<PAGE>
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from - to -
--------------- ---------------
Commission file number 0-20712
CASINO MAGIC CORP.
------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 64-0817483
----------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
711 CASINO MAGIC DRIVE, BAY ST. LOUIS, MS 39520
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
(601) 467-9257
------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the latest practicable date.
35,423,333 shares common stock outstanding as of May 14, 1996
=============================================================================
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements.
Condensed Consolidated Statements of Operations -
For the three months ended
March 31, 1996 and 1995.............................. 1
Condensed Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995................. 2
Condensed Consolidated Statements of Cash Flows -
For the three months ended
March 31, 1996 and 1995.............................. 3
Notes to Condensed Consolidated Financial Statements... 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 6-10
PART II OTHER INFORMATION
Item 1. Legal Proceedings...................................... 11
Item 2. Changes in Securities.................................. 11
Item 3. Default Upon Senior Securities......................... 11
Item 4. Submission of Matters to a Vote of Security Holders.... 11
Item 5. Other Information...................................... 11
Item 6. Exhibits and Reports on Form 8-K....................... 11
SIGNATURES............................................. 12
<PAGE>
PART I - FINANCIAL INFORMATION
CASINO MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
REVENUES:
Casino $ 39,759,682 $ 40,970,786
Food and beverage 1,551,836 1,409,385
Rooms 437,683 534,325
Royalty and management fees 924,528 --
Other operating income 450,838 254,314
----------- -----------
43,124,567 43,168,810
----------- -----------
COSTS AND EXPENSES:
Casino 16,392,180 17,041,586
Food and beverage 2,289,047 1,523,819
Rooms 418,219 322,651
Other operating costs and expenses 472,990 353,329
Advertising and marketing 4,818,083 6,046,682
General and administrative 5,415,591 6,121,154
Property operation, maintenance and energy cost 1,544,054 1,604,733
Rents, property taxes and insurance 1,461,782 1,408,086
Development expenses 500,261 603,708
Preopening expenses -- 183,690
Depreciation and amortization 4,247,227 3,204,837
----------- -----------
37,559,434 38,414,275
----------- -----------
INCOME FROM OPERATIONS 5,565,133 4,754,535
----------- -----------
OTHER (INCOME) EXPENSE:
Equity income from unconsolidated casino
operations (663,095) --
Interest expense, net 3,820,515 3,891,351
Other 55,750 197,056
----------- -----------
3,213,170 4,088,407
----------- -----------
INCOME BEFORE INCOME TAXES: 2,351,963 666,128
INCOME TAXES 708,289 344,567
----------- -----------
NET INCOME $ 1,643,674 $ 321,561
=========== ===========
NET INCOME PER COMMON SHARE:
Primary $ .05 $ .01
=========== ===========
Fully-diluted $ .05 $ .01
=========== ===========
Average shares and equivalents outstanding:
Primary 36,181,329 33,331,729*
=========== ===========
Fully-diluted 36,414,089 33,445,275**
=========== ===========
* Corrected; previously reported as 33,913,256
** Corrected; previously reported as 33,915,218
</TABLE>
See notes to condensed consolidated financial statements.
-1-
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1996 1995(*)
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 31,855,452 $ 30,755,698
Other current assets 18,133,209 17,325,354
----------- -----------
Total current assets 49,988,661 48,081,052
----------- -----------
PROPERTY AND EQUIPMENT, NET 169,752,078 169,791,757
----------- -----------
OTHER LONG-TERM ASSETS 51,491,962 50,558,033
----------- -----------
$271,232,701 $268,430,842
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES 31,366,188 32,170,741
----------- -----------
OTHER LONG-TERM LIABILITIES 7,483,535 4,241,325
----------- -----------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 135,598,880 136,840,010
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par, 50,000,000 shares
authorized, 35,279,564 issued and outstanding
at March 31, 1996 and outstanding at
December 31, 1995 352,796 352,796
Undesignated stock, 2,500,000 shares authorized,
none issued -- --
Additional paid-in capital 66,082,527 66,087,413
Retained earnings 30,719,959 29,076,285
Currency translation adjustments (280,765) (224,195)
Less unearned compensation (90,419) (113,533)
----------- -----------
Total shareholders' equity 96,784,098 95,178,766
----------- -----------
$271,232,701 $268,430,842
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
* Derived from audited financial statements
-2-
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,643,674 $ 321,561
Adjustments for non-cash charges 3,922,188 3,927,508
Changes in assets and liabilities (654,469) 3,777,922
----------- -----------
Net cash provided by operating activities 4,911,393 8,026,991
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (4,289,339) (2,488,806)
Decrease in marketable securities -- 9,244,233
Other, net (377,979) (803,070)
----------- -----------
Net cash provided by (used in)
investing activities (4,667,318) 5,952,357
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable
and long-term debt (575,634) (851,991)
Net proceeds from sale of common stock -- 8,354,987
Other, net 1,431,313 21,000
----------- -----------
Net cash provided by financing activities 855,679 7,523,996
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,099,754 21,503,344
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 30,755,698 20,486,068
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 31,855,452 $ 41,989,412
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amount capitalized) $ (115,391) $ (39,025)
Income taxes (net of refunds) -- (2,920,789)
Supplemental schedule of non-cash investing and financing activities:
Property and equipment and other asset
acquisitions included in accounts and
construction payable and accrued expenses 103,754 84,940
Reclassification of long-term liabilities to
accrued expenses -- 5,195,000
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the Three Months Ended
March 31, 1996 and 1995 is Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of Casino Magic
Corp. and its wholly-owned subsidiaries ("the Company"). All significant
intercompany accounts and transactions have been eliminated. Investments in
unconsolidated affiliates are accounted for using the equity method of
accounting.
The Company conducts casino gaming operations in Bay Saint Louis, Mississippi,
Biloxi, Mississippi, Deadwood, South Dakota, in the Argentina Province of
Neuquen in the cities of Neuquen City and San Martin de los Andes, and through
a jointly owned company in Porto Carras, Greece. The Company manages one
casino facility in Xanthi, Greece. Additionally, Casino Magic is actively
pursuing gaming opportunities in other jurisdictions.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
The accompanying unaudited consolidated financial statements contain all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results of the interim periods. The results of operations
for the interim periods are not indicative of results of operations for an
entire year.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Certain reclassifications have been made to 1995 amounts to conform with
the March 31, 1996 presentation.
2. OPTIONS AND LAND DEPOSITS:
The Company, in the normal course of business, acquires options and makes land
deposits in markets where gaming has not yet been approved or the Company has
not been issued a license to operate. Such costs are capitalized and are
classified as options and land deposits. Prior to January 1, 1996, the
Company expensed such amounts previously capitalized at the earlier of their
indicated impairment or the expiration of the option or deposit period. As of
January 1, 1996, the Company began amortizing amounts capitalized for such
options and deposits over their related terms, while still subjecting
capitalized amounts to appropriate impairment tests. This change was made to
recognize the speculative nature of these options and deposits and the
declining utility over time as the option period shortens and gaming has not
been approved or a license to operate has not been obtained. At March 31,
1996, the cumulative effect of this change in accounting policy was not
significant and therefore, the cumulative effect of this change in accounting
method has not been recorded in the March 31, 1996, financial statements of
the Company.
3. SUBSEQUENT EVENTS:
In February 1996, Jefferson Casino Corporation ("Jefferson") and C-M of
Louisiana, Inc. ("CMLI"), two wholly-owned subsidiaries of Casino Magic Corp.
(the "Purchasers"), entered into an agreement to purchase Crescent City
Capital Development Corp. ("Crescent City"), a wholly-owned subsidiary of
Capital Gaming International, Inc. for approximately $56.5 million,
$15,000,000 in cash, $35,000,000 in notes and $6,500,000 by the assumption of
liabilities. Crescent City, which was subject of a reorganization under
Chapter 11 of the U.S. Bankruptcy Code, owns the Crescent City Queen, a casino
riverboat and a license to conduct riverboat gaming operations in Louisiana.
The agreement was contingent upon the approval of the Louisiana State Police,
and the Louisiana Riverboat Gaming Commission and confirmation of the plan of
reorganization by the U.S. Bankruptcy Court. As of April 30, 1996, the
Purchasers had received all of the necessary approvals and
-4-
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the Three Months Ended
March 31, 1996 and 1995 is Unaudited)
3. SUBSEQUENT EVENTS (CONTINUED):
confirmation for the transfer of the ownership of Crescent City and the
relocation of its gaming license to Bossier City, Louisiana, and the purchase
of Crescent City was consummated on May 13, 1996. The Purchasers will not
succeed to any of the business activities of Crescent City.
In October 1995, the Company acquired approximately 20 acres of land in
Bossier City, Louisiana in exchange for shares of the Company's Common Stock
through the acquisition of two corporations. One of the acquired companies,
Coastal Land of Florida, Inc. ("Coastal"), was the lessee of the Bossier City
property. The acquisition agreement for Coastal included two supplemental
agreements which gave two affiliates of the sole shareholder of Coastal (the
"Shareholder") the rights to receive 2% of net gaming revenues of any casino
entity operating on the Bossier City property and to acquire an equity
interest of up to 25% of any casino entity operating on the Bossier City
property.
In May 1996, the Company, Jefferson, the Shareholder and the two affiliates of
Shareholder entered into an agreement where the Shareholder and his affiliates
agreed to sell to Jefferson the rights under the two agreements discussed
above for cash of $550,000 and a promissory note issued by CMLI and Jefferson
in the principal amount of $6,800,000, bearing interest at the rate of 5.8%
per annum. The first payment of $800,000 plus accrued interest under the note
is due 30 days after the Company opens a casino at Bossier City, Louisiana.
Thereafter, the note requires 58 consecutive monthly payments of $118,873.
The cost to acquire the rights under the agreements will be considered as
additional land acquisition cost. The note is subordinate to the indebtness
of Crescent City under the $35,000,000 in notes issued as part of the purchase
price of Crescent City.
-5-
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussions regarding proposed Company developments and operations
included in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" contain forward looking statements that involve a
number of risks and uncertainties. These proposed developments and operations
include: (i) completion of the golf course at Casino Magic-BSL in the Fall of
1996; (ii) completion of a hotel in 1997, and repositioning of the gaming
facility, at Casino Magic-Biloxi; (iii) receipt of approximately $9 million in
fees, dividends and loan repayments from the Company's Porto Carras operation;
and (iv) the Company's ability to fund planned developments and debt service
obligations over the next twelve months with currently available cash and
marketable securities, and with cash flow from operations. In addition to the
risks and uncertainties discussed below, other factors that could cause actual
results to differ materially are detailed from time to time in the Company's
reports filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain operating
information for the Company on a consolidated basis and for its existing
properties. The principal operating entities are Mardi Gras Casino Corp.
("Casino Magic-BSL") and Biloxi Casino Corp. ("Casino Magic-Biloxi") both
dockside casinos operating on the Gulf Coast of Mississippi (together referred
to collectively as the "Casino Magic-Gulf Coast") and Casino Magic-Neuquen SA,
which operates gaming facilities at two casino sites in Neuquen and San Martin
de los Andes, Argentina. The Company also owns a 49% interest in Porto Carras
Casino S.A. ("Porto Carras") which manages a casino at the Porto Carras resort
approximately 60 miles south of Thesseloniki, Greece.
<TABLE>
<CAPTION>
Quarter ended March 31,
(Dollars in Thousands)
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Casino Magic-BSL (1)............................ $ 21,044 $ 22,192
Casino Magic-Biloxi (2)......................... 16,833 18,298
Casino Magic-Neuquen (3)........................ 3,944 2,246
Corporate and Other (4)......................... 1,304 433
----------- -----------
Total revenues................................ 43,125 43,169
Costs and expenses:
Casino Magic-BSL................................ 16,234 17,382
Casino Magic-Biloxi............................. 14,133 14,826
Casino Magic-Neuquen............................ 3,183 2,664
Corporate and Other............................. 4,009 3,542
----------- -----------
Total costs and expenses...................... 37,559 38,414
EBITDA:
Casino Magic-BSL................................ 6,266 6,287
Casino Magic-Biloxi............................. 4,123 4,843
Casino Magic-Neuquen............................ 1,058 (167)
Corporate and Other............................. (1,634) (3,003)
----------- -----------
Total EBITDA.................................. 9,813 7,960
Income (loss) from operations:
Casino Magic-BSL................................ 4,810 4,810
Casino Magic-Biloxi............................. 2,700 3,472
Casino Magic-Neuquen............................ 761 (418)
Corporate and Other............................. (2,706) (3,109)
----------- -----------
Total income from operations.................. $ 5,565 $ 4,755
=========== ===========
</TABLE>
(1) Began operations September 30, 1992; expanded casino capacity
December 31, 1992.
(2) Began operations June 5, 1993; expanded casino capacity
December 16, 1993.
(3) Began operations on January 1, 1995.
(4) Includes management fees and royalty fees from Porto Carras which began
operations May 18, 1995. Equity in earnings with respect to Porto
Carras is reported as non-operating income.
-6-
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED):
Consolidated gaming revenues decreased $1.2 million or 3.0% to $39.8 million
in the first quarter of 1996 compared to $41.0 million in the first quarter of
1995. The decrease in gaming revenues is reflective of intensified
competition on the Gulf Coast which is a major market for Casino Magic-Gulf
Coast. The decrease in gaming revenues from Casino Magic-Gulf Coast was
partially offset by increased gaming revenues of $1.5 million at Casino Magic-
Neuquen and $0.9 million in royalty and management fees.
Operating costs and expenses decreased $0.9 million from $38.4 million in the
first quarter of 1995 to $37.6 million in the first quarter of 1996.
Advertising and marketing expenses decreased $1.2 million or 20.3% in the
first quarter of 1996 as compared to the same period in 1995. The majority of
this decrease is a result of the Company reducing its emphasis on its air
charter program in the Gulf Coast. Casino expenses decreased $0.6 million
from $17.0 million in the first quarter of 1995 to $16.4 million in 1996.
This decrease is the result of cost reduction policies which began in 1995.
Food and beverage expenses increased to $2.3 million in the first quarter of
1996 from $1.5 million in the first quarter in 1995. This increase is
attributable to increased activity at Casino Magic-Neuquen and market share
competition at Casino Magic-Gulf Coast. General and administrative expenses
decreased $0.7 million or 11.5% in the first quarter of 1996 as compared to
the same period in 1995. This decline is a result of cost cutting measures
implemented in early 1996, including the elimination of several corporate
officer positions. Depreciation increased $1.0 million from $3.2 million in
the first quarter of 1995 to $4.2 million in 1996. This increase is due to
the addition of the inn at Casino Magic-BSL, the addition of other tangible
depreciable property, amortization of the concession agreement for Casino
Magic-Neuquen and amortization of investment costs in excess of equity
interest in Porto Carras Casino SA.
Earnings before income taxes, depreciation and amortization (EBITDA) increased
$1.9 million or 23.3% in the first quarter of 1996 as compared to the same
period in 1995. The increase in EBITDA is attributable to increased revenues
at Casino Magic-Neuquen and increased royalty and management fees. Royalty
and management fees are generated at substantially lower costs than revenues
from owned properties and therefore have a greater impact on EBITDA.
Income from operations increased $0.8 million, or 17%, to $5.6 million in the
first quarter of 1996 compared to $4.8 in the first quarter last year.
Operating margin (income from operations as a percentage of revenues) grew
from 11.0% to 12.9% over the comparative periods. Casino Magic-BSL's
operating margin grew from 21.7% to 22.9%, and Casino Magic-Biloxi's operating
margin decreased from 19.0% to 16.0%. The increased margin at Casino Magic-
BSL is due to cost cutting measures, and the decrease at Casino Magic-Biloxi
is due to lower revenues from increased competition.
Other (income) expense (non-operating income and expense) decreased $0.9
million over the comparative quarters. The decrease reflects increased income
from Porto Carras Casino SA, a jointly owned company accounted for using the
equity method of accounting.
The Company had net income of $1.6 million or $0.05 per share in the current
year first quarter compared to net income of $0.3 million or $0.01 per share
in the first quarter of the preceding year. The increase in net income
between periods is reflective of the expanding operations of the Company and
cost cutting measures implemented.
-7-
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash and marketable securities of $31.9
million compared to cash and marketable securities of $30.8 million at
December 31, 1995. For the quarter ended March 31, 1996, the Company
generated $4.9 million cash flow from operating activities and received $1.4
million of proceeds from the issuance of a long term note payable. The
Company spent $4.4 million for acquisitions of property, equipment and other
long-term assets during the quarter and reduced long term debt by $0.6
million.
The Company expended approximately $2.5 million in capital improvements at its
two existing Mississippi properties during the quarter. The Company is
currently constructing the 18-hole golf course at the Casino Magic-BSL
property with an expected completion in Fall 1996. The Company has made
significant investments in property and equipment, plans additional
investments at its existing Gulf Coast properties and is pursuing gaming
opportunities outside of Mississippi primarily in Indiana and Louisiana.
In early 1996, the Company, through a wholly-owned subsidiary, entered into a
consulting agreement with Sisseton-Wahpeton Dakota Nation ("Sisseton"). The
agreement specifies that the Company will provide consulting services to
Sisseton during the development and opening of a hotel and casino facility, on
Tribal land, for a fee payable after the opening of the facility. The
agreement also specifies that the Company will provide consulting services to
Sisseton after the opening of the facility for a period of two years and
includes unlimited one year extensions. The fee for these services is based
on gross revenues of the hotel and casino facility. This agreement replaces
all previous agreements entered into between the Company and Sisseton except
for a loan agreement. The loan agreement requires the Company to loan
Sisseton up to $5 million, interest free, until the opening of the facility.
The loan is secured by the revenues generated by current gaming operations
conducted by Sisseton. Through April 1996, the Company had loaned to Sisseton
$3.8 million.
The Company plans to construct a hotel at Casino Magic-Biloxi on top of the
eight-story parking garage adjacent to the casino that will consist of
approximately 250 rooms. In addition, the Company plans to reposition the
floating gaming facility at Casino Magic-Biloxi and provide it with a new
facade. These projects have an estimated cost of between $20 to $25 million.
Construction is scheduled to begin in 1996 and completion is estimated for
1997. Construction costs are anticipated to be funded out of the cash flow of
the Company.
In February 1996, the Company and two of its wholly owned subsidiaries (such
subsidiaries hereafter referred to as the "Purchasers") entered into an
agreement to purchase the Crescent City, a subsidiary of Capital Gaming
International, Inc., for $50 million plus the assumption of up to $6.5 million
in equipment liabilities. The Purchasers will pay $15 million in cash at
closing and will cause Crescent City to issue $35 million of 11.5% secured,
three year notes. Crescent City, which was the subject of a plan of
reorganization under Chapter 11 of the U.S. Bankruptcy Code, owns the Crescent
City Queen, a casino riverboat, and a license to conduct riverboat gaming
operations in Louisiana. The agreement was contingent upon approval of the
Louisiana State Police, the Louisiana Riverboat Gaming Commission, and the
U.S. Bankruptcy Court. As of April 30, 1996, the Company received
confirmation of the plan of reorganization and all necessary approvals for
the transfer of ownership of Crescent City and the relocation of its gaming
license to Bossier City. The purchase of Crescent City was consummated on May
13, 1996. The Purchasers will not succeed to any of the business activities
of Crescent City. The Company plans to utilize Crescent City's gaming license
in Bossier City, Louisiana, where it currently owns 20 acres of land. It is
anticipated that the additional funding needed to complete the project will be
obtained through several sources, including a joint venture partner, short
term financing, the cash flow from the Bossier City project and anticipated
cash flow from existing operations. Because the Crescent City Queen is not
suitable for use at the Bossier City site the
-8-
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
Company intends to use the Crescent City Queen in Crawford County Indiana, if
the Company is awarded an Indiana gaming license. However, if the Company is
unsuccessful in obtaining a gaming license in Indiana the Crescent City will
be sold and the proceeds will be used to assist in the funding of the Bossier
City gaming site. The Company anticipates having a determination on the
Indiana gaming license by mid-1996.
The State of Louisiana will hold a referendum on continuing gaming on November
11, 1996. The referendum will be in a menu format giving the voters to option
to accept or reject, individually, various forms of gaming including riverboat
gaming. If riverboat gaming is rejected, the Crescent City gaming license
will have a 4 year and 10 month life beginning from the first day of gaming
operations.
The Company's plans for the Bossier City site are divided into two phases.
The pre-local option referendum construction plan includes 30,000 square feet
of floating dockside casino space that will have approximately 1,000 slots and
60 table games. The plan also includes 1,500 parking spaces together with an
entertainment and food and beverage pavilion. The post-local option
referendum plans, assuming a favorable outcome, include the construction of a
60,000 square feet entertainment facility and a 400-room convention hotel.
Opening of phase I is anticipated during 1996.
In May 1995, the Company entered into an agreement with Lakes Regional
Greyhound Park ("LRGP"). Under the terms of the agreement the parties intend
to form an entity to pursue a gaming development at LRGP's pari-mutual track
in Belmont, New Hampshire. The entity will be equally owned by the Company
and LRGP and the Company will manage gaming operations. Under the agreement
the Company is obligated to provide up to $4 million in funding to the entity,
of which the payment of $3 million is subject to certain contingencies,
including the passage of legislation permitting gaming at racetracks in New
Hampshire.
At March 31, 1996, the Company has on its balance sheet $2.8 million which was
paid for options to purchase land. The options expire at various times
through the year 2000. The exercise price to purchase the underlying
properties which are due to expire in 1997 is $1.3 million, and beyond 1997 is
$15 million.
The Company, through a wholly-owned subsidiary, holds a 49% equity interest in
a joint venture ("Porto Carras") with Touristiki Georgiki Exagogiki SA ("TGE")
to operate a casino in Porto Carras, Greece. Porto Carras leases an existing
450 room resort hotel and constructed an American-style gaming facility in the
hotel. The Company manages the hotel and casino for a fee equal to 2.5% of
hotel gross revenues and 10% of casino net operating income. The Company also
receives a royalty of 2% of casino gross revenues. The Company anticipates
receiving approximately $9 million from Porto Carras in fees, dividends and
loan repayments in 1996, of which $2.4 million has been received through April
1996. The Company believes that it will have no competition until the fall of
1996, when a casino facility is expected to open in Thessaloniki, Greece. It
is anticipated that the opening of a competing casino in Thessaloniki will
affect Porto Carras' revenues. The extent of this likely decline cannot be
determined at this time. However, management is taking operational measures
to reduce this impact by developing Porto Carras as a year-round destination
resort for Europe and developing strong player loyalty in northern Greece.
The Company has invested equity of approximately $17.3 million in Porto
Carras.
The Company entered into a memorandum of understanding with TGE to purchase
the remaining 51% interest in Porto Carras and certain property, including
hotels, marina, golf course and other amenities (collectively the "Property")
at the casino location for approximately $75 million. This memorandum of
understanding expired on March 31, 1996. The Company has no intention of
entering into another agreement to purchase the Property.
-9-
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
The Company commenced operations in 1995 outside the United States becoming
subject to certain risks including foreign currency exchange, repatriation of
earnings and profits, and adverse foreign tax treatment. In addition, the
Company will incur the general business risk associated with operating in
foreign countries where culture and business practices may vary significantly
from that in the United States. Such risks could have a material impact on
the operating results and liquidity of the Company.
The Company will have a significant need for cash in 1996 and beyond in order
to continue its planned pursuit of gaming opportunities and the continued
development of its existing properties. The Company believes that cash and
marketable securities at March 31, 1996, together with cash flows from
operations, will be sufficient to service its operating and debt service
requirements, including the completion of the golf course at Casino Magic-BSL,
the hotel at Casino Magic-Biloxi and the expansion into the Bossier City,
Louisiana market through, at least, the next twelve months, but are not
sufficient to reposition and renovate the Casino Magic-Biloxi gaming facility
or to engage in any other development activities, without additional debt or
equity financing. Under the terms of an indenture, Casino Magic Corp., Mardi
Gras Casino Corp., Biloxi Casino Corp. and Casino Magic Finance Corp. have
certain restrictions relative to additional borrowings and guarantees.
Although there are no assurances that the Company will be able to raise
additional debt or equity financing on acceptable terms, the Company believes
it possesses the ability to raise such additional financing to develop the
Company's planned gaming properties if the need arises.
-10-
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 on file with the Securities and Exchange
Commission. During the quarter ended March 31, 1996, the Company was not a
party to any newly instituted legal proceedings and there have been no
material developments during such period to existing legal proceedings.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Agreement dated May 3, 1996 between Mark G. George, Stuart
Capital Corporation, Southeast Gaming Corporation, Casino Magic
Corp., and Jefferson Casino Corp. for purchase of Gaming Fee
and Option Agreement.
10.2 Promissory Note dated May 3, 1996 between Jefferson Casino
Corporation, C-M of Louisiana, Inc. and Mark G. George.
10.3 Release dated May 3, 1996 by Mark G. George of Gaming Fee and
Option Agreement.
10.4 Subordination Agreement dated May 3, 1996 between Jefferson
Casino Corporation, C-M of Louisiana, Inc. and Mark G. George.
18. Letter from Arthur Andersen LLP regarding change in accounting
principle or practice.
27. Financial Data Schedule (filed electronically only)
(b) Reports on Form 8-K:
None.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASINO MAGIC CORP.
Registrant
Date: May 14, 1996 JAMES E. ERNST
---------------- --------------------------------------
James E. Ernst, President
and Chief Executive Officer
Date: May 14, 1996 JAY S. OSMAN
---------------- --------------------------------------
Jay S. Osman, Chief Financial Officer
and Treasurer (principal financial
and accounting officer)
-12-
<PAGE>
CASINO MAGIC CORP.
Quarterly Report on Form 10-Q for the Period Ended March 31, 1996
INDEX TO EXHIBITS
Exhibit
Number Page
10.1 Agreement dated May 3, 1996 between Mark G. George, Stuart
Capital Corporation, Southeast Gaming Corporation, Casino Magic
Corp., and Jefferson Casino Corp. for purchase of Gaming Fee
and Option Agreement.
10.2 Promissory Note dated May 3, 1996 between Jefferson Casino
Corporation, C-M of Louisiana, Inc. and Mark G. George.
10.3 Release dated May 3, 1996 by Mark G. George of Gaming Fee and
Option Agreement.
10.4 Subordination Agreement dated May 3, 1996 between Jefferson
Casino Corporation, C-M of Louisiana, Inc. and Mark G. George.
18. Letter from Arthur Andersen LLP regarding change in accounting
principle or practice.
27. Financial Data Schedule (filed electronically only)
AGREEMENT
________
This Agreement ("Agreement") is made and entered into this 3rd day of
May, 1996, by and between Mark G. George ("George"), Stuart Capital
Corporation, ("Stuart") Southeast Gaming Corporation ("Southeast"), Casino
Magic Corp.,("Magic") and Jefferson Casino Corporation ("Jefferson"), a wholly
owned subsidiary of Magic. Magic, Jefferson, George, Stuart and Southeast
shall be referred to collectively as "Parties"
Whereas, Stuart, George and Magic entered into a Gaming Fee Agreement
dated October 26, 1995 ("Fee"); and,
Whereas, Southeast, George and Magic entered into an Option Agreement
dated October 26, 1995 ("Option"); and ,
Whereas, on October 26, 1995, C-M of Louisiana, Inc. ("C-M") became a
wholly owned subsidiary of Magic and simultaneously acquired approximately 20
acres of real property bordering on the Red River in Bossier City, Louisiana
which it holds free and clear of all liens and encumbrances; and
Whereas, Jefferson desires to acquire and Stuart, Southeast and George
desire to sell the Fee and Option.
Now, Therefore, in consideration of the mutual promises set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by George, Stuart, Southeast, Jefferson and
Magic, the Parties agree as follows:
1. The above recitals are true, accurate and incorporated herein by
reference.
2. Stuart and George agree to sell all of their right, title and interest
in the Fee and Southeast and George agree to sell all of their right, title
and
interest in the Option to Jefferson for $7,349,000 and $1,000, respectively,
payable to George as follows at Closing:
(a) $550,000 in cash or cash equivalent.
(b) A promissory note in the principal amount of $6,800,000 plus interest
at a rate of 5.8% per annum to be executed by Jefferson and C-M ("Promissory
Note") at closing and payable as follows:
(i) $800,000 plus accrued interest sixty days after the opening of a
casino by Magic or an affiliate of Magic in Bossier City, Louisiana.
(ii) $118,873.04 per month for fifty-eight consecutive months
commencing thirty days following the payment specified in 2(b)(i).
3. The closing of the transaction contemplated by this Agreement
("Closing") shall occur on or before the date on which Magic or an affiliate
of Magic acquires Crescent City Capital Development Corporation ("Crescent")
and at the Casino Magic offices in Bay St. Louis or at a location mutually
acceptable to the Parties. At the Closing Jefferson and C-M will execute the
Promissory Note and transfer $550,000 to George and George will execute an
agreement subordinating him to the Indenture (as hereinafter defined) and
George, Stuart and Southeast will execute a release. Upon such Closing,
except as provided herein, the representations, warranties, covenants and
obligations of George, Stuart and Southeast specified in or arising under the
Fee and Option shall terminate and be of no further force and effect.
4. Notwithstanding the representations set forth in paragraph 2 above, if
action is taken by the state of Louisiana or the Parish which prohibits or
substantially restricts (beyond any current restrictions) gaming at the casino
operated by Magic or an affiliate of Magic in Bossier City, Louisiana, the
remaining payments, if any, then owed under 2(b)(ii) shall (a) if prohibited,
be suspended when such prohibition takes effect and Jefferson shall not be
responsible for any additional payments hereunder unless and until such
prohibition is lifted or (b) if substantially restricted, the remaining
payments shall be reduced pro-rata with the reduction in gaming operations at
the casino during the period of such restrictions and the payment term
extended accordingly so that the then outstanding balance shall not be
reduced.
5. The validity and enforceability of this Agreement is expressly
conditioned upon the closing of the commercial transaction in which Magic or
an affiliate of Magic acquires at least 51 percent of the capital stock of
Crescent . Should such transaction fail to close, any sums of money
transferred to George, Stuart or Southeast pursuant to the Agreement will be
returned to Jefferson, the Promissory Note shall be canceled, the Fee and
Option shall be reinstated in full force and effect and the release referenced
in paragraph 3 shall be cancelled.
6. Representations, Warranties and Covenants.
(a) Jefferson represents and warrants to George, Stuart and Southeast that:
(i) it is a wholly owned subsidiary of Casino Magic Corp.
(ii) upon closing of the transaction referenced in paragraph 5,
Crescent will become a wholly owned subsidiary of Jefferson.
(b) Jefferson and C-M represent, warrant and agree that so long as
Jefferson and C-M have obligations under the Promissory Note.:
(i) no debt other than $35 million dollars in senior secured notes
and $7.5 million in furniture, fixtures and equipment, as reflected in the
indenture agreement between Crescent , Jefferson, C-M and a yet to be named
trustee, (a copy of which is attached hereto and hereby incorporated as if
fully set forth ("Indenture")) has been incurred or will be incurred by C-M,
Jefferson or Crescent except as may be permitted under the Indenture; and
(ii) the Indenture will not be refinanced; and
(iii) there will be no transfer of assets or collateral of C-M,
Jefferson or Crescent except as may be permitted under the Indenture
without the prior written consent of George, Stuart and Southeast
(c) George and Stuart represent and warrant to Jefferson that they own all
right, title and interest in the Fee and have all necessary power and
authority to enter into this Agreement.
(d) George and Southeast represent and warrant to Jefferson that they own
all right, title and interest in the Option and have all necessary power and
authority to enter into this Agreement.
(e) George represents and warrants that he owns 100% of the capital stock
of Southeast and Stuart.
7. George, Stuart and Southeast on the one hand and Magic, Jefferson and
C-M on the other hand, hereby agree to defend, indemnify and hold each
other(and in the case of Magic, its shareholders, subsidiaries, directors,
officers, employees and agents) harmless from and against all costs, expenses,
liabilities, suits, actions, causes of action, damages and losses of any kind
or nature, including, without limitation, reasonable attorney's fees and
expenses and costs related thereto, suffered or incurred by any or all of the
indemnified persons or entities and arising directly or indirectly from any
action, inaction, breach or violation of this Agreement by George, Stuart or
Southeast on the one hand and Magic, Jefferson and C-M on the other hand.
8. Any notice, request or other communication between George, Stuart,
Southeast and Magic, other than day to day scheduling and operational requests
shall be sent by facsimile, telex or overnight courier to the following
addresses:
If to George: If to Stuart:
Mark G. George 7004 S.E. Harbor Circle
70004 S. E. Harbor Circle Stuart, FL 34996
Stuart, FL 34996
If to Southeast:
7004 S.E. Harbor Circle
If to Magic: Stuart, FL 34996
Casino Magic Corp.
Attn: Robert Callaway If to Stuart, George or Southeast:
711 Casino Magic Drive Attn: Michael T. Berge
Bay St. Louis, MS 39520 4200 IDS Center - 80 South Eighth St.
Facsimile No. (601) 467-7998 Minneapolis, MN 55402-2205
Facsimile: (612) 371-3207
9. Neither this Agreement, nor any terms hereof, may be terminated,
amended, waived or modified except by a writing signed by George, Stuart,
Southeast, Magic and Jefferson.
10. This Agreement, including any and all attachments and schedules
thereto, constitutes the entire agreement between the Parties and supersedes
any and all prior agreements and understandings in respect thereof.
11. The failure of the Parties at any time to require the performance by
the other of any of the terms or provisions herein shall in no way affect the
right of that party thereafter to enforce the same, nor shall the waiver by
any party of any breach of any of the terms or provisions herein be taken or
held to be a waiver of any preceding breach of any such term or provision.
12. This Agreement shall be binding upon, and shall insure to the benefit
of the Parties hereto and their respective successors and permitted assigns.
13. This Agreement shall be interpreted and governed in accordance with
the laws of the State of Mississippi.
14. In the event any litigation is instituted for the purpose of enforcing
or interpreting any of the provisions of this Agreement, the prevailing party
as determined by a court having jurisdiction thereof, shall be entitled to
recover from the non-prevailing party or parties, in addition to all of the
relief, all reasonable attorney's fees and other costs and expenses incurred
in connection with such litigation at the pre-trial, trial and appellate
levels.
15. Unless otherwise expressly provided herein, all amendments,
correspondence and other communications in connection with this Agreement and
the matters addressed herein shall be in writing and shall be deemed effective
and delivered if sent by hand, by facsimile or by U.S. mail, prepaid, with
evidence of transmission to the other party hereto at the address or facsimile
number set forth below or to such address or facsimile number as is provided
to the other party in accordance with this provision.
16. George, Stuart and Southeast acknowledge that nothing contained in
this Agreement shall constitute or be construed to be or to create a
partnership, joint venture or lease between George, Stuart, Southeast and
Magic or Jefferson and neither of the Parties has the authority, apparent or
otherwise, to bind the other to any undertaking of any nature whatsoever.
Signed, as of the date first above written.
CASINO MAGIC CORP.
BY: ROBERT A. CALLAWAY MARK G. GEORGE
--------------------------- -----------------------------
Mark G. George, Individually
ITS: Corporate Secretary
JEFFERSON CASINO CORPORATION SOUTHEAST GAMING CORPORATION
BY: ROBERT A. CALLAWAY BY: MARK G. GEORGE
------------------------ ---------------------
ITS: Corporate Secretary ITS: President
C-M OF LOUISIANA, INC. STUART CAPITAL CORPORATION
as to Representations and Warranties
Specified in 6(b) Only.
BY: ROBERT A. CALLAWAY BY: MARK G. GEORGE
------------------------ ---------------------
ITS: Corporate Secretary ITS: President
PROMISSORY NOTE
$6,800,000 May 3, 1996
FOR VALUE RECEIVED, the undersigned, Jefferson Casino Corporation ("JCC")
and C-M of Louisiana, Inc. (collectively, the "Makers"), hereby jointly and
severally promise to pay to the order of Mark G. George, his successors and
assigns ("Payee"), the principal sum of Six Million Eight Hundred Thousand
Dollars ($6,800,000), together with interest, as hereinafter set forth.
This Promissory Note is the Note referred to in, and is entitled to the
benefits of, the agreement ("Agreement") dated the date hereof between Casino
Magic Corp. ("Magic"), JCC, Payee, Stuart Capital Corporation and Southeast
Gaming Corporation, and all of the terms, provisions, representations,
covenants and warranties contained in the Agreement are incorporated herein.
The unpaid principal balance of this Note shall bear interest beginning
on the date hereof at a rate of Five And Eight-Tenths percent (5.8%) per
annum. All payments on this Note shall be applied first to accrued interest
and then to principal. All or any portion of the unpaid principal amount of
this Note may be prepaid at any time or from time to time without penalty or
premium.
Makers shall pay Payee $800,000 principal amount (the "Initial Payment"),
plus accrued interest on the total unpaid principal, within sixty (60) days
following the opening by JCC or Magic, or an affiliate thereof, of a casino on
Maker's property in Bossier City, Louisiana. The remaining $6,000,000 shall
be paid in fifty-eight (58) monthly installments of $118,873.04, which
includes interest beginning thirty (30) days after the date of the Initial
Payment.
The following shall constitute "Events of Default":
(a) Makers shall fail to make payment of principal or interest on this
Note on the date such payment is due and payable;
(b) Either Makers shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator of its or of all or a substantial part of its
assets; (ii) admit in writing its inability to pay its debts as they mature;
(iii) make a general assignment for the benefit of creditors; (iv) have an
order for relief entered against it as a debtor under Title II of the U.S.
Code; (v) file a voluntary petition in bankruptcy or a petition or an answer
seeking reorganization or an arrangement with creditors to take advantage of
any insolvency law or any answer admitting the material allegations of a
petition filed against it in any bankruptcy, reorganization or insolvency
proceeding; or (vi) have final non appealable judgment in the aggregate for
the payment of money in excess of $100,000, rendered against such Maker which
is not discharged or paid within thirty (30) days;
(c) Either Maker shall reduce or set off against installments of
principal and/or interest payable hereunder without the consent of Payee;
(d) (i) either Maker shall sell or otherwise dispose of substantially
all of its assets, except as permitted under the indenture as defined in the
Agreement ("Indenture") or (ii) either Maker shall consolidate with or merge
with or into another entity except as permitted under the Indenture;
(e) Either Maker shall default in any total or partial payment of
principal or interest on any other obligation including the Indenture, for
borrowed money in excess of $250,000 beyond any period of grace provided with
respect thereto as maker or guarantee; or
(f) Magic shall be in breach of the Agreement or any representation or
warranty of Magic or either of the Makers set forth in this Note or the
Agreement shall prove materially false or misleading or Magic or any of its
affiliates shall either (i) commence casino operations on the Bossier City
property and, thereafter, relocate that casino operation or (ii) fail to
commence operation on the Bossier City property but commence a casino
operation within 10 miles of the Bossier City property and in the case of (i)
or (ii) Payee shall have the option of having the Note continue to be serviced
from those properties.
Upon an Event of Default that is not cured within 10 days following written
notice from Payee, Payee may, by written notice to Makers, declare the entire
unpaid principal of and accrued interest on this Note to be, whereupon the
same shall become, immediately due and payable. In addition, upon an Event of
Default, the Makers agree to pay a late charge equal to the maximum amount
permitted by law, but in no event shall such later charge exceed three times
the total balance remaining unpaid at the time of such Event of Default.
Notwithstanding anything herein to the contrary, in the event the Parish
having jurisdiction over Maker's Bossier City casino operation or the State of
Louisiana takes action which prohibits or substantially restricts (beyond any
current restrictions) gaming at the casino operated by Maker in Bossier City,
Makers' obligations to Payee under this Note shall (a) if gaming is
prohibited, be suspended when such prohibition takes effect and Jefferson
shall not be responsible for any additional payments hereunder unless and
until such prohibition is lifted or (b) if gaming is substantially restricted,
the remaining payments shall be reduced pro-rata with the reduction in gaming
operations at the casino during the period of such restrictions and the
payment term extended accordingly so that the then outstanding balance shall
not be reduced, provied, however, that in any such event all obligations of
Makers under the Note arising before such date shall be enforceable by Payee
whether or not timely paid on or before the Suspension Date.
Except as otherwise provided herein, the Makers waive demand,
presentment, protest, notice of protest and notice of non payment or dishonor
of this Promissory Note. Any costs (including attorney's fees) incurred in
connection with the enforcement of this Note shall be paid by Makers.
Principal and interest unpaid and past due hereunder shall bear interest at a
rate of the lesser of 14% or the maximum amount permitted by law until paid.
No amendment, modification or waiver of any provision of this Promissory
Note shall be effective unless the same shall be in writing and signed by the
holder hereof. This Promissory Note shall be governed by, and construed in
accordance with, the laws of the State of Minnesota.
No failure on the part of Payee to exercise, and no delay in exercising,
any right or remedy under this Promissory Note shall operate as a waiver
thereof, nor shall any single or partial exercise of any right or remedy under
this Promissory Note preclude any other or further exercise thereof or the
exercise of any other right or remedy. The remedies provided in this
Promissory Note are cumulative of any remedies provided by law.
If any provision of this Note is held by any court to be unenforceable,
then such provision shall be deemed to be eliminated from the Agreement to
permit enforceability of the remaining provisions. If any provision is held
to be overbroad, such provision shall be amended to narrow the application to
the extent necessary for enforceability.
JEFFERSON CASINO CORPORATION
By: ROBERT A CALLAWAY
------------------------------
Its: Corporate Secretary
C-M OF LOUISIANA, INC.
By: ROBERT A CALLAWAY
------------------------------
Its: Corporate Secretary
RELEASE
Southeast Gaming Corporation, Mark G. George and Stuart Capital Corporation,
for and in consideration of $10.00, the sufficiency of which is hereby
acknowledged, do hereby and forever release and relinquish any right, title or
interest they ever had in and to the following agreements:
1. Option Agreement dated October 26, 1995, by and between Southeast
Gaming Corporation, Mark G. George and Casino Magic Corp.
2. Gaming Fee Agreement dated October 26, 1995, by and between Stuart
Capital Corporation, Mark G. George and Casino Magic Corp.
This release is the release referred to in paragraph 3 of the agreement dated
the date hereof between Casino Magic Corp., Jefferson Casino Corporation, Mark
George, Stuart Capital Corporation and Southeast Gaming Corporation .
DATED this the 3rd day of May, 1996.
SOUTHEAST GAMING CORPORATION
By: MARK G. GEORGE
-----------------------
Its: President
MARK G. GEORGE, INDIVIDUALLY
MARK G. GEORGE
-----------------------
STUART CAPITAL CORPORATION
By: MARK G. GEORGE
-----------------------
Its: President
SUBORDINATION AGREEMENT
This Subordination Agreement (this "Agreement") is entered into as of May
3, 1996, by and between Jefferson Casino Corporation, a Louisiana corporation
("Jefferson"), C-M of Louisiana, Inc., a Louisiana corporation ("C-M"), and
Mark G. George ("George").
W I T N E S S E T H
WHEREAS, concurrently with the execution and delivery of this Agreement,
Jefferson and C-M, as co-makers ("Co-Makers"), are delivering to George their
Promissory Note, in the principal amount of $6,800,000, payable to the order
of George over a five-year period with interest thereon at the annual rate of
5.8% (the "Note");
WHEREAS, Jefferson has agreed to purchase all of the stock of Crescent
City Capital Development Corporation, a Louisiana corporation which is
currently in bankruptcy ("Crescent"); currently with such stock purchase
Crescent will issue to creditors $35,000,000 in aggregate principal amount of
its 11.5% Senior Secured Notes due 1999 (the "Crescent Notes") pursuant to an
Indenture (the "Indenture") between Crescent, Jefferson, C-M and the trustee
named therein (the "Trustee");
WHEREAS, pursuant to the Indenture, Co-Makers (both of which are wholly-
owned subsidiaries of the same corporation) will guarantee Crescent's
obligations under the Crescent Notes;
WHEREAS, as partial consideration for the issuance of the Note to George,
George has agreed to the subordination, as evidenced hereby, of Co-Makers'
obligations under the Note to Co-Makers' obligations as guarantors of the
Crescent Notes; and
NOW, THEREFORE, in consideration of the mutual covenants, premises and
agreement set forth herein, the parties hereto agree as follows:
1. AGREEMENT OF SUBORDINATION. George hereby agrees that Co-Makers'
obligations under the Note shall be subordinate, subject and junior in right
of payment to the prior payment in full of all Senior Indebtedness (as defined
in SECTION 5 below). No payment shall be made by either Co-Maker under the
Note if (i) a default in any payment of principal, premium (if any) or
interest with respect to any Senior Indebtedness shall have occurred and be
continuing or (ii) there shall have occurred an Event of Default, as defined
in the Indenture, with respect to any Senior Indebtedness, permitting or
causing the acceleration of maturity thereof, and such Event of Default shall
not have been cured or waived or shall not have ceased to exist. Unless the
Co-Makers are prohibited from making payments under the Note pursuant to the
foregoing sentence, George shall be entitled to payments of principal and
premium (if any) of and interest on the Note as and when the same shall become
due and payable in accordance with the terms of the Note, without any
requirement of prior consent of the Trustee or any holder of Senior
Indebtedness, and all such payments shall belong absolutely and irrevocably to
George.
2. DISTRIBUTIONS IN RESPECT OF THE NOTE. Upon any acceleration of the
principal of the Senior Indebtedness or upon any payment by either Co-Maker or
Crescent, or distribution of assets of either Co-Maker or Crescent of any kind
or character, whether in cash, property or securities, to creditors upon any
dissolution or winding up or total or partial liquidation or reorganization of
either Co-Maker or Crescent, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership, or other proceedings, all amounts due or
to become due upon all Senior Indebtedness shall first be paid in full in
cash, or payment thereof provided for, before any payment is made on account
of the Note.
3. DEALING WITH THE CO-MAKERS AND CRESCENT. The Trustee and other
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to obligations of George hereunder to the Trustee and
other holders of Senior Indebtedness: (i) change the manner, place or terms of
payment or change or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend in any manner Senior Indebtedness or any
instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding or secured; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing
Senior Indebtedness; (iii) release any person liable in any manner for the
collection of Senior Indebtedness; or (iv) exercise or refrain from exercising
any rights against the Co-Makers, Crescent, and any other person; provided,
however, that Co-Makers and Crescent shall not agree to any modification to
the terms of the Senior Indebtedness which materially adversely affects the
rights or prospects of payment to George under the Note without the prior
written consent of George.
4. OBLIGATIONS UNIMPAIRED. Nothing contained in this Agreement is
intended to or shall impair, as among the Co-Makers or Crescent, their
creditors other than the holders of Senior Indebtedness, and George, the
obligation of Co-Makers to make payments to George under the Note, or is
intended to or shall affect the relative rights of George and creditors of
either Co-Maker or Crescent other than holders of the Senior Indebtedness, nor
shall anything herein prevent George from exercising all remedies otherwise
permitted by applicable law upon default in payment of the Note, subject to
the rights, if any, under this Agreement of the holders of Senior Indebtedness
in respect of cash, property or securities of the Co-Makers or Crescent of any
such remedy by George, any cash, property or securities of the Co-Makers or
Crescent received upon the exercise of any such remedy by George before all
Senior Indebtedness is paid in full in cash, or provision is made for such
payment, shall, for a period of 90 days from the receipt thereof, (and, if
action is initiated by the Trustee or the holder of Senior Indebtedness within
such 90-day period against the Co-Makers or Crescent or to enforce the
subordination contemplated hereby, for such longer period as any such
proceeding is pending) be held in trust for the benefit of the Trustee or its
representative or representatives, for application to the payment of all
Senior Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness (but subject to
the power of a court of competent jurisdiction to make other equitable
provision, which shall have been determined by such court to give effect to
the rights conferred in this Agreement upon the Senior Indebtedness and the
holders thereof with respect to the right of George to receive payments under
the Note, by a lawful plan of reorganization or readjustment under applicable
bankruptcy law).
5. DEFINITION OF SENIOR INDEBTEDNESS. The term "Senior Indebtedness"
shall mean the principal and premium (if any) of and interest on and all other
amounts owing with respect to (i) all indebtedness of Crescent pursuant to the
Indenture (as ultimately executed and delivered) and the Crescent Notes (as
ultimately executed and delivered), (ii) all indebtedness of each Co-Maker
pursuant to the Indenture and its Guaranty executed thereunder, and (iii)
amendments, renewals, extensions and refundings of any such indebtedness
referred to in (i) and (ii). The parties hereto acknowledge that the terms of
the Indenture and the Crescent Notes are not yet final and that, accordingly,
the terms "Indenture" and "Crescent Notes" appearing herein shall refer to
such documents in their final form.
6. SEVERABILITY. In case one or more provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect under any
law, the validity, legality or enforceability of the remaining provisions
contained herein shall not be affected or impaired thereby.
7. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto as to the subject matter hereof, and supersedes all
prior agreements, conditions and understandings, if any, relating to the
subject matter hereof. This Agreement may be amended only by a writing
executed by each of the parties hereto.
8. SUCCESSOR AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors, assigns, and legal representatives.
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Mississippi without regard to the
conflict of law rules thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as of the date first written above.
MARK G. GEORGE
-------------------------
Mark G. George
JEFFERSON CASINO CORPORATION
By: ROBERT A CALLAWAY
------------------------
Name: Robert A Callaway
Title: Secretary
C-M OF LOUISIANA, INC.
By: ROBERT A CALLAWAY
------------------------
Name: Robert A Callaway
Title: Secretary
ARTHUR ANDERSEN & CO, SC (Letterhead)
Arthur Andersen
Suite 4500
201 St. Charles Avenue
New Orleans LA 70170-4500
504 581 5454
May 6, 1996
Casino Magic Corp.
711 Casino Magic Drive
Bay St. Louis, MS 39520
Re: Form 10-Q Report for the quarter ended March 31, 1996
This letter is written to meet the requirements of Regulation S-K
calling for a letter from a registrant's independent accountants
whenever there has been a change in accounting principle or
practice.
The Company, in the normal course of business, acquires options
and makes land deposits in markets where gaming has not yet been
approved or the Company has not been issued a license to operate.
Such costs are capitalized and are classified as options and land
deposits. Prior to January 1, 1996, the Company expensed such
amounts previously capitalized at the earlier of their indicated
impairment or the expiration of the option or deposit period. We
have been informed that, as of January 1, 1996, the Company began
amortizing amounts capitalized for such options and deposits over
their related terms, while still subjecting capitalized amounts
to appropriate impairment tests. According to the management of
the Company, this change was made to recognize the speculative
nature of these options and deposits and the declining utility
over time as the option period shortens and gaming has not been
approved or a license to operate has not been obtained.
A complete coordinated set of financial and reporting standards
for determining the preferability of accounting principles among
acceptable alternative principles has not been established by the
accounting profession. Thus, we cannot make an objective
determination of whether the change in accounting described in
the preceding paragraph is to a preferable method. However, we
have reviewed the pertinent factors, including those related to
financial reporting, in this particular case on a subjective
basis, and our opinion stated below is based on our determination
made in this manner.
We are of the opinion that the Company's change in method of
accounting is to an acceptable alternative method of accounting,
which, based upon the reasons stated for the change and our
discussions with you, is also preferable under the circumstances
in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your
management.
We have not audited the application of this change to the
financial statements of any period subsequent to December 31,
1995. Further, we have not examined and do not express any
opinion with respect to your financial statements for the three
months ended March 31, 1996.
Very truly yours,
ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 31855452
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 49988661
<PP&E> 203643333
<DEPRECIATION> 33891255
<TOTAL-ASSETS> 271232701
<CURRENT-LIABILITIES> 31366188
<BONDS> 132458591
0
0
<COMMON> 352796
<OTHER-SE> 96431302
<TOTAL-LIABILITY-AND-EQUITY> 271232701
<SALES> 43124567
<TOTAL-REVENUES> 43124567
<CGS> 0
<TOTAL-COSTS> 37559434
<OTHER-EXPENSES> (607345)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3820515
<INCOME-PRETAX> 2351963
<INCOME-TAX> 708289
<INCOME-CONTINUING> 5565133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1643674
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
