<PAGE>
==============================================================================
UNITED STATES
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 June 30, 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.
35,435,333 shares common stock outstanding as of August 12, 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 six months ended
June 30, 1996 and 1995............................... 1
Condensed Consolidated Statements of Operations -
For the three months ended
June 30, 1996 and 1995............................... 2
Condensed Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995.................. 3
Condensed Consolidated Statements of Cash Flows -
For the six months ended
June 30, 1996 and 1995............................... 4
Notes to Condensed Consolidated Financial Statements... 5-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................12-20
PART II OTHER INFORMATION
Item 1. Legal Proceedings...................................... 21
Item 2. Changes in Securities.................................. 21
Item 3. Default Upon Senior Securities......................... 21
Item 4. Submission of Matters to a Vote of Security Holders.... 21
Item 5. Other Information...................................... 22
Item 6. Exhibits and Reports on Form 8-K....................... 22
SIGNATURES............................................. 23
<PAGE>
PART I - FINANCIAL INFORMATION
CASINO MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
<S> <C> <C>
REVENUES:
Casino $78,274,563 $83,438,475
Food and beverage 3,178,715 2,953,295
Rooms 937,566 1,213,762
Royalty and management fees 2,130,007 296,149
Other operating income 971,824 452,197
------------ ------------
Total revenues 85,492,675 88,353,878
------------ ------------
COSTS AND EXPENSES:
Casino 33,042,439 35,003,192
Food and beverage 3,532,947 3,241,033
Rooms 531,431 645,081
Other operating costs and expenses 1,161,721 645,975
Advertising and marketing 9,922,912 12,428,365
General and administrative 9,866,081 12,623,028
Property operation, maintenance and energy cost 3,136,380 3,333,855
Rents, property taxes and insurance 2,886,585 2,825,962
Development expenses 989,724 1,127,296
Preopening expenses -- 2,399,355
Depreciation and amortization 8,384,449 6,672,475
------------ ------------
Total costs and expenses 73,454,669 80,945,617
------------ ------------
INCOME FROM OPERATIONS 12,038,006 7,408,261
------------ ------------
OTHER (INCOME) EXPENSE:
Equity (income) loss from unconsolidated
casino operations (593,249) 1,683,365
Interest expense, net 7,709,976 7,683,951
Other 112,982 (367,034)
------------ ------------
Total other expense 7,229,709 9,000,282
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES: 4,808,297 (1,592,021)
INCOME TAX EXPENSE (BENEFIT) 1,504,872 (316,916)
------------ ------------
NET INCOME (LOSS) $ 3,303,425 $(1,275,105)
============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Primary $ .09 $ (.04)
============ ============
Fully-diluted $ .09 $ (.04)
============ ============
AVERAGE SHARES AND EQUIVALENTS OUTSTANDING:
Primary 36,526,938 33,813,882
============ ============
Fully-diluted 36,648,715 31,956,989
============ ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1996 1995
<S> <C> <C>
REVENUES:
Casino $38,514,881 $42,467,689
Food and beverage 1,626,879 1,543,910
Rooms 499,883 679,437
Royalty and management fees 1,205,479 296,149
Other operating income 520,986 197,883
----------- ------------
Total revenues 42,368,108 45,185,068
----------- ------------
COSTS AND EXPENSES:
Casino 16,642,453 17,961,606
Food and beverage 1,251,708 1,717,214
Rooms 269,871 322,430
Other operating costs and expenses 571,940 292,646
Advertising and marketing 5,104,770 6,381,683
General and administrative 4,410,679 6,501,874
Property operation, maintenance and energy cost 1,592,326 1,729,122
Rents, property taxes and insurance 1,424,803 1,417,876
Development expenses 489,463 523,588
Preopening expenses -- 2,215,665
Depreciation and amortization 4,137,222 3,467,638
----------- ------------
Total costs and expenses 35,895,235 42,531,342
----------- ------------
INCOME FROM OPERATIONS 6,472,873 2,653,726
----------- ------------
OTHER (INCOME) EXPENSE:
Equity loss from unconsolidated casino operations 69,846 1,683,365
Interest expense, net 3,889,461 3,792,600
Other 57,232 (564,090)
----------- ------------
Total other expense 4,016,539 4,911,875
----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES: 2,456,334 (2,258,149)
INCOME TAX EXPENSE (BENEFIT) 796,583 (661,483)
----------- ------------
NET INCOME (LOSS) $ 1,659,751 $(1,596,666)
=========== ============
NET INCOME (LOSS) PER COMMON SHARE:
Primary $ .05 $ (.05)
=========== ============
Fully-diluted $ .05 $ (.05)
=========== ============
AVERAGE SHARES AND EQUIVALENTS OUTSTANDING:
Primary 36,872,546 32,624,736
=========== ============
Fully-diluted 36,883,341 32,624,736
=========== ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995 (*)
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,958,171 $ 30,755,698
Other current assets 19,595,029 17,325,354
------------- -------------
Total current assets 31,553,200 48,081,052
------------- -------------
PROPERTY AND EQUIPMENT, NET 218,227,870 169,791,757
------------- -------------
OTHER LONG-TERM ASSETS:
Investment in unconsolidated subsidiaries 18,060,197 18,574,859
Deferred gaming license cost 16,214,011 --
Foreign casino concession agreement, net 9,963,398 10,437,845
Other long-term assets 23,330,829 21,545,329
------------- -------------
Total other long-term assets 67,568,435 50,558,033
------------- -------------
$317,349,505 $268,430,842
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES 29,091,433 32,170,741
------------- -------------
OTHER LONG-TERM LIABILITIES 7,319,124 4,241,325
------------- -------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 182,364,183 136,840,010
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par, 50,000,000 shares
authorized, 35,423,333 issued and
outstanding at June 30, 1996 and 35,279,564
issued and outstanding at December 31, 1995 354,233 352,796
Undesignated stock, 2,500,000 shares
authorized, none issued -- --
Additional paid-in capital 66,345,305 66,087,413
Retained earnings 32,379,710 29,076,285
Currency translation adjustments (303,023) (224,195)
Less unearned compensation (201,460) (113,533)
------------- -------------
Total shareholders' equity 98,574,765 95,178,766
------------- -------------
$317,349,505 $268,430,842
============= =============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
* DERIVED FROM AUDITED FINANCIAL STATEMENTS
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,303,425 $(1,275,105)
Adjustments for non-cash charges 8,596,273 11,006,118
Changes in assets and liabilities (6,720,168) (6,907,213)
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,179,530 2,823,800
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (9,217,492) (3,930,080)
Acquisition of gaming license (15,000,000) --
Investments in unconsolidated subsidiaries -- (7,616,542)
Decrease in marketable securities -- 10,250,000
Other, net (108,099) (1,654,461)
------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (24,325,591) (2,951,083)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 4,343,749 --
Principal payments on notes payable
and long-term debt (4,118,606) (2,457,491)
Net proceeds from sale of common stock -- 8,310,411
Other 123,391 312,293
------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 348,534 6,165,213
------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (18,797,527) 6,037,930
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 30,755,698 20,486,068
------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,958,171 $26,523,998
============= ============
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $ 7,197,402 $ 7,665,034
Income taxes (net of refunds) -- (1,920,789)
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 1,198,172 --
Property and equipment financed with long-term debt 46,416,570 --
Gaming license acquisition financed
with long-term debt 1,042,070 --
Common stock granted to officers 135,938 --
Reclassification of long-term liabilities
to accrued expenses 250,000 7,210,000
Acquisition of securities available-for-sale
through sale of subsidiary 1,198,052 --
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE AND SIX MONTHS ENDED
JUNE 30, 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 St. Louis, Mississippi,
Biloxi, Mississippi, in the Argentina Province of Neuqu n in the cities of
Neuqu n City and San Mart n 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, including Louisiana where the Company intends to open
a gaming facility in September 1996.
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 condensed 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
June 30, 1996 presentation.
ACTIVITIES OF THE COMPANY:
Casino Magic of Louisiana Corp. ("Louisiana Corp."), holds a license to
operate riverboat gaming activities (referred to as Casino Magic-Bossier City)
in Bossier City Louisiana. The Company intends to begin operations in Bossier
City, Louisiana, in September 1996. Jefferson Casino Corporation ("Jefferson
Corp.") currently holds title to a 20 acre parcel of land in Bossier City,
Louisiana. The Company intends to transfer this property to Louisiana Corp.
and to use this property in connection with the development of Casino
Magic-Bossier City.
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES:
Gaming regulation licensing. The Company has gaming operations in the United
States and abroad that depends on the continued licensability or qualification
of the Company and subsidiaries that hold gaming licenses in various
jurisdictions. Such licensing and qualifications are reviewed and require
renewal periodically by the gaming authorities in those jurisdictions.
Competition. The gaming industry is extremely competitive and the Company
faces competition from existing and proposed gaming operations in both the
United States, specifically on the Mississippi Gulf Coast where the Company's
two major casino facilities are located, and abroad. The Company's new
property scheduled to open in the Fall 1996 will face competition from three
existing and proposed gaming operations in the Bossier City/Shreveport,
Louisiana, area.
Substantial leverage and ability to service debt. Following the consummation
of the anticipated debt offering related to Casino Magic-Bossier City of
$115,000,000 aggregate principal amount of first mortgage notes non-recourse
to the parent (see Note 6), the Company will be highly leveraged, with
substantial debt service in addition to construction and operating expenses.
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE AND SIX MONTHS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES (CONTINUED):
Construction risks. Any construction project entails significant construction
risks, including, but not limited to, cost overruns, delays in receipt of
governmental approvals, shortages of materials or skilled labor, labor
disputes, unforeseen environmental or engineering problems, work stoppages,
fire and other natural disasters, construction scheduling problems and weather
interferences, any of which, if it occurred, could delay construction or
result in a substantial increase in costs to the Company. Such risks may be
compounded by the Company's decision to construct Casino Magic-Bossier City on
an accelerated schedule.
Referendum regarding continuation of legalized gaming in Louisiana. The State
of Louisiana will hold a referendum on November 5, 1996. On a
parish-by-parish basis, the referendum will give the voters in each parish
where gaming, including riverboat gaming, is now authorized the option to
accept or reject, individually, each of the various forms of gaming, including
riverboat gaming, now authorized by law to be conducted in such parish. If
the voters reject riverboat gaming in the parish where the Company intends to
operate , the Company's Louisiana gaming license will remain in effect for
approximately four years and ten months, beginning on the first day of gaming
operations at Casino Magic-Bossier City without chance of renewal.
Foreign operations. The Company has investments and net assets of
approximately $38.2 million in gaming operations outside of the United States
which are subject to risks associated with the distance of these casino
facilities from the Company's executive offices, the stability of the relevant
government and local economy, regulations imposed by a foreign government, the
continued ability to repatriate cash, and currency exchange issues.
Severe weather. The Mississippi Gulf Coast is subject to severe weather,
including hurricanes. Severe weather could cause damage to one or both of the
Company's Mississippi casino facilities. The Company maintains insurance
against casualty losses resulting from severe weather, and against business
interruption. Such insurance may not adequately compensate the Company for
loss of profits resulting from severe weather.
Pervasiveness of estimates. The preparation of financial statements in
conformity with generally accepted accounting principles 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 reporting period. Actual results could differ from those
estimates.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
<S> <C> <C>
Land and improvements $ 65,312,247 $ 58,018,386
Buildings and improvements 41,521,987 41,672,748
Barges and improvements 34,775,702 35,973,068
Crescent City Riverboat 30,650,576 --
Leasehold improvements 367,447 1,362,141
Furniture and equipment 65,928,065 54,916,169
Construction in progress 14,888,522 8,424,425
-------------- -------------
253,444,546 200,366,937
Less accumulated depreciation (35,216,676) (30,575,180)
-------------- -------------
$ 218,227,870 $169,791,757
============== =============
</TABLE>
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE AND SIX MONTHS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)
2. PROPERTY AND EQUIPMENT (CONTINUED):
In May 1996, Casino Magic, through its wholly-owned subsidiary, Jefferson
Corp. acquired Crescent City Capital Development Corporation ("Crescent
City"), for $50 million plus the assumption of up to $5.7 million in equipment
liabilities. Jefferson Corp. paid $15 million in cash at closing and caused
Crescent City to issue $35 million of 11.5% secured, three year notes
("Louisiana 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 riverboat ("Crescent City Riverboat"), gaming and related
equipment, surveillance equipment and a license to conduct riverboat gaming
operations in Louisiana. Crescent City emerged from the Bankruptcy
proceedings as Casino Magic of Louisiana, Corp. ("Louisiana Corp.") The
balances associated with the costs of the Crescent City Riverboat, gaming
license (shown under other assets) and various gaming equipment are comprised
of the cost to acquire Louisiana Corp., additional costs incurred to operate
and maintain the Crescent City Riverboat and capitalized interest. The
acquisition of Crescent City by Jefferson Corp. was accounted for as a
purchase. Management believes that the financial position and operating
results of Crescent City prior to the acquisition are not meaningful and are
therefore not presented because Jefferson will be operating in a different
market, with a different vessel and facility, different management and a
different name and marketing theme.
The Crescent City Riverboat is stated at its estimated fair value. The
allocation of the fair value of the acquired assets are subject to revisions
within a one-year period from the date of acquisition based on subsequent
events in accordance with the principles of purchase accounting.
The Crescent City Riverboat is currently being used to store Louisiana Corp.'s
gaming equipment and is located in a shipyard in Morgan City, Louisiana.
Louisiana Corp. anticipates selling or leasing the Crescent City Riverboat.
Interest is capitalized during construction at the Company's weighted average
interest rate. Interest is also capitalized on deferred gaming license cost
(shown under other assets) as the license is an integral part of the riverboat
casino and entertainment complex under development. For the period from May
13, 1996 through June 30, 1996, approximately $428,000 and $172,000 of
interest cost was capitalized related to property and equipment and deferred
gaming license cost, respectively.
3. OTHER ASSETS:
Included under other assets is "Deferred gaming license cost." Deferred
gaming license costs represent the estimated fair value of the Louisiana
gaming license, an asset acquired in conjunction with the purchase of Crescent
City. This cost will be amortized on a straight-line basis over the life of
the license.
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE AND SIX MONTHS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)
4. LONG-TERM DEBT:
Long-term debt, including capital lease obligations, consists of the
following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
<S> <C> <C>
Notes payable, bank (a) $ 5,430,703 $ 2,765,423
Notes payable, equipment (b) 3,973,024 --
Notes payable, land (c) 10,933,955 4,102,507
Capital lease obligations 235,462 259,557
Other (d) 864,835 928,500
Louisiana Notes (as defined herein) (e) 35,000,000 --
First Mortgage Notes (as defined herein) (f) 135,000,000 135,000,000
Unamortized original issue discount (2,457,627) (2,620,232)
-------------- -------------
188,980,352 140,435,755
Less current maturities (6,616,169) (3,595,745)
-------------- -------------
$ 182,364,183 $136,840,010
============== =============
</TABLE>
(a) Consist of three notes payable to banks. The detail of these notes is
as follows: (i) $3,000,000 uncollateralized promissory note, payable in
monthly installments of interest only through July 1996; thereafter, principal
and interest based on a 60 month amortization through February 1997. The
promissory note bears interest at prime plus 1% (9.25% at June 30, 1996)
throughout the life of the note with a final balloon payment due February
1997. (ii) $1,700,000 Note collateralized by gaming equipment. The first
payment is due 60 days following the opening of Casino Magic-Bossier City's
gaming facility. The note is payable in thirty-six monthly payments of
$53,463.49, including interest at prime plus 1/4% (8.5% at June 30, 1996).
(iii) $1,343,749 assumed Note collateralized by company jet. The note is
payable in 40 remaining payments of $35,000, including interest at prime plus
1% (9.25% at June 30, 1996) throughout the life of the note with a final
balloon payment due October 1999.
(b) Note collateralized by gaming equipment. The first payment is due 60
days following the opening of Casino Magic-Bossier City's gaming facility.
The note is payable in thirty-six monthly payments of $135,788.17, including
interest at prime plus 1% (9.25% at June 30, 1996).
(c) Consists of four notes payable for land acquisitions at June 30, 1996.
The detail of the four notes is as follows: (i) $1,258,544 note payable in
monthly installments of $14,446 including interest at prime plus 2% (10.25% at
June 30, 1996), through April 1997;. (ii) $870,942 note payable in monthly
installments of $12,134 including interest at 8% through July 2003. (iii)
$3,000,000 note payable in monthly installments of $111,699 including interest
at 8.75% through November 1998 (iv) Note collateralized by land (the
"Louisiana Land Note"). The first payment of $800,000 principal amount plus
accrued interest is due within 60 days following the opening of Casino
Magic-Bossier City's gaming facility. The remaining $6,000,000 shall be paid
in fifty-eight monthly installments of $118,873.04, including interest,
beginning thirty days after the initial payment. The Louisiana Land Note
bears interest at 5.8%.
(d) Consists of various collateralized notes payable through the year
2004. The interest rates on these notes vary from 7.9% to 10% fixed rates.
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE AND SIX MONTHS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)
4. LONG-TERM DEBT (CONTINUED):
(e) In effecting the purchase of Crescent City, a wholly owned indirect
subsidiary of the Company, Casino Magic of Louisiana Corp. ("Louisiana
Corp."), issued $35,000,000 in 11 1/2% senior secured notes (the "Louisiana
Notes"). The Louisiana Notes were issued under an indenture dated May 13,
1996 (the "'Louisiana Indenture"), between Louisiana Corp. as the Issuer,
Jefferson Corp., as the Guarantor and First Trust National Association, St.
Paul, Minnesota, as the trustee (the "Louisiana Indenture Trustee"). The
Louisiana Indenture Trustee also acts as the "Paying Agent" and registrar for
the Louisiana Notes. The Louisiana Notes accrue interest at the rate of 11
1/2% per annum, compounded semiannually, and are due three years following the
"Commencement Date" which is the earlier of November 9, 1996 or the date that
Casino Magic-Bossier City opens for gaming operations. The Louisiana Notes
will also come due as a result of an adverse State of Louisiana action as
defined in the Louisiana Indenture. Interest is payable quarterly on the 15th
day following each fiscal quarter of the Company.
The Louisiana Notes are collateralized by a first security interest in
the Crescent City Riverboat which is evidenced by a ship's mortgage, a first
security interest in substantially all other assets of Louisiana Corp., except
for furniture, fixtures and equipment on hand as of the date of the Louisiana
Indenture, and cash arising from operations. The Louisiana Notes are
guaranteed by Jefferson Corp., a first security interest in land evidenced by
a mortgage, the outstanding capital stock of Louisiana Corp. and substantially
all other assets of Jefferson Corp. So long as neither Louisiana Corp. nor
Jefferson Corp. is in default under the Louisiana Indenture, Louisiana Corp.
is permitted under the Louisiana Indenture to sell or lease the Crescent City
Riverboat,, and utilize the proceeds thereof to acquire. lease or construct a
substitute boat which can be used by Casino Magic-Bossier City.
Until such time as the principal balance of the Louisiana Notes is
$17,500,000 or less, on a quarterly basis, along with each quarterly interest
payment, Jefferson Corp. must deliver to the Louisiana Indenture Trustee the
Excess Cash Flow (as defined in the Louisiana Indenture) of Jefferson Corp and
its subsidiary generated during the prior fiscal quarter.
The Louisiana Notes are redeemable by Louisiana Corp. in whole or in part
beginning at face value within one year following the Commencement Date.
Louisiana Notes redeemed during the second and third years following the
Commencement Date are redeemable at a premium over face value which increases
linearly over that two year period from 0% to 20%, prorated daily over the 730
day period. Louisiana Notes redeemed as the result of the failure of the
holder thereof to obtain a finding of suitability will be redeemed at face
value.
The Louisiana Indenture contains certain covenants, including, among
others, a limitation on future indebtedness with certain exceptions.
(f) On October 14, 1993, a wholly owned indirect subsidiary of the
Company, Casino Magic Finance Corp. ("Finance Corp."), sold $135,000,000 in
aggregate principal amount of 11 1/2% First Mortgage Notes due in 2001 (the
"Finance Notes") and warrants to purchase 810,000 shares of Casino Magic Corp.
common stock. Proceeds from the Notes were allocated by the underwriter
between Finance Corp. and the Company based on the estimated fair market value
at the time of issuance of the Finance Notes and the warrants in the amounts
of $131,760,000 and $3,240,000 ($4 per warrant), respectively. The value of
the warrants is treated as original issue discount for financial statement
purposes, and is reflected in the balance sheet net of amortization as an
adjustment to the carrying value of long-term debt. The Finance Notes are
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE AND SIX MONTHS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)
4. LONG-TERM DEBT (CONTINUED):
governed by an Indenture (the "Indenture") entered into on the same date
between Finance Corp., the Company and IBJ Schroder Bank & Trust Company as
the Trustee. Under Section 4.10 of the Indenture, the Company's ability to
pay dividends on its common stock is restricted to an amount which is
determined under a formula based primarily on the Company's future income, and
is precluded upon the occurrence of an "Event of Default" as defined under the
Indenture. Events of Default include, among other things, the failure to pay
the interest or principal due on the Finance Notes, the entry of a judgment in
excess of $10,000,000 against the Company or certain material subsidiaries,
which is not discharged within 60 days after entry, and the default by the
Company or certain material subsidiaries under indebtedness due to third
parties. The Indenture also contains certain covenants that restrict, among
other things, the making of certain investments, payments of dividends and
other distributions, the incurrence of additional indebtedness and future
guarantees of indebtedness, certain transactions with shareholders and
affiliates, certain mergers and consolidations, certain asset sales and the
creation of certain liens. Additionally, in Mississippi, where certain of the
Company's subsidiaries are incorporated, laws exist which prohibit payments of
dividends if such payments would create negative equity on a fair market value
basis. The Finance Notes are secured by a pledge of the stock of Finance
Corp., Bay St. Louis and Biloxi along with the accounts receivable,
inventories, property and equipment, property held for development and
deposits of Bay St. Louis and Biloxi. The book basis of these pledged assets
is approximately $154,000,000 at June 30, 1996. The effective interest rate
of the Notes is 13.06%. The proceeds from the Finance Notes were used to pay
off substantially all outstanding obligations at October 14, 1993.
See Note 5 below regarding Indenture.
Maturities of the Company's long-term debt, including capital lease
obligations, as of June 30, 1996, are as follows:
Year ending June 30,
1997 $ 6,616,169
1998 5,186,548
1999 39,586,615
2000 2,382,410
2001 1,591,388
Thereafter 136,074,849
-------------
191,437,978
Unamortized original issue discount (2,457,627)
-------------
$ 188,980,352
=============
5. GOLDIGGERS SALE:
On June 13, 1996, Casino Magic sold the capital stock of Atlantic-Pacific
Corp., which operates "Goldiggers," a small casino-hotel in Deadwood, South
Dakota, with approximately 8,500 square feet of gaming area and nine hotel
rooms, to Royal Casino Group, Inc. ("RCG"), an unaffiliated party whose common
stock trades on the NASDAQ market (ticker symbol WINZ.) Goldiggers generated
revenues of $754,082 and a pre-tax operating cash flow deficit of
approximately $210,028 during the first six months of 1996 and, except for its
negative cash flow impact, had not been regarded by Casino Magic as material
to its operations for several years. In consideration for the sale of such
stock, the Company received shares of RCG Series A Convertible Preferred Stock
and warrants to acquire shares of RCG common stock. The indenture governing
the Finance Notes required that at least 85% of the consideration received by
Casino Magic in respect of such asset sale be in the form of cash. By selling
such securities for cash to a subsidiary that is not subject to the investment
covenants of such indenture,
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)
5. GOLDIGGERS SALE (CONTINUED):
Casino Magic has taken steps which it believes are sufficient to cure such
violation. The securities are held as of August 9, 1996, by Casino Magic
American Corp., a wholly-owned subsidiary of Casino Magic, and are valued in
the Company's assets at $1,350,156 at June 30, 1996.
6. SUBSEQUENT EVENTS:
In August 1996, Louisiana Corp. commenced an offering (the "Louisiana
Offering") of $115 million aggregate principal amount of first mortgage notes
due 2003 (the "August 1996 First Mortgage Notes"). The August 1996 First
Mortgage Notes will be guaranteed on a senior secured basis by Jefferson Corp.
In July 1996, Louisiana Corp. entered into a vessel purchase agreement with an
unrelated entity for the acquisition of a riverboat on which Casino
Magic-Bossier City's dockside gaming operations will be conducted. The
purchase price of $20 million is payable in cash upon receipt by Louisiana
Corp. of the proceeds of the Louisiana Offering.
On July 30, 1996, Jefferson Corp. acquired an additional three acres of land
adjacent to the 20 acre site, all of which will be used as the gaming site.
The purchase price of $900,000 was paid in cash.
<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" and "NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS" 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)
opening and completion of the Company's development plans at Casino
Magic-Bossier City; (iii) completion of a hotel in 1997, and repositioning of
the gaming facility, at Casino Magic-Biloxi; (iv) success of redefined "Magic"
theme to assist in fostering brand identity and customer loyalty and (v) the
Company's ability to fund planned developments and debt service obligations
over the next twelve months with currently available cash and marketable
securities, the proposed Louisiana Offering (in the case of Casino
Magic-Bossier City only) 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 Neuqu n SA,
which operates gaming facilities at two casino sites in Neuqu n and San Martin
de los Andes, Argentina (together referred to collectively as "Casino
Magic-Neuqu n".) 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. The revenues, costs and
expenses of Porto Carras are not included below as Porto Carras is accounted
for under the equity method of accounting.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1996 1995 1996 1995
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Casino Magic-BSL (1) $ 20,993 $ 22,080 $ 42,037 $ 44,272
Casino Magic-Biloxi (2) 15,811 19,252 32,644 37,550
Casino Magic-Neuqu n (3) 3,983 2,987 7,926 5,233
Corporate and Other (4)(5) 1,581 866 2,886 1,299
--------- --------- --------- ---------
Total revenues 42,368 45,185 85,493 88,354
COST AND EXPENSES:
Casino Magic-BSL 16,297 17,803 32,531 35,185
Casino Magic-Biloxi 13,330 15,243 27,463 30,069
Casino Magic-Neuqu n 3,113 3,066 6,296 5,729
Corporate and Other 3,155 6,419 7,165 9,963
--------- --------- --------- ---------
Total costs and expenses 35,895 42,531 73,455 80,946
INCOME (LOSS) FROM OPERATIONS:
Casino Magic-BSL 4,696 4,277 9,506 9,087
Casino Magic-Biloxi 2,481 4,010 5,181 7,481
Casino Magic-Neuqu n 870 (79) 1,630 (496)
Corporate and Other (1,574) (5,554) (4,279) (8,664)
--------- --------- --------- ---------
Total income from operations $ 6,473 $ 2,654 $ 12,038 $ 7,408
========= ========= ========= =========
______________________
Footnotes on next page.
</TABLE>
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED):
___________________
(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.
(5) Corporate and Other includes the operations of Goldiggers through June
13, 1996.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995:
Consolidated revenues decreased $2.8 million, or 6.2%, to $42.4 million in the
second quarter of 1996, compared to $45.2 million in the second quarter of
1995. The decline in the 1996 second quarter revenues is likely attributable
to competition on the Gulf Coast of Mississippi where the majority of the
Company's revenues are generated. Casino Magic-Biloxi revenues declined $3.4
million or 17.9%, to $15.8 million in the second quarter of 1996, compared to
$19.3 million in the second quarter of 1995. This decline is the result
primarily of competing hotel/casino operations on either side of the Casino
Magic-Biloxi with significantly greater amenities than Casino Magic-Biloxi.
Casino Magic-BSL revenues declined $1.1 million or 4.9%, to $21.0 million in
the second quarter of 1996, compared to $22.1 million in the second quarter of
1995, as a likely result of increased competition in the Gulf Coast and the
New Orleans, Louisiana markets. The Company's management intends to develop
Casino Magic-Biloxi and Casino Magic-BSL through the addition of amenities at
each location, subject to the availability of financing. See further
discussion of the Company's intentions relating to the development of Casino
Magic-Gulf Coast in Liquidity and Capital Resources. In addition, the Company
has hired a new Vice President of Marketing and intends to redefine the
"Magic" theme. Management believes that the change in the "Magic" theme will
assist in fostering brand identity and customer loyalty. The decline in
revenues at Casino Magic-Gulf Coast is partially offset by increased revenues
at Casino Magic-Neuqu n where revenues increased $1.0 million, or 33.3%, to
$4.0 million in the second quarter of 1996, compared to $3.0 million in the
second quarter of 1995, and $0.9 million in additional royalty and management
fees in the comparative quarters. The increase in revenues at Casino
Magic-Neuqu n is attributable to increased slot revenues of $1.0 million.
Slot revenues increased in the second quarter of 1996 compared to the second
quarter of 1995 due to an increase in the number of slots at Casino
Magic-Neuqu n from 89 to 400 during May 1995. The increase in royalty and
management fees is due to $0.4 million in management fees earned through the
Company's consulting agreement with the Sisseton-Wahpeton Tribe in the second
quarter of 1996 with no such earnings in the second quarter of 1995, and
royalties and management fees earned through the Company's royalties and
management agreements with its 49% subsidiary Porto Carras and a separate
facility in Xanthi, Greece. Porto Carras was open approximately 45 days in
the second quarter of 1995 compared to 90 days in the second quarter of 1996
and Xanthi was not open in the second quarter of 1995.
During the second quarter of 1996 the Company sold its gaming facility in
Deadwood, South Dakota ("Goldiggers"). Management's decision to sell the
facility was based on the continuing disappointing results of Goldiggers.
Because Goldiggers consistently produced less than expected results, the
Company was continually required to provide Goldiggers with cash advances to
allow Goldiggers to meet all current obligations. At the date of the sale,
June 13, 1996, Goldiggers had accumulated losses of $1.8 million, excluding a
write down of Goldiggers' assets in 1995 of $1.0 million, in anticipation of
the sale of Goldiggers. No further gain or loss was recorded on the sale of
Goldiggers in the second quarter of 1996.
Consolidated operating costs and expenses decreased $6.6 million, or 15.6%,
from $42.5 million in the second quarter of 1995 to $35.9 million in the
second quarter of 1996. Casino expenses declined $1.4 million from $18.0
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED):
million in the second quarter of 1995 to $16.6 million in the second quarter
of 1996. This decline is primarily attributable to personnel reductions and
the overall decline in gaming activity at Casino Magic-Gulf Coast.
Advertising and marketing expenses decreased $1.3 million in the second
quarter of 1996 compared to the same period of 1995. This decrease is the
result of management's decision to reduce marketing budgets and a reduction in
management's emphasis on air charter programs to attract customers. The
majority of the reduction of air charter expenses was at Casino Magic-BSL.
General and administrative expenses decreased $2.1 million, or 32.2%, in the
second quarter of 1996 as compared to the second quarter of 1995. The decline
is a result of cost reduction measures implemented in early 1996, including
the elimination of several corporate officer positions. In future quarters
this reduction will be partially offset as a result of additions in July 1996
to the Company's management in two key executive officer positions, Vice
President/Chief Operating Officer and Vice President/Construction and
Development. Preopening expenses of $2.2 million were incurred in the second
quarter of 1995, due to the opening of Porto Carras on May 18, 1995. There
were no preopening expenses incurred in the second quarter of 1996.
Consolidated income from operations increased $3.8 million, or 143.9%, to $6.5
million in the second quarter of 1996 compared to $2.7 million in the second
quarter of 1995. Operating margins (income from operations as a percentage of
revenues) grew from 0.6% to 15.0% over the comparative periods. Casino
Magic-BSL's operating margin grew from 19.4% to 22.4%, Casino Magic-Biloxi's
operating margin decreased from 20.8% to 15.7% and Casino Magic-Neuqu n's
operating margin increased from a negative 2.6% to a positive 21.8%. The
increased margin at Casino Magic-BSL is primarily due to cost-cutting
measures. The decline in Casino Magic-Biloxi's margin is due to the
significant decline in revenues from loss in market share along the Biloxi
Strip. Casino Magic-Neuqu n's increased margin is attributable to the
increase in the number of slot machines and the associated low cost revenues.
Consolidated other (income) expense (non-operating income and expenses)
decreased $0.9 million, or 18.2%, to $4.0 million in the second quarter of
1996, compared to $4.9 million in the second quarter of 1995. Loss on
subsidiary decreased by $1.6 million between the comparative quarters due to
the equity income from the Company's 49% ownership in Porto Carras. The
majority of the fluctuation in Porto Carras income is due to approximately
$3.8 million of pre-opening costs recorded on Porto Carras' books and expensed
at the opening of Porto Carras during the second quarter of 1995. The Company
recorded a gain of $0.9 million with respect to a contract written off in 1994
which was settled in the second quarter of 1995 on more favorable terms than
originally estimated.
The Company's effective tax rate for the second quarter of 1996 of
approximately 32.5% is the result of the use of foreign tax credits earned in
previous periods. The effective tax rate for the second quarter of 1995 of
29.3% is due to significant permanent tax differences.
The Company had net income of $1.7 million, or $0.05 per share in the current
year second quarter compared to a net loss of $1.6 million, or ($0.5) per
share in the same quarter last year. The increase in net income between
periods is reflective of the expanding operations of the Company, cost
reduction policies implemented in 1996 and the absence of preopening charges
in the second quarter of 1996.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995:
Consolidated revenues decreased $2.9 million, or 3.2%, to $85.5 million in the
first six months of 1996, compared to $88.4 million in the same period of
1995. The decline in the 1996 revenues is likely attributable to competition
on the
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED):
Gulf Coast of Mississippi where the majority of the Company's revenues are
generated. Casino Magic-Biloxi revenues declined $4.9 million or 13.1%, to
$32.6 million in the first six months of 1996, compared to $37.5 million in
the first six months of 1995. This decline is the result primarily of
competing hotel/casino operations on either side of the Casino Magic-Biloxi
with significantly greater amenities than Casino Magic-Biloxi. Casino
Magic-BSL revenues declined $2.2 million or 5.0%, to $42.0 million in the
first six months of 1996, compared to $44.3 million in the first six months of
1995, as a likely result of increased competition in the Gulf Coast and the
New Orleans, Louisiana markets. The Company's management intends to develop
Casino Magic-Biloxi and Casino Magic-BSL through the addition of amenities at
each location, subject to the availability of financing. See further
discussion of the Company's intentions relating to the development of Casino
Magic-Gulf Coast in Liquidity and Capital Resources. In addition, the Company
has hired a new Vice President of Marketing and intends to redefine the
"Magic" theme. Management believes that the change in the "Magic" theme will
assist in fostering brand identity and customer loyalty. The decline in
revenues at Casino Magic-Gulf Coast is partially offset by increased revenues
in the first six months of 1996 as compared to the first six months of 1995,
at Casino Magic-Neuqu n of $2.7 million, or 51.5%, to $7.9 million in the
first six months of 1996, compared to $5.2 million in the first six months of
1995 and $1.8 million in additional royalty and management fees. The majority
of the increase in revenues at Casino Magic-Neuqu n is attributable to the
increased slot revenues of $2.1 million. Slot revenues increased in 1996
compared to the same period in 1995 due to an increase in the number of slots
at Casino Magic-Neuqu n from 89 to 400 in May 1995. The remaining revenue
increases at Casino Magic-Neuqu n are due to increased customer counts and
their influence on table game revenues and food and beverage revenues. The
increase in royalty and management fees is due to $0.4 million in management
fees earned through the Company's consulting agreement with the
Sisseton-Wahpeton Tribe in 1996 with no such earnings in 1995, and royalties
and management fees earned through the Company's royalties and management
agreements with its 49% subsidiary, Porto Carras, and Xanthi, Greece. Porto
Carras was open approximately 45 days in the first six months of 1995 compared
to the entire first six months in 1996. Xanthi was not open in the first six
months of 1995.
During the second quarter of 1996 the Company sold its gaming facility in
Deadwood, South Dakota ("Goldiggers"). Management's decision to sale the
facility was based on the continuing disappointing results of Goldiggers.
Because Goldiggers consistently produced less than expected results, the
Company was continually required to provide Goldiggers with cash advances to
allow Goldiggers to meet all current obligations. At the date of the sale,
June 13, 1996, Goldiggers had accumulated losses of $1.8 million, excluding a
write down of Goldiggers' assets in 1995 of $1.0 million, in anticipation of
the sale of Goldiggers. No further gain or loss was recorded on the sale of
Goldiggers in the second quarter of 1996.
Consolidated operating costs and expenses decreased $7.5 million, or 9.3%,
from $80.9 million in the first six months of 1995 to $73.5 million in the
first six months of 1996. Casino expenses declined $2.0 million from $35.0
million in the first six months of 1995 to $33.0 million in the first six
months of 1996. This decline is primarily attributable to personnel
reductions and the overall decline in gaming activities at Casino Magic-Gulf
Coast. Advertising and marketing expenses decreased $2.5 million in the first
six months of 1996 compared to the same period of 1995. This decrease is the
result of management's decision to reduce marketing budgets and a reduction in
management's emphasis on air charter programs to attract customers. General
and administrative expenses decreased $2.8 million or 32.2% in the first six
months of 1996 as compared to the same period of 1995. The decline is a
result of cost reduction measures implemented in early 1996, including the
elimination of several corporate officer positions. In future periods this
reduction will be partially offset due to additions in July 1996 to the
Company's management of two key executive officer positions, Vice
President/Chief Operating Officer and Vice President/Construction and
Development.
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED):
Preopening expenses of $2.2 million were incurred in the second quarter of
1995, due to the opening of Porto Carras on May 18, 1995. There were no
preopening expenses incurred in the first six months of 1996. Depreciation
and amortization increased $1.7 million, or 25.7%, in the first six months of
1996 as compared to the same period in 1995. This increase is due to the
addition of tangible depreciable property and the amortization of the
investment costs in excess of equity interest in Porto Carras which was
amortized for 15 days in the first six months of 1995 and for a full six
months in 1996.
Consolidated income from operations increased $4.6 million, or 62.5%, to $12.0
million in the first six months of 1996 compared to $7.4 million in same
period of 1995. Operating margins (income from operations as a percentage of
revenues) grew from 8.4% to 14.1% over the comparative periods. Casino
Magic-BSL's operating margin grew from 20.5% to 22.6%, Casino Magic-Biloxi's
operating margin decreased from 19.9% to 15.9% and Casino Magic-Neuqu n's
operating margin increased from a negative 9.5% to a positive 20.5%. The
increased margin at Casino Magic-BSL is primarily due to cost-cutting
measures, the decline in Casino Magic-Biloxi's margin is due to the
significant decline in revenues from loss in market share along the Biloxi
Strip and Casino Magic-Neuqu n's increased margin is attributable to the
increase in the number of slot machines and the associated low cost revenues.
Consolidated other (income) expense (non-operating income and expenses)
decreased $1.8 million or 19.7%, from $9.0 million to $7.2 million over the
comparative periods. (Income) loss on subsidiary increased by $2.4 million
between the comparative quarters due to the equity income from the Company's
49% ownership in Porto Carras. The majority of the fluctuation in Porto
Carras' income is due to approximately $3.8 million of pre-opening costs
recorded on Porto Carras' books and expensed at the opening of Porto Carras
during May of 1995. The Company recorded a gain of $0.9 million with respect
to a contract written off in 1994 which was settled in the second quarter of
1995 on more favorable terms than originally estimated.
The Company's effective tax rate for the first six months of 1996 of
approximately 31.3% is the result of the use of foreign tax credits earned in
previous periods. The effective tax rate for the first six months of 1995 of
22.7% is due to significant permanent tax differences.
The Company had net income of $3.3 million, or $0.09 per share in the current
year's first six months as compared to a net loss of $1.3 million, or ($0.4)
per share. The increase in net income between periods is reflective of the
expanding operations of the Company, cost reduction policies implemented in
1996 and the absence of preopening charges in the first six months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash and marketable securities of $12.0
million compared to cash and marketable securities of $30.8 million at
December 31, 1995. For the six months ended June 30, 1996, the Company
generated $5.2 million cash flow from operating activities and received $4.3
million of proceeds from the issuance of a long term note payables. The
Company spent $24.3 million for acquisitions of property, equipment and other
long-term assets and reduced long term debt by $4.1 million.
The Company expended approximately $6.4 million in capital improvements at
Casino Magic-Gulf Coast during 1996, plans additional investments at Casino
Magic-Gulf Coast and, subject to the availability of financing and, in the
case of Indiana, the award of a gaming license, as to all of which there can
be no assurance, is pursuing gaming opportunities outside of Mississippi
primarily in Indiana and Louisiana.
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
In May 1996, Casino Magic, through its wholly-owned subsidiary, Jefferson
Casino Corporation ("Jefferson Corp") acquired Crescent City Capital
Development Corp.("Crescent City"), for $50 million plus the assumption of up
to $5.7 million in equipment liabilities. Jefferson Corp paid $15 million in
cash at closing and caused Crescent City to issue $35 million of 11.5%
secured, three year notes ("Louisiana 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 riverboat ("Crescent City Riverboat"),
gaming and related equipment and surveillance equipment and a license to
conduct riverboat gaming operations in Louisiana. Crescent City emerged from
the Bankruptcy proceedings as Casino Magic of Louisiana, Corp. ("Louisiana
Corp.") The Company plans to Louisiana Corp.'s gaming license in Bossier
City, Louisiana, where it currently owns 23 acres of land, subject to a note
payable of $6.8 million ("Louisiana Land Note"). The Crescent City Riverboat
is one of the largest riverboats in the United States and can not be used at
the Casino Magic-Bossier City because of the Crescent City Riverboats size.
Therefore, the Company has entered into a purchase agreement to acquire a
casino riverboat (the "Bossier Riverboat") for use at Casino Magic-Bossier
City for $20 million. The Crescent City Riverboat will be sold or leased and
the proceeds will be used to assist in the funding of Casino Magic-Bossier
City. The Company can give no assurances that it will be able to dispose of
the Crescent City Riverboat on acceptable terms or in a timely manner. The
assets acquired as a part of the acquisition of Louisiana Corp., which
included gaming, surveillance and related equipment , will be used at the
Bossier City gaming site ("Casino Magic-Bossier City").
The State of Louisiana will hold a referendum on continuing gaming on November
5, 1996. The referendum will be in a menu format giving the voters the option
to accept or reject, individually, various forms of gaming including riverboat
gaming. If riverboat gaming is rejected, the Louisiana Corp. gaming license
will have a 4 year and 10 month life beginning from the first day of gaming
operations without chance of renewal.
The Company intends to open Casino Magic-Bossier City in September 1996 using
a temporary boarding facility. After the initial opening, the Company's plans
for the development of Casino Magic-Bossier City are divided into two phases.
The first phase includes 30,000 square feet of floating dockside casino space
that will have approximately 1,000 slots and 50 table games. The plan also
includes 1,550 parking spaces together with an entertainment and food and
beverage pavilion. The second phase plans, assuming a favorable outcome to
the November referendum, includes the construction of a 60,000 square feet
entertainment facility and a 400-room convention hotel and related amenities,
including restaurants, banquet space, a theater, a swimming pool, a health
club and a child care facility. The development and construction of the
second phase improvements are largely dependent upon receipt of proceeds from
a future sale or leasing of the Crescent City Riverboat and future operating
cash flow of Casino Magic-Bossier City and no assurances can be given that
such funds will become available or that such hotel and related facilities
will ever be developed.
The Company has commenced infrastructure improvements and parking construction
for the first phase on an eight-acre portion of its site. The Company expects
the completion of the first phase during the fourth quarter of 1996.
To finance Casino Magic-Bossier City, in August 1996, Louisiana Corp.
commenced an offering (the "Offering") of $115 million aggregate principal
amount of first mortgage notes due 2003 (the "First Mortgage Notes"), which is
intended to be exempt from registration under the Securities Act of 1933. The
First Mortgage Notes will be guaranteed on a senior basis by Jefferson Corp,
but will be non-recourse to Casino Magic Corp.
The Company will use $43.1 million of the net proceeds from the Offering to
repay in full the Louisiana Land Note
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
and the Louisiana Notes including accrued interest through the Closing.
Additional net proceeds of $20.0 million will be used to purchase the Bossier
Riverboat and net proceeds of approximately $34.0 will be used to complete the
development, construction, equipping and opening of the first phase of Casino
Magic-Bossier City, including an estimated $4.8 million of pre-opening costs,
opening bankroll and additional gaming equipment but excluding estimated debt
issuance fees and expenses and $15.5 million aggregate reserves for
completion, operating and interest.
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 360 to 400 rooms. In addition, the Company plans to reposition
the floating gaming facility at Casino Magic-Biloxi and provide it with a new
facade. The repositioning of the gaming facility and the new facade will
provide Casino Magic-Biloxi with an enhanced visual appeal from the Biloxi
Strip. The hotel project has an estimated cost of between $20 to $25 million,
and the barge repositioning project has an estimated cost of between $12 to
$15 million. Construction on the hotel is scheduled to begin in late 1996 and
completion is estimated for 1997 or 1998. Currently the hotel construction
costs are initially anticipated to be funded out of the cash flow of the
Company. The construction of the hotel based solely on the cash flow of the
Company will impede timely completion of the construction project. In future
periods the Company may determine that additional debt or equity financing
will be necessary to complete the hotel and barge repositioning at Casino
Magic-Biloxi. However, until such time, the cash flow of the Company will be
used to begin construction on the hotel.
The Company plans to continue the further development of Casino Magic-BSL into
a destination resort. Construction is underway on a championship golf course
designed by Palmer Course Design Company. The estimated total cost of the
golf course is $10 million, of which approximately $6.2 has been expended
through June 30, 1996. The opening of the golf course is anticipated for the
Fall of 1996. Also, underway is construction of a new kitchen facility and
reconfiguration of the dining area to accommodate customer preferences. The
kitchen and dining area improvements are budgeted at $1.8 million. Both the
golf course construction and the kitchen and dining expansions will be funded
out of the Company's cash flow.
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 June 30, 1996, the Company has, included in other assets, $3.3 million
which has been paid for options to purchase land. The options expire at
various times through the year 2000. The aggregate exercise price to purchase
the underlying properties for options which are due to expire in 1997 is $1.3
million, and expiring 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
433 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 be
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
income. The Company also receives a royalty of 2% of casino gross revenues.
The Company has received $1.5 million as of June 30, 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 determined
at this time. However, management is taking operational measures in an
attempt 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 $15.8 million in
Porto Carras.
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.
In June 1996, Sisseton received a $17,500,000 loan for the construction of its
planned hotel and casino development from a consortium of lenders, of which
the Company, through a wholly-owned subsidiary, participated in the loan for
up to $5 million, or a 28.6% participation. On July 11, 1996 the Company
received payment in full of all outstanding amounts under a bridge loan
agreement with Sisseton and participated in the first draw down of the
Sisseton loan. The Company's participation in the first draw down was
approximately $1.7 million.
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.
On June 13, 1996, Casino Magic sold the capital stock of Atlantic-Pacific
Corp., which operates "Goldiggers," a small casino-hotel in Deadwood, South
Dakota, with approximately 8,500 square feet of gaming area and nine hotel
rooms, to Royal Casino Group, Inc. ("RCG"), an unaffiliated party whose common
stock trades on the NASDAQ market (ticker symbol WINZ.) Goldiggers generated
revenues of $754,082 and a pre-tax operating cash flow deficit of
approximately $210,028 during the first six months of 1996 and, except for its
negative cash flow impact, had not been regarded by Casino Magic as material
to its operations for several years. In consideration for the sale of such
stock, the Company received shares of RCG Series A Convertible Preferred Stock
and warrants to acquire shares of RCG common stock. The indenture governing
the Finance Notes required that at least 85% of the consideration received by
Casino Magic in respect of such asset sale be in the form of cash. By selling
such securities for cash to a subsidiary that is not subject to the investment
covenants of such indenture, Casino Magic has taken steps which it believes
are sufficient to cure such violation. The securities are held as of August
1, 1996 by Casino Magic American Corp., a wholly-owned subsidiary of Casino
Magic, and are valued in the Company's assets at $1,350,156 at June 30, 1996.
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 June 30, 1996, cash flows from operations, together
with the Offering will be sufficient to service its operating and debt service
requirements, including the completion of the golf course at Casino Magic-
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
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 the Indenture of the Finance Notes,
Casino Magic Corp., Mardi Gras Casino Corp., Biloxi Casino Corp. and Casino
Magic Finance Corp. have certain restrictions relative to additional
borrowings and guarantees. Jefferson Corp and Louisiana Corp. will have
certain restrictions relative to additional borrowings and cash flow under the
terms of the indenture associated with the proposed Offering. 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 or defer these planned developments until
such time as financing or cash is available.
<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 and Form 10-Q for the quarter ended March 31, 1996 on
file with the Securities and Exchange Commission. During the quarter ended
June 30, 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.
On June 13, 1996, Casino Magic sold the capital stock of Atlantic-Pacific
Corp., which operates "Goldiggers," a small casino-hotel in Deadwood, South
Dakota, with approximately 8,500 square feet of gaming area and nine hotel
rooms, to Royal Casino Group, Inc. ("RCG"), an unaffiliated party whose common
stock trades on the NASDAQ market (ticker symbol WINZ.) Goldiggers generated
revenues of $754,082 and a pre-tax operating cash flow deficit of
approximately $210,028 during the first six months of 1996 and, except for its
negative cash flow impact, had not been regarded by Casino Magic as material
to its operations for several years. In consideration for the sale of such
stock, the Company received shares of RCG Series A Convertible Preferred Stock
and warrants to acquire shares of RCG common stock. The indenture governing
the Finance Notes required that at least 85% of the consideration received by
Casino Magic in respect of such asset sale be in the form of cash. By selling
such securities for cash to a subsidiary that is not subject to the investment
covenants of such indenture, Casino Magic has taken steps which it believes
are sufficient to cure such violation. The securities are held as of August
9, 1996 by Casino Magic American Corp., a wholly-owned subsidiary of Casino
Magic.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) On May 9, 1996, the annual meeting of the shareholders of the Company
was held at the Company's offices in Bay St. Louis, Mississippi.
(b) All members of the Board of Directors were elected at the annual
meeting. See (c) below for the names of such members.
(c) The only matter voted upon at the annual meeting was the election of
the members of the Board of Directors. Shares entitled to vote were
35,295,814 and the number of votes cast for, against or withheld, as well as
abstentions, with respect to the election of directors is set forth below.
Information on broker non-votes was not available ("n/a").
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS (CONTINUED):
(c) (Continued)
Votes Cast Number of
Votes Cast in Against or Number of Broker Non
Favor Withheld Abstentions Votes
Election of the following members
of the Company's Board of Directors:
Marlin F. Torguson 29,234,765 214,099 0 n/a
James E. Ernst 29,240,111 208,753 0 n/a
Allen J. Kokesch 29,239,926 208,938 0 n/a
Wayne K. Lund 29,239,771 209,093 0 n/a
Roger H. Frommelt 29,240,051 208,813 0 n/a
E. Thomas Welch 29,240,526 208,338 0 n/a
(d) On June 28, 1996, Finance Corp. and Casino Magic Corp. issued a
solicitation (the "Solicitation") for the consents (the "Consents") of Holders
of the Finance Corp.'s Finance Notes to certain amendments to the indenture
governing the Finance Notes and for the waivers by such Holders of the
requirement under the Indenture that at least 85% of the consideration
received by the Casino Magic Corp. in respect of an Asset Sale be in the form
of cash in connection with a recent sale by the Casino Magic Corp. of the
capital stock of Atlantic-Pacific Corp., primarily for capital stock of Royal
Casino Group, Inc., the acquiring entity, and related waivers to permit the
holding of such Investment. Atlantic-Pacific Corp. operates a small Deadwood,
South Dakota casino. The Solicitation expired without the Casino Magic Corp.
having received the number of consents required to effectuate such matters.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
4.(1) Indenture dated as of May 13, 1996, $35,000,000 11 1/2% Senior
Secured Notes due 1999.
10.1 Loan Participation Agreement dated June 28, 1996 by and between BNC
National Bank and Casino Magic American Corp.
27. Financial Data Schedule (filed electronically only).
__________
(1) Incorporated by reference to the Registrant's Form 8-K filed May 28, 1996.
(b) Reports on Form 8-K:
None.
<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: AUGUST 12, 1996 /S/ JAMES E. ERNST
-------------------- -------------------------------------
JAMES E. ERNST, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Date: AUGUST 12, 1996 /S/ JAY S. OSMAN
-------------------- -------------------------------------
JAY S. OSMAN, CHIEF FINANCIAL OFFICER
AND TREASURER (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
<PAGE>
CASINO MAGIC CORP.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996
INDEX TO EXHIBITS
Exhibit
Number Page
10.1 Loan Participation Agreement dated June 28, 1996 by and
between BNC National Bank and Casino Magic American Corp.
PARTICIPATION AGREEMENT
THIS AGREEMENT made as of June 28, 1996, by and between BNC National Bank
(the "Originator'), and Casino Magic American Corp. (the "Participant"),
WITNESSETH
WHEREAS, the Originator has granted the Sisseton-Wahpeton Sioux Tribe
(the "Borrower"), a line of credit and term loan of up to $17,500,000 to
construct and operate a gaming facility on the Lake Traverse Reservation in
North Dakota, which is evidenced by a Construction and Term Loan Agreement, a
Promissory Note, a Security Agreement and a Depository Agreement (collectively
called the "Credit Agreement"), copies of which have been provided to the
Participant, and
WHEREAS, the Originator and the Participant have agreed that the
Participant shall participate in the loans under the Credit Agreement upon the
following terms and conditions,
NOW, THEREFORE, in consideration of the premises of and of the mutual
agreements herein made, the Originator and the Participant hereby agree that:
1.(a) The Participant shall be obligated to purchase a participation in
each advance under the Credit Agreement in an amount equal to its Percentage
of such advance, up to a maximum amount equal to its Commitment. The
Participant's "Percentage" and "Commitment" shall be as set forth on Exhibit A
hereto. Except as provided in paragraph 7 and in subparagraphs (b) and (c),
the Participant shall be entitled to its Percentage of each payment (whether
of principal, interest, late fees, prepayment premiums, or otherwise) received
from the Borrower and of any proceeds of the disposition of collateral.
THIS LOAN PARTICIPATION CONSTITUTES A SALE OF A PERCENTAGE OWNERSHIP
INTEREST IN THE REFERENCED INDEBTEDNESS, AND, COLLATERAL SECURITY AND IN THE
"LOAN DOCUMENTS" (AS DEFINED BELOW) AND SHALL NOT BE CONSTRUED AS AN EXTENSION
OF CREDIT BY THE PARTICIPANT TO THE ORIGINATOR.
(b) Each payment received from the Borrower and all proceeds of the
disposition of any collateral shall (after making allowance for expenses, as
provided in paragraph 7) be applied first to the payment of interest payable
under the Credit Agreement next to the payment of late fees, next to payment
of the principal of the advances, and finally to the payment of prepayment
premiums. The Participant shall be entitled to receive interest on its
participation at a rate of 10% per annum (13% per annum following the
occurrence and during the continuance of any Event of Default as defined in
the Credit Agreement), computed based on actual days elapsed in a 360-day
year. The Originator shall be entitled to retain for its own account all
interest in excess of the interest payable to Participant and other
participants.
(c) The initial advance under the Credit Agreement will include amounts
required to pay origination and placement fees to which the Borrower has
agreed. The Participant and each other participant shall be entitled to
receive at the time of the first advance an amount equal to its "Origination
Fees," set forth on Exhibit A hereto, and the Originator shall be entitled to
retain for its own account all additional amounts advanced to the Borrower to
pay origination and placement fees.
2. The Originator warrants that it has provided to the Participant true
copies of the Construction and Term Loan Agreement, the Note, the Security
Agreement and the Depository Agreement, and that originals or true copies of
all other materials pertinent to the Credit Agreement, including all
certificates, filings and other instruments, agreements and writings issued or
presented in connection therewith (the "Loan Documents") are available for
inspection by the Participant at the Originator's Bismarck, North Dakota
office, and that it will provide all material financial information concerning
the Borrower to the Participant upon receipt, so long as the Participant has
any interest in loans under this Participation Agreement. The Participant
acknowledges its approval, as to form and content, of the Credit Agreement and
the other Loan Documents which have been made available for its inspection.
3. Neither the Originator nor the Participant (i) shall be liable or
responsible for representations or warranties made by, or for obligations
binding upon or assumed by, the Borrower or anyone else; or (ii) makes any
representation or warranty as to the genuineness, legality, validity,
perfection, priority, enforceability or sufficiency of the loans under the
Credit Agreement; or of any other collateral rights and remedies securing such
loans; or of any of the Loan Documents or any other agreement made or
instrument, document or writing issued thereunder, in connection therewith, or
as a result thereof; or (iii) makes any representation or warranty as to the
Borrower, as to any financial statements or collateral reports submitted by or
for the Borrower, as to any risk of loss with respect to this transaction or
as to any matter whatsoever, except that the Originator warrants to the
Participant that it has good title to the participating interest acquired by
the Participant hereunder; or (iv) shall have any right of recourse against
the other party hereto.
4.(a) The Originator will notify the Participant by 12:30 p.m. Bismarck,
North Dakota time, on the same day upon which an advance is to be made to the
Borrower under the Credit Agreement of the amount of the requested advance and
the amount of the Participant's Percentage of such advance. Prior to 2:30,
Bismarck, North Dakota time, on the date of the advance, the Participant shall
pay to the Originator, in immediately available funds, the Participant's
Percentage of the advance. The obligation of the Participant to make such
payment to the Originator shall be absolute and unconditional and without
set-off, counterclaim or deduction of any kind, and the Participant shall not
be relieved of the obligation to make any such payment for any reason.
(b) If the Participant shall fail to make any payment required by
subparagraph (a) at the time, in the funds and at the place provided, the
Originator may, but shall not be obliged to, advance funds on behalf of the
Participant. Each such advance shall be secured by the Participant's interest
in all payments made by the Borrower and all proceeds of collateral under the
Credit Agreement, and such advance shall be secured by the Participant's
interest in all payments made by the Borrower and all proceeds of collateral
under the Credit Agreement, and such advance may be repaid by application by
the Originator of payments to which the Participant would otherwise to be
entitled under this Participation Agreement. Any amount not paid by the
Participant to the Originator as provided herein shall bear interest at the
rate of 10% for each day from the date such payment is due until such payment
is made in full or the advance is repaid in full.
(c) Upon receiving a payment required by subparagraph (a), the
Originator shall issue to the Participant a participation certificate in the
form of Exhibit B confirming, to the best knowledge of the person executing
the same, the aggregate amount owed to the Originator by the Borrower under
the Credit Agreement and the Participant's, and each other participant's
participation in such amount.
5.(a) The Originator is hereby granted, subject to paragraphs 6 and 7,
the power and authority to administer, manage and service the advances under
the Credit Agreement; to waive the performance of obligations of the Borrower;
to excuse the non-occurrence of conditions; to collect and receive any and all
payments and collections by or for the account of the Borrower and at its sole
discretion (subject to the Credit Agreement) to release such payments and
collections to the Borrower or apply the same to the payment of indebtedness;
and otherwise to do and refrain from doing any and all acts and things which
the Originator would be required or permitted to do or refrain from doing
under or with respect to the Loan Documents if it had retained its entire
interest as lender under the Loan Documents, but acting on behalf of the
Participant and all other participants.
(b) The Originator's power and authority granted in this paragraph shall
terminate upon written notice to the Originator and the Participant from the
Supermajority Participants (as defined below). Such notice may be given only
upon or following: (i) the Originators insolvency, closing or liquidation,
(ii) a determination by the Supermajority Participants that the Originator has
failed to fulfill any of its obligations under this Participation Agreement,
or (iii) the inability of the Originator and the Supermajority Participants to
agree as to a course of action to be taken following an Event of Termination.
Upon termination, the Supermajority Participants may immediately notify the
Borrower, directing the Borrower to make all payments required by the Credit
Agreement directly to any participant designated in such notice, whereupon
such participant shall succeed to the powers and authority granted to the
Originator under paragraph 5(a) hereof. The Originator shall be obligated to
join in any such notice to the Borrower if the Supermajority Participants so
request, but shall be under no further obligation thereafter to service,
administer or manage the advances under the Credit Agreement. Any participant
designated by the Supermajority Participants shall thereafter service,
administer and manage the advances under the Credit Agreement for the benefit
of the Originator, the Participant and each other participant, and in doing so
shall be subject to a standard of care no less stringent than the standard of
care applicable to the Originator under paragraph 6 hereof. "Supermajority
Participants" means participants (not necessarily including the Participant)
whose participations in advances under the Credit Agreement total no less than
67% in the aggregate.
6. The power and authority granted in paragraph 5 is subject to the
qualification that the Originator will not agree, whether before or after an
Event of Termination (as defined in paragraph 12), to extend the maturity of
or sell at a discount any indebtedness or evidence of indebtedness in which
the Participant has an interest hereunder or to change the rate of interest on
any such indebtedness without prior written approval by the Participant. The
Originator will exercise the same degree of care and judgment in exercising
the power and authority granted in paragraph 5 as it exercises with respect to
loans in which no participations are sold, and shall not be under any
liability to the Participant as a result of anything it may do or refrain from
doing, except in case of its negligence or willful misconduct. The Originator
will not take any action which does not affect it and the Participant in like
fashion, in a manner commensurate with the proportionate shares of each.
7. The Originator is entitled to be reimbursed by the Borrower for all
non-routine costs, expenses, losses, damages and liabilities (including,
without limitation, all reasonable attorneys' fees and foreclosure and
collection expenses) at any time incurred by or imposed upon the Originator
with respect to the Credit Agreement or any other Loan Document or in
connection with or as a result of any action taken or omitted by the
Originator under paragraph 5. All payments received by either party after the
occurrence of any Event of Termination with respect to the indebtedness in
which the Participant has an interest hereunder (whether such payments are
from the Borrower or from any other person) shall be applied first to
reimburse the Originator for such expenses. If such reimbursements are not
sufficient to pay or reimburse the Originator, the Participant will pay the
Originator, upon demand, an amount equal to the Participant's Percentage of
the deficiency.
8. The Participant may transfer its interest in advances under the
Credit Agreement. If it does so, it shall immediately notify the Originator
in writing of such transfer; and the Originator shall be entitled to assume
conclusively that no such transfer has been made, unless and until such
written notice is received. Except as otherwise expressly agreed in writing
by the Originator, the Participant shall not, by reason of such transfer or
otherwise, be relieved of any of its obligations hereunder. Each transferee
shall be subject to the provisions of this Agreement and to any request made,
waiver or consent given or other action taken hereunder by the Participant
prior to the receipt by the Originator of written notice of such transfer.
9. If the Participant shall obtain any payment (whether voluntary,
involuntary, by exercise of any right of setoff, or otherwise) upon
indebtedness of Borrower arising under the Credit Agreement so as to reduce
the amount owed to the Participant to an amount which is less than the
Participant's Percentage of the total indebtedness outstanding under the
Credit Agreement, the Participant shall purchase from the Originator (without
warranty and without recourse) an additional participation in any indebtedness
of the Borrower arising under the Credit Agreement, so that the amount owed to
the Participant equals its Percentage of the total indebtedness, and the
Originator will distribute such amount to other participants so that the
amount owed to each equals its Percentage of the total indebtedness. If all
or any portion of any excess payment originally obtained by the Participant is
thereafter recovered from it, the purchase of a participation may be rescinded
and the purchase price restored to it to the extent of the recovery, but
without interest.
10. The Originator may sell additional participating interests in the
advances under the Credit Agreement to any person or persons at any time,
whether at par, at a premium or at a discount, for any price or consideration,
in any amount or proportion, for any term or period of time and upon any terms
and conditions, except that the Originator will not sell participating
interests granting participants proportionate shares in such advances which at
any one time exceed 95% thereof in the aggregate.
11. This Agreement shall be governed by the substantive laws of the
State of North Dakota, and shall be binding upon and inure to the benefit of
the parties and their respective participants, successors and assigns.
Neither Borrower nor any other person, except the parties and their successors
and assigns, shall be entitled to rely on, have the benefit of, or enforce any
provision of this Agreement.
12. The term "Event of Termination" means the earlier of the following
events: (i) occurrence of an Event of Default under the Credit Agreement; or
(ii) demand for payment of any indebtedness outstanding under the Credit
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day first above written.
BNC NATIONAL BANK CASINO MAGIC AMERICAN CORP.
By /s/ Brad J. Scott By /s/ Marlin F. Torguson
Its Executive Vice-President Its Chairman of the Board
<PAGE>
EXHIBIT A
Name of Participant Commitment Percentage
Origination Fees
Casino Magic American Corp. $5,000,000 28.571429% $25,000
<PAGE>
EXHIBIT B
BNC NATIONAL BANK
("ORIGINATOR")
This will certify and confirm that as of ___________, 1996, pursuant to a
Participation Agreement dated as of ___________, 1996 ("Participation
Agreement"), the Originator has sold participation interests to the following
Participants in the amounts and percentages so stated in the advances made by
the Originator as evidenced by the Credit Agreement (as defined in the
Participation Agreement):
Originator $__________ ___% $__________________
TOTAL AMOUNT $17,500,000 100% $__________________
Each participant's Participation is subject in all respects to its
Participation Agreement.
BNC NATIONAL BANK
By ___________________________
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