which
the Native American lands lie permits such gaming for any purpose by any person,
organization or entity; (b) the gaming is not otherwise specifically prohibited
on Native American lands by federal law; (c) the gaming is conducted in
accordance with a tribal ordinance or resolution which has been approved by the
NIGC; (d) a Native American tribe has sole proprietary interest and
responsibility for the conduct of gaming; (e) the primary management officials
and key employees are tribally licensed; and (f) several other requirements are
met. Class III Gaming is permitted on Native American lands if the conditions
applicable to Class II Gaming are met and, in addition, the gaming is conducted
in conformance with the terms of a written agreement between a tribal government
and the government of the state within whose boundaries the tribe's lands lie (a
"tribal-state compact"). The IGRA prohibits all forms of Class III Gaming unless
the tribal-state compact specifically authorizes the types of Class III Gaming
the tribe may offer. Such tribal-state compacts also provide, among other
things, the manner and extent to which each state will conduct background
investigations and certify the suitability of the manager, its officers,
directors, and key employees to conduct gaming on tribal lands.
The IGRA requires NIGC approval of management contracts for Class II and
Class III Gaming, as well as the review of all agreements collateral to the
management contracts. The Management Contract relating to our agreement with
Pala has been approved by the NIGC. The NIGC will not approve a management
contract if a director or a 10% stockholder of the management company: (i) is an
elected member of the Indian Tribal Government which owns the facility
purchasing or leasing the games; (ii) has been or is subsequently convicted of a
felony or a gaming-related offense; (iii) has knowingly and willfully provided
materially false information to the NIGC or the tribes; (iv) has refused to
respond to questions from the NIGC; or (v) is a person whose prior history,
reputation and
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associations pose a threat to the public interest or to effective gaming
regulation and control, or create or enhance the chance of unsuitable activities
in gaming or the business and financial arrangements incidental thereto. In
addition, the NIGC will not approve a management contract if the management
company or any of its agents have attempted to unduly influence any decision or
process of tribal government relating to gaming, if the management company has
materially breached the terms of the management contract or the tribe's gaming
ordinance, or if a trustee, exercising due diligence, would not approve such
management contract. A management contract will be approved only after the NIGC
determines that the contract provides, among other things, for: (i) adequate
accounting procedures and verifiable financial reports, which must be furnished
to the tribe; (ii) tribal access to the daily operations to the daily operations
of the gaming enterprise, including the right to verify daily gross revenues and
the income; (iii) minimum guaranteed payments to the tribe, which must have
priority over the retirement of development and construction costs; (iv) a
ceiling on the repayment of such development and construction costs; and (v) a
contract term not exceeding five years and a management fee not exceeding 30% of
net revenues, as determined by the NIGC; provided that the NIGC may approve up
to a seven-year term and a management fee not to exceed 40% of net revenues if
the NIGC is satisfied that the capital investment required, and the income
projections for the particular gaming activity require the larger fee and longer
term period. The agreement between Pala and us has been approved for a
seven-year term. There is no periodic or ongoing review of approved contracts by
the NIGC. The only post-approval action which could result in possible
modification or cancellation of a contract would be as the result of an
enforcement action taken by the NIGC based on a violation of law or an issue
affecting suitability.
Indian tribes are sovereign in their own governmental systems, which have
primary regulatory authority over gaming on land within the tribes'
jurisdiction. Thus, a contract with an Indian tribe may not be an enforceable
legal obligation under the laws of any state or of the United States.
Additionally, persons engaged in gaming activities with Indian tribes, as we
are, are subject to the provisions of tribal ordinances and regulations on
gaming. These ordinances are subject to review by the NIGC under certain
standards established by IGRA. The NIGC may determine that some or all of the
ordinances require amendment, and that additional requirements, including
additional licensing requirements, may be imposed on us. We have received no
such notification regarding Pala.
OTHER JURISDICTIONS AND GOVERNMENT APPROVALS
Most of the other jurisdictions in which we and our subsidiaries conduct
business or intend to conduct business in the future require various licenses,
permits, findings of suitability or other approvals (collectively "Government
Approvals") in connection with the manufacture and/or distribution of gaming
devices or as a supplier of system, equipment, and services to the lottery and
racing industries. These jurisdictions exert substantial regulatory controls
over us typically involving restrictions similar in most respects to those of
Nevada. Obtaining required approvals and licenses can be time consuming and
costly and there can be no assurance of success.
Some jurisdictions allow us to operate under a temporary Government Approval
or on a transactional basis during a pending comprehensive background
investigation. While we have received Government Approvals in all of the
jurisdictions in which our applications have been acted upon, there can be no
assurance that required Government Approvals will be given or renewed in the
future. In addition, there can be no assurance that regulations adopted, taxes
imposed, or legislation limiting gaming by other states will permit profitable
operations by us.
The filing of an exchange offer registration statement or shelf registration
statement with respect to the notes constitutes a public offering of our
securities that requires the prior approval of the Mississippi Gaming
Commission. In March 2000, the Mississippi Gaming Commission granted us a shelf
approval to make public offerings of securities for a period of two years,
subject to some conditions. This shelf approval may be rescinded for good cause
without prior notice upon the issuance of any interlocutory stop order by the
Executive Director of the Mississippi Gaming Commission. Our shelf approval in
Mississippi expires on March 16, 2002. If this shelf approval is rescinded, then
the exchange offer or shelf registration will require the separate prior
approval of the Mississippi Gaming Commission. We can give you no assurance
that, if a separate prior approval is required, such approval will be granted in
a timely fashion, or at all.
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MANAGEMENT
The table below sets forth information about our directors and executive
officers.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- -------- ---------------------
<S> <C> <C>
Thomas J. Matthews..... 35 Chairman of the Board, Chief Executive Officer, President
and Director
John C. Beach.......... 53 President and Chief Operating Officer, Automated Wagering
International, Inc.
David D. Johnson....... 49 General Counsel
Joseph Murphy.......... 50 Vice President, Chief Operating Officer--Gaming Operations
and Director
Geoffrey A. Sage....... 41 Chief Financial Officer, Treasurer and Secretary
Richard R. Burt........ 53 Vice Chairman of the Board and Director
Stuart D. Beath........ 41 Director
Glen J. Hettinger...... 43 Director
</TABLE>
THOMAS J. MATTHEWS. Mr. Matthews was appointed Chairman of the Board in
October 2000. Mr. Matthews was named President and Chief Executive Officer in
March 2000. From February 1994 to March 2000, Mr. Matthews served as our
Executive Vice President and from February 1994 to November 1999, Mr. Matthews
served as our Treasurer. From November 1994 to March 2000, he also served as
Secretary. Mr. Matthews previously served as President of Global
Distributors, Inc. (until we acquired it in 1994) and Sales Director of Mikohn
Gaming Corporation.
JOHN C. BEACH. Mr. Beach was appointed President of our AWI subsidiary in
January 1999. Mr. Beach joined AWI in 1997 as Chief Operating Officer. Prior to
that time, Mr. Beach had several years' experience at Electronic Data Systems
Corporation as an executive and account manager both in the United States and
overseas.
DAVID D. JOHNSON. Mr. Johnson has served as our General Counsel since
June 2000. From February 1995 through June 2000, he served as Senior
Vice-President, General Counsel and Secretary of Alliance Gaming Corporation.
From 1987 until 1995, Mr. Johnson was a partner with the law firm of Schreck,
Jones, Bernhard, Wolfson & Godfrey, and prior to that, he was Chief Deputy
Attorney General for the Gaming Division of the Nevada Attorney General's
Office. In that capacity, Mr. Johnson served as Chief Legal Counsel to the
Nevada Gaming Commission and the Nevada State Gaming Control Board.
JOSEPH MURPHY. Mr. Murphy was appointed Chief Operating Officer--Gaming
Operations in September 2000 and a Director in October 2000. Since
February 1996, he has served as Vice President in charge of both casino and
route operations. Mr. Murphy served as General Manager of Gaming Operations from
January 1994 until February 1996. Prior to that time, he managed the gaming
operations of Global Distributors, Inc., managed International Game
Technology, Inc.'s gaming machine route operations and held similar positions
with Sunset Coin and United Gaming.
GEOFFREY A. SAGE. Mr. Sage was appointed Secretary in March 2000 and
Treasurer in November 1999, having served as Chief Financial Officer since
November 1998. Mr. Sage, a certified public accountant, joined us in July 1989
as Chief Financial Officer and served as Corporate Controller from June 1994
through November 1998. Prior to that time, Mr. Sage held positions as the
Controller for Frontier Savings and Loan Association in Las Vegas and senior
auditor at Citibank (Nevada), N.A.
RICHARD R. BURT. Mr. Burt became a Director and Vice Chairman of the
Board in June 1999. From 1994 until we acquired Powerhouse Technologies, Inc.,
he served as director and chairman of Powerhouse Technologies, Inc. Mr. Burt is
a founder and the chairman of IEP Advisors, Inc. in Washington D.C. At various
times between 1981 and 1994, he was a partner in McKinsey & Co., the
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Chief Negotiator in the Strategic Arms Reduction Talks (START) with the former
Soviet Union, the U.S. Ambassador to the Federal Republic of Germany, the
Assistant Secretary of State for European and Canadian Affairs and Director of
Politico-Military Affairs. Mr. Burt also serves as the Chairman of the Board of
Weirton Steel, Inc. and as a director of Paine Webber Mutual Funds, Hollinger
International, Archer Daniels Midland and Homestake. In addition, he is a member
of the Textron Corporation's International Advisory Council and a board member
of the National Capitol Area Council, Boy Scouts of America.
STUART D. BEATH. Mr. Beath was elected as a Director in April 1994 and
has been a managing director at Burcor Capital, LLC since January 1999. He was a
private consultant from March 1997 until January 1999. Mr. Beath served as First
Vice President at Stifel, Nicolas & Company, Inc. from April 1993 until
March 1997. Prior to that time, Mr. Beath served in the corporate finance
department at A.G. Edwards & Sons, Inc. in various capacities, with the most
recent being as an officer of the firm.
GLEN J. HETTINGER. Mr. Hettinger was elected as a Director in
August 1997. Mr. Hettinger is a partner with the law firm of Hughes & Luce,
L.L.P. in Dallas, Texas, where he has practiced corporate and securities law
since 1984.
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EXECUTIVE COMPENSATION PLAN
In order to retain a management team with the capacity to lead us into the
future, provide a compensation package to replace existing short-term agreements
and provide for a compensation system to align the interests of management with
those of our stockholders, we recently entered into new employment arrangements
with our senior executive management. These new employment arrangements include
employment agreements and new restricted stock grants and stock option grants
summarized in the table below. The table gives effect to the 2-for-1 stock split
announced on September 25, 2000, made to holders of record as of October 31,
2000 and distributed on November 15, 2000.
<TABLE>
<CAPTION>
MAXIMUM
OPTION RESTRICTED ANNUAL ANNUAL
NAME TITLE SHARES STOCK SALARY BONUS
------------------------------- --------------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Thomas J. Matthews............. Chairman of the 240,000 100,000 $450,000 $450,000
Board, President,
Chief Executive
Officer and Director
Joseph Murphy.................. Vice President, Chief 240,000 100,000 $360,000 $360,000
Operating Officer--
Gaming Operations and
Director
Geoffrey A. Sage............... Chief Financial 70,000 10,000 $250,000 $200,000
Officer, Treasurer
and Secretary
David D. Johnson............... General Counsel 70,000 10,000 $225,000 $200,000
</TABLE>
Each of our employment agreements with the above executive officers has the
following terms:
- VESTING. The restricted stock grants and the options will vest over four
years beginning January 1, 2001, except that 20% will vest during the calendar
quarter ending December 31, 2000.
- OPTION EXERCISE PRICE. The exercise price for all options is $35.9375 per
share (after giving effect to the stock split), the closing price for our
common stock on the Nasdaq National Market on the date of grant.
- ACCELERATED VESTING. The vesting of the options and the restricted stock
grants will accelerate upon the occurrence of a change in control of Anchor
Gaming or upon termination of the executive's employment without cause.
- EMPLOYMENT AGREEMENT TERM. The employment agreements have a term of four
years, and will be terminable by us for cause. If we terminate the employment
agreements without cause, then we will be obligated to make severance payments
equal to one year's salary. In the event the employment agreements are
terminated without cause after a change of control, a sum equal to one year's
salary will be payable as a severance payment.
We have also granted options to purchase 50,000 shares of our common stock
(after giving effect to the stock split) to each of our three non-employee
directors on the same terms as the executive options.
As of the date of the option grants and restricted stock grants, there were
not sufficient shares available under our existing stock option plan to cover
these grants. Accordingly, a committee of independent members of our board of
directors as well as the entire board of directors approved the grants and the
adoption of a new stock plan. We intend to submit both the new grants (to the
extent that they exceed the number of shares available under our existing plan)
and the new stock plan to our stockholders for approval at the next annual
meeting of stockholders.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of October 27, 2000, information
regarding the shares of our common stock beneficially owned by each stockholder
who is known by us to beneficially own in excess of 5% of the outstanding shares
of our common stock (solely based on information reported on Forms 13D or 13G
filed with the Securities and Exchange Commission), by each director and named
executive officer and by all executive officers and directors as a group. The
table gives effect to the two-for-one stock split that was announced on
September 25, 2000, made to holders of record as of October 31, 2000, and
distributed on November 15, 2000.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED CLASS
--------------------------------------- ------------------ -------------
<S> <C> <C>
Wanger Asset Management, L.P................................ 1,270,000 9.0%
J.P. Morgan Investment Management, Inc...................... 1,076,740 7.6
Thomas J. Matthews(2)....................................... 243,700 1.7
John C. Beach(3)............................................ 44,000 *
David D. Johnson(4)......................................... 44,000 *
Joseph Murphy(5)............................................ 226,700 1.6
Geoffrey A. Sage(6)......................................... 54,000 *
Stuart D. Beath(7).......................................... 25,000 *
Glen J. Hettinger(8)........................................ 25,000 *
Richard R. Burt(9).......................................... 10,000 *
All executive officers and directors as a group (8 persons)
(10)...................................................... 672,400 4.8
</TABLE>
--------------------------
* Less than 1%
(1) Unless otherwise noted, and subject to community property laws, where
applicable, the persons in the table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them. The address for each listed individual other than Mr. Burt is c/o
Anchor Gaming, 815 Pilot Rd., Suite G, Las Vegas, NV 89119. Mr. Burt's
address is 1275 Pennsylvania Avenue NW, 10th Floor, Washington, DC 20004.
The address of Wanger Asset Management, L.P. is 227 W. Monroe Street, Suite
3000, Chicago, IL 60606. The address of J.P. Morgan Investment
Management, Inc. is 522 Fifth Avenue, New York, NY 10036.
(2) Includes 100,000 shares of restricted stock, of which 20,000 shares are
vested and 80,000 vest quarterly through December 31, 2004, and 135,500
shares that may be acquired upon the exercise of options exercisable within
the next 60 days. Includes 8,200 shares with respect to which Mr. Matthews
holds voting and dispositive powers with his wife.
(3) Includes 10,000 shares of restricted stock, of which 2,000 shares are vested
and 8,000 vest quarterly through December 31, 2004, and 34,000 shares that
may be acquired upon the exercise of options exercisable within the next
60 days.
(4) Includes 10,000 shares of restricted stock, of which 2,000 shares are vested
and 8,000 vest quarterly through December 31, 2004, and 34,000 shares that
may be acquired upon the exercise of options exercisable within the next
60 days.
(5) Includes 100,000 shares of restricted stock, of which 20,000 shares are
vested and 80,000 vest quarterly through December 31, 2004, and 121,700
shares that may be acquired upon the exercise of options exercisable within
the next 60 days. Includes 5,000 shares with respect to which Mr. Murphy
shares voting and dispositive power with his wife.
(6) Includes 10,000 shares of restricted stock, of which 2,000 shares are vested
and 8,000 vest quarterly through December 31, 2004, and 44,000 shares that
may be acquired upon the exercise of options exercisable within the next
60 days.
(7) Includes 25,000 shares that may be acquired upon the exercise of options
exercisable within the next 60 days.
(8) Includes 25,000 shares that may be acquired upon the exercise of options
exercisable within the next 60 days.
(9) Includes 10,000 shares that may be acquired upon the exercise of options
exercisable within the next 60 days.
(10) Includes 230,000 shares of restricted stock, of which 46,000 shares are
vested and 184,000 vest quarterly through December 31, 2004, and 429,000
shares that may be acquired upon the exercise of options exercisable within
the next 60 days.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK PURCHASE AND RACETRACK ASSET SALE TRANSACTIONS WITH MEMBERS OF THE FULTON
FAMILY
On October 17, 2000, we completed the acquisition of approximately
9.2 million shares of our common stock from our then Chairman, Stanley Fulton,
and members of his family and their affiliates, for a purchase price of $33.306
per share. Effective upon completion of this stock purchase transaction, Stanley
Fulton, his son, Michael Fulton, and his daughter, Elizabeth Jones resigned from
their positions on our board of directors. After the closing of this stock
purchase transaction, the Fulton family members and their affiliates retained
ownership of approximately 1,079,200 shares. The purchase consideration for the
shares comprised $240.2 million in cash and $66.0 million aggregate principal
amount of promissory notes that Stanley Fulton received for a portion of his
shares.
In conjunction with the stock purchase transaction with the Fulton family,
we entered into an agreement with Stanley Fulton to sell him substantially all
of the assets relating to our Sunland Park Racetrack & Casino, located in New
Mexico, and our 25% interest in a Massachusetts horse racing facility. Stanley
Fulton has agreed to pay $66.0 million for these assets by canceling our
obligations under the promissory notes. The notes are due and payable on
October 17, 2001, bear interest at an annual rate of 11%, are subordinate to the
exchange notes, and may be prepaid by us without penalty or premium. We expect
to complete the sale of these racetrack assets to Mr. Fulton by the end of
March 2001, subject to regulatory approvals and the satisfaction of other
conditions. After the sale of these assets, we will retain the right to manage
gaming operations at the Massachusetts racetrack if casino gaming is legalized
in Massachusetts.
CONSULTING AGREEMENT
In conjunction with the stock purchase transaction and racetrack asset sale,
we have executed a 10-year consulting agreement with Stanley Fulton. Under the
terms of the agreement, Mr. Fulton will receive an annual salary of $245,000 per
year and executive-level benefits for 10 years in consideration of consulting
services that he will provide to us.
NOTES PAYABLE TO STANLEY FULTON
During the year ended June 30, 1998, notes payable to Stanley Fulton
resulted in interest expense of $224,000. The $2,800,000 principal amount of the
notes consisted of unsecured notes payable bearing interest at 8%, which were
due July 1, 1998. The notes were paid in full during the year ended June 30,
1998.
CONSULTING AGREEMENT WITH RICHARD R. BURT
Richard R. Burt, who became the vice chairman of our board of directors on
June 29, 1999, is the chairman and a founder of IEP Advisors, Inc. We have
retained IEP to provide consulting services and to assist us in our
international activities. We paid IEP $250,000 during fiscal 2000. In addition,
Mr. Burt entered into a consulting agreement with us in September 1999, under
which he is to assist us and our affiliates in the expansion of our
international activities. This agreement has a two-year term from June 30, 1999,
and may be terminated by either Mr. Burt or us upon 30 days' prior written
notice. We paid Mr. Burt $60,000 during fiscal 2000 under this agreement.
GLEN J. HETTINGER
Glen J. Hettinger, a member of our board of directors, is a partner with
Hughes & Luce, L.L.P. We retain Hughes & Luce, L.L.P. as outside legal counsel,
and Hughes & Luce, L.L.P. receives fees for legal services rendered.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITY
Since June 1999, we have had available to us a senior unsecured reducing
revolving credit facility from a syndicate of banks led by Bank of America, N.A.
We amended the senior credit facility in March 2000 to make changes in the
covenants imposed on us in connection with the senior credit facility. In
connection with the stock purchase and racetrack asset sale transactions and the
offering of the old notes, we further amended the senior credit facility in
October 2000. See the section "Description of the Exchange Notes" under the
heading "Guarantees."
The following description summarizes the material provisions of the senior
credit facility as amended in March and October, 2000, but does not restate it
in its entirety. Consequently, we urge you to read the senior credit facility
agreement in its entirety. We have filed a copy of that agreement with the
Securities and Exchange Commission (see the section "Available Information and
Incorporation by Reference" for information about how you can obtain access to
that document).
We initially obtained the senior credit facility:
- to refinance an existing credit facility that Powerhouse had in place at
the time we acquired it and to finance up to $290.0 million of purchase
price payable by us to the Powerhouse stockholders;
- to finance the fees and expenses associated with the Powerhouse
acquisition of approximately $10.0 million;
- for our general corporate purposes, including to finance acquisitions and
investments permitted under the credit facility; and
- to finance fees and expenses associated with other transactions
contemplated by the agreement governing the senior credit facility.
In order to provide a portion of the cost of the stock purchase transaction
and to provide for our working capital needs, we increased the maximum principal
amount available to us under the senior credit facility from $300.0 million to
$325.0 million in October 2000. Of this aggregate amount, we may use up to
$20.0 million for letters of credit. In addition, the senior credit facility
provides us with a swing line sub-facility of up to $5.0 million. In June 1999,
we used $210.0 million in proceeds from the senior credit facility to pay the
purchase price of the Powerhouse acquisition. As of October 31, 2000, we had
approximately $199 million outstanding under the senior credit facility,
including borrowings we incurred in connection with the stock purchase
transaction.
The commitments of the banks under the senior credit facility automatically
reduce if we make a voluntary disposition of specified assets having a value of
in excess of $10.0 million to the extent such asset dispositions exceed
$25.0 million in the aggregate in any fiscal year until the commitment is
reduced to $200.0 million. In addition, commencing on September 30, 2001, the
commitment will be reduced by $12.5 million at the end of each quarter until the
commitment is reduced to $150.0 million. If the principal balance outstanding
under the senior credit facility exceeds the amount of the commitment as reduced
at any time, we will be required to repay the excess outstanding principal
balance. The stated maturity date of the senior credit facility is June 30,
2004.
Interest on outstanding balances and commitment fees on unused
availabilities under the senior credit facility are determined by a formula
based on our leverage ratio, which is the ratio of our total debt to annualized
cash flow, and in the case of interest rates, on the basis of the Eurodollar or
base rate existing for each interest calculation date. As our leverage ratio
declines or increases, the interest rate and commitment fees we pay decline or
increase commensurately. We also pay underwriting and agency fees in connection
with the senior credit facility.
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The senior credit facility contains customary events of default and
covenants, including covenants that limit or restrict our and our subsidiaries'
ability to:
- prepay principal of or redeem or repurchase subordinated debt, such as the
notes in some circumstances;
- dispose of property;
- merge with other entities;
- make acquisitions and investments in other persons or entities;
- pay dividends or make distributions;
- grant liens and negative pledges,
- incur debt; and
- make capital expenditures.
In addition, the senior credit facility requires us to meet specified
financial tests on an on-going basis.
PALA GUARANTEE
Under the terms of our development and management agreements with the Pala
Band of Mission Indians for the construction and management of PALA, which
agreements are more fully described in the section "Business" under the heading
"Gaming Operations," we agreed to assist the Pala tribe in obtaining financing
for the construction and operation of the facility. The Pala tribe secured a
$100.0 million credit facility through a loan agreement and ancillary financial
documents finalized on June 15, 2000. As a condition to this financing, we
guaranteed the full payment and performance of the obligations of the Pala tribe
under the loan agreement.
Among the obligations we have guaranteed are the obligation of the Pala
tribe to commence gaming operations at PALA by June 30, 2001, to cause the PALA
complex to be substantially complete by September 30, 2001 and to ensure that
PALA achieves certain operating cash flows during certain periods. In addition,
we have agreed in the Pala guarantee to maintain financial ratios in connection
with our operations. The guarantee also imposes limitations on our ability to
engage in transactions that would result in a change of control of Anchor
Gaming.
The guarantee contains events of default, including our failure to perform
our obligations under the guarantee, our failure or the failure of one of our
significant subsidiaries to pay when due any of our or its significant
indebtedness or to perform obligations in connection with such obligations. If
one of those events of default occurs, we are obligated to deposit with the
agent for the guarantee's beneficiaries up to $25.0 million or, at the
beneficiaries' option, to invest in up to $25.0 million of the subordinated
obligations of the Pala tribe having a maturity date at least one year after the
maturity date of the guaranteed loan. The lenders' agent can apply the amount
deposited with it to the payment of our obligations under the guarantee or hold
that amount as cash collateral for our obligations under the guarantee.
The lenders under the Pala facility amended the Pala guarantee to
accommodate the stock purchase and racetrack asset sale transactions and the
offering of the old notes.
PROMISSORY NOTES ISSUED TO STANLEY FULTON
In connection with the stock purchase transaction described in the section
"Certain Relationships and Related Transactions," we have issued two promissory
notes having an aggregate principal amount of $66.0 million to Stanley Fulton.
The notes are due and payable on October 17, 2001, bear interest at an annual
rate of 11%, are subordinate to the exchange notes, and may be prepaid by us
without penalty or premium.
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
You can find the definitions of certain capitalized terms used in this
description under the subheading "Definitions." In this description, the terms
"Company," "us," "our" and "we" refer only to Anchor Gaming and not to any of
our Subsidiaries.
The Company will issue the exchange notes for the old notes under the
indenture, dated October 17, 2000, among itself, the Guarantors (as defined
below) and U.S. Trust Company, National Association, as trustee. The terms of
the exchange notes include those stated in the indenture and those made part of
the indenture by reference to the Trust Indenture Act of 1939, as amended. We
refer to the exchange notes and the old notes (to the extent not changed for
exchange notes) in this section as the "notes."
The following description is a summary of the material provisions of the
indenture. The following description does not restate the indenture in its
entirety. We urge you to read the indenture because it, and not the following
description, defines your rights as holders of the notes. You can obtain a copy
of the indenture from the Company.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
RANKING
The notes will be:
- general unsecured obligations of the Company;
- subordinated in right of payment to all existing and future Senior Debt of
the Company;
- equal in right of payment with all other existing and future Debt of the
Company (except for future Debt that may be subordinated to the notes);
and
- guaranteed on a senior subordinated basis by the Guarantors.
THE GUARANTEES
The notes will be guaranteed by all of the Company's current and future
Restricted Subsidiaries other than the Excluded Subsidiaries (see "Guarantees"
below). These guarantees will be:
- general unsecured obligations of each Guarantor;
- subordinated in right of payment to all existing and future Senior Debt of
the respective Guarantors; and
- equal in right of payment with all other existing and future Debt of the
Guarantor (except for future Debt of the Guarantor that may be
subordinated to the Guarantee).
AMOUNT OF SENIOR DEBT AND STRUCTURAL SUBORDINATION
Assuming we had completed the offering of the old notes and the borrowings
under the Senior Credit Facility and applied the net proceeds as intended as of
September 30, 2000, the Company and the Guarantors would have had total Senior
Debt of $207.1 million as of such date. As indicated above and as discussed in
detail below under the subheading "Subordination," payments on the notes and
under the Guarantees will be subordinated to the payment of Senior Debt. The
indenture permits the Company and the Guarantors to incur additional Senior
Debt.
Subsidiaries of the Company that are not Guarantors will have no obligation
to make any payments on the notes or to make any funds available for payments on
the notes, whether by way of
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dividends, loans or otherwise. In the event of a bankruptcy, liquidation or
reorganization of any Subsidiary of the Company that is not a Guarantor, such
Subsidiary will pay the holders of its debt, its trade credit and its other
obligations before it will be able to distribute any of its assets to us. As a
result, the notes will effectively be subordinated to the claims of all
creditors of any Subsidiary that is not a Guarantor. None of the Excluded
Subsidiaries, the Unrestricted Subsidiaries or the Anchor-IGT Joint Venture will
be required to guarantee the payment of the notes. As of June 30, 2000, the
Subsidiaries of the Company that will not be Guarantors would have had, on a pro
forma basis, no Debt.
RESTRICTED AND UNRESTRICTED SUBSIDIARIES
As of the Issue Date, all of our Subsidiaries were Restricted Subsidiaries.
However, under the circumstances described below under "Certain
Covenants--Restricted and Unrestricted Subsidiaries," we will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the indenture and will not guarantee the notes.
PRINCIPAL AND MATURITY OF AND INTEREST ON THE NOTES
The Company will issue the notes with an initial aggregate principal amount
of $250.0 million and a maximum aggregate principal amount of $400.0 million.
The notes will mature on October 15, 2008. The notes will not be subject to any
sinking fund. The Company may issue additional notes under the indenture from
time to time after this exchange offer, which will have the same terms as the
notes issued in this exchange offer. Any offering of additional notes is subject
to the covenant described under the heading "Certain Covenants--Incurrence of
Debt and Issuance of Preferred Stock." No additional notes will be issued if an
Event of Default with respect to the notes has occurred and is continuing. The
notes issued in this exchange offer, any additional notes subsequently issued
under the indenture and any exchange notes (as defined under the heading
"Registration Rights; Additional Interest") relating thereto will be treated as
a single class for all purposes under the indenture, including without
limitation waivers, amendments, redemptions and offers to purchase.
Interest on the notes will accrue at the rate of 9 7/8% per annum and will
be payable semi-annually in arrears on April 15 and October 15, commencing on
April 15, 2001. The Company will make interest payments to holders of record on
the immediately preceding April 1 and October 1. The Company will pay interest
on overdue principal at 2% per year in excess of the otherwise applicable annual
rate and will pay interest on overdue installments of interest at such higher
rate to the extent lawful. Interest on the notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the Issue Date. Interest will be computed on the basis of a 360-day year
comprising twelve 30-day months.
Principal, premium, if any, interest and Additional Interest, if any, on the
notes will be payable at the office or agency of the Company maintained for that
purpose within the City and State of New York. Until otherwise designated by the
Company (see "--Transfer Agent, Registrar, Paying Agent and Exchange Agent"
below), the Company's office or agency in New York will be the office of the
trustee maintained for that purpose. The Company will issue the notes in
denominations of $1,000 and integral multiples of $1,000.
GUARANTEES
Each of the Company's Restricted Subsidiaries (other than the Excluded
Subsidiaries) (the "Guarantors") will, jointly and severally, guarantee the
Company's obligations under the notes (the "Guarantees").
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The Guarantee of each Guarantor will be subordinated to the prior payment in
full of all Senior Debt of that Guarantor to substantially the same extent as
the notes are subordinated to Senior Debt of the Company. The obligations of
each Guarantor under its Guarantee will be limited to support findings that the
Guarantee will not constitute a fraudulent conveyance under applicable law.
No Guarantor will be permitted to consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person), another corporation,
Person or entity whether or not affiliated with such Guarantor unless:
- subject to the provisions of the following paragraphs, the Person formed
by or surviving any such consolidation or merger (if other than that
Guarantor) assumes all the obligations of that Guarantor under its
Guarantee and the indenture pursuant to a supplemental indenture
reasonably satisfactory to the trustee; and
- immediately after giving effect to the transaction, no Default or Event of
Default exists.
In the event of (a) a sale, lease or other disposition of all of the
properties and assets of any Guarantor, whether by way of merger, consolidation
or otherwise, (b) a sale or other disposition of all of the capital stock of any
Guarantor or (c) the designation of any Guarantor as an Unrestricted Subsidiary
in accordance with the applicable provisions of the indenture, then that
Guarantor (in the event of a sale or other disposition, by way of merger,
consolidation or otherwise, of all of the capital stock of that Guarantor or in
the event of its designation as an Unrestricted Subsidiary) or the corporation
acquiring the property (in the event of a sale or other disposition of all of
the assets of that Guarantor) will be released and relieved of any obligations
under its Guarantees; PROVIDED that the Net Proceeds of that sale or other
disposition will be required to be applied in accordance with the applicable
provisions of the indenture. See "Repurchase at the Option of Holders--Asset
Sales."
SUBORDINATION
The payment of principal of, and premium, if any, interest and Additional
Interest, if any, on, the notes and the payment of the Guarantors' obligations
under the Guarantees will be subordinated in right of payment, as set forth in
the indenture and the Guarantees, to the prior payment in full of all Senior
Debt of the Company and the Guarantors, whether outstanding on the Issue Date or
incurred after the Issue Date.
In the event of any distribution to creditors of the Company or any
Guarantor:
- in a total or partial liquidation or dissolution of the Company or any
Guarantor;
- in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or any Guarantor or its respective
property;
- in an assignment for the benefit of creditors; or
- in any marshalling of the assets and liabilities of the Company or any
Guarantor;
the holders of Senior Debt will be entitled to receive payment in full of all
Obligations due in respect of Senior Debt (including interest accruing after the
commencement of any such proceeding at the rate specified in the applicable
Senior Debt whether or not allowed or allowable in such proceeding) before the
holders of notes will be entitled to receive any payment with respect to the
notes or the Guarantees, as applicable (except that holders of notes may receive
and retain Permitted Junior Securities and payments made from the trust
described under "Legal Defeasance and Covenant Defeasance"). In addition, until
all Obligations due with respect to Senior Debt are paid in full, any payment or
distribution to which holders of notes would be entitled shall be made to the
holders of such Senior Debt (except that holders of notes may receive and retain
Permitted Junior Securities and payments made from the trust described under
"Legal Defeasance and Covenant Defeasance").
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Neither the Company nor any Guarantor will be permitted to make any payment
upon or in respect of the notes (except in Permitted Junior Securities or from
the trust described under "Legal Defeasance and Covenant Defeasance" or
"Satisfaction and Discharge") if:
- default in the payment of the principal of, premium, if any, or interest
on Designated Senior Debt occurs and is continuing beyond any applicable
grace period; or
- any other default occurs and is continuing on Designated Senior Debt that
permits holders of that Designated Senior Debt to accelerate its maturity
and the trustee and the Company receive a notice of such default (a
"Payment Blockage Notice") from the holders of any Designated Senior Debt
or their representative.
Payments on the notes will be resumed:
- in the case of a payment default, upon the date on which such default is
cured or waived; or
- in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 180 days after the date on which
the applicable Payment Blockage Notice is received, unless the maturity of
any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until:
- 360 days have elapsed since the receipt of the immediately prior Payment
Blockage Notice; and
- all scheduled payments of principal of, premium, if any, interest and
Additional Interest, if any, on the notes that have come due have been
paid in full in cash.
No nonpayment default that existed or was continuing with respect to any
Senior Debt on the date of delivery of any Payment Blockage Notice to the
trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice
unless such default shall have been cured or waived for a period of not less
than 180 days.
The Company must promptly notify holders of Senior Debt if payment of the
notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency of the Company or a Guarantor, holders of notes may
recover proportionally less of the amount owed to them than other creditors of
the Company and the Guarantors who are holders of Senior Debt. The indenture
limits the ability of the Company or any Guarantor to incur additional Debt,
including Senior Debt. See "Certain Covenants--Incurrence of Debt and Issuance
of Preferred Stock."
OPTIONAL REDEMPTION
Prior to October 15, 2003, the Company may, on any one or more occasions,
redeem up to 35% of the original aggregate principal amount of the notes at a
redemption price equal to 109.875% of the principal amount thereof, PLUS accrued
and unpaid interest and Additional Interest thereon, if any, to the redemption
date (subject to the right of holders on the relevant record date that is on or
prior to the redemption date to receive interest due on an interest payment
date), with the net cash proceeds of a Qualifying Public Offering; PROVIDED
that:
- at least $150.0 million principal amount of notes remains outstanding
immediately after the occurrence of such redemption; and
- such redemption occurs within 60 days of the date of the closing of such
Qualifying Public Offering.
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Except pursuant to the preceding paragraph and as provided under "Mandatory
Disposition Pursuant to Gaming Laws," the notes will not be redeemable at the
Company's option prior to October 15, 2004.
After October 15, 2004, the Company may redeem all or a part of the notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below PLUS accrued and
unpaid interest and Additional Interest thereon, if any, to the applicable
redemption date (subject to the right of holders on the relevant record date
that is on or prior to the redemption date to receive interest due on an
interest payment date), if redeemed during the twelve-month period beginning on
October 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2004........................................................ 104.9375%
2005........................................................ 102.4688%
2006 and thereafter......................................... 100.0000%
</TABLE>
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, selection of
notes for redemption will be made by the trustee as follows:
- if the notes are listed on any national securities exchange, in compliance
with the requirements of the principal national securities exchange on
which the notes are listed; or
- if the notes are not so listed, on a pro rata basis, by lot or by another
method the trustee deems fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at that holder's
registered address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to such note will state the portion of the principal amount of that note
to be redeemed. A new note in principal amount equal to the unredeemed portion
of that note will be issued in the name of the holder of that note upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest and
Additional Interest, if any, cease to accrue on notes or portions of them called
for redemption, unless the Company defaults in the payment of the redemption
price.
MANDATORY DISPOSITION PURSUANT TO GAMING LAWS
Each holder, by accepting a note, will be deemed to have agreed that if the
Gaming Authority of any jurisdiction in which the Company or any of its
Subsidiaries now or hereafter conducts or proposes to conduct gaming requires
that a Person who is a holder or the beneficial owner of any note be licensed,
qualified or found suitable under applicable gaming laws, such holder or
beneficial owner, as the case may be, shall apply for a license, qualification
or a finding of suitability within the required time period. If such Person
fails to apply or become licensed or qualified or is found unsuitable, the
Company will have the right, at its option:
- to require such Person to dispose of its notes or beneficial interest
therein within 30 days of receipt of notice of the Company's election or
such earlier date as may be requested or prescribed by such Gaming
Authority, or
- to redeem such notes, which redemption may occur less than 30 days
following the notice of redemption if so requested or prescribed by the
applicable Gaming Authority, at a redemption
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price equal to the lesser of: the Person's cost of the notes being
redeemed, plus accrued and unpaid interest, if any, to the earlier of the
redemption date or the date of the finding of unsuitability; and 100% of
the principal amount thereof, plus accrued and unpaid interest, if any, to
the earlier of the redemption date or the date of the finding of
unsuitability; or such other amount as may be required by applicable law
or order of such Gaming Authority.
The Company will not be responsible for any costs or expenses any holder of
notes may incur in connection with its application for a license, qualification
or a finding of suitability or in connection with any such mandatory
disposition.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each holder of notes will have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that holder's notes pursuant to the offer
described below (the "Change of Control Offer"). In the Change of Control Offer,
the Company will offer to repurchase notes at an offer price in cash (the
"Change of Control Payment") equal to 101% of the aggregate principal amount of
notes repurchased PLUS accrued and unpaid interest and Additional Interest
thereon, if any, to the date of purchase. Within ten days following any Change
of Control, the Company will mail a notice to each holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase notes on the date specified in that notice, which date shall be no
earlier than 30 days and no later than 60 days from the date that notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the indenture and described in such notice.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control. To the extent that
the provisions of any applicable securities laws or regulations conflict with
provisions of this covenant, the Company will comply with such securities laws
and regulations and will not be deemed to have breached its obligations under
the notes or the indenture by virtue of its compliance with those laws or
regulations.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
- accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
- deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all notes or portions thereof so tendered; and
- deliver or cause to be delivered to the trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions thereof being purchased by the Company.
The Paying Agent will promptly mail to each holder of notes so tendered the
Change of Control Payment for such notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to any unpurchased portion of the note
surrendered, if any; PROVIDED that each new note will be in a principal amount
of $1,000 or an integral multiple thereof.
Prior to complying with the provisions of this covenant, but in any event
within 90 days following a Change of Control, the Company will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of
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notes required by this covenant. The Company will publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by the Company and
purchases all notes validly tendered and not withdrawn under such Change of
Control Offer.
The existence of a holder's right to require the Company to purchase that
holder's notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction that constitutes a Change of Control. The Change of
Control purchase feature is a result of negotiations between the Company and the
initial purchasers. Management has no present intention to engage in a
transaction involving a Change of Control, although the Company could decide to
do so in the future.
The definition of "Change of Control" in the indenture is limited in scope.
Subject to the limitations discussed below under "Certain Covenants--Incurrence
of Debt and Issuance of Preferred Stock," the Company could, in the future,
enter into transactions, including an acquisition or a recapitalization, that
would not constitute a Change of Control under the indenture, but that could
increase significantly the amount of Debt outstanding at such time or otherwise
affect the Company's capital structure or credit ratings or the interests of the
holders.
The definition of Change of Control includes a phrase relating to the sale,
lease or other disposition of "all or substantially all" of the assets of the
Company on a consolidated basis. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the point at which a
holder of notes will be able to require the Company to repurchase its notes as a
result of a sale, lease or other disposition of less than all of the assets of
the Company on a consolidated basis to another Person or group is uncertain.
The Company's outstanding Senior Debt currently prohibits the Company from
repurchasing any notes, and also provides that some change of control events
with respect to the Company would constitute a default under the agreements
governing the Senior Debt. Any future credit agreements or other agreements
relating to Senior Debt to which the Company becomes a party are likely to
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing notes, the
Company could seek the consent of its senior lenders to the purchase of notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or refinance such borrowings, the Company
will remain prohibited from purchasing notes. In such case, the Company's
failure to purchase tendered notes would constitute an Event of Default under
the indenture which would, in turn, constitute a default under such Senior Debt.
In such circumstances, the subordination provisions in the indenture would
likely restrict payments to the holders of notes.
Finally, the Company's ability to pay cash to the holders of notes upon a
repurchase may be limited by the Company's then existing financial resources.
See "Risk Factors--Risks Related to the Notes." We may not have the ability to
raise the funds necessary to finance the change of control offer required in the
indenture.
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ASSET SALES
Unless the notes are rated the Required Rating (during which time the
following covenants under "Asset Sales" will not be in effect), the Company will
not, and will not permit any of its Restricted Subsidiaries to, consummate an
Asset Sale unless:
- the Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or otherwise
disposed of; and
- at least 75% of the consideration therefor received by the Company or such
Restricted Subsidiary is in the form of cash or Cash Equivalents. For
purposes of this provision only, the following will be considered "cash":
any Senior Debt that is assumed by the transferee of any such assets, to
the extent the Company or such Restricted Subsidiary is released from any
further liability; any securities, notes or other obligations received by
the Company or any such Restricted Subsidiary from such transferee that
are converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received) within 30 days after receipt; any
Designated Non-Cash Consideration; provided, however, that such Designated
Non-Cash Consideration will not constitute Net Proceeds for purposes of
the next succeeding paragraph unless and until converted into cash or Cash
Equivalents, to the extent of the cash or Cash Equivalents received; and
an amount equal to the fair market value of any Additional Assets received
by the Company or any Restricted Subsidiary consummating an Asset Sale
from the transferee of assets; provided that such Additional Assets will
not constitute Net Proceeds for purposes of the next succeeding paragraph.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may use such Net Proceeds, at its option:
- to repay Senior Debt (and to cause the related loan commitment (if any) to
be permanently reduced by an amount equal to the principal amount so
repaid);
- to make capital expenditures; or
- to acquire Additional Assets.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the indenture. Any Net Proceeds
from Asset Sales that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will
make an offer (an "Asset Sale Offer") to all holders of notes and, to the extent
required by the terms of any Pari Passu Indebtedness, an offer to purchase to
all holders of such Pari Passu Indebtedness, to purchase for cash the maximum
principal amount of notes and any such Pari Passu Indebtedness that may be
purchased out of the Excess Proceeds at an offer price equal to 100% of the
principal amount thereof repurchased PLUS, in each case, accrued interest and
Additional Interest thereon, if any, to the date of purchase. To the extent that
the aggregate principal amount of notes and Pari Passu Indebtedness tendered
pursuant to an Asset Sale Offer and related offer to purchase Pari Passu
Indebtedness is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of notes and Pari Passu Indebtedness tendered exceeds the Excess
Proceeds, the notes and Pari Passu Indebtedness shall be purchased on a pro rata
basis (and the trustee shall select the tendered notes to be purchased on a pro
rata basis (based upon the outstanding principal amount of the notes tendered by
each holder)). Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
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In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries to a Person
in a transaction permitted under "Certain Covenants--Merger, Consolidation or
Sale of Assets," the successor corporation will be deemed to have sold the
properties and assets of the Company and its Restricted Subsidiaries not
transferred to the successor corporation for purposes of this covenant relating
to "Asset Sales," and shall comply with the provisions of this covenant relating
to "Asset Sales" (other than the provisions described in the first paragraph
under "Asset Sales") with respect to such deemed sale as if it were an Asset
Sale. In addition, the fair market value of such properties and assets of the
Company or its Restricted Subsidiaries deemed to be sold will be deemed to be
Net Proceeds for purposes of this covenant.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the notes pursuant to an Asset Sale Offer. To the extent that the provisions
of any applicable securities laws or regulations conflict with the provisions of
the indenture, the Company will comply with those securities laws and
regulations and shall not be deemed to have breached its obligations under the
notes or the indenture by virtue of its compliance with those laws and
regulations.
If the Company is required to make an Asset Sale Offer, such offer may be
subject to restrictions arising out of the terms of the Company's Senior Debt or
other limitations comparable to the restrictions and limitations that may apply
to offers to purchase notes following a Change of Control. See "Repurchase at
the Option of Holders--Change of Control" and "Risk Factors--Risks Related to
the Notes."
CERTAIN COVENANTS
RESTRICTED PAYMENTS
Unless the notes are rated the Required Rating (during which time the
following covenant will not be in effect), the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including any payment in connection with any
merger or consolidation) or to the direct or indirect holders of the
Company's or any of its Restricted Subsidiaries' Equity Interests (other
than dividends or distributions payable in Qualified Equity Interests of the
Company or dividends or distributions payable to the Company or any
Wholly-Owned Restricted Subsidiary);
(2) purchase, redeem or otherwise acquire or retire for value (including
in connection with any merger or consolidation) any Equity Interests of the
Company, any Restricted Subsidiary or any direct or indirect parent of the
Company (other than any such Equity Interests owned by the Company or any
Wholly-Owned Restricted Subsidiary);
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Subordinated Debt, except a
payment of interest or principal at its Stated Maturity; or
(4) make any Restricted Investment
(all such payments and other actions set forth in clauses (1) through (4) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default exists or would occur as a
consequence thereof; and
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(b) the Company would, at the time of such Restricted Payment and after
giving PRO FORMA effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Debt pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant
described below under the heading "Certain Covenants--Incurrence of Debt and
Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with (without duplication) the
aggregate amount of all other Restricted Payments made by the Company and
its Restricted Subsidiaries after the Issue Date (excluding Restricted
Payments permitted by clauses (2), (3), (5), (6) and (7) and, to the extent
set forth therein, clauses (8) and (9), of the next succeeding paragraph),
is less than the sum of:
- 50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the fiscal quarter commencing
July 1, 2000 to the end of the Company's most recently ended fiscal
quarter for which financial statements are publicly available at the time
of such Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit); PLUS
- 100% of the aggregate net cash proceeds received by the Company from the
issue or sale (other than to a Subsidiary) of, or from capital
contributions with respect to, Qualified Equity Interests of the Company,
in either case after the Issue Date; PLUS
- the aggregate principal amount (or accreted value, if less) of Debt of the
Company or any Restricted Subsidiary issued since the Issue Date (other
than Debt issued to or held by a Subsidiary) that has been converted into
Qualified Equity Interests (other than Equity Interests issued or sold to
a Subsidiary); PLUS
- to the extent that any Restricted Investment that was made after the Issue
Date (including any Designated Non-Cash Consideration) is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (1) the cash return
of capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (2) the initial amount of such Restricted
Investment; PLUS
- 50% of any dividends received by the Company or a Wholly-Owned Restricted
Subsidiary after the Issue Date from an Unrestricted Subsidiary, to the
extent that such dividends were not otherwise included in Consolidated Net
Income of the Company for such period; PLUS
- $20.0 million.
The preceding provisions will not prohibit any of the following if no
Default or Event of Default then exists or would result from that action:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any Subordinated Debt or Equity Interests of the Company in
exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary) of, or a capital contribution
with respect to, Qualified Equity Interests of the Company; PROVIDED that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (c) of the preceding paragraph;
(3) the defeasance, redemption, repurchase, retirement or other
acquisition of Subordinated Debt with the net cash proceeds from an
incurrence of Permitted Refinancing Debt;
(4) the payment of any dividend by a Restricted Subsidiary to the
holders of its common stock on a PRO RATA basis or the repurchase or
redemption of Equity Interests of an Excluded Subsidiary that are not owned
by the Company or another Restricted Subsidiary if such Excluded
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Subsidiary is a Restricted Subsidiary and, upon such repurchase or
redemption, becomes a Guarantor;
(5) the repurchase or acquisition by the Company of 9,192,400 shares of
its Capital Stock pursuant to the Stock Purchase Agreement;
(6) Retirement of the Stock Purchase Debt in connection with the
disposition of the Racetrack Assets pursuant to the Asset Sale Agreements;
(7) Investments by AWI in a Qualified AWI Joint Venture arising out of a
Qualified AWI Asset Transfer if (i) the PRO FORMA Fixed Charge Coverage
Ratio of the Company, calculated cumulatively for the four most recent
fiscal quarters of the Company prior to the date of such Qualified AWI Asset
Transfer as if such transfer had occurred on the first day of such period,
would have been greater than 2.5 to 1.0 and (ii) after giving effect to such
Qualified AWI Asset Transfer, the rating of the notes by each Rating Agency
is at least equal to the rating of the notes on the Issue Date;
(8) Investments by the Company and/or any Restricted Subsidiary in an
aggregate amount not to exceed $125.0 million arising pursuant to the
incurrence, creation, assumption or suffering to exist of the Pala Facility
Guarantee, PROVIDED that, with respect to such Investments, the amounts
available to make Restricted Payments pursuant to clause (c) of the
preceding paragraph shall be reduced only by, without duplication, the
amount that becomes due on the Debt that is guaranteed by the Pala Facility
Guarantee in accordance with the terms of such Debt that is paid by the
Company or any of its Restricted Subsidiaries, any other amount that becomes
payable under the Pala Facility Guarantee by the Company or any of its
Restricted Subsidiaries (including the amount of any investments required
under the Pala Facility Guarantee) and, if and for so long as an event of
default occurs and is continuing with respect to such guaranteed Debt, the
entire aggregate principal amount of such guaranteed Debt then outstanding;
and
(9) Investments by the Company and/or any Restricted Subsidiary arising
pursuant to the incurrence, creation, assumption or suffering to exist of
any Qualified Guarantee, PROVIDED that, with respect to this clause (9), the
amounts available to make Restricted Payments pursuant to clause (c) of the
preceding paragraph shall be reduced only by the amount that becomes due on
the Debt that is guaranteed in accordance with the terms of such Debt and
that is paid by the Company or any of its Restricted Subsidiaries, and, if
and for so long as an event of default occurs and is continuing (after the
expiration of all applicable grace periods) with respect to such Debt, by
the entire aggregate principal amount of such guaranteed Debt then
outstanding.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors, such determination to be based upon an opinion or appraisal issued
by an accounting, appraisal or investment banking firm of national standing if
such fair market value exceeds $10.0 million. Not later than the date of making
any Restricted Payment in excess of $1.0 million, the Company shall deliver to
the trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant related to "Restricted Payments" were computed, together with a
copy of any fairness opinion or appraisal required by the indenture. If the
covenant relating to "Restricted Payments" is suspended and thereafter again is
in effect, the amounts available to make Restricted Payments pursuant to
clause (c) of the second preceding paragraph shall be calculated as if such
covenant had not been suspended.
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INCURRENCE OF DEBT AND ISSUANCE OF PREFERRED STOCK
Unless the notes are rated the Required Rating (during which time the
following covenant will not be in effect), the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to (collectively, "incur") any
Debt (including Acquired Debt) and the Company will not issue any Disqualified
Stock and will not permit any of its Restricted Subsidiaries to issue any shares
of Preferred Stock; PROVIDED, HOWEVER, that the Company and any Restricted
Subsidiary may incur Debt, and the Company may issue shares of Disqualified
Stock, if on the date of such incurrence or issuance and after giving effect
thereto, the Fixed Charge Coverage Ratio for the Company's most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Debt is incurred or such
Disqualified Stock is issued would have been at least 2.0 to 1.0, determined on
a PRO FORMA basis (including a PRO FORMA application of the net proceeds
therefrom), as if the additional Debt had been incurred, or the Disqualified
Stock had been issued, at the beginning of such four quarter period.
The limitations on the incurrence of Debt above will not apply to the
incurrence of any of the following items of Debt (collectively, "Permitted
Debt"):
(1) Debt under the Senior Credit Facility in an aggregate principal
amount outstanding not to exceed $325.0 million less the aggregate amount of
all Net Proceeds that the Company uses to repay Senior Debt under the Senior
Credit Facility pursuant to the covenant described above under the heading
"Repurchase at the Option of Holders--Asset Sales" (other than temporary
reductions of revolving credit borrowings pending the final application of
any such Net Proceeds as contemplated thereby);
(2) Debt under the Pala Facility Guarantee in an aggregate principal
amount outstanding not to exceed $125.0 million;
(3) Existing Debt, other than Debt otherwise referred to in clauses
(1) and (2) above;
(4) Debt represented by the notes issued on the date of the indenture
and the Guarantees thereof (including related exchange notes described under
the heading "Registration Rights; Additional Interest" and Guarantees
thereof);
(5) Debt of the Company or any of its Restricted Subsidiaries
represented by Capital Lease Obligations, mortgage financings or purchase
money obligations, in each case incurred for the purpose of financing all or
any part of the purchase price or cost of acquisition, construction or
improvement of property, plant or equipment used in the business of the
Company or such Restricted Subsidiary, in an aggregate principal amount at
any time outstanding, including all Permitted Refinancing Debt incurred to
refund, refinance or replace Debt incurred pursuant to this clause (5), not
to exceed $10.0 million;
(6) Permitted Refinancing Debt of the Company or any of its Restricted
Subsidiaries incurred in exchange for, or the net proceeds of which are used
to refund, refinance or replace Debt that was permitted to be incurred by
the first paragraph above or clauses (3), (4) and (5) of this paragraph;
(7) intercompany Debt between or among the Company and any of its
Wholly-Owned Restricted Subsidiaries; PROVIDED, HOWEVER, that: if the
Company or any Guarantor is the obligor on such Debt, such Debt is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the notes or the Guarantee of such Guarantor; and any subsequent
issuance or transfer of Equity Interests, or a redesignation of a Restricted
Subsidiary as an Unrestricted Subsidiary, that results in any such Debt
being held by a Person other than the Company or a Wholly-Owned Restricted
Subsidiary and any sale or other transfer of any such
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Debt to a Person that is neither the Company nor a Wholly-Owned Restricted
Subsidiary, shall be deemed, in each case, to constitute an incurrence of
Debt by the Company or such Restricted Subsidiary, as the case may be, that
was not permitted by this clause (7);
(8) Debt of the Company or any of its Restricted Subsidiaries with
respect to Hedging Obligations that are incurred (a) for the purpose of
fixing or hedging interest rate risk with respect to any Debt that is
permitted by the terms of the indenture to be outstanding or (b) for the
purpose of fixing or hedging currency exchange rate risk incurred in the
ordinary course of business; PROVIDED, however, that, in each case, such
Hedging Obligations are eligible to receive hedge accounting treatment in
accordance with GAAP and are not incurred for speculative purposes;
(9) Debt of the Company or any of its Restricted Subsidiaries under (or
constituting reimbursement obligations with respect to) surety bonds,
completion guarantees, Gaming Route Guarantees or similar instruments issued
in connection with the ordinary course of a Permitted Business; PROVIDED,
HOWEVER, that upon the drawing of such bond, guarantee or other instrument,
such obligations are reimbursed or paid within 30 days following such
drawing;
(10) Debt of the Company or any of its Restricted Subsidiaries resulting
from the honoring by a bank or other financial institution of a check, draft
or similar instrument inadvertently (except in the case of day-light
overdrafts) drawn against insufficient funds in the ordinary course of
business; PROVIDED that such Debt is extinguished within seven business days
of notice of such insufficiency;
(11) the guarantee by the Company or any of its Restricted Subsidiaries
of Debt of the Company or a Restricted Subsidiary that was permitted to be
incurred by another provision of this covenant (other than Subordinated
Debt);
(12) the Stock Purchase Debt; or
(13) additional Debt of the Company and the Guarantors in an aggregate
principal amount (or accreted value, as applicable) at any time outstanding
not to exceed $25.0 million.
For purposes of determining any particular amount of Debt under this
"Incurrence of Debt and Issuance of Preferred Stock" covenant,
- Debt incurred under the Senior Credit Facility first shall be treated as
incurred pursuant to clause (1) of the second paragraph of this covenant
to the full extent of Debt permitted to be incurred under such clause (it
being understood that additional Debt under the Senior Credit Facility may
be incurred to the full extent permitted under any other provision of the
indenture);
- Guarantees, Liens or obligations with respect to letters of credit
supporting Debt otherwise included in the determination of such particular
amount shall not be included; and
- any Liens granted pursuant to the equal and ratable provisions described
below under "Certain Covenants--Liens" shall not be treated as Debt.
For purposes of determining compliance with this covenant, if an item of
Debt (other than Debt referred to in clause (1) of the directly preceding
paragraph) meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (13) of the second paragraph of this
covenant or is entitled to be incurred pursuant to the first paragraph of this
covenant, the Company shall, in its sole discretion, classify such item of Debt
in any manner that complies with this covenant and such item of Debt will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest and the accretion of accreted
value will not be deemed to be an incurrence of Debt for purposes of this
covenant.
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NO SENIOR SUBORDINATED DEBT
The Company will not incur, create, issue, assume, guarantee or otherwise
become liable for any Debt that is subordinate or junior in right of payment to
any Senior Debt and senior in any respect in right of payment to the notes. No
Guarantor will incur, create, issue, assume, guarantee or otherwise become
liable for any Debt that is subordinate or junior in right of payment to any
Senior Debt and senior in any respect in right of payment to the Guarantees.
LIENS
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or otherwise cause or suffer
to exist or become effective any Lien of any kind (other than Permitted Liens)
securing Debt or other obligations upon any of their property or assets, now
owned or hereafter acquired, or any income or profits therefrom, unless all
Obligations from time to time due under the indenture and the notes (or, in the
case of any Lien affecting property or assets of any Guarantor, all Obligations
of such Guarantor under the indenture and its Guarantee) are secured by a Lien
on the same property or assets as secures such other Debt or obligations,
PROVIDED such Lien:
- if such other Debt or obligations constitute Subordinated Debt or are
otherwise subordinate or junior in right of payment to the Obligations
under the indenture, notes or Guarantee, as the case may be, is expressly
made prior and senior in priority to the Lien securing such other Debt or
obligations; and
- in any other case, ranks equally and ratably with the Lien securing such
other Debt or obligations so secured.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
Unless the notes are rated the Required Rating (during which time the
following covenant will not be in effect), the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Guarantor to:
(1) pay dividends or make any other distributions on its Capital Stock
to the Company or any of its Restricted Subsidiaries or with respect to any
other interest or participation in, or measured by, its profits, or pay any
indebtedness owed to the Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries.
The foregoing does not apply to encumbrances or restrictions existing under
or by reason of:
(a) applicable law;
(b) Existing Debt as in effect on the Issue Date;
(c) the provisions of security or pledge agreements or mortgages (or
similar agreements) granting a Permitted Lien or restricting transfers of
the assets secured thereby;
(d) the indenture, the notes and the Guarantees;
(e) any instrument governing Debt or Capital Stock of a Person acquired
by the Company or any of its Restricted Subsidiaries as in effect at the
time of such acquisition, which encumbrance or restriction is not applicable
to any Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, so acquired provided such
Debt, Capital Stock,
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encumbrance or restriction was not incurred in contemplation of or in
connection with such acquisition;
(f) customary non-assignment provisions in leases and other contracts
entered into in the ordinary course of business and consistent with past
practice;
(g) purchase money obligations or Capitalized Leases for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (3) above on the property so acquired;
(h) Permitted Refinancing Debt, PROVIDED that the restrictions contained
in the agreements governing such Permitted Refinancing Debt are, when
considered as a whole, not materially more restrictive than those contained
in the agreements governing the Debt being refinanced;
(i) in the case of clause (3), any encumbrance or restriction: that
restricts in a customary manner the subletting, assignment, licensing or
transfer of any property or asset that is subject to a lease, license or
similar contract, or by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by the
indenture; and
(j) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or other disposition of
all or substantially all of the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or other disposition.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets
(determined on a consolidated basis, including its Subsidiaries) in one or more
related transactions, to another Person unless:
(1) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, lease or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any
state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Company), or the Person to which such sale, lease or
other disposition shall have been made, assumes all the obligations of the
Company under the notes and the indenture pursuant to a supplemental
indenture in a form satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) except in the case of a merger of the Company with or into a
Wholly-Owned Restricted Subsidiary, the Company or the Person formed by or
surviving any such consolidation or merger (if other than the Company), or
to which such sale, lease or other disposition shall have been made will, at
the time of such transaction and after giving PRO FORMA effect thereto as if
such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional Debt
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the heading "Certain
Covenants--Incurrence of Debt and Issuance of Preferred Stock."
Upon the occurrence of any transaction described in the immediately
preceding paragraph in which the Company is not the continuing corporation, the
successor corporation formed by such a consolidation or into which the Company
is merged or to which such transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under the indenture
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and the notes with the same effect as if such successor corporation had been
named as the Company therein, and the Company shall be released from the
obligations under the notes and the indenture except in the case of a lease and
except with respect to any obligations that arise from, or relate to, such
transaction.
TRANSACTIONS WITH AFFILIATES
Unless the notes are rated the Required Rating (during which time the
following covenant will not be in effect), the Company will not, and will not
permit any of its Restricted Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or Guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person; and
(2) the Company delivers to the trustee: with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (1) above and that such Affiliate
Transaction has been approved by a majority of the Independent members of
the Board of Directors; and with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration
in excess of $10.0 million, an opinion as to the fairness to the holders of
such Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following will not be deemed to be Affiliate Transactions: any
employment agreement, collective bargaining agreement, employee benefit plan or
any similar arrangement (including any option or restricted stock plan) entered
into in the ordinary course of business of the Company or a Restricted
Subsidiary; payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Company; customary indemnification and similar
arrangements with directors and officers; transactions between or among the
Company and/or its Restricted Subsidiaries, provided, in each case, that no
Affiliate of the Company (other than another Restricted Subsidiary or a director
owning qualifying shares) owns Capital Stock of any such Restricted Subsidiary;
Restricted Payments that are permitted by the provisions of the indenture
described above under the heading "Restricted Payments;" payments and other
transactions contemplated by any agreement as in effect on the Issue Date and
described in this prospectus (including the Stock Purchase Agreement and the
Asset Sale Agreements) or any amendment thereto or replacement thereof (so long
as any such amendment or replacement is not disadvantageous to the Company or
any Restricted Subsidiary in any material respect); and transactions between the
Company or any Restricted Subsidiary and the Anchor-IGT Joint Venture or a
Qualified AWI Joint Venture.
SALE/LEASEBACK TRANSACTIONS
The Company will not, and will not permit any of its Restricted Subsidiaries
to, enter into any Sale/Leaseback Transaction with respect to any assets or
property of the Company or any Restricted Subsidiary unless:
- no Default or Event of Default then exists;
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- the Company or such Restricted Subsidiary would be entitled to: incur Debt
in an amount equal to the Attributable Debt with respect to such
Sale/Leaseback Transaction pursuant to the first paragraph of the covenant
described under "Certain Covenants--Incurrence of Debt and Issuance of
Preferred Stock;" and incur a Lien to secure such Attributable Debt
pursuant to the covenant described above under the heading "Certain
Covenants--Liens;"
- the consideration received by the Company or such Restricted Subsidiary in
connection with such Sale/Leaseback Transaction is at least equal to the
fair market value of such assets or property; and
- the transfer of such assets or property is permitted by, and (to the
extent required by such covenant) the Company applies the proceeds of such
transaction in compliance with, the covenant described under "Repurchase
at the Option of Holders--Asset Sales."
ADDITIONAL GUARANTEES
All current and future Subsidiaries of the Company, other than Excluded
Subsidiaries and Unrestricted Subsidiaries, are Guarantors in accordance with
the terms of the indenture.
The Company will cause each Subsidiary that is required or desires to become
a Guarantor after the Issue Date to execute and deliver to the trustee a
Guarantee in the form provided in the indenture pursuant to which such
Subsidiary will unconditionally Guarantee the Obligations of the Company under
the indenture, together with the legal opinions and other documents required by
the indenture.
LIMITATIONS ON ISSUANCES OF GUARANTEES OF DEBT
The Company will not permit any Subsidiary, directly or indirectly, to
guarantee or pledge any assets to secure the payment of any other Debt of the
Company unless such Subsidiary simultaneously executes and delivers a
supplemental indenture providing for the Guarantee of the payment of the notes
by such Subsidiary, which Guarantee shall be senior to or PARI PASSU with such
Subsidiary's guarantee of or pledge to secure such other Debt, unless such other
Debt is Senior Debt, in which case the Guarantee of the notes may be
subordinated to the guarantee of such Senior Debt to the same extent as the
notes are subordinated to such Senior Debt.
Notwithstanding the preceding paragraph, any Guarantee of the notes will
provide by its terms that it will be automatically and unconditionally released
and discharged under the circumstances described under the heading "Guarantees."
The form of the Guarantee is attached as an exhibit to the indenture.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses.
ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES
The Company:
- will not, and will not permit any Restricted Subsidiary to, transfer,
convey, sell, lease or otherwise dispose of any Capital Stock of any
Restricted Subsidiary to any Person (other than the Company or a
Wholly-Owned Restricted Subsidiary), unless: such transfer, conveyance,
sale, lease or other disposition is of all the Capital Stock of such
Restricted Subsidiary owned by the Company or any Restricted Subsidiary;
and the cash Net Proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant described
above under the heading "Repurchase at the Option of Holders--Asset
Sales;" and
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- will not permit any Restricted Subsidiary to issue any of its Equity
Interests (other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares) to any Person (other than to
the Company or a Wholly-Owned Restricted Subsidiary or, in the case of any
Restricted Subsidiary that is not a Wholly-Owned Restricted Subsidiary, to
a Person other than the Company or a Restricted Subsidiary that is a
stockholder of such Restricted Subsidiary, if such Person does not thereby
increase its percentage ownership of the Capital Stock of such Restricted
Subsidiary).
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
indenture or the notes unless such consideration is offered to be paid or is
paid to all holders of the notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
INVESTMENT COMPANY ACT COMPLIANCE
Neither the Company nor any Restricted Subsidiary will take any action, or
otherwise permit to exist any circumstance, that would require the Company or
such Restricted Subsidiary to register as an "investment company" under the
Investment Company Act.
REPORTS
Whether or not required by the Commission, so long as any old notes are
outstanding, the Company will furnish to the holders of old notes within the
time periods specified in the Commission's rules and regulations:
- all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on forms 10-Q and 10-K if the
Company were required to file such forms and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants; and
- all current reports that would be required to be filed with the Commission
on form 8-K if the Company were required to file such reports.
Such quarterly and financial information will include:
- a "Management's Discussion and Analysis of Financial Condition and Results
of Operations" ("MD&A") that describes the financial condition and results
of operations of the Company and its consolidated Subsidiaries; and
- an MD&A and other information in reasonable detail regarding the financial
condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of the Company.
In addition, after the consummation of the Exchange Offer, whether or not
required by the Commission, the Company will file a copy of all such information
and reports with the Commission for public availability (unless the Commission
will not accept such a filing) within the time periods specified in the
Commission's rules and regulations and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company and the Guarantors, for so long as any old notes or exchange notes
remain outstanding, will furnish to the holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
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RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary, PROVIDED:
- such designation would not cause a Default or Event of Default; and
- such Subsidiary meets the conditions set forth in the definition of an
"Unrestricted Subsidiary."
For purposes of determining whether such designation would not cause a
Default or Event of Default, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary
so designated, to the extent they do not constitute Permitted Investments at the
time such Subsidiary becomes an Unrestricted Subsidiary, will be deemed to be
Restricted Payments made at the time of such designation. The amount of
outstanding Investments will be equal to the greater of
- the net book value of such Investments at the time of such designation;
and
- the fair market value thereof.
In the case of Investments in the form of common stock such fair market
value will be equal to the portion of the fair market value of the net assets of
such Subsidiary at the time that such Subsidiary is designated an Unrestricted
Subsidiary that is represented by the interest of the Company and its Restricted
Subsidiaries in such Subsidiary. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
Any designation of an Unrestricted Subsidiary by the Board of Directors
shall be evidenced by filing with the trustee a certified copy of the Board
resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the conditions set forth in the
first paragraph above. If, at any time, any Unrestricted Subsidiary fails to
meet the requirements as an Unrestricted Subsidiary as set forth in the
definition of that term, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Debt of such Subsidiary shall
be deemed to be incurred by a Restricted Subsidiary as of such date (and, if
such Debt is not permitted to be incurred as of such date under the covenant
described under the heading "Certain Covenants--Incurrence of Debt and Issuance
of Preferred Stock," the Company shall be in default of such covenant).
The Board of Directors may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; PROVIDED that such designation shall be deemed to
be an incurrence by a Restricted Subsidiary of any outstanding Debt and Liens of
such Unrestricted Subsidiary and such designation shall only be permitted if:
- such Debt is permitted under the covenant described under the heading
"Certain Covenants--Incurrence of Debt and Issuance of Preferred Stock,"
calculated on a PRO FORMA basis as if such designation had occurred at the
beginning of the four-quarter reference period;
- such Liens are permitted to be incurred at such time under the covenant
described under the heading "Certain Covenants--Liens"; and
- no Default or Event of Default would be in existence following such
designation.
Any designation of a Restricted Subsidiary by the Board of Directors shall
be evidenced by filing with the trustee a certified copy of the Board resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the conditions set forth in the immediately
preceding paragraph.
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GAMING APPROVALS
Restrictions on the transfer of the Equity Interests of the Company's
License Subsidiaries licensed in Nevada or other jurisdictions, and agreements
not to encumber such Equity Interests, in each case, in respect of the notes,
are not effective without the prior approval of the Nevada Gaming Commission and
other applicable Gaming Authorities. No License Subsidiary shall be subject to
such restrictions until the earlier of such time (the "Applicable Date") as
(1) prior approval of such restrictions with respect to such License Subsidiary
is received from the applicable Gaming Authorities or (2) a registered public
offering of the notes is made pursuant to a prior approval of the applicable
Gaming Authorities of such offering that includes a prior approval of such
restrictions with respect to such License Subsidiary. Notwithstanding any other
covenant described herein, until the respective Applicable Date for a License
Subsidiary, such License Subsidiary shall not incur any Debt. The Company shall
use commercially reasonable efforts to cause the Applicable Date to occur for
each License Subsidiary at the earliest practicable time. For more information,
see "Government Regulation--Nevada Regulatory Matters "and "--Other
Jurisdictions and Government Approvals."
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default with respect to the notes:
- default for 30 days in the payment when due of interest on, or Additional
Interest with respect to, the notes (whether or not prohibited by the
subordination provisions of the indenture);
- default in payment when due of the principal of or premium, if any, on the
notes (whether or not prohibited by the subordination provisions of the
indenture), whether at its Stated Maturity, upon redemption or repurchase;
- failure by the Company or any Guarantor to comply with the provisions
described under the headings "Guarantees" (third paragraph only),
"Repurchase at the Option of Holders--Change of Control," "Repurchase at
the Option of Holders--Asset Sales" or "Certain Covenants--Merger,
Consolidation or Sale of Assets;"
- failure by the Company or any Guarantor for 30 days after notice to comply
with any of its other agreements in the indenture or the notes;
- default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Debt for money
borrowed by the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries), whether such Debt or guarantee now exists, or is created
after the Issue Date, which default: is caused by a failure to pay
principal of or premium, if any, or interest on such Debt before the
expiration of the grace period provided in such Debt on the date of such
default (a "Payment Default") or results in the acceleration of such Debt
before its express maturity, and, in each case, the principal amount of
any such Debt, together with the principal amount of any other such Debt
under which there has been a Payment Default or the maturity of which has
been so accelerated, aggregates $10.0 million or more;
- failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $10.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days;
- except as permitted by the indenture, any Guarantee shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its obligations
under its Guarantee;
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- events of bankruptcy or insolvency with respect to the Company or any of
its Restricted Subsidiaries; or
- the occurrence of any revocation, failure to renew or suspension of, or
the appointment of a receiver, supervisor or similar officer with respect
to, any gaming license issued by any Nevada Gaming Authority covering any
gaming activities of the Company or any Restricted Subsidiary if such
action has a material adverse effect upon the Company and its Restricted
Subsidiaries taken as a whole and such occurrence continues for 30 days.
If any Event of Default exists, the trustee or the holders of at least 25%
in principal amount of the then outstanding notes may declare all the notes to
be due and payable immediately. Notwithstanding the foregoing, in the case of an
Event of Default arising from events of bankruptcy or insolvency, with respect
to the Company or any Restricted Subsidiary, all outstanding notes will become
due and payable without further action or notice. The holders of a majority in
principal amount of the notes then outstanding may rescind the declaration if,
among other conditions, the holders act before the trustee has obtained a
judgment or decree for payment of the money due and all existing Events of
Default other than the accelerated interest and principal have been cured or
waived.
If a Default or Event of Default exists and is known to the trustee, the
trustee must mail to each holder notice of the Default or Event of Default no
later than 30 days after it is known to a trust officer or written notice of it
is received by the trustee. Except in the case of a Default or Event of Default
in the payment of principal of, or premium (if any), interest or Additional
Interest on, any note, the trustee may withhold notice if and so long as a
committee of its trust officers in good faith determines that withholding such
notice is in the interests of the holders. In addition, the Company must deliver
to the trustee within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof actually know of any Default or Event of
Default that occurred during the previous year. The Company also must deliver to
the trustee, forthwith upon obtaining actual knowledge of any such Default or
Event of Default, written notice of any event which would constitute a Default
or Event of Default, its status and what action the Company is taking or
proposes to take in respect thereof.
Subject to the provisions of the indenture relating to the duties of the
trustee, if an Event of Default exists, the trustee will be under no obligation
to exercise any of the rights or powers under the indenture at the request or
direction of any of the holders unless such holders have offered to the trustee
reasonable indemnity or security against any loss, liability or expense. Except
to enforce the right to receive payment of principal, premium (if any), interest
or Additional Interest when due (which each holder may enforce individually
against the Company or any Guarantor), no holder may pursue any remedy with
respect to the indenture, the notes or any Guarantee unless:
- such holder has previously given the trustee notice that an Event of
Default then exists;
- holders of at least 25% in principal amount of the outstanding notes have
requested the trustee to pursue the remedy;
- such holders have offered the trustee reasonable security or indemnity
against any loss, liability or expense;
- the trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity; and
- the holders of a majority in principal amount of the outstanding notes
have not given the trustee a direction inconsistent with such request
within such 60-day period.
Subject to some restrictions, the holders of a majority in principal amount
of the outstanding notes will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the trustee. The trustee,
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however, may refuse to follow any direction that conflicts with law or the
indenture or that the trustee determines is unduly prejudicial to the rights of
any other holder or that would involve the trustee in personal liability. Before
taking any action under the indenture, the trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the notes pursuant to the
optional redemption provisions of the indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the notes. If an Event of Default occurs before
October 15, 2004, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the notes before October 15, 2004, then a premium
specified in the indenture shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the notes.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, premium, if any, or the principal of, the notes.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
notes, the indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. No director, officer, employee, incorporator
or stockholder of any of the Guarantors, as such, shall have any liability for
any obligations of the Guarantors under the Guarantees, the indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of notes and Guarantees by accepting a note and a
Guarantee waives and releases all such liabilities. The waiver and release are
part of the consideration for issuance of the notes and the Guarantees. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
SATISFACTION AND DISCHARGE
Upon the request of the Company, the indenture will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
the notes, as expressly provided for in the indenture) and the trustee, at the
expense of the Company, will execute proper instruments acknowledging
satisfaction and discharge of the indenture, the Guarantees and the notes when:
- either: all the notes previously authenticated and delivered (other than
destroyed, lost or stolen notes that have been replaced or paid and notes
that have been subject to defeasance under "Legal Defeasance or Covenant
Defeasance") have been delivered to the trustee for cancellation; or all
notes not previously delivered to the trustee for cancellation have become
due and payable, will become due and payable at maturity within 60 days or
will become due and payable at redemption within 60 days under
arrangements satisfactory to the trustee for the giving of notice of
redemption by the trustee in the name, and at the expense, of the Company
and, in each case, the Company has irrevocably deposited or caused to be
deposited with the trustee cash in U.S. Dollars, Government Securities, or
a combination thereof, in trust for the purpose and in an amount
sufficient to pay and discharge the entire Debt on such notes not
previously delivered to the trustee for cancellation, for principal (and
premium, if any, on) and
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interest on the notes to the date of such deposit (in case of notes that
have become due and payable) or to the Stated Maturity or redemption date,
as the case may be;
- the Company has paid or caused to be paid all sums payable under the
indenture by the Company; and
- the Company has delivered to the trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent provided in
the indenture relating to the satisfaction and discharge of the indenture,
the Guarantees and the notes and any related security arrangements have
been complied with.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of the
obligations of the Company and the Guarantors discharged with respect to the
outstanding notes and any Guarantees, as the case may be ("Legal Defeasance"),
except for:
- the rights of holders of outstanding notes to receive payments in respect
of the principal of, and premium, if any, interest and Additional Interest
on, such notes when such payments are due from the trust referred to
below;
- the Company's obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes, the maintenance of an office or agency for payment and money
for note payments being held in trust;
- the rights, powers, trusts, duties and immunities of the trustee and the
Company's obligations in connection therewith; and
- the Legal Defeasance provisions of the indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company and the Guarantors released with respect to some
covenants that are described in the indenture and the Guarantees ("Covenant
Defeasance") and thereafter any omission to comply with those obligations will
not constitute a Default or Event of Default with respect to the notes. In the
event Covenant Defeasance occurs, some events (not including non-payment, and,
solely with respect to the Company, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
- the Company or the Guarantors must irrevocably deposit with the trustee,
in trust, for the benefit of the holders of the notes, cash in U.S.
dollars, Government Securities, or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, and premium, if
any, interest and Additional Interest on, all outstanding notes on the
Stated Maturity or on the applicable redemption date, as the case may be,
and the Company and the Guarantors must specify whether the notes are
being defeased to maturity or to a particular redemption date;
- in the case of Legal Defeasance, the Company or the Guarantors shall have
delivered to the trustee an Opinion of Counsel in the United States
reasonably acceptable to the trustee confirming that: the Company and the
Guarantors have received from, or there has been published by, the
Internal Revenue Service a ruling; or since the Issue Date, there has been
a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the holders of the outstanding notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal
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Defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred;
- in the case of Covenant Defeasance, the Company or the Guarantors shall
have delivered to the trustee an Opinion of Counsel in the United States
reasonably acceptable to the trustee confirming that the holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance
had not occurred;
- no Default or Event of Default exists on the date of such deposit (other
than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Defaults or Events of Default
from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
- such Legal Defeasance or Covenant Defeasance will not result in a breach
or violation of, or constitute a default under, any agreement or
instrument (other than the indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound;
- the Company or the Guarantors must have delivered to the trustee an
Opinion of Counsel to the effect that, after the 91st day following the
deposit, the trust funds will not be part of any "estate" formed by the
bankruptcy or reorganization of the Company or any Guarantor or subject to
the "automatic stay" under the Bankruptcy Code or, in the case of Covenant
Defeasance, will be subject to a first priority Lien in favor of the
trustee for the benefit of the holders;
- the Company or the Guarantors must deliver to the trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the holders of notes over the other creditors of the
Company or the Guarantors, as applicable, with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or the
Guarantors, as applicable, or others; and
- the Company must deliver to the trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
COMPLIANCE WITH GAMING LAWS
Each holder of a note, by accepting any note, agrees to be bound by the
requirements imposed on holders of debt securities of the Company by the gaming
authority of any jurisdiction of which the Company or any of its Subsidiaries
conducts or proposes to conduct gaming activities. For a description of the
regulatory requirements applicable to the Company, see "Government Regulation"
herein.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
indenture. The Company is not required to transfer or exchange any note selected
for redemption or repurchase. Also, the Company is not required to transfer or
exchange any note for a period of 15 days before a selection of notes to be
redeemed or repurchased.
The registered holder of a note will be treated as its owner for all
purposes.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the indenture, the
Guarantees or the notes may be amended or supplemented with the consent of the
holders of at least a majority in principal amount of the notes then outstanding
(including consents obtained in connection with a purchase of, or tender offer
or exchange offer for, notes), and any existing default or compliance with any
provision of the indenture, the Guarantees or the notes may be waived, with the
consent of the holders of a majority in principal amount of the then outstanding
notes (including consents obtained in connection with a purchase of, or a tender
offer or exchange offer for, notes).
Without the consent of each holder affected thereby, an amendment,
supplement or waiver may not (with respect to any notes held by a non-consenting
holder):
- reduce the principal amount of notes whose holders must consent to an
amendment, supplement or waiver;
- reduce the principal or change the fixed maturity of any note, reduce any
premium payable upon optional redemption or repurchase of the notes,
change the date on which any notes are subject to redemption or repurchase
or otherwise alter the provisions with respect to the redemption or
repurchase of the notes;
- reduce the rate or change the time for payment of interest on or
Additional Interest with respect to any note;
- waive a Default or Event of Default in the payment of principal of, or
premium, if any, interest or Additional Interest on the notes (except a
rescission of acceleration of the notes by the holders of at least a
majority in aggregate principal amount of the notes and a waiver of the
payment default that resulted from such acceleration);
- make any note payable in money or currency other than that stated in the
notes;
- impair the rights of holders of notes to receive payments of principal of
or premium, if any, or interest on the notes;
- release any Guarantor from any of its obligations under its Guarantee or
the indenture, except as permitted by the indenture;
- amend the subordination provisions of the indenture if such amendment
would adversely affect the rights of holders of notes; or
- make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of notes,
the Company, the Guarantors and the trustee may amend or supplement the
indenture, the Guarantees or the notes to:
- cure any ambiguity, defect or inconsistency;
- to provide for uncertificated notes in addition to or in place of
certificated notes (PROVIDED that the uncertificated notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated notes are described in Section 163(f)(2)(B)
of the Code);
- to provide for the assumption of the Company's or a Guarantor's
obligations to holders of notes in the case of a merger, consolidation or
sale of assets;
- to release any Guarantee in accordance with the provisions of the
indenture or provide for additional Guarantors;
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- to make any change that would provide any additional rights or benefits to
the holders of notes or that does not adversely affect the legal rights
under the indenture of any such holder; or
- to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act
of 1939, as amended.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of the Company, the indenture limits its
rights to obtain payment of claims or to realize on property received in respect
of any such claim as security or otherwise. The trustee will be permitted to
engage in other transactions; however, if the trustee acquires any conflicting
interest, the trustee must eliminate such conflict within 90 days, apply to the
Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to some
exceptions. If an Event of Default occurs (which is not cured), the trustee will
be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions, the
trustee will be under no obligation to exercise any of its rights or powers
under the indenture at the request of any holder of notes, unless such holder
shall have offered to the trustee security and indemnity satisfactory to it
against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture and
the registration rights agreement without charge by writing to Investor
Relations, 815 Pilot Road, Suite G, Las Vegas, Nevada 89119.
GOVERNING LAW
The indenture and the notes will be governed by and construed in accordance
with the laws of the State of New York.
REGISTRATION RIGHTS; ADDITIONAL INTEREST
We, the Guarantors and the initial purchasers entered into a registration
rights agreement in connection with the offering of the old notes. The following
description summarizes the provisions of the registration rights agreement that
are material to the exchange notes. You may obtain copies of the registration
rights agreement from us if you would like to review these provisions in their
entirety.
Pursuant to the registration rights agreement, we and the Guarantors agreed,
for the benefit of the holders of the old notes, at our cost, to file with the
Commission an exchange offer registration statement under the Securities Act
with respect to the exchange notes. The exchange notes have identical terms to
the old notes, except that the exchange notes do not contain transfer
restrictions or have registration rights, except as described below.
Upon the effectiveness of the exchange offer registration statement, we will
offer to exchange the exchange notes for the old notes held by holders who are
able to make required representations.
We will also file with the Commission a shelf registration statement to
cover resales of the old notes or exchange notes by holders thereof who satisfy
conditions relating to the provision of information in connection with the shelf
registration statement if:
- we are not required to file the exchange offer registration statement or
permitted to consummate the exchange offer because the exchange offer is
not permitted by applicable law or Commission policy;
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- any old notes validly tendered pursuant to the exchange offer are not
exchanged for exchange notes within 30 days after the effectiveness target
date set forth in the exchange offer registration statement; or
- any holder of transfer-restricted notes notifies us before the 20th day
following consummation of the exchange offer:
(a) that applicable law or Commission policy prohibits it from
participating in the exchange offer;
(b) that it may not resell the exchange notes acquired by it in the
exchange offer to the public without delivering a prospectus and the
prospectus contained in the exchange offer registration statement is not
appropriate or available for such resales;
(c) that it is an initial purchaser and that such old notes are not
eligible to be exchanged for exchange notes; or
(d) that it is a broker-dealer and owns old notes acquired directly from
us or an affiliate of ours.
We will use our best efforts to cause each such registration statement we
file to be declared effective as promptly as possible by the Commission. For
purposes of the foregoing, "transfer-restricted note" means each old note or
exchange note until:
- as to an old note, the date on which such old note has been exchanged for
a freely transferable exchange note in the exchange offer;
- as to an exchange note acquired by a broker-dealer in the exchange offer,
the date on which such exchange note is sold to a purchaser who receives
from such broker-dealer on or before the date of such sale a copy of the
prospectus contained in the exchange offer registration statement;
- as to an old note or an exchange note, the date on which such old note or
exchange note has been effectively registered under the Securities Act and
disposed of in accordance with the shelf registration statement; or
- as to an old note or an exchange note, the date on which such old note or
exchange note is sold to the public pursuant to Rule 144 under the
Securities Act or becomes salable pursuant to Rule 144(k) under the
Securities Act.
Pursuant to the registration rights agreement:
- we agreed to file the exchange offer registration statement with the
Commission within 45 days after the closing of the offering of the old
notes;
- we agreed to use our best efforts to have the exchange offer registration
statement declared effective by the Commission within 120 days after the
closing of the offering of the old notes;
- unless the exchange offer is not permitted by applicable law or Commission
policy, we will commence the exchange offer and use our best efforts to
issue, within 30 business days after the date on which the exchange offer
registration statement was declared effective by the Commission, exchange
notes in exchange for all old notes tendered prior thereto in the exchange
offer; and
- if we are obligated to file the shelf registration statement, we will use
our best efforts to file the shelf registration statement with the
Commission within 45 days after that filing obligation arises and to cause
the shelf registration statement to be declared effective by the
Commission within 90 days after such obligation arises.
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If we file the shelf registration statement and the Commission declares it
effective, we will use our best efforts to keep it effective for a period of two
years after its effective date or such shorter period as will terminate when all
the transfer-restricted notes covered thereby have been sold pursuant to the
shelf registration statement, sold pursuant to Rule 144 under the Securities Act
or are salable pursuant to Rule 144(k) under the Securities Act.
If:
- we fail to file either of the registration statements required by the
registration rights agreement on or before the dates specified for such
filings above;
- any registration statement we file is not declared effective by the
Commission on or before the date specified for such effectiveness target
date referenced above;
- unless the exchange offer is not permitted by applicable law or Commission
policy, we do not consummate the exchange offer within 30 business days of
such effectiveness target date for the exchange offer registration
statement; or
- the exchange offer registration statement is declared effective but
thereafter ceases to be effective or usable prior to issuance of exchange
notes in exchange for all old notes tendered in the exchange offer or the
shelf registration statement is declared effective but thereafter ceases
to be effective or usable in connection with resales of
transfer-restricted notes during the period specified above or in the
registration rights agreement (each such event referred to in these
indented clauses of this paragraph a "Registration Default");
then we will pay additional interest (the "Additional Interest") to each holder
of old notes or exchange notes, as the case may be, with respect to the first
90-day period immediately following the occurrence of the first Registration
Default in an amount equal to $0.1925 per week per $1,000 principal amount of
old notes or exchange notes held by such holder. The amount of the Additional
Interest will increase by an additional $0.1925 per week per $1,000 principal
amount of old notes or exchange notes, as the case may be, with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Additional Interest of $0.385 per week per $1,000 principal
amount of old notes or exchange notes. All accrued Additional Interest will be
paid by the Company on each date on which interest on the old notes or exchange
notes, as the case may be, is otherwise payable, in the same manner as interest
payments on the old notes or exchange notes. Following the cure of all
Registration Defaults, the accrual of Additional Interest will cease.
For a period of 90 days after the consummation of the exchange offer, we
must make a prospectus meeting the requirements of the Securities Act available
to any broker-dealer for use in connection with any resale of any such exchange
notes. We will pay all expenses incident to the exchange offer or the shelf
registration statement, if filed, including the expense of one counsel to the
holders of the old notes, and will indemnify some holders of the old notes
(including any broker-dealer) against certain liabilities, including liabilities
under the Securities Act. A broker-dealer that delivers a prospectus to
purchasers in connection with such resales will be subject to some of the civil
liability provisions under the Securities Act and will be bound by the
provisions of the exchange and registration rights agreement (including some
indemnification rights and obligations).
A holder of an old note must make representations to the Company (as
described in the registration rights agreement) in order to participate in the
exchange offer, including representations that:
- it will acquire any exchange notes received by it in the ordinary course
of its business;
- it has no arrangement with any person to participate in the distribution
of the exchange notes; and
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- it is not an "affiliate," as defined in Rule 405 under the Securities Act,
of the Company or, if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act to
the extent applicable, and will deliver any information to be used in the
shelf registration statement and provide comments on the shelf
registration statement within the time periods set forth in the
registration rights agreement in order to have its notes included in the
shelf registration statement and benefit from the provisions regarding
Additional Interest set forth above.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
exchange notes. If the holder is a broker-dealer that will receive exchange
notes for its own account in exchange for old notes that were acquired by it as
a result of its market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such exchange notes.
TRANSFER AGENT, REGISTRAR, PAYING AGENT AND EXCHANGE AGENT
The Trustee will act as the transfer agent, registrar, paying agent and
exchange agent for the old notes. The Trustee, in its capacity as the paying
agent, may appoint co-paying agents, which must be acceptable to the Company.
Registration of transfers or exchanges of the notes will be effected without
charge by or on behalf of the Company, but any holder transferring any interest
in a note will be required to pay to the trustee or the Company, as appropriate,
any tax or other governmental charges that may be imposed in connection with
that transfer or exchange. The Company will not be required to register or cause
to be registered the transfer of any note after it has been called for
redemption.
DEFINITIONS
Set forth below are some defined terms used in the indenture. Please refer
to the indenture for a full disclosure of all such terms, as well as any other
capitalized terms used in this summary for which we have not provided a
definition.
"ACQUIRED DEBT" means, with respect to any Person:
- Debt of any other Person existing at the time such other Person is merged
with or into or became a Subsidiary of such Person; and
- Debt secured by a Lien encumbering any asset acquired by such Person,
other than, in any such case, Debt incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such Person or such asset being acquired by such Person.
"ADDITIONAL ASSETS" means:
- any long-term operating property or assets (excluding Debt and Capital
Stock) to be used in a Permitted Business;
- the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary; or
- Capital Stock constituting a minority interest in any Person that at such
time is a Restricted Subsidiary;
PROVIDED, however, that any such Restricted Subsidiary is primarily engaged in a
Permitted Business.
"AFFILIATE" means, with respect to any Person, any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such Person or solely for purposes of the
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covenant described under "Certain Covenants--Transactions with Affiliates," any
Person who is a director or officer of such Person, of any Subsidiary of such
Person or of any Person described above. For purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; PROVIDED that,
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control. The terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"ANCHOR-IGT JOINT VENTURE" means the Nevada general partnership formed
pursuant to that certain Joint Venture Agreement, dated December 6, 1996, by and
between IGT and Anchor Games d/b/a Anchor Coin, a Nevada corporation and wholly
owned Subsidiary of the Company, as the same may be amended from time to time,
pursuant to which the Company and International Game Technology develop,
integrate, manufacture and distribute proprietary gaming concepts, primarily on
wide area progressive systems.
"ASSET SALE AGREEMENTS" means, collectively, that certain Asset Purchase
Agreement, dated as of September 24, 2000, between Nuevo Sol Turf Club, Inc. and
My Way Holdings, LLC and that certain Assignment of Membership Interests, dated
as of September 24, 2000, between the Company and My Way Holdings, LLC, pursuant
to which the Company shall transfer the Racetrack Assets to My Way Holdings, LLC
for a purchase price equal to $66.0 million.
"ASSET SALE" means:
- the sale, lease or other disposition of any properties (real or personal)
or other assets (including by way of Sale/Leaseback Transaction), by the
Company or any Restricted Subsidiary; or
- the sale by the Company or any Restricted Subsidiary, or the issuance or
sale by any Guarantor, of Equity Interests of any Restricted Subsidiary,
PROVIDED, in any such case, whether in a single transaction or in a series of
related transactions, such assets or Equity Interests: have a fair market value
in excess of $5.0 million; or are disposed of, sold or issued for net proceeds
in excess of $5.0 million.
Notwithstanding the foregoing, the following will not constitute "Asset Sales":
- the sale, lease or other disposition of all or substantially all of the
assets of the Company and its Restricted Subsidiaries taken as a whole,
which will be governed by the provisions of the indenture described above
under the heading "Repurchase at the Option of Holders--Change of Control"
and "Certain Covenants--Merger, Consolidation or Sale of Assets" and not
by the provisions described under "Repurchase at the Option of
Holders--Asset Sales");
- a transfer of assets by the Company to a Wholly-Owned Restricted
Subsidiary or by a Restricted Subsidiary to the Company or to a
Wholly-Owned Restricted Subsidiary;
- an issuance of Equity Interests by a Restricted Subsidiary to the Company
or to a Wholly-Owned Restricted Subsidiary or to directors as director
qualifying shares;
- a Restricted Payment that is permitted by the covenant described above
under the heading "Certain Covenants--Restricted Payments;"
- sales of inventory in the ordinary course of business;
- a Qualified AWI Asset Transfer;
- sales, transfers or other dispositions of equipment that has become worn
out, obsolete or damaged or otherwise unsuitable for use in connection
with the business of the Company and the Restricted Subsidiaries, in each
case, in the ordinary course of business or pursuant to an established
program for the maintenance and upgrading of equipment; and
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- the transfer of the Racetrack Assets in consideration for retirement of
the Stock Purchase Debt, pursuant to the terms and conditions of the Asset
Sale Agreements and the Stock Purchase Debt.
"ATTRIBUTABLE DEBT" means, with respect to any Sale/Leaseback Transaction,
at any date of determination, the present value (discounted at the rate of
interest required to be used under GAAP) of the obligation of the lessee for net
rental payments during the remaining term of the lease (including any period for
which such lease has been extended or may, at the option of the lessor, be
extended), whether such lease is a Capitalized Lease or an operating lease. "Net
rental payments" under any lease for any period means the sum of such rental and
other non-contingent payments required to be paid in such period by the lessee
thereunder.
"AWI" means Automated Wagering International, Inc., a Delaware corporation.
"BOARD OF DIRECTORS" means, with respect to any Person, the board of
directors (or any similar governing body) of such Person, or unless the context
otherwise requires, any authorized committee of the board of directors (or such
body) of such Person. Unless otherwise specified, "Board of Directors" means the
Board of Directors of the Company.
"CAPITALIZED LEASE" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) under which the rental obligations of
such Person as lessee, in conformity with GAAP, is required to be capitalized on
the balance sheet of such Person.
"CAPITAL LEASE OBLIGATION" means, at any time of determination, the amount
of the liability in respect of a Capitalized Lease that would at such time be
required to be capitalized on a consolidated balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means:
- in the case of a corporation, common or other corporate stock;
- in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
- in the case of a partnership or limited liability company, partnership or
membership interests (whether general or limited); and
- any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets
of, the issuing Person.
"CASH EQUIVALENTS" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof having
maturities of not more than six months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits, in
each case with any domestic commercial bank having capital and surplus in
excess of $500 million and a Keefe Bank Watch Inc. rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
or S&P and in each case maturing within six months after the date of
acquisition;
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(6) interest in money market mutual funds which invest solely in assets
or securities of the type described in subparagraphs (1) through
(5) hereof; and
(7) other items defined as cash or its equivalent in the Senior Credit
Facility.
"CHANGE OF CONTROL" means any of the following:
- any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Exchange Act) becoming the "beneficial owner" (as defined in
Rule 13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than 50%
of the total voting power of the Voting Stock of the Company;
- any sale, transfer, assignment, lease, conveyance or other disposition,
directly or indirectly, of all or substantially all of the assets of the
Company and its Subsidiaries, considered as a whole, in one transaction or
a series of related transactions, to another Person (other than a
disposition of such assets as an entirety or virtually as an entirety to
one or more Wholly-Owned Restricted Subsidiaries that are Guarantors)
shall have occurred, or the Company merges, consolidates or amalgamates
with or into any Person or any other Person merges, consolidates or
amalgamates with or into the Company, in any event pursuant to a
transaction in which the outstanding Voting Stock of the Company is
reclassified into or exchanged for cash, securities or other property,
other than a transaction where: the outstanding Voting Stock of the
Company is reclassified into or exchanged for other Voting Stock of the
Company or for Voting Stock of the surviving corporation, and the holders
of the Voting Stock of the Company immediately prior to such transaction
own, directly or indirectly, not less than a majority of the Voting Stock
of the Company or the surviving or resulting corporation immediately after
such transaction;
- any sale, transfer, assignment, lease, conveyance or other disposition,
directly or indirectly, of all or substantially all of the interests of
the Company and its Subsidiaries in the Anchor-IGT Joint Venture, in one
transaction or a series of related transactions, to another Person
including IGT (other than a disposition of such assets as an entirety or
virtually as an entirety to one or more Wholly-Owned Restricted
Subsidiaries that are Guarantors) shall have occurred;
- the liquidation or dissolution of the Company or approval by the Board of
Directors of such event, other than for effecting a reincorporation of the
Company; or
- the replacement of a majority of the Board of Directors over a two-year
period from the directors who constituted the Board of Directors at the
beginning of such period, and the election or nomination for election of
such replacements shall not have been approved by a vote of at least a
majority of the Board of Directors or the duly constituted nominating
committee of the Board of Directors then still in office who either were
members of such Board of Directors at the beginning of such period or
whose election or nomination as a member of such Board of Directors was
previously so approved.
For purposes of the first clause of this definition, a "person" or "group"
referred to in such clause shall be deemed to beneficially own all Voting Stock
of a specified corporation held by a parent corporation, if such person or group
"beneficially owns" (as defined in this definition), directly or indirectly, in
the aggregate a majority of the total voting power of the Voting Stock of such
parent corporation.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission or any successor
agency.
"CONSOLIDATED EBITDA" means, with respect to the Company for any period:
- the Consolidated Net Income of the Company for such period; PLUS
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- provision for taxes based on income or profits of the Company and its
Restricted Subsidiaries for such period, to the extent that such provision
for taxes was deducted in computing such Consolidated Net Income; PLUS
- consolidated interest expense of the Company and its Restricted
Subsidiaries (and the Anchor-IGT Joint Venture to the extent attributable
to the portion of the Net Income of the Anchor-IGT Joint Venture included
in the definition of "Consolidated Net Income" pursuant to clause (1)
thereof) for such period, whether paid or accrued and whether or not
capitalized (including amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect
to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings
or any receivables facility, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income; PLUS
- depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period) and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents an accrual of or reserve
for cash expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of the Company and its Restricted
Subsidiaries (and the Anchor-IGT Joint Venture to the extent attributable
to the portion of the Net Income of the Anchor-IGT Joint Venture included
in the definition of "Consolidated Net Income" pursuant to clause (1)
thereof) for such period, to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income; MINUS
- non-cash items increasing such Consolidated Net Income for such period,
in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or
profits of, and the depreciation and amortization and other non-cash expenses
of, a Subsidiary of the Company shall be added to Consolidated Net Income to
compute Consolidated EBITDA only to the extent (and in the same proportion as)
the Net Income of such Subsidiary was included in calculating the Consolidated
Net Income of the Company and only if a corresponding amount would be permitted
at the date of determination to be dividended or distributed to the Company by
such Subsidiary without prior governmental approval (that has not been
obtained), and without direct or indirect restriction pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and regulations applicable to that Subsidiary or the holders of
its Equity Interests.
"CONSOLIDATED NET INCOME" means, with respect to the Company for any period,
the aggregate of the Net Income of the Company and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED that:
(1) the positive Net Income of any Person that is not the Company or a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the Company or a Wholly-Owned Restricted
Subsidiary prior to the date which is 45 days following the last day of such
period;
(2) the positive Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income is
not at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or regulation applicable to that
Restricted Subsidiary or the holders of its Equity Interests;
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(3) the Net Income of the Company acquired in a pooling of interests
transaction for any period before the date of such acquisition shall be
excluded; and
(4) the cumulative effect of changes in accounting principles shall be
excluded.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement to which the Company or any
Restricted Subsidiary is a party or of which it is a beneficiary and that is
designed to protect the Company or such Restricted Subsidiary against currency
risks incurred in the ordinary course of business.
"DEBT" means, with respect to any Person (without duplication):
(1) any indebtedness of such Person, whether or not contingent, in
respect of borrowed money or evidenced by bonds, notes, debentures,
contracts of surety (or reimbursement agreements in respect thereof) or
similar instruments or letters of credit (or reimbursement agreements in
respect thereof) or banker's acceptances or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable not overdue by more
than 60 days, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability
upon a balance sheet of such Person prepared in accordance with GAAP;
(2) all indebtedness under clause (1) of other Persons secured by a Lien
on any asset of such Person (whether or not such indebtedness is assumed by
such Person); and
(3) to the extent not otherwise included, the guarantee by such Person
of any indebtedness under clause (1) of any other Person.
The amount of any Debt outstanding as of any date shall be the accreted value
thereof, in the case of any Debt that does not require current payments of
interest, and the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Debt. The amount of
any contingent Debt described in clause (2) or (3) above shall be the maximum
liability to which such Person or its assets may be subject upon the occurrence
of the contingency giving rise to the obligation.
"DEFAULT" means any event that, with the passage of time or the giving of
notice or both, would be an Event of Default.
"DESIGNATED NON-CASH CONSIDERATION" means any securities, notes or other
obligations received by the Company or any Restricted Subsidiary consummating an
Asset Sale from the transferee of assets to the extent that such securities,
notes or other obligations (i) constitute Restricted Payments permitted by the
first paragraph of "Certain Covenants--Restricted Payments" (and are thereafter
included in computations under clause (c) thereof (subject to reduction
thereafter to the extent such securities, notes or other obligations are
converted into cash)) and (ii) are designated as Designated Non-Cash
Consideration pursuant to an Officer's Certificate delivered to the Trustee
within 30 days after consummation of such Asset Sale. For purposes of making
determinations of the amount of Designated Non-Cash Consideration, such amount
will be equal to the fair market value thereof and will be set forth in such
Officer's Certificate.
"DESIGNATED SENIOR DEBT" means any Debt outstanding under the Senior Credit
Facility and any other Senior Debt permitted under the indenture the amount of
which is $10.0 million or more and that has been designated by the Company as
"Designated Senior Debt" by notice to the trustee.
"DISQUALIFIED EQUITY INTERESTS" means Disqualified Stock and all warrants,
options or other rights to acquire Disqualified Stock.
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"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), including upon the happening of any event, or at the option of
the holder thereof, in whole or in part,
- matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, on or before the date that is 91 days after the
date on which the notes mature; or
- is convertible into or exchangeable for Capital Stock referred to in this
definition or into or for Debt that requires any payment of principal on
or prior to the date that is 91 days after the Stated Maturity of the
notes.
Notwithstanding the preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require
the Company to repurchase such Capital Stock upon the occurrence of a change of
control or an asset sale shall not constitute Disqualified Stock if the terms of
such Capital Stock provide that the Company may not repurchase or redeem any
such Capital Stock pursuant to such provisions unless such repurchase or
redemption complies with the covenant described above under the heading
"--Certain Covenants--Restricted Payments."
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXCLUDED SUBSIDIARY" means (i) Colorado Grande Enterprises, Inc., a
Colorado corporation as long as any Equity Interests of such corporation are
owned by a Person that is not the Company or a Restricted Subsidiary,
(ii) Anchor Partners LLC, a Massachusetts limited liability company, as long as
any Equity Interests of such limited liability company are owned by a Person
that is not the Company or a Restricted Subsidiary and (iii) the Company's
non-U.S. Subsidiaries whose only tangible assets are located in foreign nations
and their U.S. holding companies, PROVIDED such holding companies have no other
assets or operations and PROVIDED, FURTHER, that if any Excluded Subsidiary
becomes subject to the covenants in the Senior Credit Facility applicable to
Guarantors or grants any Liens to secure the Senior Credit Facility, such
Excluded Subsidiary will thereafter not be an Excluded Subsidiary.
"EXISTING DEBT" means up to $4.0 million in aggregate principal amount of
Debt of the Company and its Restricted Subsidiaries (other than Debt under the
Senior Credit Facility or the Pala Facility Guarantee) in existence on the Issue
Date, until such amounts are repaid.
"FAIR MARKET VALUE" means, with respect to any asset or property, the price
that could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Except as otherwise
expressly provided in the indenture, "fair market value" shall be as determined
in good faith by the Board of Directors, whose determination shall be conclusive
if evidenced by a Board Resolution of the Board of Directors delivered to the
trustee.
"FIXED CHARGES" means, with respect to the Company for any period, the sum,
without duplication, of:
- the consolidated interest expense of the Company and its Restricted
Subsidiaries (and the Anchor-IGT Joint Venture to the extent attributable
to the portion of the Net Income of the Anchor-IGT Joint Venture included
in the definition of "Consolidated Net Income" pursuant to clause (1)
thereof) for such period, whether paid or accrued (including amortization
of original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings or any receivables facility, and net payments (if any) pursuant
to Hedging Obligations); PLUS
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- the consolidated interest expense of the Company and its Restricted
Subsidiaries (and the Anchor-IGT Joint Venture to the extent attributable
to the portion of the Net Income of the Anchor-IGT Joint Venture included
in the definition of "Consolidated Net Income" pursuant to clause (1)
thereof) that was capitalized during such period; PLUS
- any interest expense on Debt of another Person that is guaranteed by the
Company or one of its Restricted Subsidiaries or secured by a Lien on
assets of such Person or one of its Restricted Subsidiaries (whether or
not such guarantee or Lien is called upon); PLUS
- the product of: all dividend payments, whether or not in cash, on any
series of Preferred Stock of the Company or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable
solely in Qualified Equity Interests of the Company, MULTIPLIED BY a
fraction, the numerator of which is one and the denominator of which is
one MINUS the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal;
in each case, on a consolidated basis and in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to the Company for any
period, the ratio of the Consolidated EBITDA of the Company and its Restricted
Subsidiaries for that period to the Fixed Charges of the Company and its
Restricted Subsidiaries for such period. If the Company or any of its Restricted
Subsidiaries incurs, repays or redeems any Debt (other than revolving credit
borrowings) or issues or redeems Preferred Stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
on or before the date on which the event occurs for which the calculation of the
Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio shall be calculated giving PRO FORMA effect to such
incurrence, repayment or redemption of Debt, or such issuance or redemption of
Preferred Stock, as if the same had occurred at the beginning of the applicable
four-quarter reference period. In addition, for purposes of making the
computation referred to above:
- acquisitions of a company or business that have been made by the Company
or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during
the four-quarter reference period or subsequent to such reference period
and on or before the Calculation Date shall be deemed to have occurred on
the first day of the four-quarter reference period and Consolidated EBITDA
for such reference period shall be calculated without giving effect to
clause (3) of the proviso set forth in the definition of Consolidated Net
Income;
- the Consolidated EBITDA attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of before the Calculation Date, shall be excluded; and
- the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of before
the Calculation Date, shall be excluded, but only to the extent that the
obligations giving rise to such Fixed Charges will not be obligations of
the Company or any of its Restricted Subsidiaries following the
Calculation Date.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession. All financial calculations and determinations contemplated by the
indenture shall be made in conformity with GAAP.
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"GAMING AUTHORITY" means the Nevada Gaming Commission, the Nevada Gaming
Control Board or any agency of any state, county, city or other political
subdivision which has, or may at any time after the Issue Date have,
jurisdiction over all or any portion of the gaming activities of the Company or
any of its Subsidiaries or any successor to such authority.
"GAMING ROUTE GUARANTEES" means guarantees by the Company or a Restricted
Subsidiary, in the ordinary course of business consistent with past practice, of
obligations incurred by operators of facilities at which the Company and its
Restricted Subsidiaries conduct gaming machine route operations and which are
directly related to the operation of such facilities.
"GOVERNMENTAL AUTHORITY" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
any city or other political subdivision or otherwise and whether now or
hereafter in existence, or any officer or official thereof.
"GOVERNMENT SECURITIES" means non-callable direct obligations of, or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
"GUARANTEE" means a direct or indirect guarantee by any Person of any Debt
of any other Person and includes any obligation, direct or indirect, contingent
or otherwise, of such Person:
- to purchase or pay (or advance or supply funds for the purchase or payment
of) Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services (unless such purchase arrangements are on
arm's-length terms and are entered into in the ordinary course of
business), to take-or-pay, or to maintain financial statement conditions
or otherwise); or
- entered into for purposes of assuring in any other manner the obligee of
such Debt of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part). "guarantee," when used as a
verb, and "guaranteed" have correlative meanings.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under Interest Rate Agreements or Currency Agreements.
"IGT" means International Game Technology, a Nevada corporation.
"INCUR" with respect to any Debt is defined in the first paragraph of the
covenant described under "Certain Covenants--Incurrence of Debt and Issuance of
Preferred Stock." The term "incurrence" has a correlative meaning. If a Person
becomes a Subsidiary upon acquisition of all or a part of its Capital Stock by
the Company or any Restricted Subsidiary, all Debt of such Person is considered
"incurred" upon closing of such acquisition. In addition, if an asset is
acquired by the Company or any Restricted Subsidiary, any Debt secured by such
asset is considered "incurred" upon closing of such acquisition, whether or not
such Debt is assumed.
"INDEPENDENT" means, with respect to any person, that:
- such person is in fact independent;
- does not have any direct financial interest or any material indirect
financial interest in the Company or any of its Subsidiaries, or in any
Affiliate of the Company or any of its Subsidiaries (other than as a
result of holding securities of the Company); and
- is not an officer, employee, promoter, underwriter, trustee, partner or
person performing similar functions for the Company or any of its
Subsidiaries.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest
rate cap agreement, repurchase agreement, futures contract or other financial
agreement or arrangement designed to protect the Company or any Guarantor
against fluctuations in interest rates.
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"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans, advances or other extensions of credit (including guarantees of
Debt or other obligations but excluding commission, travel, payroll,
entertainment and similar advances to officers and employees made in the
ordinary course of business), capital contributions or purchases or other
acquisitions for consideration of Debt, Equity Interests or other securities,
together with all items that are or would be classified as investments on a
balance sheet prepared in accordance with GAAP. The amount of any Investment
shall be the fair market value thereof on the date such Investment is made. If
the Company or any Subsidiary sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary such that, after giving effect to
any such sale or disposition, such Person is no longer a Subsidiary, the Company
shall be deemed to have made an Investment on the date of any such sale or other
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the heading "Certain
Covenants--Restricted Payments."
"ISSUE DATE" means the date on which the notes are originally issued under
the indenture.
"LICENSE SUBSIDIARY" means Anchor Coin, Powerhouse Technologies, Inc.,
VLC, Inc., VLC of Nevada, Inc., and any future Subsidiary that holds any gaming
license from any Gaming Authority requiring approval for the incurrence of Debt
of such Subsidiary or the incurring of any Lien on the Capital Stock of such
Subsidiary.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"MOODY'S" means Moody's Investors Service, Inc. and its successors.
"NET INCOME" means, with respect to any Person, the net income (or loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however:
- any gain or loss, together with any related provision (or credit) for
taxes on such gain or loss, realized in connection with: (i) if the
referent Person is the Company, any Asset Sale (including dispositions
pursuant to Sale/Leaseback Transactions) or any disposition or transfer of
assets to any Unrestricted Subsidiary or Excluded Subsidiary of the
Company or (ii) if the referent Person is not the Company, any sale or
other disposition of assets outside the ordinary course of business; the
disposition of any securities; or the extinguishment of any Debt;
- any extraordinary gain or loss, together with any related provision (or
credit) for taxes on such extraordinary or gain or loss; and
- any restoration to income of any contingency reserve, except to the extent
that provision for such reserve was made out of Net Income at any time
following the beginning of the first fiscal quarter commencing after the
Issue Date.
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"NET PROCEEDS" means the aggregate cash or Cash Equivalent proceeds received
by the Company or any of its Restricted Subsidiaries in respect of any Asset
Sale (including any cash received upon the collection, sale or other disposition
of any non-cash consideration received in any Asset Sale), net of:
- the direct costs relating to such Asset Sale (including legal, accounting
and investment banking fees and sales commissions);
- any relocation expenses incurred as a result thereof;
- taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements); and
- any reserve for adjustment in respect of the sale price of such asset or
assets established in accordance with GAAP; PROVIDED, HOWEVER, that any
amounts remaining after adjustments, revaluations or liquidations of such
reserves shall constitute Net Proceeds.
"NON-RECOURSE DEBT" means Debt:
- as to which neither the Company nor any of its Restricted Subsidiaries:
provides credit support of any kind (including any undertaking, agreement
or instrument that would constitute Debt); or is directly or indirectly
liable (as a guarantor or otherwise); or constitutes the lender;
- no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against any Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder
of any other Debt of the Company or any of its Restricted Subsidiaries to
declare a default on such other Debt or cause the payment thereof to be
accelerated or payable before its Stated Maturity; and
- the holders of which have been notified in writing that they will not have
any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, guarantees and other liabilities
payable under the documentation governing any Debt, in each case whether now or
hereafter existing, renewed or restructured, whether or not from time to time
decreased or extinguished and later increased, created or incurred, whether or
not arising on or after the commencement of a proceeding under Title 11, U.S.
Code or any similar federal or state law for the relief of debtors (including
post-petition interest) and whether or not allowed or allowable as a claim in
any such proceeding.
"PALA FACILITY GUARANTEE" means that Guaranty, dated as of June 15, 2000, by
and between the Company and Bank of America, N.A., as administrative agent,
pursuant to which the Company has guaranteed up to $100.0 million in aggregate
principal amount of Debt of the Pala Band of Mission Indians (the "TRIBE")
incurred to finance the development, construction or acquisition of a gaming
facility as to which the Company or one of its Restricted Subsidiaries will
manage the Tribe's gaming activities and agreed, under certain circumstances, to
invest up to an additional $25.0 million in aggregate principal amount of
subordinated obligations of the Tribe, as such guaranty and agreement may be
amended, modified, supplemented or restated from time to time, or refunded,
refinanced, restructured, replaced, renewed, repaid or extended from time to
time (in each case without increasing the amount of the obligations of the
Company).
"PARI PASSU INDEBTEDNESS" means all Debt of the Company ranking equally in
right of payment with the notes.
"PERMITTED BUSINESS" means the businesses that the Company and its
Restricted Subsidiaries are engaged in on the Issue Date and any other
businesses reasonably related or incidental to any of those businesses.
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"PERMITTED INVESTMENTS" means:
- any Investment in the Company or in a Guarantor that is a Wholly-Owned
Restricted Subsidiary;
- any Investment by the Company or any Restricted Subsidiary in a Person, if
as a result of such Investment such Person becomes a Guarantor or such
Person is merged, consolidated or amalgamated with or into, or transfers
or conveys substantially all of its assets to, or is liquidated into, the
Company or a Guarantor;
- any Investment in Cash Equivalents;
- any securities received or Investments (other than Designated Non-Cash
Consideration) made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the heading "Repurchase at the Option of
Holders--Asset Sales" or in connection with any disposition of assets not
constituting an Asset Sale;
- any acquisition of assets solely in exchange for the issuance of Qualified
Equity Interests of the Company;
- loans or advances to employees (or guarantees of third party loans to
employees) in an aggregate amount not to exceed $1.0 million at any one
time outstanding;
- stock, obligations or securities of customers or trade creditors received
in the ordinary course of business in satisfaction of judgments, in
settlement of debts or in connection with bankruptcy proceedings (other
than in respect of other Permitted Investments);
- any Investment existing on the Issue Date and described in the prospectus;
- Investments in Interest Rate Agreements and Currency Agreements otherwise
permitted under the indenture; and
- the redemption, repurchase, retirement, defeasance or other acquisition of
any Senior Debt of the Company or the notes.
"PERMITTED JUNIOR SECURITIES" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to a
greater extent than, the notes are subordinated to Senior Debt pursuant to the
indenture.
"PERMITTED LIENS" means:
- Liens securing Senior Debt of the Company or a Restricted Subsidiary
permitted by the terms of the indenture to be incurred;
- Liens in favor of the Company or a Guarantor;
- Liens on property of a Person existing at the time the Capital Stock of
such Person is acquired by, or such Person is merged into or consolidated
with, the Company or any Restricted Subsidiary; PROVIDED that such Liens
were in existence before the contemplation of such acquisition, merger or
consolidation and do not extend to any assets other than those of the
Person whose Capital Stock was acquired by, or that was merged into or
consolidated with, the Company or such Restricted Subsidiary;
- Liens on property existing at the time of acquisition thereof by the
Company or any Restricted Subsidiary, PROVIDED that such Liens were in
existence before the contemplation of such acquisition and do not extend
to any additional assets;
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- Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in
the ordinary course of business (other than obligations for the payment of
money);
- Liens to secure Permitted Debt (including Capital Lease Obligations)
permitted by clause (5) of the second paragraph of the covenant entitled
"Certain Covenants--Incurrence of Debt and Issuance of Preferred Stock"
covering only the assets acquired, constructed or improved with such Debt;
- Liens existing on the Issue Date;
- Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
PROVIDED that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
- carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
in respect of obligations that are not yet due, are bonded or are being
contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of the Company
or such Restricted Subsidiary, as the case may be, in accordance with
GAAP;
- Liens arising by reason of a judgment, decree or court order, to the
extent not otherwise resulting in an Event of Default;
- Liens securing Interest Rate Agreements or Currency Agreements entered
into in the ordinary course of business on any property also securing the
Permitted Debt to which such Interest Rate Agreements or Currency
Agreements relate;
- Liens securing Permitted Refinancing Debt permitted to be incurred under
the indenture or amendments or renewals of Liens that were permitted to be
incurred, PROVIDED, in each case, that such Liens do not extend to any
additional property or asset that did not secure the Debt being extended,
refinanced, renewed, replaced, defeased or refunded or that did not secure
the Debt affected by such amendment or renewal; and
- Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary with respect to obligations that do not exceed
$500,000 at any one time outstanding and that: are not incurred in
connection with the borrowing of money or the obtaining of advances or
credit (other than trade credit in the ordinary course of business); and
do not in the aggregate materially detract from the value of the property
or materially impair the use thereof in the operation of business by the
Company or such Restricted Subsidiary.
"PERMITTED REFINANCING DEBT" means any Debt of the Company or any of its
Restricted Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Debt of the
Company or any of its Restricted Subsidiaries; PROVIDEDthat:
- the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Debt does not exceed the principal amount of (or accreted
value, if applicable), PLUS accrued interest on, the Debt so extended,
refinanced, renewed, replaced, defeased or refunded (PLUS the amount of
reasonable expenses incurred in connection therewith);
- such Permitted Refinancing Debt has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal
to or greater than the Weighted Average Life to Maturity of, the Debt
being extended, refinanced, renewed, replaced, defeased or refunded;
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- if the Debt being extended, refinanced, renewed, replaced, defeased or
refunded is Subordinated Debt, such Permitted Refinancing Debt is
subordinated in right of payment to the notes or the relevant Guarantee on
terms at least as favorable to the holders of notes as those contained in
the documentation governing the Subordinated Debt being extended,
refinanced, renewed, replaced, defeased or refunded; and
- such Debt is incurred either by the Company or by the Restricted
Subsidiary who is the obligor on the Debt being extended, refinanced,
renewed, replaced, defeased or refunded (and not by the Company or any
Restricted Subsidiary who is not such an obligor).
"PREFERRED STOCK" means any Capital Stock that, by its terms, is preferred
as to payment of dividends or distributions, or as to the distribution of assets
upon any voluntary or involuntary liquidation of the issuer thereof, over any
other class of Capital Stock of such Person.
"QUALIFIED AWI ASSET TRANSFER" means a contribution by AWI of assets to a
Qualified AWI Joint Venture in consideration of Equity Interests or other
securities issued by such Qualified AWI Joint Venture.
"QUALIFIED AWI JOINT VENTURE" means a corporation or other entity engaged
solely in Permitted Businesses in which the Company and its Restricted
Subsidiaries own at least 50% but not 100% of the outstanding Voting Stock of
such entity and, if such entity is a Subsidiary, then such Subsidiary is an
Unrestricted Subsidiary.
"QUALIFIED EQUITY INTERESTS" means Equity Interests other than
(1) Disqualified Stock and (2) warrants, options or other rights to acquire
Disqualified Stock.
"QUALIFIED GUARANTEE" a guarantee by the Company or any of its Restricted
Subsidiaries of Debt of any entity, PROVIDED that (i) unless such Debt was
incurred by a Native American tribe or any agency or instrumentality thereof,
the Company and its Restricted Subsidiaries own at least 35% but no more than
50% of the outstanding Voting Stock of such entity at the time of the
incurrence, creation or assumption of the guarantee, (ii) the primary purpose
for which such Debt was incurred was to finance the development, construction or
acquisition of a gaming facility, (iii) the Fixed Charge Coverage Ratio of the
Company, calculated cumulatively for the four most recent fiscal quarters of the
Company prior to the date of the guarantee as if such guarantee were required to
have been satisfied on the first day of such period, would have been greater
than 2.5 to 1.0, (iv) at the time of the incurrence, creation or assumption of
the guarantee, the rating of the notes by each Rating Agency is at least equal
to the rating of the notes on the Issue Date and (v) if such Debt is incurred by
a Native American tribe or any agency or instrumentality thereof, including any
tribal authority, for so long as such guarantee is outstanding, such tribe and
the Company or one of its Restricted Subsidiaries will have in effect a written
agreement which has been approved by all required Governmental Authorities
pursuant to which the Company or one of its Restricted Subsidiaries will manage
such tribe's gaming activities at the facility or facilities with respect to
which the Debt was incurred to develop, construct or acquire in exchange for
customary fees and reimbursements.
"QUALIFYING PUBLIC OFFERING" means any underwritten public offering of
common stock of the Company in which the gross proceeds to the Company are at
least $50.0 million.
"RACETRACK ASSETS" means (i) the assets of Nuevo Sol Turf Club, Inc., a New
Mexico corporation, related to the Sunland Park Racetrack & Casino and (ii) the
25% interest in Ourway Realty, LLC, a Massachusetts limited liability company,
owned by the Company.
"RATINGS AGENCIES" means, S&P and Moody's or, if either or both of S&P and
Moody's shall not make a rating of the notes publicly available, a nationally
recognized securities rating agency or agencies, as the case may be, selected by
the Company, which shall be substituted for S&P or Moody's or both, as the case
may be.
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"REQUIRED RATING" means ratings on the notes of at least BBB- by S&P and
Baa3 by Moody's or, if either or both of S&P and Moody's shall not make a rating
of the notes publicly available, analogous ratings by other Rating Agencies.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill Inc.
and its successors.
"SALE/LEASEBACK TRANSACTION" means any arrangement relating to property now
owned or hereafter acquired by the Company or a Restricted Subsidiary, whereby
the Company or such Restricted Subsidiary transfers such property to a Person
and the Company or a Restricted Subsidiary leases it from such Person other than
any such arrangement between the Company and a Restricted Subsidiary or between
Wholly-Owned Restricted Subsidiaries.
"SENIOR CREDIT FACILITY" means the Loan Agreement dated as of June 29, 1999
among the Company, Bank of America, N.A., as administrative agent for the
lenders and the lenders named therein, and any related notes, letters of credit
and guarantees, including any appendices, exhibits or schedules to any of the
foregoing (as the same may be in effect from time to time), in each case as such
agreement has been or may be amended, modified, supplemented or restated from
time to time, or refunded, refinanced, restructured, replaced, renewed, repaid
or extended from time to time (whether with the original agent and lenders or
other agents or lenders or otherwise, and whether provided under the original
credit agreement or other credit agreements or otherwise).
"SENIOR DEBT" means:
- all Debt of the Company or any of the Guarantors outstanding under the
Senior Credit Facility and all Hedging Obligations with respect thereto;
- any other Debt permitted to be incurred by the Company or one of the
Guarantors under the terms of the indenture, unless the instrument under
which such Debt is incurred expressly provides that it is on a parity with
or subordinated in right of payment to the notes or any Guarantee; and
- all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will
not include:
- any liability for federal, state, local or other taxes owed or owing by
the Company;
- any Debt of the Company or any of its Restricted Subsidiaries to any of
its officers, directors, Subsidiaries or other Affiliates or to any joint
venture in which the Company or any Restricted Subsidiary has an interest;
- any trade payables;
- any Debt that is incurred in violation of the indenture;
- any Non-Recourse Debt; or
- any repurchase, redemption or other obligation in respect of Disqualified
Stock.
Senior Debt will also include interest accruing subsequent to events of
bankruptcy of the Company and its Restricted Subsidiaries at the rate provided
for in the document governing such Senior Debt, whether or not such interest is
an allowed claim enforceable against the debtor in a bankruptcy case under
bankruptcy law.
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"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Debt, the date on which such payment of interest or
principal was scheduled to be paid in the original documentation governing such
Debt and shall not include any contingent obligations to repay, redeem or
repurchase any such interest or principal before the date originally scheduled
for the payment thereof.
"STOCK PURCHASE AGREEMENT" means that certain Stock Purchase Agreement,
dated as of September 24, 2000, among the Company and each of the stockholders
of the Company party thereto, pursuant to which the Company repurchases from
such stockholders 9,192,400 shares of the Company's Capital Stock at a per share
price of $33.306 payable in cash and by issuance of the Stock Purchase Debt
(after adjustment for split).
"STOCK PURCHASE DEBT" means Subordinated Debt evidenced by promissory notes
issued to Stanley Fulton in the original principal amount of $61.0 million and
$5.0 million, respectively, bearing interest at not in excess of 11% per annum,
with principal and interest due at least 366 days after the closing of the Stock
Purchase Agreement.
"SUBORDINATED DEBT" means, with respect to the Company or any Guarantor, any
Debt of the Company or such Guarantor (whether outstanding on the Issue Date or
thereafter incurred) that is subordinate or junior in right of payment to the
notes or the respective Guarantee pursuant to a written agreement comparable to
the terms of subordination set forth in the indenture.
"SUBSIDIARY" means, with respect to any Person:
- any corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
- any partnership the sole general partner or the managing general partner
of which is such Person or a Subsidiary of such Person or the only general
partners of which are such Person or one or more Subsidiaries of such
Person (or any combination thereof).
Unless otherwise specified, "Subsidiary" refers to a Subsidiary of the Company.
"UNRESTRICTED SUBSIDIARY" means:
- any Subsidiary that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board resolution; or
- any Subsidiary of any Unrestricted Subsidiary;
but in each case only to the extent that such Subsidiary:
- has no Debt other than Non-Recourse Debt;
- is not party to any agreement, contract, arrangement or understanding with
the Company or any Restricted Subsidiary unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to
the Company or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the Company;
- is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation to subscribe
for additional Equity Interests or to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified
levels of operating results;
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- has not guaranteed or otherwise directly or indirectly provided credit
support for any Debt of the Company or any of its Restricted Subsidiaries;
and
- does not own any Capital Stock of, or own or hold any Lien on any property
of the Company or any of its Restricted Subsidiaries.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Debt or
Disqualified Stock at any date, the number of years obtained by dividing:
- the sum of the products obtained by multiplying: the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof; by the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment; by
- the then outstanding principal amount of such Debt or the amount of such
Disqualified Stock.
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more of its Restricted
Subsidiaries.
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CERTAIN FEDERAL TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences of the exchange of old notes for exchange notes and the ownership
of the exchange notes. It deals only with exchange notes held as capital assets
and acquired at original issuance and not with special classes of noteholders,
such as dealers in securities or currencies, life insurance companies, tax
exempt entities, and persons that hold an exchange note in connection with an
arrangement that completely or partially hedges the exchange note. The
discussion is based upon the Internal Revenue Code of 1986, as amended, and
regulations, rulings and judicial decisions thereunder as of the date hereof.
Such authorities may be repealed, revoked or modified, perhaps retroactively, so
as to produce federal income tax consequences different from those discussed
below.
Holders of old notes considering the exchange offer should consult their own
tax advisors concerning the United States federal income tax and any state or
local income or franchise tax consequences in their particular situations, as
well as any consequences under the laws of any other taxing jurisdiction.
UNITED STATES HOLDERS
For purposes of this discussion, a "United States Holder" means (i) a
citizen or resident of the United States, (ii) a partnership, corporation or
other entity created or organized in or under the law of the United States or of
any State of the United States, (iii) an estate the income of which is subject
to United States federal income tax regardless of its source, or (iv) a trust,
if either (A) a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more United States
persons have the authority to control all substantial decisions of the trust or
(B) the trust was in existence on August 20, 1996, was treated as a United
States person on that date and elected to be treated as a United States person
at all times thereafter. The term also includes certain former citizens of the
United States whose income and gain on the notes will be subject to U.S. income
tax.
THE EXCHANGE OFFER
The exchange of an old note by a United States Holder for an exchange note
will not constitute a taxable exchange of the old note. As a result, a United
States Holder will not recognize taxable gain or loss upon receipt of an
exchange note, a United States Holder's holding period for an exchange note
generally will include the holding period for the old note so exchanged and such
United States Holder's adjusted tax basis in an exchange note generally will be
the same as such United States Holder's adjusted tax basis in the old note so
exchanged.
PAYMENTS OF INTEREST
Payments of stated interest on an exchange note will generally be taxable to
a United States Holder as ordinary interest income at the time it is received or
accrued, depending on the noteholder's method of accounting for tax purposes.
ADDITIONAL INTEREST
The Company intends to take the position that the likelihood that additional
interest will be paid is remote and that the amount of additional interest if
paid, will be incidental. Accordingly, the special rules applicable to debt
instruments with contingent payments would generally not apply. The additional
interest described under "Registration Rights; Additional Interest" would be
taxable to a United States Holder as ordinary income in accordance with such
United States Holder's method of accounting for tax purposes. The IRS, however,
may take a different position, which could affect the timing of both a United
States Holder's income and the Company's deduction with respect to such
131
<PAGE>
additional interest and could also affect the character as ordinary or capital
gain or loss on the disposition of a note.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to payments of
principal and interest on an exchange note and the proceeds of the sale of an
exchange note before maturity within the United States to non-corporate United
States Holders. A 31% "backup withholding" tax will apply to such payments if
the United States Holder fails to provide an accurate taxpayer identification
number or certification of exempt status or to report all interest and dividends
required to be shown on its federal income tax returns.
NON-UNITED STATES HOLDERS
As used herein, a "Non-United States Holder" is a person or entity that, for
United States federal income tax purposes, is not a United States Holder.
PAYMENTS TO NON-UNITED STATES HOLDERS
If the income or gain on the exchange notes is "effectively connected with
the conduct of a trade or business within the United States" by the Non-United
States Holder holding the exchange note, such income or gain will be subject to
tax essentially in the same manner as if the exchange notes were held by a
United States Holder, as discussed above, and in the case of a Non-United States
Holder that is a foreign corporation, may also be subject to the United States
branch profits tax. Such foreign corporations should consult their own tax
advisors concerning the branch profits tax.
If the income and gain on the exchange notes is not "effectively connected
with the conduct of a trade or business within the United States," then, under
the portfolio interest exemption of current United States federal income tax
law, payments of principal and interest on an exchange note by the Company or
any paying agent to a noteholder that is a Non-United States Holder will not be
subject to withholding of United States federal income tax, if the noteholder
(1) does not actually or constructively own 10% or more of the combined voting
power of all classes of stock of the Company, (2) is not a bank receiving
interest pursuant to a loan agreement entered into in the ordinary course of its
trade or business, (3) is not a controlled foreign corporation related to the
Company through stock ownership and (4) provides appropriate certification.
Under current law, the certification requirement will be met if either:
1. First, in accordance with specified procedures, the Non-United States
Holder provides to the Company or our paying agent a Form W-8BEN (or a
suitable substitute or successor form) that is signed under penalties of
perjury, includes its name and address, and contains a certification that
the holder is not a United States person; or
2. Second, (a) the Non-United States Holder provides a Form W-8BEN (or a
suitable substitute or successor form), signed under the penalties of
perjury, to a qualified intermediary, such as a securities clearing
organization, bank, or other financial institution who holds customers'
securities in the ordinary course of its trade or business and holds an
exchange note on behalf of a beneficial owner, and (b) the qualified
intermediary certifies to the Company, or our paying agent, under the
penalties of perjury, that such statement has been received by it from
the beneficial owner, directly or through another intermediary financial
institution, and furnishes the Company or our paying agent with a copy
thereof.
Recently finalized Treasury regulations that are applicable to interest paid
after December 31, 2000, provide alternative documentation procedures for
satisfying the certification requirement described above. Such regulations add
intermediary certification options for certain qualifying agents.
132
<PAGE>
For instance, under one such option, a withholding agent would be allowed to
rely on an IRS Form W-8IMY, or suitable substitute or successor form, furnished
by a financial institution or other intermediary on behalf of one or more
beneficial owners or other intermediaries without having to obtain the
beneficial owner certificate described in the preceding paragraph, provided that
the financial institution or intermediary has entered into a withholding
agreement with the IRS and thus is a qualified intermediary.
If a Non-United States Holder does not qualify for the portfolio interest
exemption, interest payments to the Non-United States Holder that are not
effectively connected with the conduct of a U.S. trade or business would be
subject to United States withholding at a 30% rate. The rate may be reduced or
eliminated under applicable treaties. To claim the benefit of a treaty the
Non-United States Holder must furnish the Company with an appropriate form,
e.g., Form W-8BEN.
If the income and gain on the exchange notes is not "effectively connected
with the conduct of a trade or business within the United States," a noteholder
that is a Non-United States Holder will not be subject to United States federal
income tax on gain realized on the sale, exchange or redemption of such note,
unless in the case of a Non-United States Holder who is a nonresident alien
individual and holds the exchange note as a capital asset, such holder is
present in the United States for 183 or more days in the taxable year and
certain other requirements are met.
Under current United States estate tax law, a noteholder will not be subject
to United States federal estate tax as a result of the death of a noteholder who
is not a citizen or resident of the United States at the time of death, provided
that such noteholder did not at the time of death actually or constructively own
10% or more of the combined voting power of all classes of stock of the Company
and, at the time of such noteholder's death, payments of interest on such
exchange note would not have been effectively connected with the conduct by such
noteholder of a trade or business in the United States.
United States information reporting requirements and backup withholding tax
will not apply to payments on an exchange note made outside the United States by
the Company or any paying agent (acting in its capacity as such) to a noteholder
that is a Non-United States Holder provided that a certification of non-U.S.
status, as discussed above, has been received and neither the Company nor its
paying agent has actual knowledge that the payee is not a Non-United States
Holder.
Information reporting requirements and backup withholding tax will not apply
to any payment of the proceeds of the sale of an exchange note effected outside
the United States by a foreign office of a "broker" (as defined in applicable
Treasury regulations), provided that such broker (1) is a Non-United States
Holder, (2) derives less than 50% of its gross income for certain periods from
the conduct of a trade or business in the United States and (3) is not a
controlled foreign corporation as to the United States or a foreign partnership
doing business in the United States or in which United States persons own more
than 50% of the income or capital interests (a person described in (1), (2) and
(3) being hereinafter referred to as a "foreign controlled person"). Payment of
the proceeds of the sale of an exchange note effected outside the United States
by a foreign office of any broker that is not a foreign controlled person will
not be subject to backup withholding tax, but will be subject to information
reporting requirements unless such broker has documentary evidence in its
records that the beneficial owner is a Non-United States Holder and certain
other conditions are met, or the beneficial owner otherwise establishes an
exemption.
New regulations governing backup withholding and information reporting are
generally scheduled to become effective for payments made after December 31,
2000. Rules under these regulations will have essentially the same substantive
effect, but will unify current certification procedures and forms.
133
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchanges notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. A broker-dealer may use this prospectus,
as it may be amended or supplemented from time to time, in connection with
resales of exchange notes received in exchange for old notes where the old notes
were acquired as a result of market-making activities or other trading
activities. We have agreed that we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
resale for such period of time as such persons must comply with such
requirements in order to resell the exchange notes, provided that such period
will not exceed the period specified in the Registration Rights Agreement.
We will not receive any proceeds from any sale of exchange notes by any
broker-dealer. Exchange notes received by broker-dealers for their own account
in the exchange offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the writing
of options on the exchange notes or a combination of the methods of resale, at
market prices prevailing at the time of resale, at prices related to the
prevailing market prices or at negotiated prices. Any resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from the broker-dealer
that resells exchange notes that were received by it for its own account in the
exchange offer and any broker or dealer that participates in a distribution of
the exchange notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any resale of exchange notes and any
commissions or concessions received by those persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For the period of time specified in the Registration Rights Agreement, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests the documents
in the letter of transmittal. We have agreed to pay all expenses incident to our
performance of, or compliance with, the registration rights agreement and all
expenses incident to the exchange offer, including the expenses of one counsel
for the holders of the old notes, but excluding commissions or concessions of
any brokers or dealers, and will indemnify all holders, including any
broker-dealers, and certain parties related to the holders against certain
liabilities, including liabilities under the Securities Act.
We have not entered into any arrangements or understanding with any person
to distribute the exchange notes to be received in the exchange offer.
134
<PAGE>
LEGAL MATTERS
Certain legal matters with regard to the validity of the exchange notes will
be passed upon for us by Hughes & Luce, L.L.P., Dallas, Texas. Glen J.
Hettinger, a member of our board of directors, is a partner with Hughes & Luce,
L.L.P. and the beneficial owner of 3,044 shares of common stock and options to
purchase 85,000 shares of common stock. We retain Hughes & Luce, L.L.P. as
outside legal counsel, and Hughes & Luce L.L.P. receives fees for legal services
rendered.
EXPERTS
The consolidated financial statements and the related consolidated financial
statement schedule as of June 30, 1999 and 2000, and for each of the three years
in the period ended June 30, 2000, included and incorporated by reference in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are included and incorporated by
reference herein, and have been so included and incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
AVAILABLE INFORMATION AND INCORPORATION BY REFERENCE
We are subject to the periodic reporting and other information requirements
of the Securities Exchange Act of 1934, as amended. For so long as any of the
notes remain outstanding, regardless of whether we are required to do so by the
rules and regulations of the Securities and Exchange Commission, we will furnish
holders of the notes with the following information:
1. All quarterly and annual financial information required to be contained
in a filing with the Securities and Exchange Commission on Forms 10-Q and
10-K, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and a report on the annual
information by our independent certified public accountants.
2. All reports required to be filed with the Securities and Exchange
Commission on Form 8-K by a public company.
3. The information required by Rule 144A(d)(4) under the Securities Act of
1933, as amended (including providing copies of such information to any
prospective purchaser of the notes).
You may read and copy any document we file at the following Securities and
Exchange Commission public reference rooms:
<TABLE>
<S> <C> <C>
Judiciary Plaza 500 West Madison Street 7 World Trade Center
450 Fifth Street, N.W. 14th Floor Suite 1300
Room 1024 Chicago, IL 60661 New York, NY 10048
Washington, D.C. 20549
</TABLE>
You may obtain information on the operation of the public reference room in
Washington, D.C. by calling the Securities and Exchange Commission at
1-800-SEC-0330.
We also file information electronically with the Securities and Exchange
Commission. Our electronic filings are available from the Securities and
Exchange Commission's Internet site at http://www.sec.gov, which contains
reports, proxy and information statements and other information regarding
issuers that file electronically.
135
<PAGE>
To request a copy of any or all of these documents, you should write or
telephone us at our principal executive office at the following address and
telephone number:
Anchor Gaming
815 Pilot Road, Suite G
Las Vegas, Nevada 89119
(702) 896-7568
This prospectus hereby incorporates by reference the following documents
previously filed with the Securities and Exchange Commission:
- Anchor Gaming's Annual Report on Form 10-K for the fiscal year ended
June 30, 2000, as amended by the report on Form 10-K/A dated October 27,
2000;
- Anchor Gaming's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000; and
- Anchor Gaming's Current Report on Form 8-K dated September 26, 2000.
All documents we file pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, after the date of this prospectus
and prior to the termination of the offering of the notes will be deemed to be
incorporated by reference into this prospectus and to be part of this prospectus
from their date of filing.
Any statement contained in a document incorporated by reference in this
prospectus will be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus or in any
other subsequently filed document that also is incorporated in this prospectus
modifies or replaces such statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part of
this prospectus. We will provide without charge to each person to whom a copy of
this prospectus has been delivered, or who makes a written or oral request, a
copy of any and all of the documents incorporated by reference in this
prospectus (other than exhibits unless such exhibits are specifically
incorporated by reference into such documents). Requests should be submitted in
writing or by telephone to us at the above address or telephone number.
136
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of June 30, 1999 and 2000 and
as of September 30, 2000 (unaudited)...................... F-3
Consolidated Statements of Income for the Years Ended June
30, 1998, 1999, and 2000 and for the three months ended
September 30, 1999 and 2000 (unaudited)................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1998, 1999, and 2000 and for the
three months ended September 30, 2000 (unaudited)......... F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1998, 1999, and 2000 and for the three months
ended September 30, 1999 and 2000 (unaudited)............. F-6
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Anchor Gaming and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Anchor
Gaming and Subsidiaries (the "Company") as of June 30, 1999 and 2000, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended June 30, 2000. Our audits also
include the financial statement schedule included in the registration statement.
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Anchor Gaming and Subsidiaries
at June 30, 1999 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 2000 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
September 25, 2000, except for Note 19, as to which the dates are October 17,
2000 for paragraphs 1-5 and November 15, 2000 for paragraph 6.
F-2
<PAGE>
ANCHOR GAMING
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
-------------------- -------------
1999 2000 2000
-------- --------- -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 32,835 $ 25,883 $ 27,376
Accounts and notes receivable, net........................ 38,526 43,959 43,262
Assets held for sale...................................... -- -- 51,873
Inventory, net............................................ 21,375 17,378 16,132
Other current assets...................................... 8,928 11,339 8,947
-------- --------- ---------
Total current assets.................................... 101,664 98,559 147,590
Property and equipment, net................................. 188,048 200,976 177,473
Goodwill, net............................................... 117,436 117,218 86,113
Other intangible assets, net................................ 34,520 43,896 43,821
Investments in unconsolidated affiliates.................... 29,053 66,822 70,372
Other long-term assets...................................... 36,448 21,248 27,777
-------- --------- ---------
Total assets............................................ $507,169 $ 548,719 $ 553,146
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 21,073 $ 17,777 $ 18,852
Current portion of long-term debt......................... 4,051 1,524 1,513
Income tax payable........................................ 5,146 1,858 1,840
Other current liabilities................................. 42,486 30,177 30,251
-------- --------- ---------
Total current liabilities............................... 72,756 51,336 52,456
Long-term debt, net of current portion...................... 212,805 222,770 201,639
Minority interest in consolidated subsidiary................ 1,255 4,093 4,210
-------- --------- ---------
Total liabilities and minority interest in consolidated
subsidiary............................................ 286,816 278,199 258,305
-------- --------- ---------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, 0 shares issued and outstanding at June 30,
1999 and 2000 and at September 30, 2000................. -- -- --
Common stock, $.005 par value, 50,000,000 shares
authorized, 27,683,500 issued and 23,732,614 outstanding
at June 30, 1999, 28,099,700 issued and 23,051,414
outstanding at June 30, 2000, 28,405,000 issued and
23,356,714 outstanding at September 30, 2000............ 138 140 142
Treasury stock at cost, 3,950,886 shares at June 30, 1999,
5,048,286 shares at June 30, 2000 and at September 30,
2000.................................................... (93,043) (115,342) (115,342)
Additional paid-in capital................................ 116,854 124,359 130,216
Retained earnings......................................... 196,404 261,363 279,825
-------- --------- ---------
Total stockholders' equity.............................. 220,353 270,520 294,841
-------- --------- ---------
Total liabilities and stockholders' equity.............. $507,169 $ 548,719 $ 553,146
======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ANCHOR GAMING
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
------------------------------ -------------------
1998 1999 2000 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues:
Gaming machines....................................... $113,677 $123,698 $154,680 $ 40,412 $ 47,170
Gaming operations..................................... 118,255 125,233 189,938 47,368 47,748
Gaming systems........................................ -- -- 180,585 39,221 43,832
-------- -------- -------- -------- --------
Total revenues...................................... 231,932 248,931 525,203 127,001 138,750
-------- -------- -------- -------- --------
Costs of revenues:
Gaming machines....................................... 25,054 34,401 35,892 12,557 5,982
Gaming operations..................................... 62,721 70,419 124,529 29,184 31,928
Gaming systems........................................ -- -- 105,083 20,625 30,848
-------- -------- -------- -------- --------
Total costs of revenues............................. 87,775 104,820 265,504 62,366 68,758
-------- -------- -------- -------- --------
Gross margin............................................ 144,157 144,111 259,699 64,635 69,992
-------- -------- -------- -------- --------
Other costs:
Selling, general and administrative................... 23,343 24,243 69,343 19,572 16,814
Research and development.............................. 1,922 1,173 16,528 3,972 3,634
Acquired in-process research and development.......... -- 17,500 -- -- --
Impairment and restructuring charges.................. -- -- 2,641 -- --
Depreciation and amortization......................... 12,661 17,380 50,951 11,736 15,095
-------- -------- -------- -------- --------
Total other costs................................... 37,926 60,296 139,463 35,280 35,543
-------- -------- -------- -------- --------
Income from operations.................................. 106,231 83,815 120,236 29,355 34,449
-------- -------- -------- -------- --------
Other income (expense):
Interest income....................................... 2,989 3,850 1,998 518 689
Interest expense...................................... (226) (113) (16,475) (3,681) (4,603)
Other income.......................................... 1,157 47 2,219 164 32
Minority interest in earnings of consolidated
subsidiary.......................................... (711) (670) (608) (208) (256)
-------- -------- -------- -------- --------
Total other income (expense)........................ 3,209 3,114 (12,866) (3,207) (4,138)
-------- -------- -------- -------- --------
Income before provision for income taxes................ 109,440 86,929 107,370 26,148 30,311
Income tax provision.................................... 41,040 39,422 42,411 10,374 11,973
-------- -------- -------- -------- --------
Income before cumulative effect of change in accounting
principle 68,400 47,507 64,959 15,774 18,338
Cumulative effect of change in accounting principle,
net of taxes of $81................................. -- -- -- -- 124
-------- -------- -------- -------- --------
Net income.............................................. $ 68,400 $ 47,507 $ 64,959 $ 15,774 $ 18,462
======== ======== ======== ======== ========
Basic earnings per share, before cumulative effect of
change in accounting principle $ 2.68 $ 1.95 $ 2.74 $ 0.66 $ 0.78
Cumulative effect of change in accounting principle,
net of taxes........................................ -- -- -- -- 0.01
-------- -------- -------- -------- --------
Basic earnings per share (1)............................ $ 2.68 $ 1.95 $ 2.74 $ 0.66 $ .079
======== ======== ======== ======== ========
Weighted average shares outstanding..................... 25,502 24,328 23,666 23,868 23,236
======== ======== ======== ======== ========
Diluted earnings per share, before cumulative effect of
change in accounting principle........................ $ 2.60 $ 1.91 $ 2.70 $ 0.65 $ 0.77
Cumulative effect of change in accounting principle,
net of taxes........................................ -- -- -- -- 0.01
-------- -------- -------- -------- --------
Diluted earnings per share (1).......................... $ 2.60 $ 1.91 $ 2.70 $ 0.65 $ 0.78
======== ======== ======== ======== ========
Weighted average common and common equivalent shares
outstanding........................................... 26,322 24,856 24,022 24,298 23,698
======== ======== ======== ======== ========
</TABLE>
(1) Earnings per share have been restated to reflect a two-for-one stock split
that was distributed on November 15, 2000.
See notes to consolidated financial statements.
F-4
<PAGE>
ANCHOR GAMING
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL
------------------- -------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- -------- -------- --------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--July 1, 1997............... 27,158 $136 (1,054) $ (16,569) $107,267 $ 80,497 $171,331
Stock issued for exercise of
options......................... 358 2 2,558 2,560
Treasury shares purchased......... (1,276) (36,163) (36,163)
Tax effects of stock option
transactions.................... 4,354 4,354
Net income........................ 68,400 68,400
------ ---- ------ --------- -------- -------- --------
Balance--June 30, 1998.............. 27,516 138 (2,330) (52,732) 114,179 148,897 210,482
Stock issued for exercise of
options......................... 168 1,770 1,770
Treasury shares purchased......... (1,621) (40,311) (40,311)
Tax effects of stock option
transactions.................... 905 905
Net income........................ 47,507 47,507
------ ---- ------ --------- -------- -------- --------
Balance--June 30, 1999.............. 27,684 138 (3,951) (93,043) 116,854 196,404 220,353
Stock issued for exercise of
options......................... 416 2 5,610 5,612
Treasury shares purchased......... (1,097) (22,299) (22,299)
Tax effects of stock option
transactions.................... 1,895 1,895
Net income........................ 64,959 64,959
------ ---- ------ --------- -------- -------- --------
Balance--June 30, 2000.............. 28,100 $140 (5,048) $(115,342) $124,359 $261,363 $270,520
Stock issued for exercise of
options (unaudited)............. 305 2 4,026 4,028
Tax effects of stock option
transactions (unaudited)........ 1,831 1,831
Net income for the three months
ended September 30, 2000
(unaudited)..................... 18,462 18,462
------ ---- ------ --------- -------- -------- --------
Balance--September 30, 2000
(unaudited)....................... 28,405 $142 (5,048) $(115,342) $130,216 $279,825 $294,841
====== ==== ====== ========= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ANCHOR GAMING
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
-------------------------------- -------------------
1998 1999 2000 1999 2000
-------- --------- --------- -------- --------
UNAUDITED
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 68,400 $ 47,507 $ 64,959 $ 15,774 $ 18,462
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 12,833 17,369 50,951 11,735 15,130
Acquired in-process research and
development.............................. -- 17,500 -- -- --
Impairment and restructuring charge........ -- -- 2,641 -- --
Unconsolidated affiliates' distributions in
excess of earnings (earnings in excess of
distributions)........................... (25,068) 3,586 (13,097) 2,371 (5,847)
Other non-cash expenses, gains and losses,
net...................................... 1,187 8,273 10,075 1,211 1,051
(Increase) decrease in assets:
Accounts receivable........................ (3,305) 1,839 (447) 371 70
Inventory.................................. (673) 1,238 1,509 (1,528) 1,169
Other assets............................... (9,373) 1,603 (1,340) 1,115 (932)
Increase (decrease) in liabilities:
Accounts payable........................... 3,331 1,836 (3,294) (10,190) 1,074
Income tax payable......................... 14,684 (11,110) 2,756 (931) 1,625
Other liabilities.......................... 6,167 (2,986) (4,003) (5,265) 2,985
-------- --------- --------- -------- --------
Total adjustments........................ (217) 39,148 45,751 (1,111) 16,325
-------- --------- --------- -------- --------
Net cash provided by operating
activities............................... 68,183 86,655 110,710 14,663 34,787
-------- --------- --------- -------- --------
Cash flows from investing activities:
Expenditures for property and equipment,
intangible assets and other assets......... (24,421) (13,957) (82,586) (22,044) (15,048)
Cash paid for acquisition of Powerhouse, net
of cash acquired........................... -- (71,674) -- -- --
Proceeds from sales of assets................ -- -- 339 -- --
Issuance of notes receivable................. (2,040) (859) (166) -- (3,324)
Advances to joint venture and investments in
unconsolidated subsidiary.................. -- -- (27,500) -- --
Change in restricted cash deposits........... -- -- (253) -- --
Principal reductions on notes receivable and
other...................................... 1,441 1,074 1,885 817 2,194
-------- --------- --------- -------- --------
Net cash used in investing activities...... (25,020) (85,416) (108,281) (21,227) (16,178)
-------- --------- --------- -------- --------
Cash flows from financing activities:
Proceeds from borrowing...................... -- -- 56,500 5,000 11,000
Repayment of long-term debt.................. (2,800) -- (49,061) (6,855) (32,142)
Proceeds from sale of stock.................. 2,560 1,770 5,612 2,486 4,026
Payments to acquire treasury stock........... (36,163) (40,311) (22,299) -- --
Loan fees paid............................... -- (3,050) (133) -- --
-------- --------- --------- -------- --------
Net cash (used in) provided by financing
activities............................... (36,403) (41,591) (9,381) 631 (17,116)
-------- --------- --------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................. 6,760 (40,352) (6,952) (5,933) 1,493
Cash and cash equivalents, beginning of
period....................................... 66,427 73,187 32,835 32,835 25,883
-------- --------- --------- -------- --------
</TABLE>
F-6
<PAGE>
ANCHOR GAMING
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
-------------------------------- -------------------
1998 1999 2000 1999 2000
-------- --------- --------- -------- --------
UNAUDITED
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents, end of period....... $ 73,187 $ 32,835 $ 25,883 $ 26,902 $ 27,376
======== ========= ========= ======== ========
Supplemental disclosure of cash flow
information:
Cash paid for interest, including
capitalized interest..................... $ 226 $ 55 $ 17,003 $ 3,249 $ 4,429
-------- --------- --------- -------- --------
Cash paid for income taxes................. $ 36,742 $ 50,532 $ 32,592 $ 8,690 $ 10,213
-------- --------- --------- -------- --------
Supplemental schedule of non-cash investing and
financing transactions:
Acquisition of Powerhouse:
Fair value of assets and liabilities
acquired:
Current assets, other than cash.......... $ 56,541
Property and equipment................... 103,927
Identifiable intangible assets........... 33,522
Goodwill................................. 115,877
Other long-term assets................... 4,750
Accounts payable......................... (13,243)
Notes payable............................ (6,856)
Other liabilities........................ (24,164)
Acquired in-process research and development
expensed..................................... 17,500
---------
287,854
Debt incurred.................................. (210,000)
Other liabilities incurred..................... (6,180)
---------
Cash paid, net of cash acquired................ $ 71,674
=========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Anchor Gaming ("Anchor" or the "Company") is a diversified gaming company
that operates through three business segments: gaming machines, gaming
operations and gaming systems. The gaming machines segment consists of three
business units. These include our joint venture with International Game
Technology ("IGT") through which Anchor and IGT distribute proprietary gaming
machines to casinos primarily on wide area progressive systems; Anchor Games,
which develops and distributes proprietary gaming machines to casinos in
exchange for recurring revenue streams; and the portion of the Company's VLC
subsidiary which manufactures and sells gaming machines to casinos ("VLC
Casino"). Gaming operations are currently conducted through five business units.
These include two casinos in Colorado; Sunland Park Racetrack & Casino in New
Mexico; and gaming machine route operations in both Nevada and Montana. The
Company also has a 50% interest in a development contract and seven year
management contract with the Pala Band of Mission Indians to develop and manage
a casino and entertainment facility currently under construction in northern San
Diego County, California that is presently expected to open in the spring
of 2001. The gaming systems segment consists of three business units. These
include Automated Wagering International ("AWI"), an on-line lottery company;
the portion of the Company's VLC subsidiary that develops and distributes video
lottery central systems and video lottery terminals to government controlled
jurisdictions ("VLC Government"); and United Tote, a pari-mutuel wagering system
company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Anchor Gaming and subsidiaries (collectively, "Anchor" or the "Company"). All
significant intercompany accounts and transactions have been eliminated. The
financial position and operating results of Colorado Grande Enterprises, Inc.
and Anchor Partners, LLC are included in the consolidated financial statements
as 80% and 51% consolidated subsidiaries, respectively.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The consolidated financial statements at September 30, 2000 and for the
three months ended September 30, 1999 and 2000 are unaudited. In the opinion of
management, however, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation have been included. The operating
results and cash flows for the three months ended September 30, 1999 and 2000
are not necessarily indicative of the results that have been or will be achieved
for the full fiscal year or for future periods.
CASH AND CASH EQUIVALENTS
The Company considers short-term, highly liquid investments with an original
maturity of three months or less at the date of purchase to be cash equivalents.
All of the Company's investment securities mature in three months or less from
the date of purchase. The estimated fair value of the Company's portfolio of
investment securities at June 30, 1999 and 2000 approximates amortized cost due
to the short-term nature of the portfolio.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, trade and
notes receivables, and trade payables approximates fair value primarily because
of the short maturities of these instruments. The Company estimates fair value
of its long-term receivables and obligations based on quoted market
F-8
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
prices or on the current rates offered to the Company for instruments of the
same remaining maturities. The estimated fair values of the obligations closely
approximated the carrying values at June 30, 1999 and 2000.
ACCOUNTS RECEIVABLE
Accounts receivable result from the sale of products and services to gaming
properties and government jurisdictions. The Company performs credit evaluations
of its customers and does not generally require collateral except in the case of
financed equipment sales. If the Company finances equipment sales, it generally
will require that the equipment be pledged as collateral against the obligation
of the customer. Management reviews customer balances for potential credit
losses and maintains an allowance for amounts deemed uncollectible.
INVENTORY
The Company manufactures inventories of gaming and systems equipment for
sale and lease. Additional inventories of silver and silver tokens, parts for
servicing of gaming machines and food and beverage items are maintained. All
inventories are stated at the lower of cost (first-in, first-out) or market
value. Cost includes materials, labor and allocated indirect manufacturing
overhead for manufactured inventories.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Ordinary maintenance and repairs
are charged to expense as incurred. Equipment acquired under capital leases is
recorded at the lower of the present value of minimum lease payments at the
beginning of the lease term or the fair market value of the asset at the
inception of the lease. The Company manufactures equipment used in the provision
of services pursuant to long-term contracts.
Costs that materially increase the life or value of existing assets are
capitalized. Assets that have been placed in service are depreciated over their
estimated useful lives or the life of the related contract (including executed
contract extensions). Leasehold improvements and equipment purchased under
capital lease are depreciated or amortized over the shorter of the lease term or
the estimated useful lives of the assets on a straight-line basis. In accordance
with the provisions of SFAS No. 121 "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," the Company evaluates the
potential impairment of long-lived assets when events or changes in
circumstances indicate that the carrying amount of a long-lived asset may not be
recoverable. If it is determined that the carrying value of long-lived assets
may not be recoverable based upon the relevant facts and circumstances, the
Company estimates the future undiscounted cash flows (grouped at the company
wide level) expected to result from the use of the asset and its eventual
disposition. If the sum of the expected undiscounted future cash flows is less
than the carrying value of the asset, the Company will recognize an impairment
loss for the difference between the carrying value of the asset and its fair
value.
CAPITALIZED INTEREST AND DEFERRED LOAN FEES
The Company capitalizes interest costs associated with debt incurred in
connection with major construction projects. Interest capitalization ceases once
the project is substantially complete or no longer undergoing construction
activities to prepare it for its intended use. When no debt is specifically
identified as being incurred in connection with such construction projects, the
Company capitalizes
F-9
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
interest on amounts expended on the project at the Company's weighted average
cost of borrowed money. Deferred loan costs are amortized over the life of the
respective loans using the straight-line amortization method.
GOODWILL AND INTANGIBLE ASSETS
Goodwill primarily includes the excess of purchase price over fair value of
net assets acquired in conjunction with the June 29, 1999 acquisition of
Powerhouse Technologies, Inc. ("Powerhouse" and the "Powerhouse
Acquisition")(see Note 3). Goodwill is amortized on a straight-line basis over
periods ranging from 3 to 40 years. Accumulated amortization was $1,352,000 and
$5,698,000 at June 30, 1999 and 2000, respectively.
Intangible assets, other than goodwill, include amounts paid to implement
systems used in the provision of services provided pursuant to long-term
contracts, to acquire leases for route locations and casino property, to acquire
route participation agreements, and costs of patents issued. Intangible assets
also include amounts for developed technologies, customer base, assembled work
force and covenants not-to-compete recorded as a result of the Powerhouse
Acquisition (see Note 3). Intangible assets are amortized on a straight-line
basis over estimated useful lives or the lives of the leases or agreements, as
applicable, ranging from 1 to 20 years.
Goodwill and intangible assets are evaluated for recoverability under the
requirements of Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" whenever impairment indicators are present (see Note 4). The
Company regularly evaluates the recoverability of goodwill and other acquired
intangible assets. The carrying value of such assets would be reduced through a
direct charge if, in management's judgment, it was probable that projected
future operating income (before amortization of goodwill and other acquired
intangible assets) would not be sufficient on an undiscounted basis to recover
the carrying value. Operating earnings considered in such an analysis are those
of the entity acquired.
REVENUE RECOGNITION
In accordance with industry practice, the Company recognizes gaming revenues
as the net win from gaming operations, which is the difference between amounts
wagered by customers and payments to customers. Revenue derived from royalty,
revenue participation, or other similar short-term recurring revenue
arrangements is recognized as it accrues. Revenue is normally recognized based
on the Company's share of coins wagered, on its share of net winnings, or on the
lease rate. Revenues exclude the retail value of complimentary food and beverage
furnished gratuitously to customers.
Revenue from the sale of gaming and systems equipment and related parts is
recognized upon delivery to the customer. Revenue from sales of systems and
video gaming central site systems (including customized software and equipment)
is recognized using the percentage of completion method of accounting for
long-term construction type contracts where costs to complete can reasonably be
estimated. Prior to revenue recognition on system sales, costs incurred are
applied against progress billings and recorded as a net accrued liability or
other current asset as appropriate.
Systems contract services revenues are recognized as the services are
performed and primarily relate to revenues from long-term contracts which
require installation and operation of lottery and pari-mutuel wagering networks.
Revenues under these contracts are generally based on a percentage of
F-10
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
sales volume, which may fluctuate over the lives of the contracts. Liquidated
damages are expensed as incurred.
INTEREST RATE SWAP
During fiscal 2000, the Company used interest rate swap agreements to
effectively change a variable rate liability to a fixed rate liability. Amounts
paid under interest rate swap agreements are accrued as interest rates change
and are recognized as an adjustment to interest expense.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
FOREIGN CURRENCY TRANSACTIONS
Gains and losses from foreign currency transactions are included in the
results of operations.
RECLASSIFICATIONS
Certain amounts in the 1998 and 1999 financial statements have been
reclassified to conform with the presentation used in the 2000 financial
statements.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133") was issued in June 1998. This statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000, although earlier
application is encouraged. This statement establishes accounting and reporting
standards for derivative instruments and requires that all derivatives be
marked-to-market on an ongoing basis. This applies whether the derivatives are
stand-alone documents, such as forward currency exchange contracts and interest
rate swaps, or embedded derivatives, such as call options contained in
convertible debt investments. These market value adjustments are to be included
either in the income statement or stockholders' equity, depending on the
intended use of the derivative and whether it qualifies for hedge accounting.
The Company's current use of derivative instruments is limited to an interest
rate swap arrangement for a notional amount of $100 million that the Company
entered into in fiscal 2000. During the quarter ended September 30, 2000, the
Company recorded an asset related to this swap and a cumulative effect of a
change in accounting principle in the amount of $124,000, which is net of taxes
of $81,000. The interest rate swap was canceled in October 2000 and the Company
does not believe that SFAS 133 will have a significant effect on its
consolidated results of operations or financial position in future periods.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." In June 2000, the SEC staff amended SAB 101 to provide registrants
with additional time to implement SAB 101. The Company will be required to adopt
SAB 101 by the fourth quarter of fiscal 2001. The Company has not
F-11
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
completed its determination of the impact of the adoption of SAB 101 on its
consolidated financial position or results of operation.
3. ACQUISITION OF POWERHOUSE
On June 29, 1999, the Company completed the acquisition of 100% of the
outstanding common stock of Powerhouse for approximately $220 million plus
Powerhouse net debt of $68 million pursuant to a merger agreement. The
Powerhouse Acquisition was funded through a combination of cash and borrowing
under a new $300 million revolving credit facility. Anchor, through its
acquisition of Powerhouse and its operating units, VLC, AWI and United Tote, is
now a supplier of system software, equipment and related services for on-line
lotteries, video lotteries, and pari-mutuel systems throughout the world, and is
a manufacturer and distributor of gaming devices for casinos.
The Powerhouse Acquisition was accounted for using the purchase method of
accounting. Under the purchase method of accounting, the results of operations
of any acquired company are to be included in the acquirer's financial
statements since the date of acquisition. The closing of the Powerhouse
Acquisition occurred virtually concurrent with the end of the Company's fiscal
year ended June 30, 1999 and, as a result, the financial statements of the
Company for the years ended June 30, 1998 and 1999 do not include any results of
operations or cash flows related to Powerhouse except for a charge for acquired
in-process research and development of $17.5 million that was recorded in fiscal
1999.
The excess of the purchase price over the fair value of the net assets
acquired, of approximately $116 million, was recorded as goodwill and will be
amortized on a straight-line basis over periods between 30 and 40 years. In
addition, identifiable intangible assets of approximately $33 million were
recorded and will be amortized on a straight-line basis over periods ranging
from 3 to 20 years. In connection with the Powerhouse Acquisition, the Company
identified certain preacquisition contingencies and developed exit plans for
certain portions of the Powerhouse businesses. At June 30, 1999, the Company's
balance sheet included accrued exit costs of approximately $2.5 million related
to severance and other payments to Powerhouse executives. During the year ended
June 30, 2000, the Company completed its integration plan and its evaluation of
the fair values of certain liabilities that were determined to be preacquisition
contingencies. As a result, the Company made adjustments to the purchase price
of approximately $4.0 million for litigation accruals, employee terminations and
relocations, and other exit costs. As of June 30, 2000, such amounts have been
paid, as have $2.7 million in cash purchase price adjustments, leaving no
expected payments for other exit costs.
During the year ended June 30, 1999, a $17.5 million charge to income for
acquired in-process research and development was recorded. The value assigned to
acquired in-process research and development was determined by identifying the
various in-process projects purchased, determining the stage of development of
each project at the acquisition date and valuing those projects using an income
approach. The income approach estimates future revenues net of operating
expenses for each project and applies certain other adjustments to arrive at
estimated after-tax cash flow from the project. The revenue and expense
estimates were based on a variety of aspects including revenue growth rates for
the applicable business segments, growth rates for the applicable market
segments, anticipated development and introduction timelines, product sales
cycles and estimated lives of products. The after-tax cash flows were then
discounted using a rate of 25%, which represents a premium to the Company's
weighted average cost of capital due to the risks associated with the fact that
the projects had not reached technological feasibility at the date of the
acquisition and successful completion of each project cannot be assured.
F-12
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITION OF POWERHOUSE (CONTINUED)
The accompanying consolidated balance sheets as of June 30, 1999 and 2000
include the balances of Powerhouse. The following summarized unaudited pro forma
financial information assumes the acquisition occurred as of July 1, 1997. The
pro forma data give effect to actual operating results prior to the acquisition
and adjustments to interest expense, depreciation and amortization and income
taxes at a combined 40% tax rate. In addition, an adjustment has been made to
exclude the charge for acquired in-process research and development of
$17.5 million. These pro forma amounts do not purport to be indicative of the
results that might have been obtained if the acquisition had occurred on
July 1, 1997 or that may be obtained in the future.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1998 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Revenues................................................ $432,486 $465,925
Income before cumulative effect of change in accounting
principle............................................. 60,772 57,503
Net income.............................................. 60,772 57,268
Earnings per share before cumulative effect of change in
accounting principle:
Basic................................................. $ 2.38 $ 2.36
Diluted............................................... $ 2.31 $ 2.31
Earnings per share:
Basic................................................. $ 2.38 $ 2.35
Diluted............................................... $ 2.31 $ 2.30
</TABLE>
4. IMPAIRMENT AND RESTRUCTURING CHARGES
In the fourth quarter of fiscal 2000, the Company implemented a plan, which
was not contemplated at the time of the acquisition, to restructure the
operations of its VLC subsidiary. As a result, the VLC subsidiary is now managed
and accounted for as two separate business units, VLC Government and VLC Casino.
VLC Government focuses on sales of central systems and video lottery gaming
machines to governmental jurisdictions. All manufacturing activity for this
product line will continue to be serviced through our Bozeman, Montana facility.
VLC Casino, which was formerly based in Bozeman, will now be based in Las Vegas,
and will focus on the development and sales of gaming machines to casinos. In
connection with this plan, the Bozeman engineering and manufacturing staff were
reduced and severance payments were made to these individuals. In addition, the
Company canceled the lease for a facility that was used for engineering and the
leasehold improvements related to this facility were determined to have no
future economic benefit to the Company. At the time of the Powerhouse
Acquisition, a cost based approach was used to value the assembled workforce at
VLC whereby the fair value of the assembled workforce was determined based upon
the costs for search, interviewing, training and other employee-related
acquisition costs. Due to the reductions in staffing related to the above event
and pursuant to SFAS No. 121, the Company determined that the assembled
workforce asset was impaired.
In addition, our VLC subsidiary terminated a development project due to
concerns about cost and long-term viability of the project as compared to
alternative project designs. At the time of the Powerhouse Acquisition, this
project was classified as core technology and assigned a value based upon the
income approach (see Note 3). This project was completely abandoned and thus has
no fair value at June 30, 2000. The entire book value related to this project
was written off.
F-13
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. IMPAIRMENT AND RESTRUCTURING CHARGES (CONTINUED)
As a result of the items described above, the Company recorded an impairment
and restructuring charge during fiscal 2000 related to the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Development project abandonment impairment.................. $ 1,700
Assembled workforce impairment.............................. 360
Severance payments.......................................... 231
Write-down of leasehold improvements........................ 350
--------
$ 2,641
========
</TABLE>
5. BUSINESS SEGMENTS
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 established standards for the
way public companies are to report information about operating segments in
annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
stockholders. It also established standards for related disclosures about
products and services, geographic areas, and major customers. In the fourth
quarter of fiscal 2000, the operating segments were reorganized to reflect
organizational changes within the Company and resulting changes in the financial
information that is used by significant decision makers. As a result, the
Company has combined its lottery systems and pari-mutuel systems segments into a
gaming systems segment. The systems segment also includes the Company's video
lottery business, which was previously included in the gaming machines and
systems segment. Segment information for prior periods has been restated.
Anchor Gaming is a diversified gaming company that operates through three
business segments: gaming machines, gaming operations, and gaming systems. The
gaming machines segment consists of three business units. These include our
joint venture with International Game Technology ("IGT") through which Anchor
and IGT distribute proprietary gaming machines to casinos primarily on wide area
progressive systems; Anchor Games, which develops and distributes proprietary
gaming machines to casinos in exchange for recurring revenue streams; and VLC
Casino. Gaming operations are currently conducted through five business units.
These include two casinos in Colorado; Sunland Park Racetrack & Casino in New
Mexico; and gaming machine route operations in both Nevada and Montana. The
Company also has a 50% interest in a development contract and seven year
management contract with the Pala Band of Mission Indians to develop and manage
a casino currently under construction in Northern San Diego County, California
that is presently expected to open in March 2001. The gaming systems segment
consists of three business units. These include Automated Wagering International
("AWI"), an on-line lottery company; VLC Government; and United Tote, a
pari-mutuel wagering system company.
F-14
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. BUSINESS SEGMENTS (CONTINUED)
The Company had no gaming systems revenues prior to the Powerhouse
Acquisition. Revenues and income (loss) for these segments are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
------------------------------ -------------------
1998 1999 2000 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Gaming machines.......................... $114,120 $124,179 $155,101 $ 40,535 $ 47,288
Gaming operations........................ 119,023 126,092 190,706 47,550 47,938
Gaming systems........................... -- -- 181,049 39,354 43,916
Intercompany revenues.................... (1,211) (1,340) (1,653) (438) (392)
-------- -------- -------- -------- --------
$231,932 $248,931 $525,203 $127,001 $138,750
======== ======== ======== ======== ========
Income (loss) from operations:
Gaming machines.......................... $ 74,473 $ 67,955 $ 79,442 $ 18,648 $ 33,621
Gaming operations........................ 33,944 31,447 30,116 9,105 7,253
Gaming systems........................... -- -- 14,212 4,178 (4,955)
General corporate expenses............... (2,186) (15,587) (3,534) (2,576) (1,470)
-------- -------- -------- -------- --------
$106,231 $ 83,815 $120,236 $ 29,355 $ 34,449
======== ======== ======== ======== ========
Depreciation and amortization:
Gaming machines.......................... $ 8,446 $ 12,406 $ 16,507
Gaming operations........................ 4,012 4,716 9,364
Gaming systems........................... -- -- 22,022
Corporate................................ 203 258 3,058
-------- -------- --------
$ 12,661 $ 17,380 $ 50,951
======== ======== ========
Capital expenditures for property and
equipment, intangible assets and other
assets:
Gaming machines.......................... $ 20,649 $ 8,753 $ 9,369
Gaming operations........................ 3,659 5,063 6,490
Gaming systems........................... -- -- 63,354
Corporate................................ 113 141 3,373
-------- -------- --------
$ 24,421 $ 13,957 $ 82,586
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30 SEPTEMBER 30,
------------------------------ -------------
1998 1999 2000 2000
-------- -------- -------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Identifiable assets:
Gaming machines................................... $ 98,884 $142,736 $111,882 $125,310
Gaming operations................................. 72,618 102,528 117,188 111,132
Gaming systems.................................... -- 101,217 182,945 187,944
Corporate......................................... 73,632 44,811 20,340 13,300
Unallocated intangibles........................... -- 115,877 116,364 115,460
-------- -------- -------- --------
$245,134 $507,169 $548,719 $553,146
======== ======== ======== ========
</TABLE>
F-15
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. BUSINESS SEGMENTS (CONTINUED)
The Company had total international revenues of approximately $36.2 million
in fiscal 2000, primarily within its gaming systems segment. In fiscal 1998 and
1999, international revenues were immaterial.
6. ACCOUNTS AND NOTES RECEIVABLE
The Company finances sales of gaming and systems equipment to certain
customers meeting minimum credit standards. These installment notes bear
interest at rates up to 18% and are to be paid over periods ranging from one to
nine years. Notes receivable also include notes due from various slot route
location owners with interest rates ranging from 8% to 12% to be paid over
periods ranging from 3 months to 20 years. Accounts and notes receivable consist
of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1999 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable, trade................................ $31,897 $36,763
Notes receivable.......................................... 20,948 19,743
------- -------
52,845 56,506
Less allowance for doubtful accounts...................... (3,173) (4,563)
------- -------
Total accounts and notes receivable....................... 49,672 51,943
Less current portion:
Accounts receivable..................................... 29,373 33,494
Notes receivable........................................ 9,153 10,465
------- -------
Long-term notes receivable, net........................... $11,146 $ 7,984
======= =======
</TABLE>
Long-term notes receivable, net, are included in other long-term assets in
the accompanying consolidated balance sheet. At June 30, 1999 and 2000,
approximately 20% and 14% of trade receivables, respectively, were from various
governments or their designated agencies. On June 30, 2000 the Company had
advanced approximately $6.5 million on behalf of the Pala Band of Mission
Indians, which are included in accounts and notes receivable, net on the
consolidated balance sheet at June 30, 2000. These advances were repaid
subsequent to June 30, 2000. The Company, through its 51%-owned consolidated
affiliate, Anchor Partners, LLC, has a receivable from Ourway Realty of
$5.5 million at June 30, 2000. The Company has a 25% ownership interest in
Ourway Realty.
F-16
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INVENTORY
Inventories, net of valuation reserves, consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
------------------- -------------
1999 2000 2000
-------- -------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Manufacturing
Raw materials............................... $ 5,258 $ 5,901 $ 5,693
Work-in-process............................. 1,795 1,593 739
Finished goods.............................. 10,531 7,740 7,729
Other finished goods.......................... 3,791 2,144 1,971
------- ------- -------
$21,375 $17,378 $16,132
======= ======= =======
</TABLE>
Inventory reserves were approximately $4.4 million at June 30, 1999,
$6.0 million at June 30, 2000 and at September 30, 2000 (unaudited).
8. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
ESTIMATED LIFE -------------------
IN YEARS 1999 2000
-------------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and improvements...................... 15 $ 27,608 $ 27,854
Buildings and improvements................. 15 - 40 30,267 31,909
Gaming equipment........................... 3 - 7 92,181 92,417
On-line wagering equipment................. 5 - 7 40,099 74,348
Pari-mutuel equipment...................... 3 - 10 16,784 20,423
Furniture, fixtures and equipment.......... 3 - 7 16,670 26,095
Leasehold improvements..................... 4 - 31 1/2 8,087 10,442
-------- --------
231,696 283,488
Less accumulated depreciation.............. 43,648 82,512
-------- --------
Total.................................... $188,048 $200,976
======== ========
</TABLE>
No interest was capitalized during the years ended June 30, 1998 and 1999.
During the year ended June 30, 2000, interest of $860,000 was capitalized for
construction of long-term assets.
F-17
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. OTHER INTANGIBLE ASSETS
Other intangible assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
ESTIMATED LIFE -------------------
IN YEARS 1999 2000
-------------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Contract implementation.................... 5 - 9 $ -- $ 15,961
Core technology............................ 7 - 20 15,200 13,500
Customer base.............................. 7 - 20 11,600 11,600
Assembled workforce........................ 8 4,490 3,719
Other...................................... 1 - 7 5,030 4,845
-------- --------
36,320 49,625
Less accumulated amortization.............. 1,800 5,729
-------- --------
Total.................................... $ 34,520 $ 43,896
======== ========
</TABLE>
The Company acquired its core technology in the Powerhouse Acquisition, and
has not capitalized any additional software development costs in the three-year
period ended June 30, 2000. Contract implementation costs include the costs of
implementing and installing systems used to provide services under long-term
contracts. These costs are amortized over the lives of the related contracts.
10. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company has investments in unconsolidated affiliates that are accounted
for under the equity method. Under the equity method, original investments are
recorded at cost and adjusted by the Company's share of earnings, losses and
distributions of these affiliates. Investments in unconsolidated affiliates
consist primarily of a 50% interest in a joint venture (the "Anchor-IGT joint
venture") with International Game Technology ("IGT"). The primary business of
the Anchor-IGT joint venture is to distribute gaming machines on wide-area
progressive systems. The Company's share of net earnings from the Anchor-IGT
joint venture are included in revenue from gaming machines. The Company has
other unconsolidated investments at June 30, 2000, that were not material to the
balance sheet or results of operations.
The Anchor-IGT joint venture has a fiscal year end of September 30.
Summarized results of operations of the Anchor-IGT joint venture for the years
ended June 30, 1998, 1999, and 2000 and for the quarters ended September 30,
1999 (unaudited) and 2000 (unaudited) are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
------------------------------ -------------------
1998 1999 2000 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues.................. $212,237 $289,472 $343,015 $ 77,777 $110,141
Expenses.................. 99,572 143,535 161,204 38,485 46,038
Operating income.......... 112,665 145,937 181,811 39,292 64,103
Net income................ 113,323 147,849 186,269 39,847 65,470
</TABLE>
Depreciation expense was $10.6 million, $17.6 million, and $22.6 million for
the twelve months ended June 30, 1998, 1999, and 2000, respectively, and
$4.6 million (unaudited) and $6.7 million (unaudited) for the quarters ended
September 30, 1999 and 2000, respectively.
F-18
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INVESTMENTS IN UNCONSOLIDATED AFFILIATES (CONTINUED)
Summarized balance sheet information of the Anchor-IGT joint venture is as
follows:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
------------------- -------------
1999 2000 2000
-------- -------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets.............................. $ 92,035 $147,787 $143,461
Property and other long-term assets, net.... 98,410 102,807 109,603
Current liabilities......................... 24,339 39,034 30,736
Long-term debt and other liabilities........ 106,419 82,177 81,575
Equity...................................... 59,687 129,383 140,753
</TABLE>
The Anchor-IGT joint venture is subject to various risks and uncertainties
including, but not limited to, gaming regulatory requirements. The Company's
Annual Report on Form 10-K includes a comprehensive set of the Company's risk
factors, including those related to the Anchor-IGT joint venture. The Anchor-IGT
joint venture's operations are subject to the licensing and regulatory
requirements of multiple jurisdictions throughout the United States and
internationally. The Company's, IGT's and the Anchor-IGT joint venture's gaming
licenses are subject to certain conditions and periodic renewal. Management
believes that the conditions will continue to be satisfied and that subsequent
license renewals will be granted.
11. OTHER CURRENT LIABILITIES
Other current liabilities consists of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
------------------- -------------
1999 2000 2000
-------- -------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Labor, compensation and benefits.............. $11,160 $11,583 $12,209
Commission and royalties...................... 2,600 2,778 2,169
Billings in excess of costs and estimated
earnings.................................... 792 3,129 1,039
Merger related accruals....................... 11,541 -- --
Other accrued expenses........................ 16,393 12,687 14,834
------- ------- -------
$42,486 $30,177 $30,251
======= ======= =======
</TABLE>
F-19
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. OTHER CURRENT LIABILITIES (CONTINUED)
Contracts involving a substantial construction component are recorded as
long-term contracts, and associated revenues are recognized on the percentage of
completion method. Included in the Company's consolidated balance sheets are the
following balances related to such contracts in process.
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1999 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Costs and estimated earnings in excess of billings
(included within other current assets).................... $ 547 $ 4,679
Billings in excess of costs and estimated earnings
(included within other current liabilities)............... (792) (3,129)
----- -------
$(245) $ 1,550
===== =======
</TABLE>
12. LONG-TERM DEBT
Long-term debt, including capitalized lease obligations, consists of the
following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1999 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Variable rate revolving line of credit, rate of 8% as of
June 30, 2000, due June 30, 2004...................... $210,000 $221,500
Notes payable at interest rates of 0% and 2%, due in
annual installments through March 2001................ 3,931 944
6% to 8% various notes and capital lease obligations,
due in monthly installments of $3,000 to $40,000
including interest, maturing through March 2004....... 2,925 1,850
-------- --------
216,856 224,294
Less current portion.................................... 4,051 1,524
-------- --------
Long-term debt, net of current portion.................. $212,805 $222,770
======== ========
</TABLE>
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30, (IN THOUSANDS)
-------------------- --------------
<S> <C>
2001........................................................ $ 1,524
2002........................................................ 22,063
2003........................................................ 50,394
2004........................................................ 150,313
--------
$224,294
========
</TABLE>
In June 1999, the Company entered into a $300 million unsecured revolving
credit facility (the "Credit Facility") expiring June 30, 2004 that was
subsequently amended as discussed in Note 19. At the option of the Company, the
Credit Facility bears interest at a base rate approximating prime, plus an
applicable margin or LIBOR plus an applicable margin. The base rate applicable
margin may
F-20
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. LONG-TERM DEBT (CONTINUED)
fluctuate between 0% and 1% and the LIBOR applicable margin may fluctuate
between 1% and 2.125% depending on the Company's consolidated leverage ratio as
defined in the Credit Facility agreement.
The Credit Facility contains a reducing feature whereby the total amount of
the available facility is reduced quarterly beginning September 30, 2001 by
$12.5 million per quarter until the total facility has been reduced to
$150 million. Principal payments are required on each quarterly reducing date to
the extent that total indebtedness outstanding under the facility exceeds the
reduced amount of the available facility. The Company may use up to $20 million
of the facility for letters of credit of which $2.6 million was outstanding at
June 30, 2000. The Credit Facility as amended carries customary restrictive
covenants including, but not limited to maintenance of leverage and fixed charge
coverage ratios, limitations on capital expenditures, mergers and acquisitions,
disposition of assets, distributions, additional debt and liens. Management of
the Company believes it is in compliance with these covenants as of June 30,
2000. Upon closing in June 1999, the Company used $210 million in proceeds from
the Credit Facility to fund the Powerhouse Acquisition.
13. EARNINGS PER SHARE
A reconciliation of income and shares for basic and diluted earnings per
share (EPS) is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------------------------------------------------------------------
1998 1999 2000
------------------------------- ------------------------------- -------------------------------
PER-SHARE PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- -------- --------- -------- -------- --------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income............ $68,400 25,502 $2.68 $47,507 24,328 $1.95 $64,959 23,666 $2.74
Effect of Dilutive
Securities:
Options............... -- 820 (.08) -- 528 (.04) -- 356 (.04)
------- ------ ----- ------- ------ ----- ------- ------ -----
Diluted EPS:
Net Income............ $68,400 26,322 $2.60 $47,507 24,856 $1.91 $64,959 24,022 $2.70
======= ====== ===== ======= ====== ===== ======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
------------------------------- -------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- -------- --------- -------- -------- ---------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Basis EPS:
Net income........................... $15,774 23,868 $0.66 $18,462 23,236 $0.79
Effective of Dilutive Securities:
Options.............................. -- 430 (0.01) -- 462 (0.01)
------- ------ ----- ------- ------ -----
Diluted EPS:
Net Income........................... $15,774 24,298 $0.65 $18,462 23,698 $0.78
======= ====== ===== ======= ====== =====
</TABLE>
F-21
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. STOCK OPTIONS AND STOCK RIGHTS
As of June 30, 2000, 3,070,000 shares of common stock were reserved for
issuance upon exercise of employee and director stock options under an employee
stock option plan (the "Plan"). Employee and director options to purchase
2,864,000 shares, at the fair market values at the grant dates have been granted
as of June 30, 2000 under the Plan. As of June 30, 2000, options to purchase
1,745,500 shares had been exercised. These options vest in varying increments
over varying periods. An additional 80,000 shares are reserved for issuance upon
exercise of vested options at the IPO price that were granted to a relative of
certain minority stockholders (none of which were exercised at June 30, 2000).
Options to purchase an additional 1,200,000 shares were granted at the fair
market value at the grant date to certain employees outside of the Plan. These
non-plan options vest in varying increments over periods from nine months to
eight years.
Summarized information for all options is as follows for the years ended
June 30:
<TABLE>
<CAPTION>
1998 1999 2000
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of the
year......................... 2,266,050 $12.49 2,121,850 $15.15 1,987,100 $15.78
Granted...................... 248,000 28.02 57,600 26.25 896,000 24.81
Exercised.................... (357,600) 7.16 (166,750) 10.32 (416,200) 13.48
Canceled..................... (34,600) 15.79 (25,600) 23.09 (128,400) 13.33
--------- ------ --------- ------ --------- ------
Outstanding, end of the year... 2,121,850 $15.15 1,987,100 $15.78 2,338,500 $19.78
========= ====== ========= ====== ========= ======
Exercisable at end of the
year......................... 543,350 $10.76 852,100 $12.17 575,666 $15.18
========= ====== ========= ====== ========= ======
Options available for grant.... 165,600 333,600 206,000
========= ========= =========
</TABLE>
The following table summarizes information about the options outstanding at
June 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF EXERCISE PRICES JUNE 30, 2000 CONTRACTUAL LIFE EXERCISE PRICE JUNE 30, 2000 EXERCISE PRICE
------------------------ -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 6.00 - $6.75 110,900 3.6 $ 6.14 110,900 $ 6.14
7.38 - 10.88 193,600 5.0 10.82 123,600 10.78
15.94 - 23.44 885,400 6.7 16.08 234,700 16.45
24.75 - 36.44 1,148,600 8.9 25.47 106,466 26.92
--------- ------ ------- ------- ------
2,338,500 7.5 $ 19.78 575,666 $15.18
========= ====== ======= ======= ======
</TABLE>
The Company is authorized to issue 1,000,000 shares of preferred stock, $.01
par value per share (the "Preferred Stock"), in one or more series, and to
designate the rights, preferences, limitations, and restrictions of and upon
shares of each series, including voting, redemption, and conversion rights. The
board of directors of the Company also may designate dividend rights and
preferences in liquidation.
The board of directors of Anchor authorized the Company to enter into a
Stockholder Rights Plan (the "Rights Plan") providing that one right (a "Right")
will be attached to each share of Common Stock as of a record date to be
determined by the board of directors of Anchor (the "Record Date").
F-22
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. STOCK OPTIONS AND STOCK RIGHTS (CONTINUED)
In connection with the authorization of the Rights Plan, the board of directors
of the Company has authorized the designation of 50,000 shares of Preferred
Stock as Series A Junior Participating Preferred Stock with a par value of
$20.00 per share. Each Right under the Rights Plan will entitle the registered
holder to purchase from the Company a unit (a "Unit") consisting of one
one-thousandth of a share of Series A Junior Participating Preferred stock at a
purchase price of $400 per Unit, subject to adjustment. The Rights convert in
certain circumstances into a right to purchase common stock or securities of a
successor entity.
The Company has adopted the disclosures-only provision of SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Company applies
APB Opinion No. 25 and related interpretations in accounting for its stock
options. Under APB No. 25, no compensation cost has been recognized in the
financial statements for the Stock Option Plan or other stock options granted.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. Had compensation cost for the stock option
grants been determined based on the fair value at the date of grant for awards
consistent with the provision of SFAS No. 123, the Company's net income per
common and common equivalent share would have decreased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------
1998 1999 2000
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income-as reported............................... $68,400 $47,507 $64,959
Net income-pro forma................................. 66,947 46,411 62,692
Basic earnings per share-as reported................. $ 2.68 $ 1.95 $ 2.74
Basic earnings per share-pro forma................... 2.63 1.91 2.65
Diluted earnings per share-as reported............... $ 2.60 $ 1.91 $ 2.70
Diluted earnings per share-pro forma................. 2.54 1.87 2.61
</TABLE>
The fair value of each option granted in fiscal years 1998, 1999 and 2000
was estimated using the following assumptions for the Black-Scholes option
pricing model: (i) no dividends; (ii) expected volatility of 60% for 1998 and
1999 and 50% for 2000; (iii) risk free interest rates averaging, 6% for 1998, 6%
for 1999, and 6% for 2000; and (iv) an expected average life of 4.6 years for
1998 3.1 years for 1999, and 5.4 years for 2000. The weighted average fair value
of the options granted in 1998, 1999 and 2000 were $15.00, $11.47 and $13.12,
respectively. Because the SFAS No. 123 method of accounting has not been applied
to options granted prior to July 1, 1995, the resulting pro forma net income may
not be representative of that to be expected in future years.
15. RELATED PARTY TRANSACTIONS
During the year ended June 30, 1998, notes payable to the principal
stockholder resulted in interest expense of $224,000. The $2,800,000 principal
amount of the notes consisted of unsecured notes payable bearing interest at 8%
that were due July 1, 1998. The notes were paid in full during the year ended
June 30, 1998.
F-23
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RELATED PARTY TRANSACTIONS (CONTINUED)
Richard R. Burt, who became the vice chairman of the board of directors on
June 29, 1999, is the chairman and a founder of IEP Advisors, Inc. ("IEP"),
which has been retained by the Company to provide consulting services and to
assist the Company in connection with its international activities. The Company
paid IEP $250,000 during fiscal 2000. In addition, Mr. Burt and the Company
entered into a consulting agreement in September 1999, under which Mr. Burt is
to provide assistance to the Company and its affiliates in the expansion of
their international activities. The agreement has a two-year term from June 30,
1999, and may be terminated by the Company or by Mr. Burt upon 30 days' prior
written notice. Mr. Burt was paid $60,000 during fiscal 2000 under this
agreement.
16. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................... $ 47,258 $39,847 $26,087
State................................................. 4,168 4,012 5,085
-------- ------- -------
51,426 43,859 31,172
-------- ------- -------
Deferred:
Federal............................................... (9,510) (3,870) 10,081
State................................................. (876) (567) 1,158
-------- ------- -------
(10,386) (4,437) 11,239
-------- ------- -------
Total................................................... $ 41,040 $39,422 $42,411
======== ======= =======
</TABLE>
The historical provision for income taxes differs from the amount of income
tax determined by applying the applicable U. S. statutory federal income tax
rate to pre-tax income from continuing operations as a result of the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------------------------------------
1998 1999 2000
------------------- ------------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Statutory U. S. tax rate..................... $38,304 35.0% $30,425 35.0% $37,580 35.0%
Increase in tax resulting from:
State income taxes, net of federal tax
effect................................... 2,140 2.0 2,240 2.6 4,058 3.8
Acquired in-process research and
development not deductible............... 6,125 7.0
Other, net................................. 596 0.5 632 0.7 773 0.7
------- ---- ------- ---- ------- ----
Actual provision for income taxes............ $41,040 37.5% $39,422 45.3% $42,411 39.5%
======= ==== ======= ==== ======= ====
</TABLE>
F-24
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. INCOME TAXES (CONTINUED)
SFAS No. 109 "Accounting for Income Taxes" requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or income tax
returns. Deferred income taxes included in other current assets and other
long-term assets on the consolidated balance sheets reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
The tax items creating the Company's net deferred tax asset as of June 30, 1999
and 2000 are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1999 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CURRENT
Deferred tax assets:
Accrued reserves and allowances....................... $ 4,040 $ 3,396
Other................................................. 399 --
-------- --------
Total current asset................................. 4,439 3,396
-------- --------
LONG-TERM
Deferred tax assets:
Accrued reserves and allowances....................... 19,508 19,417
Net operating loss carryforwards...................... 14,961 8,030
Expenses not currently deductible..................... --
Other................................................. 1,505 1,616
Deferred tax liabilities:
Difference between book and tax basis of property..... (12,785) (13,023)
Difference between book and tax basis of purchase
accounting.......................................... (9,620) (10,253)
Other................................................. (2,391) (6,446)
Valuation allowance..................................... (1,641)
-------- --------
Total long-term liability, net...................... 9,537 (659)
-------- --------
Net deferred tax asset.................................. $ 13,976 $ 2,737
======== ========
</TABLE>
The ultimate realization of deferred tax assets is dependent upon the
existence of, or generation of, taxable income in the periods in which those
temporary differences and carryforwards are deductible. The utilization of
deferred tax assets may also be dependent upon the existence or generation of
taxable income in specific subsidiaries. Management considers the timing of the
reversal of deferred tax liabilities, taxes paid in carryback years, projected
future taxable income and other tax planning strategies in assessing whether
deferred tax assets will be realizable. Based upon these considerations,
management has determined that the Company will realize the benefits of these
deductible differences and carryforwards and has eliminated the June 30, 1999
valuation allowance.
17. BENEFIT PLAN
During the year ended June 30, 2000, the Company adopted a defined
contribution benefit plan ("401(k) Plan") for all employees of subsidiaries with
domestic operations. The Company's matching contributions to the 401(k) Plan are
based on a percentage of the employees' contributions to the plan.
F-25
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. BENEFIT PLAN (CONTINUED)
The Company's contributions to the 401(k) Plan are charged against income as
incurred. The Company contributed approximately $1.2 million to the 401(k) Plan
during the year ended June 30, 2000. The Company has the right under the 401(k)
Plan to discontinue matching contributions at any time and to terminate the
401(k) Plan subject to the provisions of ERISA.
18. COMMITMENTS AND CONTINGENCIES
NON-CANCELABLE OPERATING LEASES
The Company leases manufacturing space, parking lot space, office space,
casino space, and slot route locations under non-cancelable operating leases.
The original terms of the leases range from 1 to 15 years with various renewal
options from 1 to 15 years. The casino space lease has contingent rentals based
on gaming revenues of the casino occupying the space. The lease provides for a
monthly payment of the greater of a base amount of $12,000 or 5% of adjusted
gross gaming revenue, with a payment ceiling of $400,000 per year. Contingent
rentals paid above base amounts were $256,000 for each year in the three-year
period ended June 30, 2000. Operating lease rental expense was $11,878,000,
$12,833,000, and $17,009,000 for the fiscal years ended June 30, 1998, 1999, and
2000, respectively.
Future minimum rentals under non-cancelable operating leases at June 30,
2000 are:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30, (IN THOUSANDS)
-------------------- --------------
<S> <C>
2001........................................................ $ 20,875
2002........................................................ 20,646
2003........................................................ 19,812
2004........................................................ 13,117
2005........................................................ 10,195
Thereafter.................................................. 49,003
--------
$133,648
========
</TABLE>
Included in other assets at June 30, 1999 and 2000 is a space lease deposit
of $3.3 million, which is held by the lessor of several slot route locations
pursuant to an agreement that provides that the deposit, or any portion thereof,
may, at the option of the Company, be applied against rents owing during the
last two years of the lease agreement. Also included in deposits are payments
totaling $10.8 million to this lessor to extend the lease term for these
locations through the year 2010. The lease extension payments are amortized to
rent expense on a straight-line basis over the remaining term of the lease. The
Company's slot route operations at locations leased from this lessor accounted
for more than 10% of the Company's total revenues for the years ended June 30,
1998 and 1999, and for approximately 5% of the Company's total revenues for the
year ended June 30, 2000.
PALA GUARANTY
Under the terms of the Development Services and Financing Agreement with the
Pala Band of Mission Indians, the Company agreed to assist the Pala tribe in
obtaining financing for the construction and operation of PALA, a casino and
entertainment facility in northern San Diego County, California, and to advance
funds during the design and development stages. The Pala tribe secured a
$100 million
F-26
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
credit facility through a loan agreement and ancillary financial documents
finalized on June 15, 2000. As a condition to receiving financing, the Company
was required to guarantee the full payment and performance of the obligations of
the Pala tribe under the loan agreement. The Company executed a guaranty, which
remains in effect until the earlier of either repayment in full of all
guaranteed financial obligations under the loan agreement or delivery to lenders
of a leasehold mortgage on PALA if the facility has been in operation for at
least twelve months and certain financial and leverage threshholds have been
met. The guaranty will also be released 60 days following the date on which the
Company or any of its affiliates ceases to be the manager of PALA, unless
lenders have demanded payment of outstanding obligations from the Pala tribe
during such period. Anchor Pala Development LLC, the Company's wholly-owned
subsidiary, will receive a development fee based on the actual total project
costs and a project fee based on net gaming and non-gaming PALA revenues. As
additional consideration for all costs, risks, restrictions, and expenses
associated with providing the guaranty, the Company will receive fees based
primarily on a percentage of the outstanding loan balance. In addition, the
Company has agreed to fund PALA project cost overruns up to a total of
$25.0 million.
GAMING REGULATIONS
The Company's route operations are subject to the licensing and regulatory
requirements of the Nevada State Gaming Control Board, the Nevada Gaming
Commission, and the Montana Department of Justice, Gambling Control Division.
The Company's operating casinos are subject to the licensing and regulatory
requirements of the Colorado Limited Gaming Control Commission, New Mexico
Gaming Control Board, and New Mexico Racing Commission. The Company's
proprietary games operations are subject to the licensing and regulatory
requirements of multiple jurisdictions throughout the United States and Canada
including the Nevada and Colorado requirements. The Company is also subject to
regulations of the New Mexico Racing Commission and the New Mexico Gaming
Control Board as well as regulations governing lotteries and pari-mutuel
systems. The Company's gaming licenses are subject to certain conditions and
periodic renewal. Management believes that the conditions will continue to be
satisfied and that subsequent license renewals will be granted.
ENVIRONMENTAL MATTERS
The Colorado Central Station Casino is located in an area that has been
designated by the Environmental Protection Agency ("EPA") as a superfund site on
the National Priorities List, known as the Central City-Clear Creek Superfund
Site (the "Site") as a result of contamination from historic mining activity in
the area. The EPA is entitled to proceed against owners and operators of
properties located within the Site for remediation and response costs associated
with their properties and with the entire Site. The Colorado Central Station
Casino is located within the drainage basin of North Clear Creek and is
therefore subjected to potentially contaminated surface and ground water from
upstream mining-related sources. Soil and ground water samples on the Site
indicate that several contaminants exist in concentrations exceeding drinking
water standards. Records relating to historical uses of the Site are uncertain
as to whether mining actually occurred below the Company's property. Records do
indicate that an ore loading dock for a railroad depot was once located on an
adjacent property, and railroad tracks were present on the Company's property.
The Company applied the guidance in Statement of Position 96-1 "Environmental
Remediation Liabilities" and determined that a liability has not been incurred
as the criteria of this standard have not been met.
F-27
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Colorado Central Station Casino was constructed with foundation drains
to intercept ground water and direct it to a sump, which is then piped to a
leach field on the property. During the year ended June 30, 1999, the Colorado
Central Station Casino ("CCSC") experienced a large increase in the flow of
ground water into its sump. The increase in water flow eventually overwhelmed
the capacity of the leach field and required the water to be pumped into North
Clear Creek. The Colorado State Health Department-Water Quality Control
Commission indicated that a permit for the discharge of the water into North
Clear Creek would be required and that treatment of the discharge, prior to
placing it in North Clear Creek, may also be required. The potential cost of
treating the increased water flows could approach one half million dollars
although there is recent evidence that the water flow may be lessening.
LITIGATION
On February 17, 2000, the Company filed a complaint in U.S. District Court,
District of Nevada against former officers of Powerhouse Technologies, Inc. and
other parties. The complaint questions certain specified accounting practices
that were used prior to the acquisition.
In February 1999, GTECH Holdings Corporation filed a complaint for
declaratory judgment, injunction, and violation of the Public Records Law
against the State of Florida, Department of Lottery and AWI, a subsidiary of
ours, in the Circuit Court, Second Judicial Circuit, in Leon County, Florida.
The complaint requests the Circuit Court to declare the contract between AWI and
the Florida Lottery void in the event the First District Court of Appeal of
Florida upholds the Florida Lottery's decision to award the on-line lottery
services contract to AWI. Subsequent to the execution of the renegotiated
contract between AWI and the Florida Lottery in March 1999, GTECH Holdings
Corporation amended the complaint.
On January 28, 2000 the Circuit Court of Leon County granted GTECH Holdings
Corporation's cross motion for summary judgment on Count II of the complaint
filed by GTECH in March 1999. Count II of GTECH's complaint challenges the
validity of the amended contract entered into on March 9, 1999 between the State
of Florida, the Department of Lottery, and AWI, on the grounds that, among other
things, the amended contract is materially different from the proposal which AWI
submitted. The ruling declares null and void the amended contract between the
Florida Lottery and AWI effective February 2, 2000. The Florida Lottery filed an
appeal on February 2, 2000 and as a result, an automatic stay of the prior order
took place. The Florida Lottery and AWI filed an appeal on March 27, 2000. The
appeal is currently pending. AWI continues to provide its on-line gaming
services and products to the Florida Lottery under the terms of the amended
contract. The Company will vigorously defend and protect AWI's rights under this
lottery agreement. There can be no assurance, however, that our AWI subsidiary
will be successful in its efforts or that the ultimate results of this
litigation will be favorable to the Company. The Company has, to date, invested
approximately $35 million in equipment and systems for the Florida Lottery. If
unsuccessful in this litigation, this capital expenditure may be jeopardized.
In February 1999, we and the Anchor-IGT joint venture filed an action in U.
S. district court, District of Nevada, against Acres Gaming, Inc. ("Acres"). The
complaint alleges infringement of Company secondary event patents as well as
various contract breaches by Acres. In April 1999, Acres responded to the
lawsuit by filing an answer and counterclaim against us and the Anchor-IGT joint
venture. Additionally, in April 1999, Acres filed an action in Oregon state
circuit court against the
F-28
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company and the Anchor-IGT joint venture alleging wrongful use of Acres
intellectual property and breach of fiduciary duties. The Company believes
Acres' counterclaim and state circuit court lawsuit are without merit and
intends to vigorously contest the claims. The Oregon state circuit court action
has been moved to the U.S. District Court, District of Oregon, and has been
stayed pending the outcome of the Nevada actions.
Several securities class action lawsuits have been filed against the Company
and certain of the Company's current and former officers and directors. The
lawsuits were filed in various jurisdictions following the Company's
announcement in early December 1997 that the results for the December quarter
might not meet analysts' expectations. The lawsuits have been brought on behalf
of a purported class of purchasers of the Company's stock and allege violations
of state and/or federal securities laws arising out of alleged misstatements and
omissions to state material facts over various periods of time covered by the
suits. The lawsuits were consolidated in Nevada, both in federal and state
court. The consolidated federal action, captioned In re Anchor Gaming Securities
Litigation, Civil Action No. CV-S-97-01751-PMP (RJJ), was dismissed on
January 6, 1999 with the court entering a judgment in our favor. The
consolidated state action, captioned Ryan, et al. v. Anchor Gaming, et al.,
Civil No. A383456, has been stayed by order of the court. Certain other actions
have been transferred and/or dismissed. The Company believes that the claims are
without merit, and they intend to vigorously contest the lawsuits. The Company
cannot presently state the nature of further proceedings, if any, in the state
or federal actions.
PURCHASE COMMITMENTS
At June 30, 2000, the Company had entered into various purchase agreements
to purchase gaming equipment for approximately $15.8 million.
19. SUBSEQUENT EVENTS
STOCK PURCHASE TRANSACTION
On October 17, 2000, Anchor acquired approximately 9.2 million shares of its
common stock owned by the Fulton family for a purchase price of $33.306 per
share (share and per share amounts have been adjusted to give effect to the
stock split). To fund this transaction, on October 17, 2000, Anchor completed
the sale of $250 million of 9.875% senior subordinated notes due October 2008
that were priced to yield 10%. Anchor also amended its existing $300 million
senior credit facility to increase the maximum borrowings, subject to certain
covenants, to $325 million. The credit facility contains a reducing feature
whereby the total amount of the available facility is reduced quarterly by
$12.5 million per quarter beginning September 30, 2001, until the total facility
has been reduced to $150 million. Stanley Fulton, his son Michael Fulton, and
his daughter Elizabeth Jones resigned their positions on the board of directors
upon completion of the stock purchase transaction.
The purchase consideration for the shares comprises $240 million in cash and
$66 million of 11% promissory notes that Stanley Fulton received for a portion
of the shares he is selling. The promissory notes will be canceled through
certain racetrack asset transfers (see below) which the Company expects to
complete by the end of March 2001.
F-29
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SUBSEQUENT EVENTS (CONTINUED)
RACETRACK ASSET SALE TRANSACTION
In conjunction with the stock purchase transaction with the Fulton family,
the Company has entered into an agreement with Stanley Fulton to sell him
substantially all of the assets relating to Sunland Park Racetrack & Casino,
located in New Mexico, and the Company's 25% interest in a Massachusetts horse
racing facility. Stanley Fulton has agreed to pay $66 million for these assets
by canceling the Company's obligations under the promissory notes. Anchor
expects to complete the sale of these racetrack assets to Mr. Fulton by the end
of March 2001, subject to regulatory approvals and the satisfaction of other
conditions. After the sale of these assets, Anchor will retain the right to
manage gaming operations at the Massachusetts racetrack if casino gaming is
legalized in Massachusetts. The book value of the assets to be sold, excluding
certain cash accounts, was approximately $51.9 million at September 30, 2000 and
is classified as assets held for sale on the accompanying consolidated balance
sheets. The Company expects to record an after-tax loss of $5.2 million, net of
applicable transaction costs.
CONSULTING AGREEMENT
In conjunction with the stock purchase transaction and racetrack asset sale,
the Company has executed a 10-year consulting agreement with Stanley Fulton.
Under the terms of the agreement, Mr. Fulton will receive an annual salary of
$245,000 per year and executive-level benefits for 10 years in consideration of
consulting services that he will provide to the Company.
EXECUTIVE COMPENSATION AGREEMENTS
In connection with the purchase of the Fulton family shares in
October 2000, the Board of Directors and the Special Committee charged with
evaluating the Fulton transaction adopted the Anchor Gaming 2000 Incentive Stock
Plan and made grants of 1,150,000 options and 240,000 shares of restricted stock
thereunder, in addition to entering into employment agreements with key
employees and officers of the Company. The 2000 Incentive Stock Plan is subject
to stockholder approval.
STOCK SPLIT
Anchor announced a stock split under which stockholders of record as of
October 31, 2000 received one additional share of Anchor's common stock for
every share then owned. The new shares were issued on November 15, 2000. Share
and per share data for all periods presented have been adjusted to give effect
to this stock split.
F-30
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$250,000,000
ANCHOR GAMING
OFFER TO EXCHANGE
ALL OUTSTANDING 9 7/8% SENIOR SUBORDINATED NOTES DUE 2008
FOR 9 7/8% SENIOR SUBORDINATED NOTES DUE 2008
[ANCHOR GAMING LOGO]
PROSPECTUS
- , 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.7502 of the Nevada General Corporation Law ("NGCL") permits a
corporation to indemnify any person who was, or is threatened to be made a party
in a completed, pending, or threatened proceeding, whether civil, criminal,
administrative, or investigative (except an action by or in the right of the
corporation), by reason of being or having been an officer, director, employee,
or agent of the corporation or serving in certain capacities at the request of
the corporation. Indemnification may include attorney's fees, judgments, fines
and amounts paid in settlement. The person to be indemnified must have acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the corporation and, with respect to any criminal
action, such person must have had no reasonable cause to believe his or her
conduct was unlawful.
With respect to actions by or in the right of the corporation,
indemnification may not be made for any claim, issue, or matter as to which such
a person has been finally adjudged by a court of competent jurisdiction to be
liable to the corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which the action was brought or
other court of competent jurisdiction determines upon application that in view
of all circumstances the person is fairly and reasonably entitled to indemnity
for such expenses as the court deems proper.
Under Section 78.751 of the NGCL, unless indemnification is ordered by a
court, the determination must be made by the stockholders, by a majority vote of
a quorum of the board of directors who were not parties to the action, suit or
proceeding, or in certain circumstances by independent legal counsel in a
written opinion. Section 78.751 permits the Articles of Incorporation or Bylaws
to provide for payment to an officer or director of the expenses of defending an
action as incurred upon receipt of an undertaking to repay the amount if it is
ultimately determined by a court of competent jurisdiction that the person is
not entitled to indemnification.
Section 78.7502 also provides that to the extent a director, officer,
employee, or agent has been successful on the merits or otherwise in the defense
of any such action, he or she must be indemnified by the corporation against
expenses, including attorneys' fees, actually and reasonably incurred in
connection with the defense.
The Company's Articles of Incorporation and Bylaws contain provisions
requiring it to indemnify its executive officers and directors to the full
extent permitted by the Nevada General Corporation Law.
The Company has entered into indemnity agreements (the "Indemnification
Agreements") with certain of its directors and executive officers. Each such
Indemnification Agreement provides for indemnification of directors or executive
officers, as the case may be, of the Company to the fullest extent permitted by
Nevada Law and additionally permits advancing attorneys' fees and all other
costs, expenses, obligations, fines and losses, paid or incurred by a director
or executive officer generally in connection with the investigation, defense or
other participation in any threatened, pending or completed action, suit or
proceeding or any inquiry or investigation thereof, whether conducted by or on
behalf of the Company or any other party. If it is later determined that the
director or executive officer is or was not entitled to indemnification under
applicable law, the Company is entitled to reimbursement by the director or
executive officer.
The Indemnification Agreements further provide that in the event of a change
in control of the Company, all matters thereafter arising concerning the rights
of directors and executive officers to indemnity payments and expense advances,
all determinations regarding excludable claims will be made by a special
independent legal counsel engaged by the Company.
II-1
<PAGE>
To the extent that the Board of Directors or the stockholders of the Company
may in the future wish to limit or repeal the ability of the Company to
indemnify directors and executive officers, such repeal or limitation may not be
effective as to directors and executive officers who are currently parties to
the Indemnification Agreements, because their rights to full protection are
contractually assured by the Indemnification Agreements. It is anticipated that
similar contracts may be entered into, from time to time, with future directors
and executive officers of the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are part of this registration statement on
Form S-4 and are numbered in accordance with Item 601 of Regulation S-K. SEE
INDEX TO EXHIBITS.
(b) The following financial statement schedules are part of this
registration statement on Form S-4. SEE INDEX TO FINANCIAL STATEMENT SCHEDULES.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
that is a part of this registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) under the
Securities Act of 1933, such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The undersigned registrant hereby undertakes that every prospectus (i) that
is filed pursuant to the immediately preceding paragraph, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and
is used in connection with an offering of securities subject to Rule 415 under
the Securities Act of 1933, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and
II-2
<PAGE>
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) that, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) any any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of a prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(c) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
this offering.
(4) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed part of the registration
statement as of the time it was declared effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
ANCHOR GAMING
By: /s/ THOMAS J. MATTHEWS
-----------------------------------------
Thomas J. Matthews
CHIEF EXECUTIVE OFFICER AND PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Vice-President, Chief Operating
-------------------------------------- Officer--Gaming Operations and December 5, 2000
Joseph Murphy Director
*
-------------------------------------- Chief Financial Officer, December 5, 2000
Geoffrey A. Sage Treasurer and Secretary
*
-------------------------------------- Vice Chairman of the Board and December 5, 2000
Richard R. Burt Director
*
-------------------------------------- Director December 5, 2000
Stuart D. Beath
*
-------------------------------------- Director December 5, 2000
Glen J. Hettinger
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ THOMAS J. MATTHEWS
------------------------------- Chief Executive Officer, December 5, 2000
Thomas J. Matthews President, Director and Chairman
ATTORNEY-IN-FACT of the Board
</TABLE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
ANCHOR COIN
By: /s/ THOMAS J. MATTHEWS
-----------------------------------------
Thomas J. Matthews
AUTHORIZED SIGNATORY
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of Anchor Coin hereby
constitutes and appoints Thomas J. Matthews, Geoffrey A. Sage and David D.
Johnson, and each of them, his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign Anchor Gaming's
Registration Statement on Form S-4, and any other Registration Statement
relating to the same offering, and any and all amendments thereto (including
post-effective amendments), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. MATTHEWS
-------------------------------------- Chief Executive Officer, December 5, 2000
Thomas J. Matthews President, and Director
/s/ JOSEPH MURPHY
-------------------------------------- Vice-President December 5, 2000
Joseph Murphy
/s/ GEOFFREY A. SAGE
-------------------------------------- Chief Financial Officer, December 5, 2000
Geoffrey A. Sage Treasurer and Secretary
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
C.G. INVESTMENTS, INC.
By: /s/ THOMAS J. MATTHEWS
-----------------------------------------
Thomas J. Matthews
AUTHORIZED SIGNATORY
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of C.G. Investments, Inc.
hereby constitutes and appoints Thomas J. Matthews, Geoffrey A. Sage and David
D. Johnson, and each of them, his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign Anchor Gaming's
Registration Statement on Form S-4, and any other Registration Statement
relating to the same offering, and any and all amendments thereto (including
post-effective amendments), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. MATTHEWS
-------------------------------------- Chief Executive Officer, December 5, 2000
Thomas J. Matthews President, and Director
/s/ GEOFFREY A. SAGE
-------------------------------------- Chief Financial Officer, December 5, 2000
Geoffrey A. Sage Treasurer and Secretary
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
DD STUD, INC.
By: /s/ THOMAS J. MATTHEWS
-----------------------------------------
Thomas J. Matthews
AUTHORIZED SIGNATORY
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of DD Stud, Inc. hereby
constitutes and appoints Thomas J. Matthews, Geoffrey A. Sage and David D.
Johnson, and each of them, his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign Anchor Gaming's
Registration Statement on Form S-4, and any other Registration Statement
relating to the same offering, and any and all amendments thereto (including
post-effective amendments), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. MATTHEWS
-------------------------------------- Chief Executive Officer, December 5, 2000
Thomas J. Matthews President, and Director
/s/ GEOFFREY A. SAGE
-------------------------------------- Chief Financial Officer, December 5, 2000
Geoffrey A. Sage Treasurer and Secretary
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
GREEN MOUNTAIN
ENTERTAINMENT, INC.
By: /s/ THOMAS J. MATTHEWS
-----------------------------------------
Thomas J. Matthews
AUTHORIZED SIGNATORY
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of Green Mountain
Entertainment, Inc. hereby constitutes and appoints Thomas J. Matthews, Geoffrey
A. Sage and David D. Johnson, and each of them, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign Anchor Gaming's Registration Statement on Form S-4, and any
other Registration Statement relating to the same offering, and any and all
amendments thereto (including post-effective amendments), and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. MATTHEWS
-------------------------------------- Chief Executive Officer, December 5, 2000
Thomas J. Matthews President, and Director
/s/ GEOFFREY A. SAGE
-------------------------------------- Chief Financial Officer, December 5, 2000
Geoffrey A. Sage Treasurer and Secretary
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
POWERHOUSE TECHNOLOGIES, INC.
By: /s/ THOMAS J. MATTHEWS
-----------------------------------------
Thomas J. Matthews
AUTHORIZED SIGNATORY
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of Powerhouse
Technologies, Inc. hereby constitutes and appoints Thomas J. Matthews, Geoffrey
A. Sage and David D. Johnson, and each of them, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign Anchor Gaming's Registration Statement on Form S-4, and any
other Registration Statement relating to the same offering, and any and all
amendments thereto (including post-effective amendments), and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. MATTHEWS
-------------------------------------- President and Director December 5, 2000
Thomas J. Matthews
/s/ GEOFFREY A. SAGE
-------------------------------------- Chief Financial Officer, December 5, 2000
Geoffrey A. Sage Treasurer and Secretary
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
VLC, INC.
By: /s/ THOMAS J. MATTHEWS
-----------------------------------------
Thomas J. Matthews
AUTHORIZED SIGNATORY
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of VLC, Inc. hereby
constitutes and appoints Thomas J. Matthews, Geoffrey A. Sage and David D.
Johnson, and each of them, his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign Anchor Gaming's
Registration Statement on Form S-4, and any other Registration Statement
relating to the same offering, and any and all amendments thereto (including
post-effective amendments), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. MATTHEWS
-------------------------------------- President and Director December 5, 2000
Thomas J. Matthews
/s/ GEOFFREY A. SAGE Chief Financial Officer,
-------------------------------------- Treasurer, Secretary and December 5, 2000
Geoffrey A. Sage Director
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
AUTOMATED WAGERING
INTERNATIONAL, INC.
By: /s/ JOHN C. BEACH
-----------------------------------------
John C. Beach
AUTHORIZED SIGNATORY
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of Automated Wagering
International, Inc. hereby constitutes and appoints Thomas J. Matthews, Geoffrey
A. Sage and David D. Johnson, and each of them, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign Anchor Gaming's Registration Statement on Form S-4, and any
other Registration Statement relating to the same offering, and any and all
amendments thereto (including post-effective amendments), and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN C. BEACH
-------------------------------------- Chief Operating Officer, December 5, 2000
John C. Beach President and Director
/s/ THOMAS J. MATTHEWS
-------------------------------------- Executive Vice-President, December 5, 2000
Thomas J. Matthews Secretary and Director
/s/ GEOFFREY A. SAGE
-------------------------------------- Chief Financial Officer, December 5, 2000
Geoffrey A. Sage Treasurer and Director
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
UNITED WAGERING SYSTEMS, INC.
By: /s/ DONALD R. FULLER
-----------------------------------------
Donald R. Fuller
AUTHORIZED SIGNATORY
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of United Wagering
Systems, Inc. hereby constitutes and appoints Thomas J. Matthews, Geoffrey A.
Sage and David D. Johnson, and each of them, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign Anchor Gaming's Registration Statement on Form S-4, and any
other Registration Statement relating to the same offering, and any and all
amendments thereto (including post-effective amendments), and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DONALD R. FULLER
-------------------------------------- President and Director December 5, 2000
Donald R. Fuller
/s/ JOSEPH MURPHY
-------------------------------------- Vice-President and Secretary December 5, 2000
Joseph Murphy
/s/ GEOFFREY A. SAGE
-------------------------------------- Chief Financial Officer, December 5, 2000
Geoffrey A. Sage Treasurer and Director
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
NUEVO SOL TURF CLUB, INC.
By: /s/ HAROLD L. PAYNE
-----------------------------------------
Harold L. Payne
AUTHORIZED SIGNATORY
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of Nuevo Sol Turf Club, Inc.
hereby constitutes and appoints Thomas J. Matthews, Geoffrey A. Sage and David
D. Johnson, and each of them, his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign Anchor Gaming's
Registration Statement on Form S-4, and any other Registration Statement
relating to the same offering, and any and all amendments thereto (including
post-effective amendments), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ HAROLD L. PAYNE
-------------------------------------- President and Director December 5, 2000
Harold L. Payne
/s/ JOSEPH MURPHY
-------------------------------------- Vice-President, Secretary and December 5, 2000
Joseph Murphy Director
/s/ GEOFFREY A. SAGE
-------------------------------------- Chief Financial Officer, December 5, 2000
Geoffrey A. Sage Treasurer and Director
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
UNITED TOTE COMPANY
By: /s/ DONALD R. FULLER
-----------------------------------------
Donald R. Fuller
AUTHORIZED SIGNATORY
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of United Tote Company hereby
constitutes and appoints Thomas J. Matthews, Geoffrey A. Sage and David D.
Johnson, and each of them, his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign Anchor Gaming's
Registration Statement on Form S-4, and any other Registration Statement
relating to the same offering, and any and all amendments thereto (including
post-effective amendments), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DONALD R. FULLER
-------------------------------------- President and Director December 5, 2000
Donald R. Fuller
/s/ JOSEPH MURPHY
-------------------------------------- Vice-President, Secretary and December 5, 2000
Joseph Murphy Director
/s/ GEOFFREY A. SAGE
-------------------------------------- Chief Financial Officer, December 5, 2000
Geoffrey A. Sage Treasurer and Director
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
DYNATOTE OF PENNSYLVANIA, INC.
By: /s/ DONALD R. FULLER
-----------------------------------------
Donald R. Fuller
AUTHORIZED SIGNATORY
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of Dynatote of
Pennsylvania, Inc. hereby constitutes and appoints Thomas J. Matthews, Geoffrey
A. Sage and David D. Johnson, and each of them, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign Anchor Gaming's Registration Statement on Form S-4, and any
other Registration Statement relating to the same offering, and any and all
amendments thereto (including post-effective amendments), and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DONALD R. FULLER
-------------------------------------- President and Director December 5, 2000
Donald R. Fuller
/s/ JOSEPH MURPHY
-------------------------------------- President and Director December 5, 2000
Joseph Murphy
/s/ GEOFFREY A. SAGE
-------------------------------------- Chief Financial Officer, December 5, 2000
Geoffrey A. Sage Treasurer and Director
</TABLE>
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
RAVEN'S D&R MUSIC, INC.
By: /s/ JOSEPH MURPHY
-----------------------------------------
Joseph Murphy
AUTHORIZED SIGNATORY
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of Raven's D&R Music, Inc.
hereby constitutes and appoints Thomas J. Matthews, Geoffrey A. Sage and David
D. Johnson, and each of them, his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign Anchor Gaming's
Registration Statement on Form S-4, and any other Registration Statement
relating to the same offering, and any and all amendments thereto (including
post-effective amendments), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOSEPH MURPHY
-------------------------------------- President, Secretary and December 5, 2000
Joseph Murphy Director
/s/ GEOFFREY A. SAGE
-------------------------------------- Chief Financial Officer, December 5, 2000
Geoffrey A. Sage Treasurer and Director
</TABLE>
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
VLC OF NEVADA, INC.
By: /s/ THOMAS J. MATTHEWS
-----------------------------------------
Thomas J. Matthews
AUTHORIZED SIGNATORY
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of VLC of Nevada, Inc. hereby
constitutes and appoints Thomas J. Matthews, Geoffrey A. Sage and David D.
Johnson, and each of them, his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign Anchor Gaming's
Registration Statement on Form S-4, and any other Registration Statement
relating to the same offering, and any and all amendments thereto (including
post-effective amendments), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. MATTHEWS
-------------------------------------- President and Director December 5, 2000
Thomas J. Matthews
/s/ GEOFFREY A. SAGE
-------------------------------------- Chief Financial Officer, December 5, 2000
Geoffrey A. Sage Treasurer and Secretary
</TABLE>
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
ANCHOR NATIVE AMERICAN GAMING CORPORATION
By: /s/ THOMAS J. MATTHEWS
-----------------------------------------
Thomas J. Matthews
AUTHORIZED SIGNATORY
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of Anchor Native American
Gaming Corporation hereby constitutes and appoints Thomas J. Matthews, Geoffrey
A. Sage and David D. Johnson, and each of them, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign Anchor Gaming's Registration Statement on Form S-4, and any
other Registration Statement relating to the same offering, and any and all
amendments thereto (including post-effective amendments), and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. MATTHEWS
-------------------------------------- President and Director December 5, 2000
Thomas J. Matthews
/s/ JOSEPH MURPHY
-------------------------------------- Vice-President, Secretary and December 5, 2000
Joseph Murphy Director
/s/ GEOFFREY A. SAGE
-------------------------------------- Chief Financial Officer, December 5, 2000
Geoffrey A. Sage Treasurer and Director
</TABLE>
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
ANCHOR PALA MANAGEMENT LLC
By: Anchor Native American Gaming Corporation,
its sole memeber
By: /s/ THOMAS J. MATTHEWS
----------------------------------------------
Thomas J. Matthews
AUTHORIZED SIGNATORY
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
ANCHOR PALA MANAGEMENT LLC
By: Anchor Native American Gaming Corporation,
its sole memeber
</TABLE>
<TABLE>
<S> <C>
/s/ THOMAS J. MATTHEWS
-------------------------------------------
Thomas J. Matthews
By: AUTHORIZED SIGNATORY
</TABLE>
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on December 5, 2000.
<TABLE>
<S> <C> <C>
ANCHOR PALA DEVELOPMENT LLC
By: Anchor Native American Gaming Corporation,
its sole memeber
By: /s/ THOMAS J. MATTHEWS
----------------------------------------------
Thomas J. Matthews
AUTHORIZED SIGNATORY
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
ANCHOR PALA DEVELOPMENT LLC
By: Anchor Native American Gaming Corporation,
its sole memeber
</TABLE>
<TABLE>
<S> <C>
/s/ THOMAS J. MATTHEWS
-------------------------------------------
Thomas J. Matthews
By: AUTHORIZED SIGNATORY
</TABLE>
II-20
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
---------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of March 9, 1999 among
Anchor Gaming, Olive AP Acquisition Corporation and
Powerhouse Technologies, Inc. (Incorporated by reference to
Exhibit 2.1 of our Current Report on Form 8-K dated March
12, 1999.)
2.2 Amendment No. 1 to Merger Agreement dated as of March 19,
1999 among Anchor Gaming, Olive AP Acquisition Corporation
and Powerhouse Technologies, Inc. (Incorporated by reference
to Exhibit 2.2 of our Current Report on Form 8-K dated July
14, 1999.)
3.1 Restated Articles of Incorporation of Anchor Gaming.
(Incorporated by reference to Exhibit 3.1 to our
Registration Statement on Form S-1 (Registration No.
33-71870).)
3.2 Restated Bylaws of Anchor Gaming. (Incorporated by reference
to Exhibit 3.2 to our Registration Statement on Form S-1
(Registration No. 33-71870).)
4.1 Specimen of Common Stock Certificate. (Incorporated by
reference to Exhibit 4.1 to our Registration Statement on
Form S-1 (Registration No. 33-71870).)
4.2 Rights Agreement between Anchor Gaming and the Rights Agent.
(Incorporated by reference to Exhibit 4.2 to our June 30,
1998 Annual Report on Form 10-K (File No. 0-23124).)
4.3 Certificate of Designation, Preferences, and Rights of
Series A Junior Participating Preferred Stock. (Incorporated
by reference to Exhibit 4.3 to our June 30, 1998 Annual
Report on Form 10-K (File No. 0-23124).)
4.4 Indenture for 9 7/8% Senior Subordinated Notes Due 2008,
dated October 17, 2000. (Incorporated by reference to
Exhibit 10.42 to our Amended Annual Report on Form 10-K/A
filed October 27, 2000 (File No. 0-23124).)
4.5 Registration Rights Agreement dated as of October 17, 2000,
by and among Anchor Gaming, certain subsidiaries of Anchor
Gaming and Banc of America Securities LLC as representative
for the Initial Purchasers. (Incorporated by reference to
Exhibit 4.5 to our Registration Statement on Form S-4, filed
November 13, 2000 (Registration No. 333-49798).)
5.1* Opinion of Hughes & Luce, L.L.P. dated November 30, 2000,
regarding the validity of the exchange notes.
10.1 Promissory Notes of Anchor Coin, D D Stud, Inc., and C. G.
Investments, Inc. to Stanley E. Fulton. (Incorporated by
reference to Exhibit 10.4 to our Registration Statement on
Form S-1 (Registration No. 33-71870).)
10.2 Promissory Note of Colorado Grande Enterprises, Inc. to C.G.
Investments, Inc. (Incorporated by reference to Exhibit 10.5
to our Registration Statement on Form S-1 (Registration No.
33-71870).)
10.3 Lease and Sublease Agreement between Smith's Food & Drug
Centers, Inc. and Anchor Coin, dated July 28, 1993.
(Confidential Treatment for a portion of this document was
requested and granted pursuant to Rule 406 under the
Securities Act.) (Incorporated by reference to Exhibit 10.10
to our Registration Statement on Form S-1 (Registration
No. 33-71870).)
10.4 Fourth Amendment to Lease and Sublease Agreement dated
February 27, 1996 between Smith's Food and Drug Centers,
Inc. and Anchor Coin. (Incorporated by reference to
Exhibit 10.4 to our June 30, 2000 Annual Report on Form 10-K
(File No. 0-23124).)
</TABLE>
II-21
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
---------------------
<C> <S>
10.5 Option Agreement between Thomas J. Matthews and Anchor
Gaming. (Incorporated by reference to Exhibit 10.19 to our
June 30, 1994 Annual Report on Form 10-K (File
No. 0-23124).)
10.6 Option Agreement between Joseph Murphy and Anchor Gaming.
(Incorporated by reference to Exhibit 10.20 to our June 30,
1994 Annual Report on Form 10-K (File No. 0-23124).)
10.7 Option Agreement between William Randall Adams and Anchor
Gaming. (Incorporated by reference to Exhibit 10.21 to our
June 30, 1994 Annual Report on Form 10-K (File
No. 0-23124).)
10.8 Option Agreement between Geoffrey A. Sage and Anchor Gaming.
(Incorporated by reference to Exhibit 10.25 to our June 30,
1994 Annual Report on Form 10-K (File No. 0-23124).)
10.9 Option Agreement between Stuart D. Beath and Anchor Gaming.
(Incorporated by reference to Exhibit 10.26 to our June 30,
1994 Annual Report on Form 10-K (File No. 0-23124).)
10.10 Form of Stock Option Agreement between Glen J. Hettinger and
Anchor Gaming. (Incorporated by reference to Exhibit 10.28
to our June 30, 1996 Annual Report on Form 10-K (File No.
000-23124).)
10.11 Form of Indemnification Agreement between Officers and
Directors and Anchor Gaming. (Incorporated by reference to
Exhibit 10.28 to our June 30, 1994 Annual Report on
Form 10-K (File No. 0-23124).)
10.12 Indemnification Agreement between Glen J. Hettinger and
Anchor Gaming. (Incorporated by reference to Exhibit 10.30
to our June 30, 1998 Annual Report on Form 10-K (File
No. 0-23124).)
10.13 Tax Indemnification Agreement between Stanley E. Fulton,
Anchor Gaming and its subsidiaries. (Incorporated by
reference to Exhibit 10.29 to our June 30, 1994 Annual
Report on Form 10-K (File No. 0-23124).)
10.14 Anchor Gaming 1995 Employee Stock Option Plan. (Incorporated
by reference to Exhibit 10.31 to our June 30, 1995 Annual
Report on Form 10-K (File No. 0-23124).)
10.15 Joint Venture Agreement, dated as of December 3, 1996 by and
between Anchor Games,
d/b/a/ Anchor Coin, a Nevada corporation and our Subsidiary,
and IGT. (Incorporated by reference to Exhibit 10.37 to our
June 30, 1997 Annual Report on Form 10-K (File
No. 0-23124).)
10.16 Stock Option Agreement of William Randall Adams dated April
2, 1997. (Incorporated by reference to Exhibit 4.1 to our
Registration Statement on Form S-8 (File No. 333-53257).)
10.17 Stock Option Agreement of Thomas J. Matthews dated April 2,
1997. (Incorporated by reference to Exhibit 4.2 to our
Registration Statement on Form S-8 (File No. 333-53257).)
10.18 Stock Option Agreement of Joseph Murphy dated April 2, 1997.
(Incorporated by reference to Exhibit 4.3 to our
Registration Statement on Form S-8 (File No. 333-53257).)
10.19 Loan Agreement, dated as of June 29, 1999 among Anchor
Gaming as borrower, the lenders therein named, and Bank of
America National Trust and Savings Association as
administrative agent. (Incorporated by reference to Exhibit
10.35 to our June 30, 1999 Annual Report on Form 10-K (File
No. 0-23124).)
10.20 Form of Stock Option Agreement. (Incorporated by reference
to Exhibit 10.36 to our June 30, 1996 Annual Report on
Form 10-K (File No. 0-23124).)
</TABLE>
II-22
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
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<C> <S>
10.21 Amendment No. 1 to Loan Agreement dated March 24, 2000
between Anchor Gaming, as borrower, Bank of America, N.A.,
as administrative agent and the other lenders named therein.
(Incorporated by reference to Exhibit 10.23 to our June 30,
2000 Annual Report on Form 10-K (File No. 0-23124).)
10.22 Guaranty dated June 15, 2000 of Anchor Gaming in favor of
Bank of America, N.A., as administrative agent for the
benefit of lenders to the Pala Band of Mission Indians.
(Incorporated by reference to Exhibit 10.24 to our June 30,
2000 Annual Report on Form 10-K (File No. 0-23124).)
10.23 Asset Purchase Agreement dated September 24, 2000 by and
between My Way Holdings LLC and Nuevo Del Sol Turf Club,
Inc. (Incorporated by reference to Exhibit 99.2 to the
Current Report on Form 8-K filed September 26, 2000 (File
No. 0-23124).)
10.24 Stock Purchase Agreement dated September 24, 2000 between
Anchor Gaming and members of the Fulton family and their
affiliates. (Incorporated by reference to Exhibit 99.3 to
the Current Report on Form 8-K filed September 26, 2000
(File No. 0-23124).)
10.25 Assignment of Membership Interests in Ourway Realty, L.L.C.
dated September 24, 2000 between Anchor Gaming and Stanley
Fulton. (Incorporated by reference to Exhibit 99.4 to the
Current Report on Form 8-K filed September 26, 2000 (File
No. 0-23124).)
10.26 Consulting Agreement dated September 24, 2000 entered into
by Stanley Fulton and Anchor Gaming. (Incorporated by
reference to Exhibit 99.5 to the Current Report on Form 8-K
filed September 26, 2000 (File No. 0-23124).)
10.27 Form of Anchor Gaming Executive Stock Option Agreement.
(Incorporated by reference to Exhibit 10.29 to our Amended
Annual Report on Form 10-K/A filed October 27, 2000 (File
No. 0-23124).)
10.28 Form of Anchor Gaming Director Stock Option Agreement.
(Incorporated by reference to Exhibit 10.30 to our Amended
Annual Report on Form 10-K/A filed October 27, 2000 (File
No. 0-23124).)
10.29 Form of Anchor Gaming Restricted Stock Agreement.
(Incorporated by reference to Exhibit 10.31 to our Amended
Annual Report on Form 10-K/A filed October 27, 2000 (File
No. 0-23124).)
10.30 Anchor Gaming 2000 Stock Incentive Plan. (Incorporated by
reference to Exhibit 10.32 to our Amended Annual Report on
Form 10-K/A filed October 27, 2000 (File No. 0-23124).)
10.31 Form of Employment Agreement between Anchor Gaming and
Thomas J. Matthews. (Incorporated by reference to Exhibit
10.33 to our Amended Annual Report on Form 10-K/A filed
October 27, 2000 (File No. 0-23124).)
10.32 Form of Employment Agreement between Anchor Gaming and
Joseph Murphy. (Incorporated by reference to Exhibit 10.34
to our Amended Annual Report on Form 10-K/A filed October
27, 2000 (File No. 0-23124).)
10.33 Form of Employment Agreement between Anchor Gaming and
Geoffrey A. Sage. (Incorporated by reference to Exhibit
10.35 to our Amended Annual Report on Form 10-K/A filed
October 27, 2000 (File No. 0-23124).)
10.34 Form of Employment Agreement between Anchor Gaming and David
D. Johnson. (Incorporated by reference to Exhibit 10.36 to
our Amended Annual Report on Form 10-K/A filed October 27,
2000 (File No. 0-23124).)
</TABLE>
II-23
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
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<C> <S>
10.35 Amendment No. 2, dated October 17, 2000, to Loan Agreement
dated June 29, 1999 among Anchor Gaming as Borrower, the
Lenders therein named and Bank of America N.A. as
Administrative Agent. (Incorporated by reference to Exhibit
10.37 to our Amended Annual Report on Form 10-K/A filed
October 27, 2000 (File No. 0-23124).)
10.36 Amendment No. 1, dated October 17, 2000, to Guaranty dated
June 15, 2000 by Anchor Gaming in favor of Bank of America,
N.A. as Administrative Agent and the other lenders named
therein that are party to the Pala Loan Agreement.
(Incorporated by reference to Exhibit 10.38 to our Amended
Annual Report on Form 10-K/A filed October 27, 2000 (File
No. 0-23124).)
10.37 Anchor Gaming's $35,000,000 Promissory Note, dated October
17, 2000, to Bankers Trust Company. (Incorporated by
reference to Exhibit 10.39 to our Amended Annual Report on
Form 10-K/A filed October 27, 2000 (File No. 0-23124).)
10.38 Anchor Gaming's $15,000,000 Promissory Note, dated October
17, 2000, to Lehman Commercial Paper, Inc. (Incorporated by
reference to Exhibit 10.40 to our Amended Annual Report on
Form 10-K/A filed October 27, 2000 (File No. 0-23124).)
10.39 Joinder and Assumption Agreement, dated October 17, 2000,
among Anchor Gaming as Borrower, Bankers Trust as Increasing
Lender, Lehman Commercial Paper, Inc. as Joining Lender and
Bank of America N.A. as Administrative Agent pursuant to
June 29, 1999 Loan Agreement. (Incorporated by reference to
Exhibit 10.41 to our Amended Annual Report on Form 10-K/A
filed October 27, 2000 (File No. 0-23124).)
21.1 List of Subsidiary Corporations. (Incorporated by reference
to Exhibit 21.1 to our June 30, 2000 Annual Report on
Form 10-K (File No. 0-23124).)
23.1* Consent of Deloitte & Touche LLP.
23.2* Consent of Hughes & Luce, L.L.P. (included in Exhibit 5.1
hereto).
24.1* Power of Attorney (included on signature pages hereof).
25.1* Form T-1, Statement of Eligibility of Trustee.
27.1 Financial Data Schedule. (Incorporated by reference to
Exhibit 27.1 to our June 30, 2000 Annual Report on
Form 10-K (File No. 0-23124))
99.1* Form of Letter of Transmittal for Outstanding Senior
Subordinated Notes due 2008.
99.2* Form of Notice of Guaranteed Delivery for Outstanding Senior
Subordinated Notes due 2008.
99.3* Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees for Outstanding Senior
Subordinated Notes due 2008.
99.4* Form of Letter to Clients for Outstanding Senior
Subordinated Notes due 2008.
</TABLE>
------------------------
* Filed herewith
II-24
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts--Years Ended June 30, 1998,
1999, and 2000. (Incorporated by reference to Schedule II to our June 30, 2000
Annual Report on Form 10-K (File No. 0-23124).)
II-25
