SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
XAnnual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) For Fiscal Year Ended December 31, 1996
or
Transition Report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 (No Fee Required) For the transition period from ______ to ______
Commission File No. 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 Number)
711 Casino Magic Drive, Bay Saint Louis, MS 39520
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 466-8000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was as of March 21, 1997. As of the close of business
, there wereshares of the Registrant's common stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference:
The discussions under the sections captioned ELECTION OF DIRECTORS,"
"EXECUTIVE COMPENSATION," "CERTAIN TRANSACTIONS" and "PRINCIPAL SHAREHOLDERS"
to be included in the Registrant's definitive proxy statement to be filed with
the Securities and Exchange Commission and delivered to the Registrant's
shareholders pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934, with respect to the 1997 annual meeting of shareholders
of the Registrant are incorporated herein in response to Items 10, 11, 12 and
13 of Part III hereof, respectively.
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INDEX
Page
PART I
Item 1. - BUSINESS................................................... 1
Item 2. - PROPERTIES................................................. 23
Item 3. - LEGAL PROCEEDINGS.......................................... 26
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 27
PART II
Item 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................ 27
Item 6. - SELECTED FINANCIAL DATA.................................... 29
Item 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................ 30
Item 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................ 40
Item 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE..................... 40
PART III
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11 - EXECUTIVE COMPENSATION
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Items 10, 11, 12 and 13 ARE INCORPORATED BY REFERENCE TO THE COMPANY'S 1997
DEFINITIVE PROXY STATEMENT
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K ................................................. 41
CONSOLIDATED FINANCIAL STATEMENTS.................................... F-1
EXHIBITS
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PART I.
ITEM 1. BUSINESS
GENERAL
Casino Magic Corp., through its wholly owned subsidiaries, owns and operates
casinos and related amenities primarily in the southeastern United States,
including two dockside facilities on the Mississippi Gulf Coast at Bay St.
Louis and Biloxi, Mississippi, and one dockside facility in Bossier City,
Louisiana, which opened on October 4, 1996. In addition to its domestic
operations, a Casino Magic Corp., through wholly owned subsidiaries, owns and
operates two casinos in Neuqu n and San Mart n de los Andes, Argentina.
The following is a tabulation of the Company's operating casino properties at
December 31, 1996:
Date Casino
Commenced Square Slot Table Hotel
Business Footage Machines Games Rooms
--------- ------- -------- ----- ------
Bay Saint Louis 9/92 39,500 1,101 44 201
Biloxi 6/93 47,700 1,196 36 --
Bossier City 10/96 30,000 986 44 --
Argentina 1/95 29,000 395 54 --
------- ------ --- ----
Total 146,200 3,678 178 201
======= ====== === ====
In May 1995, the Company opened a gaming facility in Porto Carras, Greece, in
which the Company had a 49% equity ownership. In addition, since its
inception in 1992, the Company owned and operated a small hotel and casino in
Deadwood, South Dakota. In 1996, the Company sold its gaming facilities in
Deadwood, South Dakota, and its 49% ownership in a gaming facility in Porto
Carras, Greece, primarily because of poor operating performance. In addition,
during 1996, the Company terminated all management agreements in Greece.
Unless the context requires otherwise, reference in this Annual Report to the
"Company" means Casino Magic Corp. and its relevant subsidiaries, and
reference to "Casino Magic" means Casino Magic Corp. Casino Magic was
incorporated under the laws of the State of Minnesota on April 17, 1992. The
Company's principal executive and administrative offices are located at 711
Casino Magic Drive, Bay Saint Louis, Mississippi 39520. The Company's
telephone number is (601) 466-8000.
INDUSTRY BACKGROUND
Until approximately 1988, legalized casino gaming in the United States was
restricted substantially to the State of Nevada and the City of Atlantic City,
New Jersey. Since then, legalized casino gaming has significantly expanded
throughout the United States. Numerous states have legalized either
land-based, riverboat or dockside gaming. At least 35 states sponsor
lotteries, and several states sponsor the use of video poker, video blackjack,
or video lottery machines in connection with their lotteries. Riverboat
gaming is
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conducted on vessels which by law are required to leave their mooring and
cruise during gaming operations. The laws generally require cruises to be of
a certain duration, and will permit dockside gaming shortly preceding and
following the cruise period. While dockside gaming must be conducted on a
vessel in a body of water, the vessel is not required to leave its moorings,
and customers may come and go at will. Dockside gaming was authorized in
Mississippi in June 1990, but gaming operations did not commence until August
1992, with the opening of three dockside casinos in Biloxi. Riverboat and
dockside gaming was legalized in Louisiana in 1991, but gaming operations did
not begin until October 1993. Some states limit the amount that a gaming
customer may bet or lose, which is referred to as "limited stakes gaming," and
prohibit the issuance of house credit. The gaming laws of Mississippi and
Louisiana permit 24-hour unlimited stakes gaming, and permit the issuance of
house credit.
Since the passage of the 1988 Indian Gaming Regulatory Act, a significant
number of North American Indian tribes have established gaming on Indian
reservations. Gaming on Indian lands is subject to compacts that North
American Indian tribes are required to enter into with the state in which the
gaming takes place, which may or may not limit the nature of the tribe's
gaming activity.
The expansion of gaming has also occurred in countries other than the United
States. Numerous countries, including Argentina, have either adopted laws
which permit gaming, or expanded such legislation to allow private enterprises
to operate casinos. As in the United States, a significant motive for
allowing or expanding gaming operations is the revenues generated for the
government of the country in which the gaming activity is located.
FINANCIAL INFORMATION REGARDING SEGMENTS
See "Item 6.-SELECTED FINANCIAL DATA," "Item 14.-EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K" and the Consolidated Statements of
Operations, page F-3 in the 1996 Financial Statements which accompany this
report.
DOMESTIC OPERATIONS
CASINO MAGIC-BSL
The casino at Bay Saint Louis, Mississippi (referred to herein as "Casino
Magic-BSL") commenced operations on September 30, 1992, as the first dockside
casino in Mississippi to operate on a barge rather than a traditional
riverboat. The casino is located in a 17-acre marina that is part of a
591-acre Company-owned site located 1.5 miles north of U.S. Highway 90,
approximately nine miles south of Interstate 10, and approximately 51 miles
east of New Orleans, Louisiana. Casino Magic-BSL consists primarily of a
76,520 square foot facility with approximately 39,500 square feet of gaming
space offering 1,101 slot machines, 44 table games and poker and keno. Other
amenities within the facility include a 330-seat buffet restaurant, an 80-seat
fine dining restaurant, a snack bar, a gift shop, a lounge area for live
entertainment, a customer service center and office space. The Company owns
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and operates the 201-room "Casino Magic Inn" at Casino Magic-BSL which
includes four deluxe suites, 20 junior suites, 177 standard and
handicapped-accessible rooms, 1,500 square feet of banquet and meeting space,
2,000 square feet of outdoor terrace, and an outdoor swimming pool and
Jacuzzi. Included at the Casino Magic-BSL complex is a 97-space recreational
vechicle park and an 18-hole Arnold Palmer designed Championship Golf Course,
which hosts an Arnold Palmer Golf Academy.
The Company has preliminary plans for further development of Casino Magic-BSL.
These plans include the expansion and improvement of the existing casino, and
the construction of a second hotel with such amenities as restaurants, shops,
a swimming pool and convention space. There is no assurance that these plans
for further development will be implemented or completed, or that the required
funds will be available to the Company or, if available, on terms that are
acceptable to the Company.
CASINO MAGIC-BILOXI
The casino at Biloxi, Mississippi (referred herein as "Casino Magic-Biloxi")
is located on the Gulf Coast south of and adjacent to U.S. Highway 90 in the
middle of a four-casino strip. Biloxi is approximately 54 miles west of
Mobile, Alabama and 27 miles east of Bay Saint Louis, Mississippi. Casino
Magic-Biloxi encompasses 11 acres of land. Casino Magic-Biloxi, which opened
in June 1993, consists of a 117,600 square foot facility, which contains a
47,700 square foot, three-level gaming area. The casino offers 1,196 slot
machines and 36 table games. Other amenities include a 360-seat buffet, a
fine dining restaurant, a McDonald's restaurant operated by a franchisee
unaffiliated with the Company, two bars, a 250-seat lounge and entertainment
area, a customer service area, a gift shop and office space. The property
has an adjacent 700-space, eight-floor parking garage, 250 surface parking
spaces and parking for approximately 30 tour buses across U.S. Highway 90. In
addition, the Company shares an immediately adjacent 430-space parking
facility with a neighboring casino.
In December 1996, the Company commenced construction of a 378-room hotel tower
atop its existing parking garage at Casino Magic-Biloxi. When completed, the
hotel is expected to be one of the tallest buildings in Biloxi. The hotel
tower will have amenities such as a swimming pool and conference space and
will include 86 suites.
Two additional major casino-hotels are expected to be added to the eight
casinos currently operating in Biloxi within the next year. As competition in
the Gulf Coast market intensifies, management believes the addition of an
on-site hotel at Casino Magic-Biloxi will complement its central location and
strengthen its competitive position.
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Although the Company is taking steps to minimize the potential construction
disruption on its existing operations at Casino Magic-Biloxi during the hotel
construction, some disruption is expected. The Company has made provisions to
maintain adequate parking throughout the construction process. Construction
of the hotel is expected to be completed in the first quarter of 1998,
although unexpected construction difficulties or lack of funding could delay
such completion.
CASINO MAGIC-BOSSIER CITY
The Company's dockside casino at Bossier City, Louisiana (referred to herein
as "Casino Magic-Bossier City"), is located on 23 acres of land on the Red
River, and is within one mile of Interstate 20. Bossier City is approximately
180-miles east of the Dallas/Fort Worth.
In May 1996, Casino Magic, through its wholly-owned subsidiary, Jefferson
Casino Corp. ("Jefferson Corp.") acquired Crescent City 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. Crescent City, was the subject of a plan of
reorganization under Chapter 11 of the U.S. Bankruptcy Code in 1996, and owned
the Crescent City Queen ("Crescent City Riverboat"), a cruising riverboat
outfitted for gaming. In addition, Crescent City owned a license to conduct
riverboat gaming operations in Louisiana, as well as gaming, surveillance and
other gaming related equipment. When Crescent City emerged from the
bankruptcy proceedings in May 1996, it was acquired by Jefferson Corp. and
renamed Casino Magic of Louisiana, Corp. (referred to herein as "Louisiana
Corp.") Although Jefferson Corp. was required to purchase the Crescent City
Riverboat to obtain the Louisiana gaming license, the Crescent City Riverboat
is one of the largest riverboats in the United States and could not be used at
Casino Magic-Bossier City because of its width. Therefore, the Company
purchased a casino riverboat (the "Bossier Riverboat") for use at Casino
Magic-Bossier City for $20 million. The Company intends to sell the Crescent
City Riverboat, and use the proceeds of such sale to assist in the funding of
the further development of Casino Magic-Bossier City. The Company can give no
assurances that it will be able to sell the Crescent City Riverboat on
acceptable terms or in a timely manner. The gaming, surveillance and related
equipment acquired in the acquisition by Jefferson Corp. is being used at
Casino Magic-Bossier City. To fund the initial development of Casino
Magic-Bossier City, on August 22, 1996, Louisiana Corp. sold $115.0 million
aggregate principal amount of 13% First Mortgage Notes due in 2003. (See Item
7 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES.")
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The Company opened Casino Magic-Bossier City on October 4, 1996 using a
temporary boarding facility, and on December 31, 1996, opened the permanent
facility. The Company's plans for the development of Casino Magic-Bossier
City are divided into two phases. The first phase (which was completed on
December 31, 1996) included construction of the existing 30,000 square foot
floating dockside casino, a 37,000 square foot entertainment, food and
beverage pavilion, a four story 1,500 space parking garage, and surface
parking for 400 cars. The second phase plans include the construction of a
60,000 square foot entertainment facility and a 400-room convention hotel.
The hotel is expected to house 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 of the Crescent City Riverboat and
future operating cash flow of Casino Magic-Bossier City. There is no
assurance that such funds will become available or that such hotel and related
facilities will ever be developed.
GOLDIGGERS SALE
On June 13, 1996, the Company 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. Management's decision to sale Goldiggers was based on its continued
disappointing operating results and negative cash flow. At the date of the
sale, June 13, 1996, Goldiggers had accumulated losses of $1.8 million.
CASINO MAGIC-NORTH DAKOTA
The Company, through a wholly-owned subsidiary, entered into a consulting
agreement with the Sisseton-Wahpeton Dakota Nation ("Sisseton") to provide
consulting services to Sisseton concerning the operation of a casino facility
on Tribal land located adjacent to Interstate 29, 75 miles north of Fargo,
North Dakota. The Company began providing these services in November 1996
after the opening of a temporary casino facility. Under this agreement, the
Company will provide consulting services to Sisseton for a minimum period of
two years. The fee for these services is based on gross revenues of the
casino facility.
It is anticipated that Sisseton will contruct a permanent casino which will
consist of approximately 25,000 square feet of gaming space housed in a
facility totaling approximately 60,000 square feet. Casino Magic-North Dakota
is operates approximately 1,000 gaming positions, including 600 slot machines
and 40 table games, including poker, blackjack, craps, mini-baccarat,
Caribbean Stud Poker , and other popular games. Casino Magic-North Dakota
plans for the future a live keno parlor, a race book and a limited sports
book. Future plans also include a construction of a 200-room hotel and a
recreational vehicle park. Development of the project is subject to Sisseton
obtaining additional financing.
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INTERNATIONAL OPERATIONS.
The Company has in the past pursued the management and the operation of
casinos and related entertainment facilities outside of the United States.
With the shift of the Company's focus, the Company does not anticipate
pursuing similar arrangements in the foreseeable future. The following is a
summary of the Company's current and recently terminated international
operations.
CASINO MAGIC-ARGENTINA
In December 1994, the Company, through its wholly-owned subsidiary, Casino
Magic Neuqu n S.A., began gaming operations in the Argentine cities of Neuqu n
and San Mart n de los Andes. The largest casino, located in the city of
Neuquen, has approximately 27,000 square feet of gaming space and contains 40
table games, 342 slot machines and a 384-seat bingo facility. The smaller
casino in San Mart n de los Andes, a ski town approximately 200 miles
southwest of Neuquen City has approximately 2,000 square feet of gaming space,
53 slots and 14 table games. The Company has unrestricted rights to increase
the number of gaming positions at both locations although the Company does not
anticipate significant additional investment in Casino Magic-Argentina. Prior
to December 1994, the two casinos were operated by the Neuquen provincial
government.
CASINO MAGIC-PORTO CARRAS SALE
At September 30, 1996, management determined that its 49% equity investment in
Porto Carras Casino S.A.("Porto Carras, S.A."), was impaired. Because of this
impairment, management wrote off its equity investment in Porto Carras, S.A.,
including all unpaid notes and receivables from Porto Carras, S.A..
Management's decision was based on results from Porto Carras, S.A. after
Hyatt Corporation opened a new casino in September 1996 in the City of
Thessaloniki, Porto Carras's primary market. The Greek Government allowed
Hyatt Corporation to charge an $8 admission tax compared to a $20 admission
tax required to be paid by Porto Carras, S.A. Although the Company
anticipated some revenue loss as a result of this increased competition and
admission fee differential, the actual effects were much greater than
anticipated and resulted in an approximate $2.0 million operating loss at
Porto Carras for the month of September 1996. Despite new marketing and cost
containment efforts, these losses continued. Furthermore, the 51% owner of
Porto Carras was unwilling or unable to advance any funds to the operation.
Additionally, the majority owner informed the Company that it did not intend
to operate a substantial portion of the Porto Carras resort area, consisting
of two hotels and amenities, during the 1997 season. These factors, among
others, led the Company to the decision to divest itself of its investment in
Porto Carras Casino S.A. in December 1996.
In addition to management's decision to sale Porto Carras, all management
agreements in effect to operate other casinos in Greece were terminated in
December 1996.
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FUTURE DEVELOPMENT
INDIANA
Casino Magic, through its wholly owned subsidiary, Crawford County Casino,
Corp. (" Indiana Corp.") is one of two applicants for the tenth gaming license
expected to be issued in the State of Indiana. If successful in obtaining
this gaming license, the Company plans to develop a riverboat casino and
entertainment facility at a 160-acre site on the Ohio River in Crawford
County, Indiana. As part of the development, it is anticipated that Indiana
Corp. would purchase the Crescent City Riverboat from Louisiana Corp. for use
at its Indiana gaming operation and move the boat to the Crawford County site.
The Crescent City Riverboat is one of the largest gaming riverboats in the
U.S., measuring approximately 430 feet by 100 feet, with a total area of
88,000 square feet on three decks. The Company estimates that it will require
approximately $60 million to develop, contruct and equip a land-based facility
to support the riverboat casino, including a 250-room hotel, a restaurant, and
entertainment and parking facilities. The Company can give no assurances that
a gaming license will be obtained in Indiana, or if obtained that sufficient
capital to fund the Indiana project will be available.
NEW HAMPSHIRE
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, if gaming is legalized in New Hampshire. The
entity will be equally owned by the Company and LRGP, and the Company will
manage gaming operations. Under the agreement with LRGP, the Company is
obligated to provide up to $4 million in funding, $3 million of which is
subject to certain contingencies including the passage of legislation
permitting gaming at racetracks in New Hampshire. There is no assurance that
the Company will have the funds to pursue such gaming opportunity.
OTHER
The Company has purchased land and acquired options to lease land in states
which have not legalized gaming activities. There can be no assurances that
gaming will be legalized in these states. The cost of options and land
deposits are being amortized over the life of the option or deposit. However,
if a determination is made that a permanent impairment has occurred, the
option or deposit is written down to its net realizable value.
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MARKETS AND MARKETING
CASINO MAGIC-BSL AND CASINO MAGIC-BILOXI MARKETS
Casino Magic-BSL and Casino Magic-Biloxi are two of the ten casinos in
operation in the Mississippi Gulf Coast market. Approximately 70% of the
customers of these two casinos reside within 150 miles of the two sites. This
primary market area includes a population of an estimated 4.5 million
residents. New Orleans is approximately 51 miles west of Casino Magic-BSL,
and Mobile, Alabama is approximately 54 miles east of Casino Magic-Biloxi.
Previously, the market range was limited due to the lack of overnight, on-site
accommodations on the Mississippi Gulf Coast. The opening of the 201-room
Casino Magic Inn at Casino Magic-BSL has allowed the Company to expand its
market range beyond the traditional 150-mile range. With the completion of
the golf course in Casino Magic-BSL (opened February 19, 1997) and the
anticipated completion in 1998 of the Casino Magic-Biloxi hotel, the Company
expects to draw additional visitors from areas outside the 150-mile radius.
The major market for Casino Magic-BSL is approximately 51 miles away in the
greater New Orleans metropolitan area where over 1.5 million adults reside.
In addition to local residents, Casino Magic-Biloxi attracts customers from
Mobile, Alabama, and Pensacola, Florida. The Mobile-Pensacola region is home
to over 1,000,000 adult. Mobile and the Florida Panhandle area account for
nearly half of Casino Magic-Biloxi's customers. In addition, Casino
Magic-Biloxi's location in the middle of the Biloxi Strip better enables it to
attract customers from surrounding casinos. Local gaming industry marketing
surveys have indicated the typical non-resident gaming customer visits an
average of three casinos.
CASINO MAGIC-BOSSIER CITY MARKET
Casino Magic-Bossier City is one of our four casinos operating in the
Shreveport/Bossier City, Louisiana metropolitan area. Casino Magic-Bossier
City's primary market is the 6.8 million adults residing within 200 miles of
Bossier City, including persons residing in the Dallas-Forth Worth area which
is located approximately 180 miles west of Casino Magic-Bossier City. Casino
Magic-Bossier City's location will provide customers from the Dallas-FortWorth
market easy and direct access from Interstate Highway 20, the major east-west
artery connecting Dallas-Fort Worth to Bossier City. Other cities within 200
miles of Casino Magic-Bossier City include Longview, Texas, and Monroe,
Louisiana.
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DOMESTIC MARKETING
The Company's marketing programs consist of a variety of advertising, direct
mail and promotional programs intended to encourage more repeat visits to the
Company's facilities. The Company's domestic marketing efforts include
newspaper and direct mail advertising of its Magic Money Player's Club,
special promotions, events and entertainment, and a motor coach program. The
Magic Money Players Club is the most important marketing tool utilized by the
Company. Like a frequent flier airline card or cash back credit card, it
promotes customer loyalty and frequent use. Guests who enroll in this free
club complete a questionnaire that provides the Company with useful
demographic information. Specific groups can be targeted for direct-mail
offers and promotions, and each member of the Magic Money Players Club
receives a bi-monthly newsletter that includes upcoming events, entertainment
schedules, current membership incentives and photos of recent winning patrons.
The Magic Money Players Club also provides benefits to the customer such as
cash rewards, club perquisites and a sense of belonging. Because gaming
members earn points that are redeemable for cash, the Magic Money Players Club
provides an effective way to give back to loyal customers a portion of their
play. The reward levels are viewed as goals for the member and therefore
increase length of stay and frequency of visits. Active members with high
play levels are also rewarded with complimentary entertainment and event
tickets as well as free dining and lodging. Since other commpeting casinos
have similar "clubs", the preceived quality of such clubs is an important
marketing factor.
The Company schedules mid-week gaming promotions to add to the Company's
customer base, generate more frequent visits from its existing customers base,
and increase the length of customer stay and play levels. In addition Casino
Magic-BSL normally hosts four nationally televised boxing events per year to
increase national exposure. Local advertising and direct mail are used to
target the player base and the general public for large promotions.
Additional direct-mail offers, including gaming packages, car drawings, free
buffets, event tickets and party invitations, are sent to high-end players.
Every promotion is monitored through the Magic Money Players Club for cost
effectiveness. The success of each promotion not only depends on player
appeal, but also the level of internal and external advertising related to the
promotion.
Casino Magic-BSL and Casino Magic-Biloxi also actively promote motorcoach
group package programs. The "Magic Bus" program is available Sunday through
Thursday and includes a free bus trip to the property, a free breakfast or
lunch and other benefits. Intended to maintain customer volume during
traditionally non-peak times, Magic Bus programs originate at locations 50 to
150 miles from the properties, are completed in one day and are generally
organized by one of the participants. Professional tour operators also
organize bus trips which originate at locations more than 250 miles from the
coast. These motorcoach groups will typically spend one or more nights away
from home. Currently, Casino Magic-BSL and Casino Magic-Biloxi welcome over
10,000 motorcoach passengers each month. The motorcoach program experience
that the Company has gained in Mississippi will be beneficial for the
development of a similar program at Casino Magic-Bossier City.
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The Mississippi Gulf Coast provides 35 miles of sandy beaches, and the area
offers a variety of outdoor activities, including boating, sport fishing and
golf. The Company's advertising, coupled with other casinos' marketing efforts
and marketing campaigns by local tourism promotion agencies, promote the area
as a desirable recreational and gaming location. It is hoped that these
activities will have the affect of increasing the volume of compensating for
future expansion of existing and new gaming facilities in Mississippi,
Louisiana and neighboring states.
The Company recently established a new marketing research and analysis program
to provide the Company with objective information related to competition,
market potential, program profitability, customer attitudes and advertising
effectiveness. The department is responsible for conducting monthly exit
surveys to measure customer satisfaction, analyze the appeal of casino events
and promotions, evaluate current competitive factors and measure the
effectiveness of various advertising and promotional efforts.
CASINO MAGIC-ARGENTINA
The two casinos comprising Casino Magic-Neuquen are in the Province of Neuqu n
located in west-central Argentina. The population within a 150-miles radius
of those two cities is approximately 900,000. The cities of Neuqu n and San
Mart n de los Andes are located near a number of Argentine tourist attractions
including national parks, ski resorts and a wide variety of outdoor
activities. The two cities have a combined total of more than 5,000 hotel
rooms. The San Mart n de los Andes casino was moved in December 1995 to a
location in the heart of the city. The Company believes that this move has
resulted in an increase in business.
SEASONALITY
The Company's current gaming operations on the Mississippi Gulf Coast and in
Bossier City, Louisiana, are subject to seasonal variation. Gaming revenues
typically decline during the third and fourth quarters of the year. The
operations of Casino Magic-Argentina, also experience similar seasonal
variation due to reliance on tourism.
COMPETITION
GENERAL
The Company has experienced intense competition due primarily to the recent
and significant expansion of gaming on the Mississippi Gulf Coast. Many of
the Company's competitors have greater name recognition, marketing
capabilities and financial resources. In attempting to attract customers to
its casinos, the Company faces, or may face, increasing competition from new
casinos developed on the Mississippi Gulf Coast, in Northwest Louisiana and in
surrounding market areas, and from established gaming centers such as those in
Nevada and Atlantic City, New Jersey. The Company also faces competition from
other forms of lawful gaming, such as state-sponsored lotteries and video
lottery terminals, pari-mutuel betting on horse and dog racing, and bingo
parlors as well as from other forms of entertainment. It is possible that
increased competition could have a material adverse effect on the Company.
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CASINO MAGIC-BSL AND CASINO MAGIC-BILOXI
The Mississippi gaming market is highly competitive. The Company's current
Mississippi operations compete primarily with nine other dockside gaming
casinos on the Mississippi Gulf Coast, all of which have been opened since
August 1992. Seven competing facilities are located in Biloxi and two are
located in Gulfport, approximately 10 miles from Biloxi. In addition, the
Company believes that many of its competitors will add or enhance their
existing amenities and competitors will enter the Mississippi Gulf Coast
market. Mirage Resorts, Inc. has begun construction and has received a
gaming license to open a casino and resort complex in Biloxi in 1998. In
addition, the "Imperial Palace" casino is currently scheduled to open in
Biloxi in July 1997. Both such developments include substantial hotels with
1,000 or more rooms each. Both Circus Circus and Hilton are attempting to
develop casino resorts off of Interstate 10 in Bay Saint Louis just across the
bay and north of Casino Magic-BSL. Both casinos, if developed, may be more
easily accessed by customers coming from New Orleans, than Casino Magic-BSL.
Intense competition on the Mississippi Gulf Coast has contributed to the
closure of two gaming facilities in that area, and one other is operating
under bankruptcy protection. Mississippi law does not limit the number of
gaming licenses that may be granted. Any increase in the number of gaming
facilities along the Mississippi Gulf Coast and surrounding areas could have a
material adverse effect on the Company.
CASINO MAGIC-BOSSIER CITY
There are currently fourteen riverboat casinos operating in Louisiana, all of
which have opened since September 1993. Of these fourteen riverboat casinos,
four are currently licensed and operate in the Bossier City/Shreveport market
and offer substantially similar gaming facilities. Casino Magic-Bossier City
faces competition from those existing operations, particularly to the extent
that they add to or enhance existing amenities. For example, Binion's
Horseshoe Casino has begun construction of a 606-room all suites hotel at its
riverboat casino location in Bossier City. In addition, one riverboat owned
by Hilton Corporation currently operating in the New Orleans market has
received approval to relocate to the Bossier City market in late 1997 and a
sixth gaming company, Hollywood Casino, has received approval to obtain a
license to operate a dockside riverboat casino in the Bossier City/Shreveport
area thus increasing competition in this area.
TEXAS AND ALABAMA LEGALIZATION RISKS
Casino gaming is currently prohibited in several jurisdictions adjacent to
Louisiana and Mississippi. As a result, residents of these jurisdictions,
principally Texas and Alabama, comprise a significant portion of the customers
of Casino Magic-BSL, Casino Magic-Biloxi and Casino Magic-Bossier City.
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Although casino gaming is not currently permitted in Texas and the Texas
Attorney General has issued an opinion that gaming in Texas would require an
amendment to the Texas Constitution, the Texas Legislature has considered
various proposals to authorize casino gaming. No gaming legislation was
enacted in the most recent legislative session ended May 29, 1995. A
constitutional amendment would require a two-thirds vote of those present and
voting in each house of the Texas Legislature and approval by the electorate
in a referendum. The legalization of casino gaming in Texas and the opening
of one or more casinos in the Dallas/Fort Worth area, which is a major market
for Bossier City/Shreveport gaming operations, would have a material adverse
effect on Casino Magic-Bossier City operations.
Casino gaming is currently illegal in Alabama due to a constitutional
prohibition against lotteries. Several attempts have been made to pass a
resolution of the Alabama Legislature providing for a statewide referendum on
the repeal of the pertinent section of the Alabama Constitution prohibiting
lotteries (and thereby gaming). This action would require a three-fifths vote
of each house of the legislature followed by a statewide referendum. Both the
Governor and the Attorney General of Alabama have stated their opposition to
the legalized casino gaming even though pari-mutuel wagering and limited
charitable bingo exist within the state. The legalization of casino gaming in
Alabama would have a material adverse effect on the Company's Mississippi
operations, particularly Casino Magic-Biloxi, both because the Mobile
metropolitan area is a major market for the Company's Casino Magic-Biloxi
operation and because a substantial portion of the Company's customers are
residents of areas east of Mobile including Florida and Georgia.
ARGENTINA
The Company's two casinos in the Province of Neuqu n, Argentina, located in
the cities of Neuqu n and San Mart n de los Andes are currently the only
operating casinos in the Province of Neuqu n. There are, however, 44
government-operated casino operations throughout the country, including a
casino in Chipolletti, across the Rio Negro River from the City of Neuquen in
Rio Negro Province, and a casino in Rio Negro Province approximately 30 miles
southeast of the city of Neuqu n. The Company's exclusive concession in the
Province of Neuqu n is the second out of 12 which have been or will be awarded
under the Argentine government's casino privatization program.
GOVERNMENT REGULATION
DOMESTIC
The ownership and operation of a casino gaming business within the United
States and other jurisdictions in which the Company operates are subject to
extensive and complex governmental regulation and control under federal, state
or local laws and regulations. These laws and regulations are subject to
change including the repeal of laws which permit gaming. The Company and
certain of its officers, directors, key employees, shareholders and other
affiliates ("Regulated Persons") are subject to strict legal and regulatory
requirements, including mandatory licensing and approval requirements,
suitability requirements, and ongoing regulatory oversight with respect to
such gaming operations. Such legal and regulatory requirements and oversight
will be administered and exercised by the relevant regulatory agency or
agencies in each jurisdiction.
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The Company and the Regulated Persons will need to satisfy the licensing,
approval and suitability requirements of each jurisdiction in which the
Company seeks to become involved in gaming operations. Such requirements vary
from jurisdiction to jurisdiction, but generally concern the responsibility,
financial stability and character of the owners and managers of gaming
operations, as well as persons financially interested or involved in
operations. In general, the procedures for gaming licensing, approval and
findings of suitability require that the Company and each Regulated Person to
submit detailed background and financial information and that the Company
demonstrate that the proposed gaming operation has adequate financial
resources generated from suitable sources and adequate procedures to comply
with the operating controls and requirements imposed by law and regulation in
each jurisdiction. This submission is normally followed by a thorough
investigation by the regulatory authorities. An application for any gaming
license, approval or finding of suitability may be denied for any cause that
the regulatory authorities deem reasonable. There can be no assurance that
the Company or the Regulated Persons will obtain or maintain all of the
necessary licenses, approvals and findings of suitability to permit the
Company to continue its development plans. Once a license or approval is
obtained, the Company will be required to periodically submit detailed
financial and operating reports to regulatory authorities. Such licenses and
approvals may be subject to periodic renewal and generally are not
transferable. The regulatory authorities may at any time revoke, suspend,
condition, limit or restrict a license, approval, or finding of suitability
for any cause they deem reasonable. Fines for violations may be levied
against the holder of a license and in some jurisdictions gaming operation
revenues can be forfeited to the state under certain circumstances. The laws,
regulations and procedures pertaining to gaming are subject to the
interpretation of the regulatory authorities and may be amended. Any changes
in such laws or regulations, or their current interpretations, could have a
material adverse effect on the Company.
MISSISSIPPI GAMING REGULATIONS
In 1990, the State of Mississippi legalized dockside casino gaming for
counties along the Mississippi River and the Gulf Coast. The legislation gave
each of those counties the opportunity to hold a referendum on whether to
allow dockside casino gaming within its boundaries. Mississippi law permits
gaming licensees to offer unlimited stakes gaming on a 24-hour basis. The law
does not restrict the amount or percentage of space on a vessel that may be
utilized for gaming. The legislation also does not limit the number of
licenses that the Mississippi Gaming Commission (the "Mississippi Commission")
can grant a particular area and does not impose different conditions on
different licensees.
The ownership and operation of casino gaming facilities in Mississippi are
subject to extensive state and local regulation. The Company, through its
subsidiaries, holds licenses for Casino Magic-Biloxi and Casino Magic-BSL
under the Mississippi Gaming Control Act (the "Mississippi Act"). Each
license is site specific. The Company's current and proposed gaming
operations are subject to the licensing and regulatory control of the
Mississippi Commission and various federal, state, county and city regulatory
agencies. The Mississippi Commission adopted regulations in furtherance of
the Mississippi Act. These regulations have been amended from time to time
since that date.
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The Company is required to submit detailed financial, operating and other
reports to the Mississippi Commission. Substantially all loans, leases, sales
of securities and similar financing transactions entered into by the Company
must be reported to or approved by the Mississippi Commission. The Company is
also required to periodically submit detailed financial and operating reports
to the Mississippi Commission and furnish any other information which the
Mississippi Commission may require.
Each of the directors, officers and certain key employees of the Company who
are actively and directly engaged in the administration or supervision of
gaming, or who have any other significant influence on the activities of the
Company, must be found suitable therefor and may be required to be licensed by
the Mississippi Commission. In practice, a finding of suitability of an
individual is considered the same as licensing that individual. The finding
of suitability requires submission of detailed personal financial information
followed by a thorough investigation. Although certain current members of the
Company's management have been found suitable in connection with the licensing
of the Casino Magic-Biloxi and Casino Magic-BSL, there can be no assurance
that additional key personnel or management persons who may be recruited from
time to time by the Company will be found suitable by the Mississippi
Commission, if the Mississipi Commission were to find a director, officer or
key employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, the Company would have to suspend, dismiss and
sever all relationships with such person. The Company would have similar
obligations with regard to any person who refuses to file appropriate
applications. Each gaming employee must obtain a work permit. The
Mississippi Commission may refuse to issue a work permit to a gaming employee
for various grounds enumerated in the Mississippi Act, including if the
employee has committed larceny, embezzlement or any crime of moral turpitude,
or knowingly violated the Mississippi Act or Mississippi regulations, or for
any other reasonable cause. Denial of a work permit is mandatory if the
applicant has committed, attempted or conspired to commit a felony.
The licenses obtained by the Company have terms of two years and are not
transferable. New licenses must be obtained at the end of each two-year
period. There can be no assurance that new licenses can be obtained. The
Mississippi Commission has the power to deny, limit, condition, revoke and
suspend any license, finding of suitability or registration, and to fine any
person as it deems reasonable and in the public interest, subject to an
opportunity for a hearing. The Mississippi Commission may fine any licensee
or other person who is subject to the Mississippi Act up to $100,000 for each
violation of the Mississippi Act, which is the subject of an initial
complaint, and up to $250,000 for each such violation which is the subject of
any subsequent complaint. The Mississippi Act provides for judicial review of
certain decisions of the Mississippi Commission by petition to a Mississippi
circuit court, but the filing of such petition does not necessarily stay any
such action taken by the Mississippi Commission pending a decision by the
circuit court.
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Any individual who is found to have a material relationship to, or material
involvement with, the Company or, in the discretion of the Gaming Commission,
any other person associated with a gaming establishment of the Company, may be
required to be investigated in order to be found suitable or to be licensed as
a business associate of the Company. Key employees, controlling persons or
others who exercise significant influence upon the management or affairs of
the Company may also be deemed to have such a relationship or involvement.
The Mississippi Act requires that owners of more than 10% of the Company's
voting securities be found suitable by the Mississippi Commission. The
statutes and regulations also give the Mississippi Commission the discretion
to require a suitability finding with respect to anyone who acquires any
security of the Company regardless of the percentage of ownership. The
current policy of the Mississippi Commission is to require anyone acquiring 5%
or more of any voting securities to be found suitable. If the owner of voting
securities who is required to be found suitable is a corporation, partnership
or trust, it must submit detailed business and financial information including
a list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any owner of voting securities who is found unsuitable and who holds, directly
or indirectly, any beneficial ownership of equity interests in the Company
beyond such period of time as may be prescribed by the Mississippi Commission
may be guilty of a misdemeanor. Additionally, any person who fails or refuses
to apply for a finding of suitability or a license within 30 days after being
ordered to do so by such Commission may be found unsuitable. The Company is
subject to disciplinary action if, after it receives notice that a person is
unsuitable to have any relationship with it, the Company (i) pays the
unsuitable person any distributions or interest upon any securities of the
Company or any payments or distribution of any kind whatsoever, (ii)
recognizes the exercise, directly or indirectly, of any voting rights in its
securities by the unsuitable person, or (iii) pays the unsuitable person any
remuneration in any form for services rendered or otherwise, except in certain
limited and specific circumstances.
The Company will be required to maintain current equity ownership ledgers in
the State of Mississippi which may be examined by the Mississippi Commission
at any time. If any securities are held in trust by an agent or by a nominee,
the record holder may be required to disclose the identity of the beneficial
owner to the Mississippi Commission. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. The Company also is
required to render maximum assistance in determining the identity of the
beneficial owner.
The Mississippi Act requires that certificates representing equity securities
of the Company bear a legend to the general effect that the securities are
subject to the Mississippi Act and regulations of the Mississippi Commission.
The Mississippi Commission has the authority to grant a waiver from the legend
requirement, which the Company has obtained. The Mississippi Commission has
the power to impose additional restrictions on the holders of the Company's
securities at any time through its power to regulate licenses.
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The regulations provide that a change in control of the Company may not occur
without the prior approval of the Mississippi Commission. Mississippi law
prohibits the Company from making a public offering of its securities without
the approval of the Mississippi Commission if any part of the proceeds of the
offering is to be used to finance the construction, acquisition or operation
of gaming facilities in Mississippi, or to retire or extend obligations
incurred for one or more of such purposes.
The Mississippi Commission has enacted regulations requiring that, as a
condition to licensure or renewal licensure, an applicant provide a plan to
develop "infrastructure facilities" amounting to 25% of the cost of the casino
and a parking facility capable of accommodating 500 cars. "Infrastructure
facilities" include any of the following: a 250-room hotel, theme park, golf
course, marina, tennis complex, or any other facilities approved by the
Mississippi Commission, but such team does not include parking facilities,
roads, sewage and water systems or civic facilities. The Mississippi
Commission may reduce the number of rooms required in a hotel, where it is
shown to the satisfaction of the Mississippi Commission that sufficient rooms
are available to accommodate the anticipated number of visitors.
The Company's future gaming operations outside of Mississippi are also subject
to approval by the Mississippi Commission.
LOUISIANA GAMING REGULATIONS
In 1991 the Louisiana legislature enacted the Louisiana Riverboat Economic and
Gaming Control Act, LSA-R.S. 4:501, et. seq. (the "Louisiana Gaming Act").
The Louisiana Gaming Act authorized the licensing of up to 15 riverboats to
conduct gaming on designated rivers and waterways. Pursuant to the Louisiana
Gaming Act, the Riverboat Gaming Commission (the "Louisiana Commission"), was
created within the Department of Public Safety and Corrections for the State
of Louisiana. Additionally, a riverboat gaming regulatory group within the
Louisiana State Police was created. The Louisiana Gaming Commission and the
State Police were authorized to and did promulgate the existing rules and
regulations governing the licensing and operations of riverboats.
The Louisiana legislature in the First Extraordinary Session, 1996, enacted
new legislation (the "Louisiana Board Act") which transferred the regulatory
oversight of most gaming operations in Louisiana, including riverboat gaming,
to the Gaming Control Board (the "Louisiana Board"), effective as of May 1,
1996. The Louisiana Commission was abolished as of that same date. The
Louisiana Board will consist of nine members appointed by the Governor of
Louisiana. As of December 31, 1996, the chairman and five members of the
Louisiana Board have been appointed, which constitutes a quorum necessary for
the Louisiana Board to conduct business. At the first meeting of the
Louisiana Board, which was held on July 19, 1996, the Louisiana Board adopted
an internal board policy, a travel policy, a declaration of emergency, and
emergency rules 101 through 104. Rule 101 provides definitions of the
Louisiana Board, the Chairman of the Louisiana Board (the "Chairman") and the
Department of Public Safety (the "Department"). Rule 102 authorizes the
Department to issue to qualified applicants non-key gaming employee permits
and non-gaming vendor licenses and to renew licenses for the operation of
video poker devices at facilities with no more than three video poker devices.
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Rule 102 further authorizes the Department to determine an applicant's
qualifications in accordance with the current laws. Rule 103 put in place a
procedure for appeals by applicants whose renewals have been denied. Finally,
Rule 104 is a general delegation of power to the Chairman to exercise all
posers and authority of the Louisiana Board, except the Chairman shall not:
1. enter into contracts in excess of $100,000;
2. adopt rules:
3. enter into the casino operating contract on behalf of the Louisiana
Board;
4. issue a riverboat gaming operator license, provided that the Chairman
may determine that conditions imposed on a conditionally licensed
riverboat gaming operator have been met;
5. approve changes of the berth or design specifications of a riverboat;
or
6. approve transfers of ownership interests in a riverboat gaming operator
licensee, the casino gaming operator, or a qualified video-poker
truck-stop facility.
The Louisiana Board is empowered to regulate four forms of gaming activities
and operations in the state: riverboat, video poker, the land-based casino in
New Orleans, and all state regulated aspects of Indian gaming. (Excluded is
the regulation and oversight of horse racing and off-track betting, the state
lottery, and charitable gaming.) Accordingly, the Louisiana Board has all
regulatory authority, control, and jurisdiction, including investigation,
licensing, and enforcement, and all power incidental to or necessary for such
regulatory authority, control and jurisdiction, over all aspects of gaming
activities and operations as authorized pursuant to the provisions of the
Louisiana Gaming Act, the Louisiana Economic Development and Gaming
Corporation Act (Land-Based Casino in New Orleans), and the Video Draw Poker
Devices Control Act.
The Louisiana Board has been authorized to promulgate rules and regulations to
govern the aforesaid types of gaming in Louisiana; however, all administrative
rules and regulations promulgated by entities whose powers have been
transferred to the Louisiana Board are to be considered valid and remain in
effect until repealed by the Louisiana Board.
The construction, ownership and operation of riverboat gaming vessels will now
be subject to regulation by the Louisiana Board. The independent authority
previously granted to the State Police by the Louisiana Gaming Act has been
significantly reduced by the Louisiana Control Board Act. The State Police
will now conduct investigations and audits regarding the qualifications of
applicants for licenses or permits requiring suitability determinations,
submit all investigative reports to the Louisiana Board, conduct audits to
assist the Louisiana Board, issue certain licenses and permits in accordance
with rules adopted by the Louisiana Board, and perform all other duties and
functions necessary for the efficient and thorough regulation and control of
gaming activities and operations under the Louisiana Board's jurisdiction.
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The Louisiana Board Act did not repeal the Louisiana Gaming Act, the original
1991 statute authorizing riverboat gaming in Louisiana, but rather amended it
to transfer licensing and regulatory authority to the Louisiana Board and to
redefine the authority of the State Police. Otherwise the Louisiana Gaming
Act remains in effect. Accordingly, the Louisiana Gaming Act continues to
authorize up to 15 licenses to conduct gaming activities on riverboats, with
no more than six licenses to be granted to riverboats operating in any one
parish.
Local regulation remains restricted to the imposition of an admission fee of
up to $2.50 per passenger ($3.00 per passenger in Shreveport and Bossier
City).
On November 5, 1996, voters in both Caddo and Bossier parishes approved a
continuation of riverboat gaming in such parishes. Voters in all other
Louisiana parishes in which riverboat gaming is currently conducted also
approved a continuation of that form of gaming in their respective parishes.
Current Louisiana law limits the number of riverboat casino licenses in the
state to 15, all of which have been awarded, and limits the concentration of
riverboat casino licenses in any one parish to six. Six of those licenses
(including the Company's, another recently approved relocation from the New
Orleans market) have been granted in the Bossier City/Shreveport market which
encompasses both the Caddo and Bossier parishes. The relative success of
gaming operations in the Bossier City/Shreveport market, as compared to other
Louisiana markets, may increase the possibility that existing licenses may be
relocated to the Bossier City/Shreveport market. However, the relocation of
existing licenses to another parish or of riverboats within the same parish
will be restricted by the Constitutional Amendment which requires, among other
things, a local parish-wide election to approve, by majority vote, the
licensing of any additional riverboats in a parish with existing licensed
riverboats or the relocation of any operating riverboat to a different berth
in the same parish.
During September, 1996, in a statewide election, a Constitutional Amendment
was approved by voters statewide, which requires local option elections in
parishes before new forms of gaming may be conducted therein or before
existing forms of gaming may be conducted in new areas. For example, the
Constitutional Amendment requires a local option referendum before an
additional riverboat could move into a parish, regardless of whether such
parish had authorized the continuation of riverboat gaming in such parish in
the Louisiana Referendum. In this respect, (i.e., relocation of riverboat
gaming vessels to new locations) the Constitutional Amendment would appear to
be more restrictive than the legislation requiring the Louisiana Referendum.
Licenses may be and have been issued for dockside riverboat gaming along the
Red River in the Shreveport/Bossier City area. Dockside gaming is presently
prohibited at other locations in the state. A riverboat gaming license has an
initial term of five years, with subsequent annual renewals thereafter.
Pursuant to the decision of the State Police at a hearing held on April 30,
1996, the Louisiana riverboat gaming license acquired by the Company has an
unexpired term of five years less the sixty-five days that the previous
licensee conducted riverboat gaming operations. The unexpired term of
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the license recommenced on October 4, 1996 the date that the Company began
riverboat gaming operations in Bossier City. The application for renewal
consists of a sworn statement of all changes in information, including
financial information, provided in any previous applications. The transfer of
a license is prohibited. The Louisiana Board may restrict, suspend or revoke
a license or permit. Suspension or revocation of any license or permit would
have a material adverse effect upon the business of the Company.
Pursuant to the existing laws, rules and regulations, the Company must submit
detailed financial, operating and other reports to the Louisiana Board
periodically. Substantially all loans, leases, private sales of securities,
extensions of credit and similar financing transactions entered into by any of
the Regulated Persons, including the sale and issuance of the Senior Notes
offered hereby, must be reported to the Louisiana Board within thirty days
after the consummation of any such transactions. The Louisiana Board is
required to investigate all reported loans or extensions of credit, and to
either approve or disapprove same. If disapproved, the pertinent loan or
extension of credit must be rescinded by the appropriate Regulated Person.
The Company is also required to periodically submit detailed financial and
operating reports to the Louisiana Board and furnish any other information
which the Louisiana Board may require.
The applicant for a gaming license, its directors, officers, key personnel,
partners, and persons holding a 5% or greater interest in the applicant will
be required to be found suitable by the Louisiana Board. This requires the
filing of an extensive application to the Louisiana Board disclosing personal,
financial, criminal, business and other information. The applicant is
required to pay all costs of investigation. There can be no assurance that
such person will be found suitable by the Louisiana Board. An application for
licensing of an individual may be denied for any cause deemed reasonable by
the Louisiana Board. Any individual who is found to have a material
relationship to or a material involvement with, the Company may be required to
be investigated in order to be found suitable or be licensed as a business
associate of an applicant. Key employees, controlling persons or others who
exercise significant influence upon the management or affairs of the Company
may also be deemed to have such a relationship or involvement.
If the Louisiana Board were to find a director, officer or key employee
unsuitable for licensing or unsuitable to continue having a relationship with
an applicant, the applicant would have to suspend, dismiss and sever all
relationships with such person. The applicant would have similar obligations
with regard to any person who refuses to file appropriate applications. Each
gaming employee must obtain a gaming employee permit which may be revoked upon
the occurrence of certain specified events.
The sale, assignment, transfer, pledge or disposition of securities which
represent 5% of more of the total outstanding shares issued by a corporate
licensee is subject to Louisiana Board approval. After a license is granted,
any person acquiring an economic interest of 5% or more in a license must
obtain the Louisiana Board's prior approval for the transaction. Failure to
obtain that approval is grounds for license revocation. A security issued by
a corporate license must generally disclose these restrictions.
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If the Louisiana Board finds that an individual holder of a corporate
licensee's securities or a director, partner, officer or manager of the
licensee is not qualified pursuant to the existing laws, rules and
regulations, and if as a result the licensee is no longer qualified to
continue as a licensee, it can propose action necessary to protect the public
interest, including the suspension or revocation of a license or permit. It
may also issue, under penalty of revocation of license, a condition of
disqualification naming the person and declaring that such person may not (a)
receive dividends or interest on securities of the licensee, (b) exercise any
right conferred by securities of the licensee, (c) receive remuneration or any
other economic benefit from the licensee or continue in an ownership or
economic interest in the licensee or remain as a director, partner, officer,
or manager of the licensee.
FOREIGN
The Provincial Government of Neuqu n, Argentina enacted a casino privatization
program to issue 12-year exclusive concession agreements to operate existing
casinos. The Company's two casinos are the only casinos in the province of
Neuqu n, in west central Argentina, and are located in Neuqu n City and San
Mart n de los Andes. The casinos had previously been operated by the
provincial government. The Ministry of Finance of Argentina has adopted a
modified regulatory system for casinos, based on the regulatory system
utilized by the State of Nevada, and such regulatory system is being
administered by the Provincial Government of Neuqu n. The Company cannot
predict what effect the enactment of other laws, regulations or pronouncements
relating to casino operations may have on the operations of the Casino
Magic-Argentina.
NATIVE AMERICAN GAMING REGULATION
Gaming on Native American land is regulated by federal, state and tribal
governments. The operation of Native American gaming facilities may be
subject to regulation by the Bureau of Indian affairs, National Indian Gaming
Commission and the Tribal Gaming Commission. The regulations and guidelines
pursuant to which governmental bodies will administer gaming statutes and
regulations are incomplete and evolving. Such statutes and regulations are
subject to interpretation and may be subject to judicial and legislative
clarification or amendment.
The Sisseton-Whapeton Dakota Nation has entered into a compact for class III
gaming with the State of North Dakota, which has been approved by the
Secretary of the Interior. Under that compact, no person may wager more than
$50 in any single betting transaction. Games authorized in the compact
include reel slots, video poker, video keno, black jack, poker, pai gow poker,
Caribbean Stud Poker, craps, pari-mutuel and simulcast betting and sports and
Calcutta pools, among others.
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NON-GAMING REGULATION
The Company is subject to certain federal, state and local safety and health
laws, regulations and ordinances that apply to non-gaming businesses
generally, such as the Clean Air Act, Clean Water Act, Occupational Safety and
Health Act, Resource Conservation Recovery Act and the Comprehensive
Environmental Response, Compensation and Liability Act. The Company has not
made, and does not anticipate making, material expenditures with respect to
such environmental laws and regulations. However, the coverage and attendant
compliance costs associated with such laws, regulations and ordinances may
result in future additional costs to the Company's operations. For example,
in 1990 the U.S. Congress enacted the Oil Pollution Act to consolidate and
rationalize mechanisms under various oil spill response laws. The Department
of Transportation has proposed regulations requiring owners and operators of
certain vessels to establish through the U.S. Coast Guard evidence of
financial responsibility in the amount of $5.5 million for clean-up of oil
pollution. This requirement would be satisfied by either proof of adequate
insurance (including self-insurance) or the posting of a surety bond or
guaranty.
Traditional riverboats capable of cruising, including those that are not
required to cruise, must comply with U.S. Coast Guard requirements as to boat
design, on-board facilities, equipment, personnel and safety. Each of them
must hold a Certificate of Seaworthiness or must be approved by the American
Bureau of Shipping ("ABS") Building Code. The U.S. Coast Guard requirements
establish design standards, set limits on the operation of the vessels and
require individual licensing of all personnel involved with the operation of
the vessels. Loss of a vessel's Certificate of Seaworthiness or ABS approval
would preclude its use as a floating casino.
All shipboard employees of the Company, even those who have nothing to do with
the actual operation of the vessel, such as dealers, waiters and security
personnel, may be subject to the Jones Act which, among other things, exempts
those employees from state limits on workers' compensation awards.
COMPANY LICENSES AND APPLICATIONS
To date, other than in Mississippi, Louisiana, South Dakota, Greece and
Argentina, no gaming licenses, approvals or findings of suitability have been
obtained or, other than in Indiana, applied for by the Company. The Company
may apply for additional gaming licenses in domestic and international
jurisdictions. The loss or suspension of any such license, or the failure to
obtain any license for properties upon which the Company plans to operate a
gaming casino in the future, would have a material adverse affect on the
Company's business.
INFORMATION REGARDING FOREIGN OPERATIONS
The Company operates casinos in Argentina. Although a number of the Company's
employees have experience in the operation of casinos outside of the United
States, the Company's executive officers have had limited experience in such
operations. The distance of the operations from the Company's executive
offices, the stability of the relevant government, regulations imposed by the
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foreign government, tax issues, and the acceptance of American-style gaming
are all risks associated with a foreign operation with which the Company's
management has had limited previous experience. Additionally, the Company's
operations in foreign jurisdictions are subject to risks associated with
currency exchange rate fluctuations and the repatriation of funds. See Note
16 regarding the geographical distribution of operations in the accompanying
Consolidated Financial Statements.
SERVICE MARKS
Casino Magic is the owner of U.S. service mark registrations for the service
marks "Casino Magic ", "A Cut Above " and "Casino Magic GetawaysSM" granted by
the U.S. Patent and Trademark Office on July 13, 1993, June 21, 1994, and
October 18, 1994, respectively. Casino Magic is also the owner of a Canadian
service mark registration for "Casino Magic " service mark granted on March 3,
1995. The Company has filed service mark registration applications for the
"Casino Magic" service mark in Greece and Mexico. A service mark application
with respect to the service mark "Magic MoneySM" has been filed with the U.S.
Patent and Trademark Office, and an opposition proceeding is currently
underway in connection with such application. The Company also uses and
claims rights to several additional service marks. The effect of the
Company's service marks is to provide an identity between the Company and its
services. U.S. service mark registrations provide protection for a period of
10 years from the date of registration and may be renewed indefinitely for
successive 10-year periods. While prior use of a service mark may establish
an exclusive right to its use in connection with the sale of services in a
particular market area, registration with the U.S. Patent and Trademark
Office, or similar government agencies in foreign jurisdictions, provides such
right throughout the United States or the foreign jurisdiction and a
presumption of damage to the Company should the mark be infringed. There are
no assurances that any of the service marks used by the Company, whether or
not registered, will be free from future challenge by others as to prior use
or as otherwise being unprotectable.
PERSONNEL
As of January 1, 1997, the Company had approximately 2025 full-time employees
and 240 part-time employees in the United States. Of the employees, six are
executive officers of the Company. The Company has approximately 265
full-time employees at two foreign locations that the Company owns or
operates. The Company's management believes that its relationship with its
employees is good. With the expansion of gaming in the Mississippi Gulf Coast
region and Northwest Louisiana, new competitors are likely to actively recruit
the Company's management and casino personnel, many of whom have been trained
at the expense of the Company. None of the Company's employees are currently
presented by a labor union.
FORWARD LOOKING STATEMENTS
The discussions regarding proposed Company developments and operations
included in "Item 1 - BUSINESS" contain forward looking statements that
involve a number of risks and uncertainties. In addition to the factors
discussed above, other factors that could cause actual results to differ
materially are the following: business conditions and growth in the gaming
industry and the general economy; existing and future development by gaming
22
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operators competing with the Company; obtaining and retaining necessary
licenses or regulatory approvals; acquiring or generating funding necessary to
undertake and complete development plans; and other risks detailed from time
to time in the Company's reports filed with the Securities and Exchange
Commission.
ITEM 2. PROPERTIES
The Company's principal executive and administrative offices are located in
approximately 6,000 square feet of office space in the Casino Magic-BSL
support building at 711 Casino Magic Drive, Bay Saint Louis, Mississippi
39520.
In all, the Company owns, leases or has contracts to acquire the properties
described below, each of which either currently has gaming facilities or, the
Company's management believes, is potentially suitable for future gaming
operations.
CASINO MAGIC-BSL PROPERTY
Casino Magic-BSL is located on property owned by the Company, which consists
of approximately 591 acres of land, including a 17-acre marina and an 18 hole
golf course located in Bay Saint Louis, Mississippi, on the Gulf of Mexico.
The 591-acre property secures the $135,000,000 First Mortgage Notes issued in
October 1993.
CASINO MAGIC-BILOXI PROPERTY
The Casino Magic-Biloxi property consists of approximately 9.0 acres of
contiguous land in Biloxi, Mississippi, on the Gulf of Mexico. The Company
leases approximately 3.8 acres of the Biloxi property for current annual
rental payments of approximately $450,000. The primary term of the lease
commenced on January 4, 1993. The Company has 17 renewal options for five
years each at an annual base rent of $550,000, plus an additional amount based
upon increases in the Consumer Price Index. In addition, the Company acquired
approximately 1.3 acres of land contiguous with and to the east of the Biloxi
property. The Company leases approximately 1.5 acres from the State of
Mississippi for an amount equal to the ad valorem tax which currently is
approximately $6,500. This lease is for approximately 80 years. The Company
owns approximately 2.5 acres of land north of the Biloxi property across from
Highway 90. The Company also leases the water area under the Casino
Magic-Biloxi barge from the State of Mississippi pursuant to a 10-year lease
at an annual rent of $595,000 during the first year, increasing annually to
$775,000 at the end of the fifth year and thereafter increasing at rates based
on rules published by the Secretary of State of the State of Mississippi. The
Company has a renewal option for five years at an annual base rent of
$775,000.
On May 26, 1995, the Company acquired 4.1 acres of additional adjacent land
through the issuance of 2,125,000 shares of its Common Stock and thereby
acquired all of the outstanding stock of Casino One Corporation, a
developmental stage company. Through such purchase, the Company acquired
assets with a fair value of approximately $17.0 million, allocated between
land ($15.8 million) and barges ($1.2 million) and assumed liabilities of
approximately $4.4 million, consisting of notes payable, capital leases and
long-term debt. The purchased land is adjacent to the Casino Magic-Biloxi
property.
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BOSSIER CITY PROPERTY
In October 1995, the Company acquired approximately 20 acres of land on the
Red River in Bossier City, Louisiana, in exchange for a total of 1,085,000
shares of the Company's Common Stock through the acquisition of two
corporations, C-M of Louisiana, Inc. and Coastal Land of Florida, Inc. which
merged with the surviving entity becoming Louisiana Corp. The Company issued
787,500 of these shares to Belle Cherri Land Co., the sole shareholder of C-M
of Louisiana, Inc. and fee owner of the acquired property, in exchange for
100% of the capital stock of C-M of Louisiana, Inc., and issued 297,500 shares
to Mark G. George, the sole shareholder of Coastal Land of Florida, Inc., the
holder of a 99-year leasehold interest in the property, in exchange for 100%
of the capital stock of Coastal Land of Florida, Inc. In July 1996, the
Company acquired 3 additional acres of land contiguous the above mentioned 20
acres for $900,000.
OTHER PROPERTIES
The Company owns approximately nine acres of land with approximately 370 feet
of shoreline in Bay Saint Louis, Mississippi on U.S. Highway 90 approximately
2.5 miles from Casino Magic-BSL. This site, which was acquired in August
1992, has been approved as a gaming site by the Mississippi Commission. The
Company does not currently intend to develop this site for gaming.
The Company purchased approximately 25.6 acres of land on which two private
residences are located. This property is on the Jordan River, immediately
west of the Company's gaming operation in Bay Saint Louis, Mississippi. The
Company purchased the property to provide additional land for future expansion
and to prevent potential competition from acquiring a possible gaming site in
immediate proximity to Casino Magic-BSL. The Company has no plans to develop
the property in the near future.
On July 13, 1993, the Company executed three 12 month option agreements to
acquire certain parcels of land in Mobile, Alabama which may be suitable for
casino gaming. The total price to exercise the option is $15.0 million and is
subject to an escalation index. In July 1994, the Company extended the
options for an additional year at a cost of approximately $196,000. In July
1995, the Company extended the options through the year 2000 at a cost of
approximately $1.3 million, 4.9% of income before income taxes of all casinos
and related business conducted by the Company on the optioned property for 10
years and an option to purchase 200,000 shares of the Company's stock at an
exercise price of $5.8125 per share.
In 1993 and 1994, the Company acquired two parcels of land in downtown St.
Louis, Missouri in anticipation of obtaining a gaming license in that city
through a joint venture with Caesars World, Inc. One 3.5 acre parcel of
unimproved land was purchased at a cost of approximately $3.6 million, and is
included in the Company's Financial Statements at December 31, 1996, property
held for sale, with a book value of approximately $4.0 million
The other 0.2 acre parcel of land was purchased for $0.8 million and is
included in the Company's financial statements at December 31, 1996, as
property held for sale having a book value of approximately $820,000.
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On December 11, 1993, the Company entered into an agreement for an option to
lease certain property in Indiana. The agreement requires advance payments of
$500,000 in each of four years, and upon exercise, would allow the Company to
lease the subject property at $1,000,000 per year for twenty years. At
December 31, 1996, aggregate payments of $2,000,000 under this agreement are
included in options and land deposits.
On January 11, 1994, the Company executed two $20,000 option agreements to
acquire land in Indiana at a cost of $6,000 per acre on approximately 40
acres, and $7,000 per acre on approximately 119 acres, or $240,000 and
$833,000, respectively, less the option payments. The options expire (i) one
year from the date of the agreements or (ii) on the date the Company receives
a gaming license from the Indiana Gaming Commission, whichever term is longer.
In February 1995, the Company paid $6,000 for a two-year option to purchase
additional land in Indiana at a cost of $7,000 per acre on approximately 35
acres ($245,000), less the option payment. Aggregate payments of $46,000 are
included in options and land deposits at December 31, 1996, with respect to
the Indiana options.
On March 12, 1994, a wholly-owned subsidiary of the Company acquired an option
to purchase certain property located in Boston, Massachusetts, for $60.0
million. In December 1995, the Company abandoned all efforts to pursue gaming
at this site. The option agreement required that the Company pay a $5.0
million option payment in March 1994 and a second option payment of $5.0
million in January 1996. In January 1996, the Company renegotiated this
option and obtained significant cost reductions in the second option payment
under the agreement. The renegotiated option agreement requires payments of
$2.9 million in February 1996, $500,000 in January 1997, $500,000 in January
1998 and $475,000 in January 1999, and extends the option through 2003. The
agreement escalates the purchase price by $10.0 million per year through 1998
and requires the land owner to pay all taxes on the optioned property.
Although the new option agreement extends the option through 2003, the Company
does not intend to pursue gaming at this site and in December 1995, the
Company expensed approximately $9.0 million in costs associated with this
property. This includes the discounted value of future option payments.
In June 1994, the Company purchased property in Pennsylvania at a total cost
of approximately $2.0 million which is included in the Company's financial
statement as property held for development at December 31, 1996 and 1995. In
addition to the basic purchase price of the property, the agreement of sale
requires the Company to pay the seller $5.0 million if the Company obtains a
license to operate a casino operation on the premises at any time before May
31, 1999.
ARGENTINA LEASED PREMISES
The Company, through its wholly-owned subsidiary, Casino Magic-Neuqu n SA,
leases the existing casino premises for one of its casinos. Included in the
annual cannon fee are monthly fees of $40,000 for the use of space in a
building near the airport in the City of Neuqu n. At the Company's option,
the current operations can be relocated at any time, thereby eliminating the
monthly fees. See "Item 1-Business-Existing Operations-Casino
Magic-Argentina".
See Item 1 - "Business-Future Development".
25
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ITEM 3. LEGAL PROCEEDINGS
ONGOING LEGAL PROCEEDINGS
A class action lawsuit was filed on April 26, 1994, in the United States
District Court, Middle District of Florida (the "Poulos Lawsuit"), naming as
defendants 41 manufacturers, distributors and casino operators of video poker
and electronic slot machines, including the Company. The lawsuit alleges that
such defendants have engaged in a course of fraudulent and misleading conduct
intended to induce people to play such games based on a false belief
concerning the operation of the gaming machines, as well as the extent to
which there is an opportunity to win. The suit alleges violations of the
Racketeer Influenced and Corrupt Organization Act, as well as claims of common
law fraud, unjust enrichment and negligent misrepresentation, and seeks
damages in excess of $6 billion. On May 10, 1994, a second class action
lawsuit was filed in the United States District Court, Middle District of
Florida (the "Ahern Lawsuit"), naming as defendants the same defendants who
were named in the Poulos Lawsuit and adding as defendants the owners of
certain casino operations in Puerto Rico and the Bahamas, who were not named
as defendants in the Poulos Lawsuit. The claims in the Ahern Lawsuit are
identical to the claims in the Poulos Lawsuit. Because of the similarity of
parties and claims, the Poulos Lawsuit and Ahern Lawsuit have now been
consolidated into one case file in the United States District Court, Middle
District of Florida. On December 9, 1994 defendants' motion for change of
venue was granted, transferring the case to the U.S. District Court, District
of Nevada, in Las Vegas. In response to a motion to dismiss the Complaint
brought by the Company and other defendants, the United States District Court
for the District of Nevada entered an Order dated April 17, 1996, granting the
motions and dismissing the complaint without prejudice. The plaintiffs then
filed an amended Complaint on May 31, 1996, in which the plaintiffs sought
damages against the Company and other defendants in excess of $1 billion and
punitive damages for violations of the Racketeer Influenced and Corrupt
Organizations Act and for state common law claims for fraud, unjust enrichment
and negligent misrepresentation. The Company and other defendants have moved
to dismiss the amended Complaint. The Company believes that the claims are
without merit and does not expect that the lawsuit will have a material
adverse effect on the financial condition or results of operations of the
Company.
On October 20, 1994, International Gaming Network, Inc., commenced litigation
in Federal Court against Casino Magic Corp. by filing a Complaint with the
U.S. District Court, District of South Dakota, Southern Division. Plaintiff,
in that litigation, has alleged, among other things, that the Company
intentionally and improperly interfered with Plaintiff's existing and
perspective contractual, economic or business relationship with the
Sisseton-Wahpeton Sioux Tribe, and seeks damages of $28,292,102. In April
1994, the Company entered into an agreement with the Tribe to develop and
manage a gaming casino on tribal lands in northeastern South Dakota. (The
Company has since canceled the management agreement and entered into a
consulting agreement with the Tribe.) On November 9, 1994, the Company
interposed an answer denying the allegations contained in Plaintiff's
estimated range or potential loss, if any, which may be sustained by the
Company in connection with this litigation, but believes the lawsuit is
meritless and intends to vigorously defend the claim.
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The United States District Court, on October 7, 1996, filed a Judgment of
Dismissal, dismissing all of Plaintiff's claims, pursuant to a Motion for
Summary Judgment which had been brought by Casino Magic. Pursuant to a Notice
of Appeal dated November 5, 1996, the Plaintiff has appealed the dismissal of
its claims to the United States Court of Appeals for the Eight Circuit. The
Company can furnish no opinion at this time concerning likelihood of a
favorable outcome or an estimation range or potential loss, if any, which may
be sustained by the Company in connection with this litigation, but believes
the lawsuit is meritless and intends to vigorously defend the claim.
TERMINATED LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of the year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded over-the-counter and has been quoted on
the NASDAQ National Market since October 23, 1992, under the symbol CMAG. The
following table sets forth for the periods indicated the high and low per
share bid prices for the Company's common stock as quoted on the NASDAQ
National Market. The information set forth below was obtained from the NASDAQ
National Market.
1995 High Low
Quarter 1 $ 7.500 $ 4.875
Quarter 2 $ 7.625 $ 5.313
Quarter 3 $ 6.500 $ 5.125
Quarter 4 $ 5.500 $ 3.000
1996
Quarter 1 $ 4.063 $ 2.750
Quarter 2 $ 7.063 $ 3.875
Quarter 3 $ 5.875 $ 3.625
Quarter 4 $ 4.125 $ 2.156
1997
Quarter 1* $ 1.844 $ 1.625
______________________
* As of the close of business on March 21, 1997.
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The last sales price for the Company's common stock as quoted on the NASDAQ
National Market as of the close of business on March 21, 1997 was $1.625 per
share. The over-the-counter quotations above reflect inter-dealer prices,
without retail markup, markdown or commissions, and may not represent actual
transactions. There were approximately 1,318 shareholders owning the
Company's common stock of record as of the close of business March 21, 1997.
The Company has not paid any cash dividends with respect to its common stock,
and does not anticipate doing so in the foreseeable future. The Company
intends to retain all earnings for the foreseeable future to fund the
operation and expansion of its business. The payment of any future dividends
will be determined by its Board of Directors in light of conditions then
existing, including the Company's earnings, financial condition and
requirements, restrictions in financing agreements, business conditions and
other factors. The indenture agreements covering both outstanding first
mortgage notes in the aggregate principal amount of $250,000,000 million,
contain limitations on the Company's ability to pay dividends.
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ITEM 6. SELECTED FINANCIAL DATA
Presented below are the selected consolidated financial data of Casino Magic
and its subsidiaries for the five years ended December 31, 1996 which has been
derived from the audited consolidated financial statements of Casino Magic and
its subsidiaries. This data has not been examined by the Company's
independent auditors, Arthur Andersen LLP. The selected consolidated
financial data should be read in conjunction with the consolidated financial
statements, related notes and other financial information included elsewhere
in this Annual Report.
(IN THOUSANDS
EXCEPT PER
SHARE DATA) YEAR ENDED DECEMBER 31,
Statements of
operations
data 1996(5) 1995(4) 1994(3) 1993(2)
1992(1)
Revenue $180,278 $177,723 $185,018 $202,404 $27,139
Costs and
Expenses 171,435 172,952 173,786 136,996 17,419
Income (loss)
from Operations 8,843 4,771 11,232 65,408 9,720
Other Expenses 45,109 18,294 14,450 5,677 1,762
Net Income (loss) (31,589) (10,292) (3,030) 38,506 5,046
Net Income (loss)
Per Share (.88) (.30) (0.10) 1.32 0.30
(IN THOUSANDS) DECEMBER 31,
Balance Sheet Data 1996(5) 1995(4) 1994(3) 1993(2)
1992(1)
Working Capital
(deficiency) $ (6,492) $ 15,910 $ 20,847 $ 50,021 $(13,926)
Total Assets 370,602 268,473 252,623 222,892 61,293
Current Liabilities
(including con-
struction Payables) 48,449 32,171 25,139 21,553 23,757
Long-term Debt, Net
of Current
Maturities 258,261 136,840 135,643 131,984 12,605
Shareholders'
Equity 63,625 95,179 79,577 66,858 24,932
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(1) Includes full years operations of Casino Magic-South Dakota and 91 days
of operations of Casino Magic-BSL.
(2) Includes full years operations of, Casino Magic-BSL, Casino Magic-South
Dakota and approximately seven months of operations of Casino Magic-
Biloxi.
(3) Includes full years, operations of, Casino Magic-BSL and Casino Magic-
Biloxi, Casino Magic-South Dakota.
(4) Includes full years, operations of, Casino Magic-BSL, Casino Magic-
Biloxi and Casino Magic-Neuqu n, Casino Magic-South Dakota seven and
one half months of operations for Casino Magic-Porto Carras a 49%
equity interest of Casino Magic.
(5) Includes full years, operations of Casino Magic-BSL, Casino Magic-Biloxi,
Casino Magic-Neuquen, 87 days of operations of Casino Magic-Bossier City,
six and one half months of operations of Casino Magic-South Dakota and
nine months of operations for Casino Magic-Porto Carras a 49% equity
interest of Casino Magic.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company commenced operations on the Gulf Coast of Mississippi in September
1992 at Casino Magic-BSL. In 1993 the Company opened Casino Magic-Biloxi; in
1995 the Company opened a gaming facility in Porto Carras, Greece, (in which
the Company had a 49% equity ownership): in 1995 the Company opened two gaming
facilities in the Province of Neuquen Argentina; and in 1996 the Company
opened Casino Magic-Bossier City. Since its organization in 1992, the Company
owned and operated a casino in Deadwood, South Dakota, which was immaterial to
the Company's business. Because of poor operating performance, in 1996 the
Company sold its gaming facilities in Deadwood, South Dakota, and its' 49%
ownership in the gaming facility in Porto Carras, Greece. In addition, the
Company terminated all management operating agreements in Greece.
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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 as of December 31, 1996. The principal operating entities are
Casino Magic-BSL and Casino Magic-Biloxi, both dockside casinos operating on
the Gulf Coast of Mississippi, Casino Magic-Bossier City, a dockside casino
which commenced gaming operations in Northwest Louisiana on October 4, 1996
using a temporary facility and Casino Magic-Neuqu n, which commenced gaming
operations at its two casinos in Neuqu n and San Mart n de los Andes,
Argentina, on January 1, 1995. The revenues, costs and expenses of Porto
Carras are not included below, as Porto Carras is accounted for under the
equity method of accounting.
FISCAL YEAR ENDED DECEMBER 31,
(In Thousands)
1996 1995
1994
Revenues:
Casino Magic-BSL (1) $ 83,924 $ 87,534 $107,547
Casino Magic-Biloxi (2) 63,876 72,737 75,095
Casino Magic-Bossier City(3) 12,738 -- --
Casino Magic-Neuqu n (4) 15,885 13,084 --
Corporate and Other (5) 3,855 4,368
2,376
Total Revenues: $180,278 $177,723 $185,018
Costs and Expenses:
Casino Magic-BSL (1) $ 67,356 S 71,356 $80,361
Casino Magic-Biloxi (2) 56,983 59,882 65,471
Casino Magic-Bossier City (3) 20,060 -- --
Casino Magic-Neuqu n (4) 12,553 11,424 --
Corporate and Other (5) 14,483 30,290 27,954
Total Costs and Expenses: $171,435 $172,952 $173,786
Income (Loss) From Operations:
Casino Magic-BSL (1) $ 16,568 $ 16,178 $27,186
Casino Magic-Biloxi (2) 6,893 12,855 9,624
Casino Magic-Bossier City (3) (7,322) -- --
Casino Magic-Neuqu n (4) 3,332 1,660 --
Corporate and Other (5) ($10,628) ($25,922)
($25,578)
Total Income From
Operations: $ 8,843 $ 4,771 $11,232
(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 October 4, 1996; opened permanent facility on December
31, 1996.
(4) Began operations January 1, 1995.
(5) 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. The Company ceased recording management
fees and royalty fees from Porto Carras on October 1, 1996.
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YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Consolidated revenues increased $2.6 million, or 1.4%, to $180.3 in 1996
compared to $177.7 in 1995. The increase in 1996 consolidated revenues is
attributable to $12.7 million in revenues from the Company's new facility,
Casino Magic-Bossier City, which opened using a temporary facility on October
4, 1996 and increased revenues from Casino Magic-Neuqu n of $2.8 million, or
21.4%. The majority of the increase at Casino Magic-Neuquen in revenues is
attributable to the increased slot revenues of $3.4 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-Neuquen from 89 to 400 in May 1995.
Additional increases resulted from increased customer counts and their
influence on food and beverage revenues. These increases in revenues at
Casino Magic-Neuquen were offset by declining table games revenues. The
increase in consolidated revenues where offset by reduced revenues at Casino
Magic-BSL, Casino Magic-Biloxi and the loss of approximately six months
revenues from the sale of a gaming facility in Deadwood, South Dakota, which
the Company sold in June 1996. Casino Magic-Biloxi revenues declined $8.9
million, or 12.2%, from 1995 to 1996. This decline is primarily the result of
adjacent hotel/casino operations on both sides of Casino Magic-Biloxi which
have significantly greater amenities than Casino Magic-Biloxi. While
competitive pressures will likely continue to adversely effect Casino
Magic-Biloxi's revenues and operating margins, management believes that the
hotel currently under construction at Casino Magic-Biloxi will help offset or
reverse these declines in revenues. Completion of the hotel at Casino
Magic-Biloxi is expected in the first quarter of 1998. Additionally, Casino
Magic-Biloxi may experience reduced revenues in 1997 during the construction
of the hotel due to customer inconveniences during the construction phase of
the casino and hotel entrance areas. However, Management is preparing to
minimize the impact of the construction on the customer. The combination of
construction disruption caused by the development of a new buffet and kitchen
and increased overall competition in the Gulf Coast and New Orleans markets,
both of which Casino Magic-BSL competes in, caused the $3.6 million, or 4.1%,
decline in revenues at Casino Magic-BSL. The loss of $1.4 million in
Corporate and other revenues is due to the sale of a gaming facility located
in Deadwood, South Dakota, ("Goldiggers") which the Company sold in June 1996.
Although royalty and management fee revenues increased by $0.9 million, or
39.3%, to $3.1 million in 1996, the Company has divested itself of all
operations in Greece during 1996 where the majority of all royalties and
management fee revenues where generated.
Total operating costs and expenses were down $1.5 million, or 1.0%, in 1996
compared to 1995. Casino expenses increased $5.3 million, or 7.6%, during the
same period principally as a result of the Company opening a new gaming
facility in Bossier City, Louisiana, which had $7.1 million in casino expenses
in 1996. This increase in casino expenses relating to Casino Magic-Bossier
City was offset by reduced expenses at Casino Magic-Biloxi as a result of
reduced revenues, and the sale of the Company's gaming facility at Deadwood,
South Dakota in June 1996. Food and beverage costs increased $0.6 million, or
8.1%, as a result of increased customer traffic at Casino Magic-Neuquen.
Casino Magic-Neuquen relies on its food and beverage facilities at the casino
to promote casino operations. Other operating costs and expenses increased
$1.5 million, or 110.5%, to $2.8 million in 1996 compared to 1995. This
increase is the result of additions to amenities at Casino Magic-BSL, and the
transfer of the gift shop operations at Casino Magic-BSL and Casino
Magic-Biloxi from a third party to the Company. During 1996, Casino Magic-BSL
added
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amenities relating to the Arnold Palmer designed golf course, such as the pro
shop, the Arnold Palmer Golf Academy and the groundskeeping department. These
costs will increase in 1997 since the golf course became fully operational in
February 1997. In addition, Casino Magic-BSL began operating a child-care
facility for casino patrons in 1996. Advertising and marketing expenses
decreased by $5.0 million, or 19.2%, in 1996 as compared to 1995. This
decrease is the result of several factors: a reduction in the use of air
charters to attract customers; the use of more cost efficient promotions
concerning give-aways through the Magic Money Players Club Card; and an
overall reduction in marketing and advertising costs during 1996. This
decrease was offset by the opening of the Company's new facility, Casino
Magic-Bossier City, in October 1996. As a result of the opening of this
third major gaming facility, marketing and advertising costs are expected to
increase during 1997. General and administrative expenses decreased $4.3
million, or 15.0%, in 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, a Vice
President/Chief Operating Officer and a Vice President/Construction and
Development. Additionally, general and administrative costs are expected to
increase in 1997 as a result of the opening of Casino Magic-Bossier City in
1996. Property operation, maintenance and energy costs increased $3.4
million, or 83.2%, in 1996 as compared to 1995 as the result of the addition
of Casino Magic-Bossier City, the continued aging of the gaming facilities at
Casino Magic-BSL and Casino Magic-Biloxi which required more maintenance costs
in 1996, and the addition of the golf facility at Casino Magic-BSL in 1996.
This expense category is anticipated to increase in 1997 as a result of the
continued maintenance of Casino Magic-BSL (including the golf facility),
Casino Magic-Biloxi and Casino Magic-Bossier City. Rents, property taxes and
insurance costs increased by $1.7 million, or 38.9%, in 1996 as compared to
1995. The increase is in part a result of the addition of Casino
Magic-Bossier City. Depreciation and amortization increased $2.6 million, or
16.3%, in 1996 as compared to the same period in 1995. This increase is due
to the addition of tangible depreciable property, the amortization of the
investment costs in excess of equity interest in the 49% owned Greek gaming
facility which was amortized for 105 days in 1995 and for nine months in
1996, and a change in 1996 in the method used to amortize the Company's land
option deposits over the life of the option. After September 1996, management
wrote-off the excess of equity interest in the Greek gaming facility.
Furthermore, the addition of Casino Magic-Bossier City increased depreciation
expense, while the divesting of the Company's gaming facility in Deadwood,
South Dakota, decreased depreciation expense. In 1997, depreciation and
amortization will increase due to the addition of Casino Magic-Bossier City.
Preopening costs increased by $4.7 million, or 260.0%, in 1996 from 1995.
This is a result of the opening of Casino Magic-Bossier City in October 1996.
In 1995 the Company opened the Greek gaming facility in which it had a 49%
ownership.
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Consolidated income from operations increased $4.0 million, or 83.3%, to $8.8
million in 1996 compared to $4.8 million in 1995. Operating margins (income
from operations as a percentage of revenues) grew from 2.7% to 4.9% over the
comparative periods. Casino Magic-BSL's operating margin grew from 18.5% to
19.7%, Casino Magic-Biloxi's operating margin decreased from 17.6% to 10.8%
and Casino Magic-Neuqu n's operating margin increased from 12.7% to 21.0%.
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 the loss of 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 low cost revenues associated
with slots as opposed to table games.
Consolidated other (income) expense (non-operating income and expenses)
increased $26.8 million from a net expense of $18.3 million to a net expense
of $45.1 million over the comparative periods. Of this increase, $26.1
million, is due to the Company's decision to write off its investment in a
gaming facility in Porto Carras, Greece, ("Porto Carras") where the Company
had a 49% equity interest. Management's decision was based on the results
from the Company's Greek gaming facilities after the opening of a competing
casino. In September 1996, Hyatt Corporation opened a new casino in the City
of Thessaloniki, Porto Carras's primary market, and was allowed to charge an
$8 admission fee compared to Porto Carras' $20 admission fee. Although the
Company anticipated some revenue loss as a result of this increased
competition and admission fee differential, the actual effects were greater
than anticipated and resulted in a $2.0 million loss in operations at Porto
Carras for the month of September 1996. Despite new marketing and cost
containment efforts, these losses continued. Furthermore, the majority owner
in Porto Carras venture was unwilling or unable to advance any funds to the
operation. Additionally, the majority owner informed the Company that it did
not intend to operate a substantial portion of the Porto Carras resort area,
consisting of two hotels and amenities, during the 1997 season. These
factors, among others, led to the Company's decision to write off its
investment in Porto Carras and led to the sale of Porto Carras in December
1996 for a nominal amount. Net interest expense (interest expense less
capitalized interest and interest income) increased $2.1 million from 1995 to
1996. The increase reflects the cost of funding the development of Casino
Magic-Bossier City. In August 1996, the Company, through a wholly owned
subsidiary, issued $115 million in first mortgage notes to fund Casino
Magic-Bossier City. In 1997, net interest expense will increase based on the
issuance of these first mortgage notes. In 1995, the Company expensed
capitalized costs relating to development joint ventures in the amount of $2.2
million. In 1996, no such expense was incurred.
The Company's effective tax rate for 1996 of approximately (13.0%) is the
result of an allowance against deferred tax assets of approximately $8.3
million. This valuation allowance was recorded in recognition of the
Company's recent operating results. The effective tax rate for 1995 of
(24.0%) is due to significant permanent tax differences.
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The Company had a net loss of ($31.6) million, or a loss of ($0.88) per share
in 1996 as compared to net loss of ($10.3) million, or a loss of ($0.30) per
share in 1995. The increase in the net loss is attributable to several
factors; the write off of the Company's investment in Porto Carras Casino S.A.
of $26.1 million; the preopening cost relating to Casino Magic-Bossier City of
$6.6 million; to a lesser extent, decreased revenues at the Company's Gulf
Coast operations which resulted in part from intensified competition on the
Gulf Coast over comparative periods; as well as the recording of a tax
valuation allowance of $8.3 million. These 1996 increases are somewhat offset
by 1995 write-offs relating to terminated development efforts with respect to
specific properties and jurisdictions of $13.6 million.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Consolidated revenues decreased $7.3 million, or 3.9%, to $ 177.7 million in
1995, compared to $185.0 million in 1994. The 1995 revenues include $13.1
million of revenues from Casino Magic-Neuqu n, a wholly-owned Argentina
subsidiary of Casino Magic Corp.. Gaming revenues were $12.3 million less in
1995 compared to the prior year. The decrease was made up of a decline in
gaming revenues at Casino Magic-BSL of $22.0 million which was offset
partially by the gaming revenues at Casino Magic-Neuqu n of $12.2 million.
The decrease in revenues at Casino Magic-BSL reflects the continued
competition from casinos operating in Southern Louisiana, including Harrah's
temporary land-based casino in New Orleans which opened in May, 1995 and
closed in November, 1995. The New Orleans metropolitan area is Casino
Magic-BSL's primary market area. Food and beverage revenues increased $0.7
million, of which $0.8 million was generated by Casino Magic-Neuqu n. Room
revenues increased approximately $2.1 million as a result of the addition of
the 201 room inn at Casino Magic-BSL which began operations in December, 1994.
The 1995 revenue also reflects $2.2 million of Royalty and Management Fee
income with respect to Porto Carras. The Porto Carras casino opened May 18,
1995 and is accounted for under the equity method of accounting.
Total operating costs and expenses were down $0.8 million, or 0.5%, in 1995
compared to 1994. Casino expenses decreased $3.64.5 million, or 4.96.3%,
during the same period, principally as a result of lower operating costs of
$11.1 million, or 16%, at Casino Magic-BSL and Casino Magic-Biloxi. The lower
operating costs were partially offset by the addition of $6.7 million of
casino expenses at Casino Magic-Neuqu n. Rooms expense increased $1.0 million
over the comparative year as a result of the addition of the Inn at Casino
Magic-BSL. Advertising and marketing expenses, as a percentage of revenues,
increased to 146.6% compared to 13.65% in 1994. The increase in advertising
and marketing expenses is in response to increased competition at the
Company's Gulf Coast operations. However, in June 1995 the Company reduced
its reliance on its air charter program resulting in a decrease in the air
charter program costs. This decrease was offset by an increase in advertising
and promotion costs, some of which relates to Casino Magic-Neuqu n. General
and administrative expenses were down $1.3 million or 4.3% in 1995 compared to
1994. General and administrative expenses in the current year reflects a $0.9
million reduction of payroll and benefit costs related to canceled stock
options and grants previously expensed to deferred compensation expense. The
overall decrease in general and administrative costs in 1995 was partially
offset by the addition of Casino Magic-Neuqu n which increased general and
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administrative cost by $1.9 million in the current year. Depreciation and
amortization increased $5.1 million in 1995 due to (i) amortization of the
cost of the concession agreement with the government of Argentina relating to
Casino Magic-Neuqu n, (ii) amortization of investment costs in excess of
equity interest in Porto Carras, (iii) an entire year's depreciation on the
Inn at Casino Magic-BSL, (iv) amortization of land options and (v) a $1.0
million write down of the Goldiggers property. Development expenses decreased
approximately $8.0 million, to $2.2 million in 1995 as a result of the
Company's decision to scale back development activities in 1995.
The Company incurred special charges in 1995 and 1994 of $14.5 million and
$5.5 million, respectively, due to the Company's decision to terminate
development efforts with respect to specific properties and jurisdictions.
Because of this determination, significant capitalized amounts relating to
land, land options, joint ventures and construction projects were written-off
or revalued. The write-offs are recorded under "Write-off of capitalized
costs relating to inactive developments" and "Depreciation and amortization".
Income from operations (excluding the special charges in 1995 and 1994)
increased $0.4 million to $17.1 million in 1995 compared to $16.7 million in
1994. Operating margins (income from operations -- excluding special charges,
as a percentage of revenues) increased from 9.0% to 9.6% over the comparative
periods. A portion of this improvement is a result of royalty and management
fees generated from Porto Carras which was generated at substantially lower
costs than owned properties. Casino Magic-BSL's operating margin fell from
25.9% to 18.5% reflecting the continued decline in revenues resulting mostly
from competition in the New Orleans regional market. Casino Magic-Biloxi's
operating margin increased from 14.1% to 17.7% principally due to decreases in
operating costs.
<PAGE>
Loss from unconsolidated subsidiaries primarily reflects the Company's share
in the losses generated by a joint venture parking garage adjacent to
Casino-Magic Biloxi which is partially offset by the Company's 49% equity
interest in Porto Carras. Other income and expense (non-operating income and
expense) for 1995 includes amortization of $1.3 million of loan guarantee fees
with respect to the proposed purchase of the majority interest of Porto Carras
and certain operating assets. Net interest expense (interest expense less
capitalized interest and interest income) increased $1.8 million from 1994 to
1995. The increased interest expense is due to the financing of new gaming
equipment at Casino Magic-BSL, and the addition of a $3.0 million bank loan in
December of 1994, and lower interest income, as cash and marketable securities
were applied to new developments.
The Company had a net loss of $10.3 million or $.30 per share in 1995 compared
to a net loss of $3.0 million or $.10 per share in the preceding year. The
decreased earnings were a result of the significant write-offs related to the
Company's decision to terminate development efforts with respect to specific
properties and jurisdictions and to a lesser extent decreased revenues at the
Company's Gulf Coast operations. The decrease in revenues was due in part
from intensified competition on the Gulf Coast during 1995, particularly in
the more populous areas of southern Louisiana. The decreases were partially
offset by earnings with respect to Porto Carras and Casino Magic-Neuqu n
coupled with lower costs and expenses in the current period.
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LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had unrestricted cash and marketable
securities of $17.6 million compared to cash and marketable securities of
$30.8 million at December 31, 1995. In addition, the Company had $17.0 million
in restricted cash relating to the $115,000,000 First Mortgage Notes
("Louisiana First Mortgage Notes") issued to fund the construction of Casino
Magic-Bossier City (see discussion of offering below). For the year ended
December 31, 1996, the Company generated $26.0 million of cash flow from
operating activities and received $121.0 million of proceeds from the
incurrence of long term debt. The Company spent $70.0 million for the
acquisition of property, equipment and other long-term assets, and reduced
long term debt by $48.6 million.
The Company expended approximately $17.2 million in capital improvements at
its Gulf Coast properties and $54.0 million in capital improvements at Casino
Magic-Bossier City during 1996. The Company plans additional investments in
1997 at its Gulf Coast properties and Casino Magic-Bossier City, much of
which is subject to the availability of financing. The Company is pursuing
gaming opportunities outside of Mississippi and Louisiana primarily in
Indiana, which would also require additional investment. There are no
assurances that such gaming opportunities will develop or that adequate
funding will be available for these planned investments.
In May 1996, Casino Magic, through its wholly-owned subsidiary, Jefferson Corp
acquired 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 . Crescent City, which was the subject of a plan of reorganization
under Chapter 11 of the U.S. Bankruptcy Code, owned 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 is using Louisiana
Corp.'s gaming license in Bossier City, Louisiana, where it owns 23 acres of
land and has developed Casino Magic-Bossier City. Although Jefferson Corp.
was required to purchase the Crescent City Riverboat to obtain the Louisiana
gaming license, the Crescent City Riverboat is one of the largest riverboats
in the United States and could not be used at the Casino Magic-Bossier City
because of the Crescent City Riverboat's width. Therefore, the Company
acquired a casino riverboat (the "Bossier Riverboat") for use at Casino
Magic-Bossier City for $20 million. It is the Company's intention to sell the
Crescent City Riverboat and use the proceeds to assist in the funding of
Casino Magic-Bossier City casino entertainment facilities or a hotel. 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. However, management
is proceeding with options to sell the Crescent City Riverboat. The assets
acquired as a part of the acquisition of Louisiana Corp., which included
gaming, surveillance and related equipment, are being used at the Bossier City
gaming site.
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On August 22, 1996, Louisiana Corp. sold $115.0 million aggregate principal
amount of 13% Louisiana First Mortgage Notes due in 2003 with Contingent
Interest. Interest at the rate of 13% plus Contingent Interest, is payable on
the remaining balance of the Louisiana First Mortgage Notes semi-annually,
February 15 and August 15. Contingent Interest is an amount equal to 5% of
the Casino Magic-Bossier City's Adjusted Consolidated Cash Flow (as defined in
the Louisiana Indenture) for the six-month period ending on June 30 or
December 31 most recently completed prior to such interest payment date,
provided that no Contingent Interest shall be payable with respect to any
period prior to the Commencement Date (a defined term in the Louisiana
Indenture). Payment of all or a portion of any installment of Contingent
Interest may be deferred, at the option of the Company if, and only to the
extent that, (i) the payment of such portion of Contingent Interest will cause
the Casino Magic-Bossier City's Adjusted Fixed Charge Coverage Ratio (a
defined term in the Louisiana Indenture) for the Casino Magic-Bossier City's
most recently completed Reference Period prior to such interest payment date
to be less than 1.5 to 1.0 on a pro forma basis after giving effect to the
assumed payment of such Contingent Interest and (ii) the principal amount of
the Louisiana First Mortgage Notes corresponding to such Contingent Interest
has not then matured and become due and payable (at stated maturity, upon
acceleration, upon redemption, upon maturity of a repurchase obligation or
otherwise). The aggregate amount of Contingent Interest payable in any
semiannual period will be reduced pro rata for reductions in the outstanding
principal amount of Louisiana First Mortgage Notes prior to the close of
business on the record date immediately preceding such payment of Contingent
Interest.
The Louisiana First Mortgage Notes are governed by an indenture ("the
Louisiana Indenture") pursuant to which the Louisiana First Mortgage Notes
have been issued. The Louisiana Indenture contains certain covenants that
limit the ability of Louisiana Corp. and its subsidiaries to, among other
things, incur additional indebtedness and issue preferred stock, pay
dividends, make investments or make other restricted payments, incur liens,
enter into mergers or consolidations, enter into transactions with affiliates
or sell assets.
Excluding amounts expended in May 1996 in connection with Jefferson Corp.'s
acquisition of Louisiana Corp. (formerly Crescent City), the total project
cost for Casino Magic-Bossier City is estimated to be $72.6 million which
includes: (i) approximately $13.6 million expended for the acquisition of the
23-acre site, (ii) $20.0 million expended for the acquisition of the Bossier
Riverboat, and (iii) $39.07.8 million for the construction of buildings and
other improvements at Casino Magic-Bossier City (including approximately $8.4
million of preopening costs, opening bankroll and additional gaming equipment,
but excluding estimated fees and expenses and $10.4 million in reserves for
completion, operating expenses and fixed interest).
The Company opened Casino Magic-Bossier City on October 4, 1996, using a
temporary boarding facility, and on December 31, 1996, opened the permanent
facility. The Company's plans for the development of Casino Magic-Bossier
City are divided into two phases. The first phase (which was completed on
December 31, 1996) includes a 30,000 square foot floating dockside casino
space, with 986 slots and 44 table games; a 37,000 square foot entertainment
and
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food and beverage pavilion, with 1,550 covered parking spaces and surface
parking spaces for 400 cars. The second phase plans include the construction
of a 60,000 square foot 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 of the Crescent City Riverboat and
future operating cash flow of Casino Magic-Bossier City. No assurances can be
given that such funds will become available or that such hotel and related
facilities will ever be developed.
The Company is currently constructing a hotel tower at Casino Magic-Biloxi
atop of the eight-story parking garage adjacent to the casino. The hotel will
consist of approximately 378 rooms, including approximately 86 suites and
standard amenities such as a swimming pool and modest conference space. The
hotel structure, when completed, is expected to be one of the tallest
buildings in Biloxi. Construction on the hotel commenced in December 1996,
and completion is estimated for the first quarter of 1998. The hotel
construction costs are being funded solely out of the cash flow of Casino
Magic-BSL and Casino Magic-Biloxi.
In early 1996, the Company, through a wholly-owned subsidiary, entered into a
consulting agreement with Sisseton-Wahpeton Dakota Nation ("Sisseton"). Under
the agreement, the Company began providing consulting services to Sisseton
relating to the development and opening of the temporary casino facility on
Tribal land. Sisseton opened a temporary casino in November 1996. The
agreement also specifies that the Company provide consulting services to
Sisseton after the opening of the temporary 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 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 ("Sisseton Loan")for the
construction of its planned 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 prior
bridge loan agreement with Sisseton and participated in the first draw down of
the Sisseton loan. The Company's participation in the $17.5 million loan
through December 31, 1996, is approximately $4.9 million. First payment of
principal and interest on this loan was received in February 1997.
In February 1997, the Company engaged an investment banking firm to assist the
Company in exploring alternatives of a merger, joint venture or strategic
alliance with a third party to facilitate the Company in the future
development of the Company's gaming facilities, specifically with the
Company's Gulf Coast properties.
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.
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At September 30, 1996, management determined that its 49% equity investment in
Porto Carras Casino S.A. and notes and accounts receivables relating to unpaid
management fees and royalties had been impaired. Because of this impairment,
management wrote off its investment in the gaming facility in Porto Carras.
In December 1996 the Company sold its shares of common stock in Porto Carras
in December 1996 for a nominal amount.
The Company will have a significant need for cash in 1997 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 December 31, 1996, cash flows from operations will be
sufficient to service its operating and debt service requirements, as well as
the planned 1997 construction activities relating to the Casino Magic-Biloxi
hotel, through at least the next twelve months, but are not sufficient to
engage in any other development activities without additional debt or equity
financing. Under the terms of the indenture associated with the $135,000,000
First Mortgage 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.
have certain restrictions relative to additional borrowings and cash flow
under the terms of the Louisiana Indenture associated with the Louisiana First
Mortgage Notes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Casino Magic and subsidiaries and the
notes thereto are attached to this Annual Report and are incorporated by
reference in response to this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The discussion under the section captioned "Proposal No. 1 - ELECTION OF
DIRECTORS" to be included in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission ("SEC") and delivered to the
Registrant's shareholders pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Regulation 14A"), with respect
to the 1996 annual meeting of shareholders of the Registrant ("1996
Shareholders Meeting") is incorporated by reference in response to this Item
10.
ITEM 11. EXECUTIVE COMPENSATION
The discussion under the section captioned "EXECUTIVE COMPENSATION" but
excluding the discussions contained in the subsections captioned "EXECUTIVE
COMPENSATION - Compensation Committee Report on Executive Compensation" and
"EXECUTIVE COMPENSATION - Performance Graph", to be included in the
Registrant's definitive proxy statement to be filed with the SEC and delivered
to the Registrant's shareholders pursuant to Regulation 14A with respect to
the 1996 Shareholders Meeting is incorporated by reference in response to Item
11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The discussion under the section captioned "PRINCIPAL SHAREHOLDERS" to be
included in the Registrant's definitive proxy statement to be filed with the
SEC and delivered to the Registrant's shareholders pursuant to Regulation 14A
with respect to the 1996 Shareholders Meeting is incorporated by reference in
response to Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The discussion under the section captioned "CERTAIN TRANSACTIONS" to be
included in the Registrant's definitive proxy statement to be filed with the
SEC and delivered to the Registrant's shareholders pursuant to Regulation 14A
with respect to the 1996 Shareholders Meeting is incorporated by reference in
response to Item 13.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS OF CASINO MAGIC CORP. AND ITS SUBSIDIARIEs
Independent Auditors' Report of Arthur Andersen LLP.
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Operations - years ended December 31, 1996,
1995, and 1994.
Consolidated Statements of Shareholders' Equity - years ended December 31,
1996, 1995, and 1994.
Consolidated Statements of Cash Flows - years ended December 31, 1996,
1995, and 1994.
Notes to Consolidated Financial Statements.
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2. FINANCIAL STATEMENT SCHEDULES OF CASINO MAGIC CORP. AND ITS SUBSIDIARIEs
All schedules are omitted because they are not applicable, or not required, or
the information is included in the Consolidated Financial Statements of Casino
Magic Corp. and its subsidiaries.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the fourth quarter of the year
ended December 31, 1996.
(C) EXHIBITs
3(i)(a)(1) Articles of Incorporation of Casino Magic Corp.
3(i)(b)(2) Articles of Amendment to Articles of Incorporation of
Casino Magic Corp.
3(ii)(a)(1) By-Laws of Casino Magic Corp. as amended.
3(ii)(b)(10) Amendment dated April 4, 1995 to the By-Laws of Casino Magic
Corp.
3(ii)(c) Amendment dated August 11, 1995 to the By-Laws of Casino Magic
Corp.
4.1(5) Form of Certificate for Common Stock of Casino Magic Corp.
4.2(4 )Form of 11.5% First Mortgage Note due 2001 Series B.
4.3(2) Indenture Dated October 14, 1993 among Casino Magic Finance Corp.,
Casino Magic Corp., and IBJ Schroder Bank & Trust Company (Without Exhibits).
4.4 Deleted
4.5 Deleted
4.6(6) Form of Warrant issued to Summit Investment Corporation and related
persons for the purchase of an aggregate of 1,110,000 shares of Common Stock.
4.7(19) Indenture dated as of may 13, 1996, $35,000,000 11 1/2% Senior
Secured Notes
due 1999.
4.8(18) Form of Casino Magic of Louisiana Corp.'s ("Louisiana Corp") 13%
First Mortgage Notes due 2003 with Contingent Interest in the aggregate
principal amount of $115,000,000.
4.9(18) Form of Guarantee issued on August 22, 1996 by Jefferson Casino
Corporation.
4.10(18) Indenture dated as of August 22, 1996 by and among Louisiana Corp,
First Union Bank of Connecticut, as Trustee, and the Guarantors named therein,
for Louisiana Corp.'s $115,000,000 of 13% First Mortgage Notes due 2003 with
Contingent Interest.
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4.11(18) Registration Rights Agreement dated as of August 22, 1996 by and
among Louisiana Corp, the Guarantors named therein and the Initial Purchasers
named therein.
4.12(18) Cash Collateral and Disbursement Agreement dated August 22, 1996 by
and among Louisiana Corp, First Union Bank of Connecticut, as Trustee, and
First National Bank of Commerce, as disbursement agent.
4.13(18) Security Agreement dated as of August 12, 1996 by and between First
Union Bank of Commecticut, as Trustee, and Louisiana Corp, as Guarantor.
4.14(18) Stock Pledge dated as of August 22, 1996 by and between First Union
Bank of Connecticut, as Trustee, and Jefferson Casino Corporation, as Pledgor.
4.15(18) Security Agreements dated as of August 22, 1996 by and between First
Union Bank of Connecticut, as Trustee, and Jefferson Casino Corporation.
4.16(18) First Preferred Ship Mortgages dated as of August 22, 1996 executed
in favor of First Union Bank of Connecticut, as Trustee, by Louisiana Corp.
4.17(18) First Preferred Ship Mortgages dated as of August 22, 1996 executed
in favor of First Union Bank of Connecticut, as Trustee, by Louisiana Corp.
4.18(18) Mortgage of Louisiana Corp. dated as of August 22, 1996 executed in
favor of First Union Bank of Connecticut, as Trustee.
4.19(18) Cash Collateral and Disbursement Agreement.
4.20(18) Form of Accounts Pledge Agreement.
4.21(18) Note Purchase Agreement dated August 16, 1996.
4.22(18) Collateral Assignment dated August 22, 1996.
10.1(1)* Employment Agreement dated June 1, 1992 between Marlin F. Torguson
and Casino Magic Corp., and Amendment No. 1 thereto dated August 26, 1992.
10.2(9)* Amendment No. 2 dated August 26, 1994 to Employment Agreement between
Marlin F. Torguson and Casino Magic Corp.
10.3 Deleted
10.4 Deleted
10.5 Deleted
10.6(a)(1)* Incentive Stock Option Plan.
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10.6(b)(2)* Amendment adopted on May 13, 1993 to Incentive Stock Option Plan.
10.6(c)(2)* Amendment adopted on May 14, 1993 to Incentive Stock Option Plan.
10.7(1) Lease Agreement dated April 4, 1992 between G & W Enterprises, Inc.
and Biloxi Casino Corp.
10.8 Deleted
10.11 Deleted
10.12(2) Public Trust Tidelands Lease dated May 27, 1993 between Biloxi Casino
Corp. and the State of Mississippi.
10.13(2) Lease Agreement dated November 23, 1992 between Gary Gollott, Tommy
Gollott and Tyrone Gollott, and Biloxi Casino Corp.
10.14(2) Promissory Note dated October 14, 1993 in the principal sum of
$67,500,000 issued by Mardi Gras Casino Corp. in favor of Casino Magic Finance
Corp.
10.15(2) Promissory Note dated October 14, 1993 in the principal sum of
$67,500,000 issued by Biloxi Casino Corp. in favor of Casino Magic Finance
Corp.
10.16(2) Guaranty dated October 14, 1993 by Mardi Gras Casino Corp. of Biloxi
Casino Corp. Note.
10.17(2) Guaranty dated October 14, 1993 by Biloxi Casino Corp. of Mardi Gras
Casino Corp. Note.
10.18(2) First and Second Deeds of Trust dated October 14, 1993 by Mardi Gras
Casino Corp. in favor of Casino Magic Finance Corp.
10.19(2) First and Second Deeds of Trust dated October 14, 1993 by Biloxi
Casino Corp. in favor of Casino Magic Finance Corp.
10.20(2) First and Second Leasehold Deeds of Trust dated October 14, 1993 for
G&W Lease.
10.21(2) First and Second Leasehold Deeds of Trust dated October 14, 1993 for
Gollott Lease.
10.22(2)First and Second Leasehold Deeds of Trust dated October 14, 1993 for
State of Mississippi Lease.
10.23(2) Assignments of Deeds of Trust dated October 14, 1993.
10.24(2) Pledge and Security Agreement I & II dated October 14, 1993 of Mardi
Gras Casino Corp.
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10.25(2) Pledge and Security Agreement I & II dated October 14, 1993 of Biloxi
Casino Corp.
10.26(2) Assignment and Pledge Agreement dated October 14, 1993 of Casino
Magic Finance Corp.
10.27 Deleted
10.28 Deleted
10.29 Deleted
10.30 Deleted
10.31 Deleted
10.32(5)Option Agreement dated March 2, 1994 between Anthony's Hawthorne, Inc.
and Boston Casino Corp.
10.33(5)Option Mortgage dated March 2, 1994 by Anthony's Hawthorne, Inc. in
favor of Boston Casino Corp.
10.34(5)Guaranty dated March 2, 1994 by Casino Magic Corp. in favor of
Anthony's Hawthorne, Inc.
10.35(5)Option Agreement dated July 2, 1993 between Atlantic Land Corp. and
Casino Magic Corp. to acquire real estate located in Mobile, Alabama.
10.36(5)Option Agreement dated July 13, 1993 between Marshall J. Demouy and
Edward F. Murray, Jr., as Trustees and Casino Magic Corp. to acquire real
estate located in Mobile, Alabama.
10.37(5)Option Agreement dated July 13, 1993 between Marshall J. Demouy and
Edward F. Murray, Jr., as Trustees and Casino Magic Corp. to acquire real
estate located in Mobile, Alabama.
10.38(5)Option to Lease Real Estate dated December 11, 1993 between
Opportunity Options, Inc. and Casino Magic Corp. to lease real estate located
in Crawford County, Indiana.
10.39 Deleted
10.40 Deleted
10.41 Deleted
10.42 Deleted
10.43 Deleted
10.44(8)*Employment Agreement dated September 1, 1994 between Robert A.
Callaway and Casino Magic Corp.
10.45 Deleted
10.46 Deleted
10.47 Deleted
45
<PAGE>
10.48(9) Deleted
10.49(9)Agreement (architectural and design services) dated April 1, 1993
between Mardi Gras Casino Corp. and Palmer Course Design Company.
10.50(9)Concession Contract for the Management, Operation, Maintenance and
Related Services of the Gaming Houses of the Provincial Casino in the Cities
of Neuqu n and San Martin De Los Andes dated December 21, 1994 between the
Province of Neuqu n and Casino Magic Neuqu n, S.A. (English translation).
10.51(9)Option Agreement dated May 25, 1994 among Camptown Greyhound Racing,
Inc., the Racing Association of Kansas Southeast, and Kansas Gaming Partners,
L.L.C., as amended.
10.52(9)Option Agreement dated February 14, 1995 among Estate of
Janice Small, Ronald W. Brewer, executor, and Casino Magic Corp.
10.53(9)Option Agreement dated January 11, 1994 between Terry Roser and Eddie
P. Roser (collectively) and Casino Magic Corp.
10.54 Deleted
10.55(9)Agreement of Sale dated June 10, 1994 between Township of Bensalem,
Bucks County, Pennsylvania and Bucks County Casino Corp.
10.56(9)Consulting Agreement between Casino Magic Corp. and National Gaming
Consultants, Inc. dated January 15, 1994.
10.57 Deleted
10.58 Deleted
10.59(9)Operating Agreement of Kansas Gaming Partners, L.L.C. dated November
23, 1994
10.60(9) Operating Agreement of Kansas Financial Partners, L.L.C. dated
November 23, 1994
10.61(9) Promissory Note dated November 28, 1994 in the principal sum of
$3,205,000 issued by Camptown Greyhound Racing, Inc. in favor of Boatmen's
First National Bank of Kansas City.
10.62(9) Guaranty dated November 28, 1994 executed by Kansas Financial
Partners, L.L.C.
10.63(9) Certificate of Deposit Pledge and Security Agreement of Kansas
Financial Partners, L.L.C. dated November 28, 1994.
10.64(9) Option Agreement dated January 11, 1994 between Tower Orchards, Inc.
and Casino Magic Corp.
10.65 Deleted
10.66 Deleted
46
<PAGE>
10.67 Deleted
10.68 Deleted
10.69(13)Stock Exchange Agreement between Casino Magic Corp. and Gaming
Corporation of America dated May 10, 1995 (without exhibits or schedules)
10.70(11)Memorandum of Agreement among Touristiki Georgiki Exagogiki, S.A.,
Parral Compania Naviera, S.A. and Casino Magic (Europe) B.V. dated June 21,
1995.
10.71(11)Management Agreement between Agrotiki, Viomichaniki Macedonias S.A.
and Casino Magic (Europe) B.V. dated May 31, 1995.
10.72(11)Management Agreement between Koinopraxia, Casino Doiranis and Casino
Magic (Europe) B.V. dated June 22, 1995.
10.73(11)Amendment Number One dated April 29, 1995 to Joint Venture Agreement
among Touristiki Georgiki Exagogiki, S.A., Parral Compania Naviera, S.A.,
Casino Magic (Europe) B.V., Casino Management Services Corp. and Casino Magic
Corp.
10.74(11)Management Agreement dated April 29, 1995 between Porto Carras Casino
S.A. and Casino Magic (Europe) B.V.
10.75(11)Agreement dated April 29, 1995 among Touristiki Georgiki Exagogiki,
S.A., Parral Compania Naviera, S.A., Casino Magic (Europe) B.V., Casino
Management Services Corp. and Casino Magic Corp. relating to the Joint Venture
Agreement.
10.76(11)Management Fee Agreement dated April 29, 1995 between Parral Companis
Naviera, S.A. and Casino Magic (Europe) B.V.
10.77(11)Extension of Exclusive Option to Purchase dated June 26, 1995 between
Atlantic Land Corp. and Casino Magic Corp. to acquire real estate located in
Mobile, Alabama.
10.78(11)Registration Agreement dated June 26, 1995 between Atlantic Land
Corp. and Casino Magic Corp.
10.79(11)Stock Option Agreement dated June 26, 1995 between Atlantic Land
Corp. and Casino Magic Corp.
10.80(11)*Separation Agreement dated April 17, 1995 between Allen J. Kokesch
and Casino Magic Corp.
10.81(12)*Employment Agreement dated October 2, 1995 between the Company and
Jay S. Osman
10.82(12)Lease Agreement dated September 29, 1995 between the Company and the
State of Mississippi
10.83(12)Memorandum of Understanding dated May, 1995 between the Company and
Lakes Region Greyhound Park.
47
<PAGE>
10.84(12)Stock Exchange Agreement dated October 26, 1995 between Casino Magic
Corp. and Mark G. George.
10.85(12)Registration Agreement dated October 26, 1995 between the Company and
Mark G. George.
10.86(13)Stock Exchange Agreement dated May 10, 1995 between the Company, and
Gaming Corporation of America.
10.87(12)Registration Agreement dated October 26, 1995 between the Company and
Belle Cherri Land Co.
10.88(13)Registration Agreement between Casino Magic Corp. and Gaming
Corporation of America dated May 26, 1995.
10.89(14)Stock Exchange Agreement among Casino Magic Corp., Belle Cherri Land
Co. and Cherryll Young Arnold dated September 13, 1995. (Excluding exhibits).
10.90(14) Stock Exchange Agreement between Casino Magic Corp. and Mark G.
George dated October 26, 1995 (Excluding exhibits).
10.91(15)Consulting Agreement between Casino Magic American Corp. and the
Sisseton-Wahpeton Sioux Tribe dated March 13, 1996.
10.92(15)Employment Agreement between Casino Magic Corp. and James E. Ernst
dated December 20, 1995.
10.93(15)* Promissory Note evidencing indebtedness owed by James E. Ernst to
Casino Magic Corp. dated December 20, 1995.
10.94(15)* Termination Agreement between Casino Magic Corp. and Dual B. Cooper
dated December 18, 1995.
10.95(15)Purchase Agreement between Casino Magic Corp., Jefferson Casino
Corporation, C-M of Louisiana, Inc. and Capital Gaming International, Inc.
dated February 21, 1996. [Crescent City].
10.96(15)Amendment to an option agreement between Boston Casino Corp. and
Anthony's Hawthorne, Inc. dated January 22, 1996.
10.97 Deleted
10.98(15)Non-Statutory Stock Option Agreement dated December 20, 1995 between
James E. Ernst and Casino Magic Corp.
10.99(16) 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.
10.100(16) Promissory Note dated May 3, 1996 between Jefferson Casino
Corporation,
C-M of Louisiana, Inc. and Mark G. George.
10.101(16) Release dated May 3, 1996 by Mark G. George of Gaming Fee and
Option
Agreement.
48
<PAGE>
10.102(16) Subordination Agreement dated May 3, 1996 between Jefferson
Casino
Corporation, C-M of Louisiana, Inc. and Mark G. George.
10.103(17) Loan Participation Agreement dated June 28, 1996 by and between BNC
National Bank and Casino Magic American Corp.
10.104* Employment Agreement dated June 25, 1996 between Ken Schultz and
Casino Magic Corp.
10.105* Employment Agreement dated July 2, 1996 between Juris Basens and
Casino Magic Corp.
10.106* Employment Agreement dated July 11, 1992 between David Paltzik and
Casino Magic Corp
10.107 Agreement dated December 12, 1996 among Touristiki Georgiki Exagogiki,
S.A., Parral Compania Naviera, S.A., Casino Magic (Europe) B.V., Casino Magic
Hellas Management Services S.A. and Casino Magic Corp. relating to the
termination of Joint Venture Agreement and the Management Agreement between
the parties.
10.108 Agreement dated December 12, 1996 among Touristiki Georgiki Exagogiki,
S.A., Parral Compania Naviera, S.A., Casino Magic (Europe) B.V., Casino Magic
Hellas Management Services S.A., Casino Magic Corp. and Murbec Inc. relating
to the purchase of Porto Carras Casino S.A.
10.109 Admendment to Operating Agreement of Kansas Gaming Partners, L.L.C.
dated January 22, 1997.
18. Letter from Arthur Andersen LLP regarding change in accounting
principal or practice.
21.1 Subsidiaries of Casino Magic Corp.
23.1 Consent of Independent Public Accountants.
24.1 Power of Attorney (contained on the signature page).
27. Financial Data Schedule (filed electronically only).
* Indicates management contracts and compensatory plans and arrangements.
(1) Incorporated by reference to the Registrant's Registration Statement (No.
33-51438) on Form S-1 dated August 28, 1992.
(2) Incorporated by reference to the Registrant's Registration Statement (No.
33-71572) on Form S-4 dated November 12, 1993.
(3) Incorporated by reference to Amendment No. 1 to the Registrant's
Registration Statement (No. 33-71572) on Form S-4 dated December 22, 1993.
(4) Incorporated by reference to Amendment No. 2 to the Registrant's
Registration Statement (No. 33-71572) on Form S-4 dated February 3, 1994.
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
49
<PAGE>
(6) Incorporated by reference to Amendment No. 3 to the Registrant's
Registration Statement (No. 33-51438) on Form S-1 dated October 21, 1992.
(7) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1994.
(8) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1994.
(9) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the Fiscal Year ended December 31, 1994.
(10) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1995.
(11) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1995.
(12) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1995.
(13) Incorporated by reference to a Registration Statement (No. 33-93650) of
Casino Magic Corp. filed on June 19, 1995.
(14) Incorporated by reference to a Registration Statement (No. 33-99248) of
Casino Magic Corp. on Form S-3 filed November 9, 1995.
(15) Incorporated by reference to Registrant's Annual Report on Form 10-K
for the period ended December 31, 1995.
(16) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the period ended March 31, 1996.
(17) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the period ended June 30, 1996.
(18) Incorporated by reference to Casino Magic of Louisiana Corp.
Registration Statement (No. 333-14535) on Form S-4 dated October 21, 1996.
(19) Incorporated by reference to the Registrants Form 8-K filed May 28,
1996.
(D) Financial Statements required by Regulation S-X which are excluded from
the Annual Report to Shareholders.
None.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 25, 1997 By: /s/ James E. Ernst
James E. Ernst., President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Marlin F. Torguson and James E. Ernst, or
either of them, as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Annual Report on Form 10-K, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title
Date
/s/ Marlin F. Torguson Chairman of the Board March 25,
1997
Marlin F. Torguson
/s/ James E. Ernst President and Chief March 25,
1997
James E. Ernst Executive Officer
(principal executive officer)
/s/ Jay S. Osman Chief Financial March 25,
1997
Jay S. Osman Officer and Treasurer (principal
financial and accounting officer)
/s/ Roger H. Frommelt Director March 25,
1997
Roger H. Frommelt
/s/E. Thomas Welch Director March 25,
1997
E. Thomas Welch
51
<PAGE>
CASINO MAGIC CORP.
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996
INDEX TO EXHIBITS
Exhibit
Number
Page
- ------------------------------------------------------------------------------
10.99* Employment Agreement dated June 25, 1996 between Ken Schultz and Casino
Magic Corp.
10.100* Employment Agreement dated July 2, 1996 between Juris Basens and
Casino Magic Corp.
10.101* Employment Agreement dated July 11, 1992 between David Paltzik and
Casino Magic Corp
10.102 Agreement dated December 12, 1996 among Touristiki Georgiki Exagogiki,
S.A., Parral Compania Naviera, S.A., Casino Magic (Europe) B.V., Casino Magic
Hellas Management Services S.A. and Casino Magic Corp. relating to the
termination of Joint Venture Agreement and the Management Agreement between
the parties.
10.103 Agreement dated December 12, 1996 among Touristiki Georgiki Exagogiki,
S.A., Parral Compania Naviera, S.A., Casino Magic (Europe) B.V., Casino Magic
Hellas Management Services S.A., Casino Magic Corp. and Murbec Inc. relating
to the purchase of Porto Carras Casino S.A.
10.104 Admendment to Operating Agreement of Kansas Gaming Partners, L.L.C.
dated January 22, 1997.
21.1 Subsidiaries of Casino Magic Corp.
23.1 Consent of Independent Public Accountants.
24.1 Power of Attorney (contained on the signature page).
52
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants F-2
Consolidated Statements of Operations F-3
Consolidated Balance Sheets - Assets F-4
Consolidated Balance Sheets - Liabilities and Shareholders' Equity F-5
Consolidated Statements of Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Casino Magic Corp.:
We have audited the accompanying consolidated balance sheets of Casino
Magic Corp. (a Minnesota corporation) and subsidiaries (the Company) as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Casino Magic Corp.
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
February 28, 1997
F-2
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
1996 1995 1994
REVENUES:
Casino 167,153,012 165,997,836 178,336,647
Food and beverage and rooms 8,080,067 8,392,529 5,625,703
Royalty and management fees 3,099,407 2,224,351 --
Other operating revenues 1,945,357 1,108,049
1,056,125
180,277,843 177,722,765
185,018,475
COSTS AND EXPENSES:
Casino 74,943,304 69,654,888 73,212,895
Food and beverage 7,351,838 6,795,164 6,412,264
Rooms 1,039,081 1,224,685 198,112
Other operating costs and
expenses 2,807,038 1,333,183 1,601,792
Advertising and marketing 20,901,821 25,873,832 25,097,126
General and administrative 24,216,613 28,501,308 29,765,041
Property operation, maintenance
and energy cost 7,433,262 4,057,144 7,632,034
Rents, property taxes and
insurance 5,991,261 4,314,355 3,475,089
Depreciation and amortization 18,346,202 15,768,546 10,668,770
Preopening costs 6,554,535 1,818,715 --
Development expenses 1,849,583 2,228,549 10,244,317
Write-off of capitalized costs
relating to inactive
developments -- 11,381,945
5,479,164
171,434,538 172,952,314 173,786,604
INCOME FROM OPERATIONS 8,843,305 4,770,451
11,231,871
OTHER (INCOME) EXPENSE:
Interest expense 25,071,767 17,436,904 16,645,963
Interest capitalized (5,717,494) (867,236) (1,306,476)
Interest income (1,436,468) (803,624) (1,403,692)
Loss from unconsolidated
subsidiaries 26,501,808 112,250 407,787
Write-off of capitalized costs
primarily relating to
joint ventures -- 2,210,219 --
Other 689,221 204,981
106,779
45,108,834 18,293,494
14,450,361
LOSS BEFORE INCOME TAXES (36,265,529) (13,523,043) (3,218,490)
INCOME TAX BENEFIT (4,676,182) (3,230,864)
(188,039)
NET LOSS $(31,589,347) $(10,292,179) $
(3,030,451)
NET LOSS PER COMMON SHARE:
PRIMARY $ (0.88) $ (.30) $
(.10)
FULLY-DILUTED $(0.89) $ (.31) $ (.11)
AVERAGE SHARES AND EQUIVALENTS OUTSTANDING:
PRIMARY 36,039,909 34,179,842
28,934,185
FULLY-DILUTED 35,448,068 33,260,904
27,314,172
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 17,561,512 $ 30,755,698
Restricted Cash 16,984,654 --
Income tax receivable 802,174 4,225,047
Prepaid expenses 2,844,995 2,671,210
Notes and accounts receivable, net 2,889,486 6,879,080
Deferred income taxes -- 2,923,171
Other current assets 873,676
626,846
Total current assets 41,956,497 48,081,052
PROPERTY AND EQUIPMENT, NET 243,692,571 169,791,757
OTHER LONG-TERM ASSETS:
Notes Receivable 4,119,700 --
Investments in unconsolidated subsidiaries 957,831 18,574,859
Options and land deposits 2,282,244 3,211,562
Foreign casino concession agreement, net of
accumulated amortization of $1,897,790 in
1996 and $948,895 in 1995 9,488,950 10,437,845
Deferred gaming license cost, net of
accumulated amortization of $395,489
in 1996 38,337,333 --
Property held for development 3,040,357 3,540,357
Property held for sale 15,108,541 5,118,740
Debt issuance costs, net of accumulated
amortization of $1,160,478 in 1996 and
$994,350 in 1995 10,195,688 5,936,591
Deposits and other 1,421,979 3,738,079
Total other long-term assets 84,952,623
50,558,033
$370,601,691
$268,430,842
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31,
1996 1995
CURRENT LIABILITIES:
Notes and contracts payable $ 4,708,603 $ 964,174
Current maturities of long-term debt 4,648,638 3,595,745
Accounts payable 7,945,068 4,098,992
Accrued expenses 11,320,101 10,853,261
Accrued interest 8,830,040 3,476,947
Accrued payroll and related benefits 8,341,720 7,150,253
Accrued progressive gaming liabilities 1,121,623 1,071,760
Other current liabilities 1,533,192 959,609
Total current liabilities 48,448,985 32,170,741
DEFERRED INCOME TAXES 266,761 3,991,325
OTHER LONG-TERM LIABILITIES -- 250,000
LONG-TERM DEBT, NET OF CURRENT MATURITIES 258,261,231 136,840,010
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par, 50,000,000 shares,
authorized 35,637,083 issued and outstanding
in 1996 and 35,279,564 issued and outstanding
in 1995 356,371 352,796
Undesignated stock, 2,500,000 shares
authorized, None issued -- --
Additional paid-in capital 67,123,702 66,087,413
Retained earnings (deficit) (2,513,062) 29,076,285
Cumulative foreign currency translation
adjustment -- (224,195)
Unrealized holding loss on securities (850,156) --
Less unearned compensation (492,141)
(113,533)
Total shareholders' equity 63,624,714
95,178,766
$370,601,691
$268,430,842
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Foreign
Common Stock Additional currency
Shares Amount paid-in capital
adjustment
BALANCE AT DECEMBER 31, 1993 25,215,000 $252,150 $25,005,578 --
Amortization of unearned
compensation -- -- -- --
Stock options granted to
executive officers -- -- 1,190,625 --
Net proceeds from exercise of
warrants 2,873,500 28,735 4,352,685 --
Net proceeds from exercise of
employee stock options 155,250 1,553 227,835 --
Net proceeds from common stock
issued pursuant to
Regulation S 1,700,000 17,000 10,156,000 --
Stock issued for consultants
compensation 18,000 180 194,445 --
Net loss -- -- --
- --
BALANCE AT DECEMBER 31, 1994 29,961,750 $299,618 $41,127,168 --
Amortization of unearned
compensation -- -- -- --
Write-off of unearned
compensation -- -- (1,642,886) --
Stock options to executive officers -- -- 101,563 --
Vested stock grants to
executive officers 16,250 162 (162) --
Net proceeds from exercise of
stock options 308,564 3,086 376,726 --
Net proceeds from common stock
issued pursuant to Regulation S 1,771,000 17,710 8,303,095 --
Stock issued for consultants'
compensation 12,000 120 63,632 --
Stock issued for land 3,210,000 32,100 17,758,277 --
Foreign currency translation -- -- -- (224,195)
Net loss -- -- --
- --
BALANCE AT DECEMBER 31, 1995 35,279,564 $352,796 $66,087,413
($224,195)
Amortization of unearned
compensation -- -- -- --
Stock options granted to
executive officers -- -- 567,188 --
Net proceeds from exercise
of warrants -- -- 500 --
Net proceeds from exercise of
employee and non-employee
director stock options 357,519 3,575 453,654 --
Casino One Corp. acquisition -- -- 14,947 --
Unrealized Holding Loss on
Securities Available for Sale -- -- -- --
Foreign currency translation
adjustment -- -- -- 224,195
Net loss -- -- --
- --
BALANCE AT DECEMBER 31, 1996 35,637,083 $356,371 $67,123,702 $
--
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (CONTINUED)
UNREALIZED HOLDING RETAINED LESS
loss on securites (deficit) unearned
available for sale earnings compensation
Total
BALANCE AT DECEMBER 31, 1993 $ -- $42,398,915 $(798,306)
$66,858,337
Amortization of unearned
compensation -- -- 770,180 770,180
Stock options granted to
executive officers -- -- (1,190,625) --
Net proceeds from exercise of
warrants -- -- -- 4,381,420
Net proceeds from exercise of
employee stock options -- -- -- 229,388
Net proceeds from common stock
issued pursuant to
Regulation S -- -- -- 10,173,000
Stock issued for consultants
compensation -- -- -- 194,625
Net loss -- (3,030,451) --
(3,030,451)
BALANCE AT DECEMBER 31, 1994 $ -- $39,368,464 $(1,218,751) $79,576,499
Amortization of unearned
compensation -- -- 470,962 470,962
Write-off of unearned
compensation -- -- 735,819 (907,067)
Stock options to executive officers -- -- (101,563) --
Vested stock grants to
executive officers -- -- -- --
Net proceeds from exercise of
stock options -- -- -- 379,812
Net proceeds from common stock
issued pursuant to Regulation S -- -- -- 8,320,805
Stock issued for consultants'
compensation -- -- -- 63,752
Stock issued for land -- -- -- 17,790,377
Foreign currency translation -- -- -- (224,195)
Net loss -- (10,292,179) --
(10,292,179)
BALANCE AT DECEMBER 31, 1995 -- $29,076,285 $ (113,533)
$95,178,766
Amortization of unearned
compensation -- -- 188,580 188,580
Stock options granted to
executive officers -- -- (567,188) --
Net proceeds from exercise
of warrants -- -- -- 500
Net proceeds from exercise of
employee and non-employee
director stock options -- -- -- 457,229
Casino One Corp. acquisition -- -- -- 14,947
Unrealized Holding Loss on
Securities Available for Sale (850,156) -- -- (850,156)
Foreign currency translation
adjustment -- -- -- 224,195
Net loss -- (31,589,347) --
(31,589,347)
BALANCE AT DECEMBER 31, 1996 $(850,156) $(2,513,062) $(492,141)
$63,624,714
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1996 1995
1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(31,589,347) $(10,292,179)
$(3,030,451)
Adjustments to reconcile net
income loss to
(loss) to net cash provided by
operating
activities:
Depreciation and amortization
16,263,2708,346,202 13,387,3455,768,546 10,668,77029,455
Amortization 2,082,932 2,381,201 39,315
Loss on disposal of property and
equipment 339,9056 466,712 --
Amortization of original issue
discount and deferred debt
issuance costs 1,496,259 954,351 844,818
Amortization of unearned stock
compensation, net of recoveries 188,580 (436,105) 770,180
Consultants' compensation recognized
on issuance of stock --(0) 63,752
103,125
Gain on contract settlement --(0) (855,000)
- --
Write-off of preopening costs,
development project cost, land
options and deposits & property
held for development 7,054,5325 12,104,212 4,340,543
Loss on investment in unconsolidated
subsidiaries 22,436,241 112,250 407,787
(Increase) decrease in income tax
receivable 3,422,873 1,899,459 (3,560,970)
(Increase) decrease in prepaid
expenses 88,861 1,634,019 558,795
Increase in notes and accounts
receivable, net (147,705) (4,753,232) (1,032,162)
Decrease in deferred income taxes-
current 2,923,171 (720,628) (130,182)
Increase in other current assets (277,793) (129,225) (17,881)
Increase (decrease) in deferred income
taxes-non current (4,173,197) (1,063,610) 2,558,240
Increase (decrease) in accounts
payable 2,924,820 (389,241) 973,784
Increase (decrease) in accrued
expenses (4,278,518) (2,026,436) 2,704,726
Increase (decrease) in accrued
interest 3,487,883 208,449 (15,472)
Increase (decrease) in accrued
payroll and related benefits 1,255,364 2,236,447 (281,652)
Increase (decrease) in accrued
progressive gaming liabilities 55,376 (393,866) (166,442)
Increase in contractual obligations --(0) --
2,210,000
Increase (decrease) in income taxes
payable 573,583 959,609
--
NET CASH PROVIDED BY OPERATING
ACTIVITIES 24,126,2416,011,855)
15,348,284 17,905,556
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.(CONTINUED)
F-8
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31,
1996 1995
1994
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment 1,436,821 173,389 --
Acquisitions of property and
equipment (67,850,010) (11,396,332) (27,444,563)
Payments for Aacquisition of gaming
license (15,250,000) -- --
Acquisitions of property held for
development --(0) --
(2,315,588)
Acquisitions of property held for
sale 40,437 -- (742,921)
Investments in unconsolidated
subsidiaries (651,206) (6,117,636) (11,997,139)
Expenditures for organizational and
acquisition cost (359) (80,788) --
Expenditures for land options and
deposits (480,000) (1,326,130) (7,162,277)
Acquisition of foreign gaming
concession --(0) --
(11,386,740)
Expenditures for development and
preopening costs (6,554,535) (130,794) (2,897,440)
Acquisitions of deposits and other
long-term assets 2,530,873 (1,898,786) (1,474,772)
(Increase) decrease in marketable
securities -- 10,244,233
8,950,988
Issuance of short-term note -- --
--
NET CASH USED IN INVESTING
ACTIVITIES (86,777,9799,392,474)
(10,532,844) (56,470,452)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt or notes
payable 121,043,749 202,011 3,000,000
Payments of debt issuance costs (5,419,575) (2,000) (198,093)
Principal payments on notes payable (1,010,180) (1,185,342) (114,658)
Principal payments on long-term debt (48,644,469) (2,261,096) (1,025,811)
Net proceeds from sale of common stock 14,947 8,320,805 10,173,000
Net proceeds from sale or exercise of
warrants -- -- 4,381,420
Net proceeds from exercise of employee
stock options 457,734 379,812
229,388
NET CASH PROVIDED BY FINANCING
ACTIVITIES 66,442,2064 5,454,190
16,445,246
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,790,468810,871 10,269,630
(22,119,650)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 30,755,698 20,486,068
42,605,718
CASH AND CASH EQUIVALENTS, INCLUDING
RESTRICTED CASH, END OF PERIOD $34,546,166566,569 $30,755,698
$20,486,068
F-9
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL CASH FLOW INFORMATION
YEARS ENDED DECEMBER 31,
1996 1995
1994
Interest paid, net of amount capitalized 12,379,128 15,406,868 $14,510,141
Income taxes paid, net of refunds (7,604,043)(4,236,206) 1,741,370
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Property and equipment and other asset
acquisitions
financed with short-term notes payable -- 0 850,208
1,300,000
Property and equipment and other asset
acquisitions
included in accounts and construction
payable and accrued expenses 5,455,469 177,091 952,506
Gaming license acquisition financed with
long-term debt 21,617,612 -- --
Land acquired through the issuance
of common stock -- 0 22,140,969
- --
Property and equipment under capital
leases 81,114 63,632 131,221
Property and equipment and property
held for sale financed with long-
term debt 30,728,879 -- 2,774,527
Land held for development financed with
short-term notes and long-term debt -- 0 --
700,000
Consulting services performed for common
stock -- 0 63,752
91,500
Common stock granted to officers 567,188 101,563 1,190,625
Commitment for land option -- 0 (156,725)
5,000,000
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-10
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION:
Casino Magic Corp. and Subsidiaries (the "Company") is an international gaming
company with operations in Bay Saint Louis, Mississippi, Biloxi, Mississippi,
Bossier City, Louisiana, and the Argentina Province of Neuqu n in the cities
of Neuqu n City and San Mart n de los Andes. The Company also is pursuing
gaming opportunities in other jurisdictions.
The consolidated financial statements of the Company include the accounts of
Casino Magic Corp. ("Casino Magic") and its wholly-owned subsidiaries (the
"Subsidiaries") which are Mardi Gras Casino Corp. ("Casino Magic-BSL"), Biloxi
Casino Corp. ("Casino Magic-Biloxi"), Casino Magic of Louisiana Corp. ("Casino
Magic-Bossier City"), Atlantic-Pacific Corp. ("Atlantic-Pacific"), Casino
Magic Neuqu n SA, ("Casino Magic-Neuqu n"), Casino Magic (Europe) B.V.
("Europe"), Casino One Corporation, Casino Magic Finance Corp., St. Louis
Casino Corp., Bucks County Casino Corp., Casino Magic American Corp., Boston
Casino Corp. and Kansas Magic Corp. Other subsidiaries are either inactive or
have insignificant operating or development activity as of the date of these
financial statements.
All significant intercompany accounts and transactions have been eliminated.
PRINCIPAL ACTIVITIES OF THE COMPANY:
Casino Magic-BSL operates a bi-level dockside casino in Bay Saint Louis,
Mississippi. The casino began operations on September 30, 1992. The casino
facility includes a 330 seat buffet, a fine dining restaurant, fast food and
entertainment areas; and surface parking for approximately 2,000 cars. The
casino is located on a site that occupies approximately 591 acres, including a
201 room inn, marina and recreational vehicle park. Construction of the golf
course began in October 1995 and wasas completed in February 1997. Proposed
additions to Casino Magic-BSL include a hotel and associated amenities.
Casino Magic-Biloxi operates a three-level dockside casino in Biloxi,
Mississippi. The casino began operations on June 5, 1993. The casino facility
includes a 360 seat buffet, a fine dining restaurant, fast food and lounge
and entertainment areas. Parking facilities include an eight-story parking
garage containing 695 parking spaces, a shared parking garage with 204 parking
spaces and 221 additional surface parking spaces. Construction of an
approximately 380 room hotel tower atop the parking garage began in 1997.
Casino Magic-Bossier City operates a three-level dockside casino in Bossier
City, Louisiana. Casino Magic-Bossier City opened on October 4, 1996, using a
temporary facility, and opened the permanent facility on December 31, 1996.
The permanent facility has been developed on a 23 acre site and includes:; a
37,000 square foot land based pavilion, which includes a 350 seat buffet, a
fine dining restaurant, fast food and entertainment areas; a parking garage
for approximately 1,550 cars and surface parking for another approximately 400
cars.
F-11
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Atlantic-Pacific Corp. leaseds and operateds a limited stakes gaming
establishment in Deadwood, South Dakota, under the name of Goldiggers. The
establishment consists of 94 slot and video lottery machines, four table
games, restaurant and bar, and a nine-room hotel. Operations commenced April
11, 1991. Casino Magic sold Atlantic-Pacific Corp. in June 1996.
Casino Magic-Neuqu n operates two casinos in the Argentina Province of Neuqu n
in the cities of Neuqu n City and San Mart n de los Andes. The casinos include
approximately 29,000 square feet of gaming space including 54 table games, 395
slot machines and a bingo facility. The casinos began operations on January 1,
1995.
Europe owneds a 49% interest in Porto Carras Casino S.A., ("Porto Carras"), a
Greek company which operates an American-style casino in northern Greece.
Equity in the income of Porto Carras is accounted for using the equity method
of accounting and is included in loss from unconsolidated subsidiaries. Casino
Magic sold its interest in Porto Carras in December 1996.
Casino One Corporation holds title to land in Biloxi, Mississippi, adjacent to
the property on which the Company conducts gaming operations in Biloxi,
Mississippi.
Casino Magic Finance Corp. is a special purpose finance subsidiary formed
specifically to issue $135,000,000 First Mortgage Notes ("Mississippi First
Mortgage Notes"). Casino Magic Finance Corp. is 50% owned by each of Mardi
Gras Casino Corp. and Biloxi Casino Corp.
St. Louis Casino Corp. holds title to real estate in St. Louis, Missouri. It
is the Company's intention to sell this property .
Bucks County Casino Corp. holds title to real estate and has options to
purchase additional real estate in Bucks County, Pennsylvania. It is the
Company's intention to use this property in connection with the development of
a proposed casino, if, and when, legislation is passed allowing such activity.
Casino Magic American Corp. is a wholly-owned subsidiary of the Company
through which the Company manages or provides consulting services to Native
American gaming operations.
Boston Casino Corp. has an option on real estate. During 1995, the Company
abandoned all efforts to pursue gaming at this site and all amounts
capitalized relating to this option were expensed.
Kansas Magic Corp. is a wholly-owned subsidiary of the Company through which
the Company is a 50% member of each of two limited liability companies, Kansas
Gaming Partners, L.L.C. ("KGP") and Kansas Financial Partners, L.L.C. ("KFP").
During 1995, the Company expensed its recorded investment due to a bankruptcy
proceeding as discussed in Note 910.
F-12
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
CASINO REVENUES AND COMPLIMENTARIES:
In accordance with common industry practice, casino revenues are the net of
gaming wins less losses. Revenues exclude the retail value of complimentary
rooms, food and beverage furnished gratuitously to customers. The estimated
departmental costs of providing rooms is not significant, and the estimated
departmental costs of providing food and beverage services are included in
casino expense as follows:
YEARS ENDED DECEMBER 31,
1996 1995 1994
$13,838,000 $12,072,000 $14,750,000
CASH AND CASH EQUIVALENTS:
For purposes of the consolidated balance sheets and statements of cash flows,
the Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH:
At the closing of the Louisiana First Mortgage Notes (See Note 6),
approximately $45.2 million of the net proceeds thereof were deposited in
collateral accounts (the "Cash Collateral Accounts") to be disbursed only in
accordance with the Cash Collateral and Disbursement Agreement executed at the
closing of the Louisiana First Mortgage Notes Offering. The balances that
remain in these collateral accounts at December 31, 1996, are shown as
restricted cash.
MARKETABLE SECURITIES:
Marketable securities were short-term investments in government securities or
low-risk financial instruments recorded at cost which approximates market
value.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation, including
amortization of capital leases and leasehold improvements, is computed using
the straight-line method. Estimated useful lives for property and equipment
are 15 - 31 years for barges and buildings, life of the lease for leasehold
improvements and 5-7 years for furniture and equipment.
Normal repairs and maintenance are charged to expense when incurred.
Expenditures which materially extend the useful life of capital assets are
capitalized.
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES:
Investments in unconsolidated subsidiaries where the Company exercises
significant influence are accounted for under the equity method.
F-13
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
AMORTIZATION OF INTANGIBLES:
Deferred charges relating to debt issuance costs and original issue discounts
on long-term debt instruments are amortized over the life of the related debt
using the effective interest rate method to provide a constant yield.
Deferred charges relating to debt issuance costs and original issue discounts
on long-term debt instruments are amortized over the life of the related debt
using the effective interest rate method to provide a constant yield.
Included under other long term assets is "Deferred gaming license cost."
Deferred gaming license cost represents the estimated fair value of the
Louisiana gaming license, an asset acquired in conjunction with the purchase
of Crescent City Development Corporation ("Crescent City") see Note 4. This
cost is being amortized on a straight-line basis over twenty-five years, the
estimated period to be benefited by the license which commenced at the time
gaming operations began at Bossier City.
FOREIGN CASINO CONCESSION AGREEMENT:
The costs capitalized to acquire the foreign casino concession agreement are
being amortized on a straight-line basis over the twelve year life of the
agreement.
DEVELOPMENT AND PREOPENING COSTS:
All internal salary and related costs of the Company's development activities
are expensed as incurred. Amounts paid for outside consultants and
professional fees are expensed until gaming has been legalized in the
jurisdiction, the Company has an approved site and there is a reasonable
likelihood that the Company will be granted a gaming license. From this point
forward, outside and incremental development costs are capitalized.
Capitalized development costs of $2,055,509 were included in development and
expenses as of December 31, 1994. As discussed in Note 9, during 1995, the
Company modified its agreements with the Sisseton-Wahpeton Dakota Nation. As a
result of this, the amounts previously capitalized were expensed. Preopening
costs are capitalized then expensed when the related business commences
operations.
OPTIONS AND LAND DEPOSITS:
The costs of options and land deposits are amortized over the life of the
option or deposit until such time as the option or deposit is exercised or
abandoned.
INCOME TAXES:
Income taxes are accounted for in accordance with provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
the asset and liability method of Statement No. 109, deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. Under Statement No. 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
F-14
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
FOREIGN CURRENCY TRANSLATION:
The functional currency for certain foreign subsidiaries and unconsolidated
companies is the applicable local currency. The translation of the applicable
local currencies into U.S. dollars is performed for balance sheet accounts
using the current exchange rates in effect at the balance sheet date and for
revenue and expense accounts using weighted average exchange rates during the
period. The gains and losses resulting from the balance sheet account
translations, net of deferred income taxes, are included in shareholders'
equity. Some transactions of the Company and its subsidiaries are made in
currencies different from their own. Gains and losses from these transactions
are included in the consolidated statements of operations as they occur.
Foreign currency transaction gains or losses included in the consolidated
statement of operations have not been material.
NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) per common and common equivalent share is calculated using
the weighted average number of common shares outstanding increased by the
additional number of shares which would be issuable upon the exercise of
warrants and stock options, including options granted under the Company's 1992
Incentive Stock Option Plan. In the calculation, as required under Opinion
No. 15 of the Accounting Principles Board ("APB 15"), an assumption is made
that the Company used the exercise proceeds to purchase additional shares at
the average market price and applied any excess proceeds under the "modified
treasury stock method." As further required by APB 15, proceeds were
calculated to include the exercise proceeds of the issuances, average unearned
compensation for future services, and the tax benefit associated with the
increase in market price of certain stock options granted outside the Plan.
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES:
GAMING REGULATION LICENSING. The Company has gaming operations in the United
States and abroad that depend on the continued licensability or qualification
of the Company and subsidiaries that hold gaming licenses in various
jurisdictions. Such licensing and qualifications are reviewed periodically by
the gaming authorities in those jurisdictions.
COMPETITION. The gaming industry is extremely competitive and the Company
faces competition from new developments in both the United States,
specifically on the Mississippi Gulf Coast and in Louisiana, and abroad.
FOREIGN OPERATIONS. The Company has investments and net assets of
approximately $16 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, regulations imposed by foreign governments, the continued ability
to repatriate cash, and currency exchange issues.
F-15
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
CAPITALIZED COSTS. At December 31, 1996, the accompanying balance sheet
reflects assets related to options and land deposits and property held for
development in states where the Company does not presently have a license to
conduct gaming or gaming is not presently allowed by law. If the Company is
not successful in acquiring licenses or gaming is not legalized in such
states, future adjustments to the carrying value of these assets may be
required.
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.
START-UP OF OPERATIONS. Initial operations of the Casino Magic-Bossier City
casino were adversely affected by high water which forced the closure of the
casino for 15 days during 1996, as well as beginning operations before a
substantial portion of the Casino's amenities were completed. It is
anticipated that these difficulties incurred during start-up operation will
negatively impact operations during the early part of 1997.
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.
RECLASSIFICATIONS:
Certain reclassifications have been made to the 1995 and 1994 amounts to
conform with the December 31, 1996 presentation.
F-16
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. NOTES AND ACCOUNTS RECEIVABLENOTES AND ACCOUNTS RECEIVABLE:
Notes and accounts receivable consist of the following:
DECEMBER 31,
1996 1995
Current:
Notes receivable - from affiliate $ -- $2,000,000
Notes receivable 790,228 --
Accounts receivable - air charter 548,239 570,540
Accounts receivable - trade 2,505,463 1,653,912
Accounts receivable - from affiliate -- 0 3,211,588
Other 606,631 846,909
$4,450,561 $8,282,949
Less allowance for doubtful accounts 1,561,075 1,403,869
Total Notes and Accounts Receivable
(current) $2,889,486 $6,879,080
Noncurrent:
Notes receivable 4,119,700-- 0
Total Notes and Accounts Receivable $7,009,186 $6,879,080
Included in notes receivable is a commercial loan in which the Company,
through a wholly-owned subsidiary, participated. The amount of Company's
participation is $5 million. The entire loan amount in which the Company, is
participating is $17,500,000. The loan was made by a consortium of lenders to
the Sisseton-Wahpeton Dakota Nation, a Native American Tribe, for the
construction of a casino facility on Tribal land. The Company, through a
wholly-owned subsidiary, has a consulting agreement with the Native American
Tribe to assist in the operations of the casino facility. The loan was
converted from a construction loan to a term loan in February 1997. The term
loan is repayable over a sixty month period payable in monthly installments of
$105,230 including principal and interest at a fixed rate of 10.375% through
February 2002.
3. PROPERTY AND EQUIPMENTPROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
DECEMBER 31,
1996 1995
Land and improvements $ 67,658,624 $ 58,018,386
Buildings and improvements 44,554,665 41,672,748
Barges and improvements 55,203,063 35,973,068
Leasehold improvements 382,907 1,362,141
Furniture and equipment 69,663,192 54,916,169
Construction in progress 48,549,525 8,424,425
286,011,976 200,366,937
Less accumulated depreciation
and amortization (42,319,405) (30,575,180)
$243,692,571 $169,791,757
F-17
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. STOCK ACQUISITIONS:
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 . Crescent City, which was the subject of a plan of
reorganization under Chapter 11 of the U.S. Bankruptcy Code, owned 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. ("Casino Magic-Bossier City").
The Company is using Casino Magic-Bossier City's gaming license in Bossier
City, Louisiana, where it currently owns 23 acres of land. Although Jefferson
Corp. was required to purchase the Crescent City Riverboat to obtain the
Louisiana gaming license, the Crescent City Riverboat is one of the largest
riverboats in the United States and could not be used at Casino Magic-Bossier
City because of Crescent City Riverboat's width. Therefore, the Company
purchased a casino riverboat (the "Bossier Riverboat") for use at Casino
Magic-Bossier City for $20 million. The Crescent City Riverboat, classified
as property held for sale, with a carrying value of $10.1 million at December
31,1996, will be sold and the proceeds will be used to assist in the funding
of the hotel at 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 Casino
Magic-Bossier City which included gaming, surveillance and related equipment
are being used at Casino Magic-Bossier City's gaming site.
5. DISPOSITIONS
On June 13, 1996, the Company sold the capital stock of Atlantic-Pacific
Corp., which operates "Goldiggers," a small casino-hotel in Deadwood, South
Dakota, to Royal Casino Group, Inc. ("RCG"), an unaffiliated party whose
common stock trades on the NASDAQ market (ticker symbol WINZ). Goldiggers had
not been regarded by the Company 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 (See Note 7) required that at least
85% of the consideration received by the Company 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, management
has taken steps which it believes are sufficient to cure such violation.
F-18
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. DISPOSITIONS (CONTINUED)
At September 30, 1996, management determined that its 49% equity investment in
Porto Carras Casino S.A., and notes and accounts receivable relating to unpaid
management fees and royalties were impaired. Because of this impairment,
management wrote off its investment in such gaming facilities in Porto Carras,
Greece, ("Porto Carras") and all unpaid notes and receivables related thereto.
The total charge recorded relating to the write off of Porto Carras was $26.1
million. Management's decision was based, primarily, on the results from
Porto Carras after the opening of a competing casino. In September 1996,
Hyatt Corporation opened a new casino in the City of Thessaloniki, Porto
Carras's primary market and was required by the Greek Government to charge an
$8 admission tax compared to Porto Carras' $20 admission tax. Although the
Company anticipated some revenue loss as a result of this increased
competition and admission fee differential, the actual effects were much
greater than anticipated and resulted in a $2.0 million loss from operations
at Porto Carras for the month of September 1996. Despite new marketing and
cost containment efforts, these losses continued; furthermore, the majority
owner in Porto Carras venture was unwilling or unable to advance any funds to
the operation. Additionally, the majority owner informed the Company that it
did not intend to operate a substantial portion of the Porto Carras resort
area, consisting of two hotels and amenities, during the 1997 season. These
factors, among others, led to the Company's decision to write off its
investment in Porto Carras and led to the sale of Porto Carras in December
1996.
6. NOTES AND CONTRACTS PAYABLENOTES AND CONTRACTS PAYABLE:
Short-term notes and contracts payable consist of the following:
December 31,
1996 1995
Construction contracts (a) $ 4,540,434 $ 113,966
Other (b)(c) 168,169
850,208
$ 4,708,603 $
964,174
(a) Consists of various payables relating to both fixed and cost plus
contracts.
(b) In 1996, the balance consisted of three notes payable. The detail of
these notes is as follows: (i) $161,939 uncollaterized note, payable in
monthly installments of $27,585 including interest at 7.5%, through June 1997.
(ii) $1,837 note collateralized by office equipment, payable in monthly
installments of $157. (iii) $4,393 note collateralized by golf equipment,
payable in monthly installments of $290.
(c) In 1995, the balance consisted of an uncollaterized note, payable in
variable monthly installments including interest at prime plus 5% through
September 1996.
F-19
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBTLONG-TERM DEBT:
Long-term debt, including capital lease obligations, consists of the
following:
DECEMBER 31,
1996 1995
Notes payable, bank (a) $ 9,585,130 $ 2,765,423
Equipment contracts (b) 622,274 --
Notes payable, land (c) 3,470,415 4,102,507
Capital lease obligations (Note 9) 308,514 259,557
Other (d) 1,207,986 928,500
Louisiana First Mortgage Notes (e) 115,000,000 --
First Mortgage Notes (f) 135,000,000 135,000,000
Unamortized original
issue discount (2,284,450) (2,620,232)
$262,909,869 $140,435,755
Less current maturities $ (4,648,638) $ (3,595,745)
$258,261,231 $136,840,010
(a) Consists of four 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 2000. The
promissory note bears interest at prime plus 1% (9.25% at December 31, 1996)
throughout the life of the note with a final balloon payment due in February
2000. (ii) $1,700,000 note collateralized by gaming equipment. The first
payment is due 120 days following the opening of 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 December 31, 1996). (iii)
$1,343,749 assumed note collateralized by the company jet. This note was
paid off subsequent to year end when the jet sold. The note is payable in 34
remaining monthly payments of $35,000, including interest at prime plus 1%
(9.25% at December 31, 1996) throughout the life of the note with a final
balloon payment due October 1999. (iv) $4,575,740 collateralized by gaming
equipment. The first payment is due 120 days following the opening of 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 December 31, 1996).
(b) Consists of two notes payable collateralized by golf equipment. The
detail of these notes is as follows: (i) $482,365 note payable in forty-three
remaining monthly payments of $12,150.80, including interest at 9.64%. (ii)
$182,049 note collaterized by golf equipment, payable in forty-one remaining
monthly payments of $4,540.68, including interest at 9.12%.
F-20
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT (CONTINUED)LONG-TERM DEBT:
(c) Consists of three notes payable for land acquisitions. The detail of the
three notes is as follows: (i)$471,614 note payable in monthly installments
of $14,920.34 including interest at prime plus 2% (10.25% at December 31,
1996), through April 1999. (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.
(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.
(e) On August 22, 1996, a wholly owned subsidiary of the Company, Casino
Magic-Bossier City, sold $115,000,000 aggregate principal amount of 13%, First
Mortgage Notes securities due in 2003 ("Series A Notes") with contingent
interest. Casino Magic-Bossier City is required to offer to exchange up to an
aggregate of $115,000,000 principal amount of 13% Series B First Mortgage
Notes due 2003 with Contingent Interest (the "Series B Notes" and, together
with the Series A Notes, the "Louisiana First Mortgage Notes") for such Series
A Notes. The Series B Notes will be identical to the Series A Notes but will
be registered with the Securities and Exchange Commission.
Contingent Interest is payable on the Louisiana First Mortgage Notes, on each
interest payment date, in an aggregate amount equal to 5% of Casino
Magic-Bossier City's Adjusted Consolidated Cash Flow (as defined in the
Louisiana First Mortgage Notes Indenture ("Louisiana Indenture") for the
Accrual Period (as defined in the Louisiana Indenture, but generally a six
month period) last completed prior to such interest payment date; provided
that no Contingent Interest is payable with respect to any period prior to the
Commencement Date (as defined in the Louisiana Indenture). Payment of all or
a portion of any installment of Contingent Interest may be deferred, at the
option of Casino Magic-Bossier City, if, and only to the extent that, (i) the
payment of such portion of Contingent Interest will cause Casino Magic-Bossier
City's Adjusted Fixed Charge Coverage Ratio (as defined in the Louisiana
Indenture) for Casino Magic-Bossier City's most recently completed Reference
Period prior to such interest payment date to be less than 1.5 to 1.0 on a pro
forma basis after giving effect to the assumed payment of such Contingent
Interest and (ii) the principal amount of the Louisiana First Mortgage Notes
corresponding to such Contingent Interest has not then matured and become due
and payable (at stated maturity, upon acceleration, upon redemption, upon
maturity of a repurchase obligation or otherwise). The aggregate amount of
Contingent Interest payable in any Semiannual Period will be reduced pro rata
for reductions in the outstanding principal amount of notes prior to the close
of business on the record date immediately preceding such payment of
Contingent Interest.
The Series A Notes were issued to consolidate the funding necessary to develop
Casino Magic-Bossier City project. This included the repayment of the
Louisiana Land Note and the Louisiana Notes.
F-21
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT (CONTINUED)LONG-TERM DEBT:
The Louisiana First Mortgage Notes are secured by a first priority security
interest, subject to permitted liens, in substantially all of the existing and
future assets of Bossier City, including the Bossier Riverboat and
substantially all of the other assets that comprise Casino Magic-Bossier
City, the Crescent City Riverboat, and an assignment of the construction
contracts pursuant to which Casino Magic-Bossier City was being constructed.
The Jefferson Guarantee will be secured by a pledge of all of the capital
stock of Jefferson Casino Corp., a wholly owned subsidiary of the Company.
Casino Magic-Bossier City has contractually committed to apply net proceeds
from an asset sale of the Crescent City Riverboat to the construction of
Casino Magic-Bossier City which improvements shall be owned by Casino
Magic-Bossier City or such Subsidiary and be used by or useful to Casino
Magic-Bossier City or such Subsidiary in any line of business in which Bossier
City or such Subsidiary is permitted to be engaged pursuant to the covenant
described under "Certain Covenants Line of Business as defined in the
Indenture;" provided, however, that the Net Proceeds from an asset sale of the
Crescent City Riverboat may be applied only to the making of a capital
expenditure or the acquisition of long-term assets or the payment of the costs
of construction of real property improvements, in any case, to be used by
Casino Magic-Bossier City ator the Casino Magic-Bossier as a casino
entertainment facility or hotel.
The Louisiana First Mortgage Notes are governed by the Louisiana Indenture.
The Louisiana Indenture pursuant to which the Louisiana First Mortgage Notes
have been issued contains certain covenants that will limit the ability of
Casino Magic-Bossier City and its subsidiaries to, among other things, incur
additional indebtedness and issue preferred stock, pay dividends, make
investments or make other restricted payments, incur liens, enter into mergers
or consolidations, enter into transactions with affiliates or sell assets.
(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 the
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
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
F-22
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT (CONTINUED)LONG-TERM DEBT:
excess of $10,000,000 against the Company or its material subsidiaries, which
is not discharged within 60 days after entry, and the default by the Company
or its 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
Saint Louis and Biloxi along with the accounts receivable, inventories,
property and equipment, property held for development and deposits of Casino
Magic-BSL and Casino Magic-Biloxi. The book basis of these pledged assets is
approximately $150,000,000 at December 31, 1996. The effective interest rate
of the Notes is 13.06%. The proceeds from the Notes were used to pay off
substantially all outstanding obligations at October 14, 1993.
Maturities of the Company's long-term debt, including capital lease
obligations, as of December 31, 1996, are as follows:
YEAR ENDING DECEMBER 31,
1997 $ 4,648,638
1998 4,985,055
1999 3,891,168
2000 937,205
2001 135,245,043
Thereafter 115,487,210
265,194,319
Unamortized original issue
discount (2,284,450)
$262,909,869
8. LEASE COMMITMENTS:
The Company has long-term lease agreements for land for the site of Casino
Magic-Biloxi and additional land at Casino Magic-BSL. The Casino Magic-Biloxi
land is classified as an operating lease. The annual rental payments for the
initial five-year term of the Casino Magic-Biloxi land lease began June 5,
1993, and are $550,000, $250,000, $450,000, $450,000 and $200,000 for the
first through fifth year. The land lease contains seventeen, five-year
renewal options at contractually higher rentals, plus inflation adjustments
not to exceed 4.5% per year.
F-23
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LEASE COMMITMENTS (CONTINUED):
On June 4, 1993, the Company entered into a long-term agreement with the State
of Mississippi to lease 283,217 square feet of submerged lands or tidelands
for Casino Magic-Biloxi. The initial lease term expires May 31, 2003, but is
cancelable by the Company in May 1998. Annual rental payments are due in
advance on the first of June in the amount of $595,000, plus an annual
increase of $45,000 for the first five years.
The following is a schedule of future minimum lease payments for capital
and operating leases (with initial or remaining terms in excess of one year)
as of December 31, 1996:
Year ending December 31,
Capital Operating
Leases Leases
1997 $351,565 $1,866,404$
462,032
1998 211,342
1,323,4472,664,093
1999 155,279
1,112,7092,341,394
2000 27,185
1,063,3061,139,168
2001 21,488
952,0001,141,025
Thereafter 45,5722,070,5001,039,000
Total minimum lease payments 812,431
$8,388,366786,712
Less amount representing interest (8% to 13%) 131,974
Present value of net minimum capital lease
payments $680,457
Rent expense for all non-cancelable operating leases was $1,800,000,
$3,048,000, and $3,254,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
9. OTHER COMMITMENTS AND CONTINGENCIES
ONGOING LEGAL PROCEEDINGS:
A class action lawsuit was filed on April 26, 1994, in the United States
District Court, Middle District of Florida (the "Poulos Lawsuit"), naming as
defendants 41 manufacturers, distributors and casino operators of video poker
and electronic slot machines, including the Company. The lawsuit alleges that
such defendants have engaged in a course of fraudulent and misleading conduct
intended to induce people to play such games based on a false belief
concerning the operation of the gaming machines, as well as the extent to
which there is an opportunity to win. The suit alleges violations of the
Racketeer Influenced and Corrupt Organization Act, as well as claims of common
law fraud, unjust enrichment and negligent misrepresentation, and seeks
damages in excess of $6 billion. On May 10, 1994, a second class action
lawsuit was filed in the United States District Court, Middle District of
Florida (the "Ahern Lawsuit"), naming as defendants the same defendants who
were named in the Poulos Lawsuit and adding as defendants the owners of
certain casino operations in Puerto Rico and the Bahamas, who were not named
as defendants in the Poulos Lawsuit. The claims in the Ahern Lawsuit are
F-24
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED):
identical to the claims in the Poulos Lawsuit. Because of the similarity of
parties and claims, the Poulos Lawsuit and Ahern Lawsuit have now been
consolidated into one case file in the United States District Court, Middle
District of Florida. On December 9, 1994 defendants' motion for change of
venue was granted, transferring the case to the U.S. District Court, District
of Nevada, in Las Vegas. In response to a motion to dismiss the Complaint
brought by the Company and other defendants, the United States District Court
for the District of Nevada entered an Order dated April 17, 1996, granting the
motions and dismissing the complaint without prejudice. The plaintiffs then
filed an amended Complaint on May 31, 1996, in which the plaintiffs sought
damages against the Company and other defendants in excess of $1 billion and
punitive damages for violations of the Racketeer Influenced and Corrupt
Organizations Act and for state common law claims for fraud, unjust enrichment
and negligent misrepresentation. The Company and other defendants have moved
to dismiss the amended Complaint. The Company believes that the claims are
without merit and does not expect that the lawsuit will have a material
adverse effect on the financial condition or results of operations of the
Company.
On October 20, 1994, International Gaming Network, Inc., commenced litigation
in Federal Court against Casino Magic Corp. by filing a Complaint with the
U.S. District Court, District of South Dakota, Southern Division. Plaintiff,
in that litigation, has alleged, among other things, that the Company
intentionally and improperly interfered with Plaintiff's existing and
perspective contractual, economic or business relationship with the
Sisseton-Wahpeton Sioux Tribe, and seeks damages of $28,292,102. In April
1994, the Company entered into an agreement with the Tribe to develop and
manage a gaming casino on tribal lands in northeastern South Dakota. (The
Company has since canceled the management agreement and entered into a
consulting agreement with the Tribe.) On November 9, 1994, the Company
interposed an answer denying the allegations contained in Plaintiff's
estimated range or potential loss, if any, which may be sustained by the
Company in connection with this litigation, but believes the lawsuit is
meritless and intends to vigorously defend the claim. The United States
District Court, on October 7, 1996, filed a Judgment of Dismissal, dismissing
all of Plaintiff's claims, pursuant to a Motion for Summary Judgment which had
been brought by Casino Magic. Pursuant to a Notice of Appeal dated November
5, 1996, the Plaintiff has appealed the dismissal of its claims to the United
States Court of Appeals for the Eighth Circuit. Company management believes
that the outcome of the litigation discussed above will not have a material
adverse effect on the Company's financial position or results of operations.
In addition, the Company is a litigant in legal matters arising in the normal
course of business. In the opinion of management, all such pending legal
matters are either adequately covered by insurance, or if not insured, will
not have a material adverse effect on the financial position or results of
operations of the Company.
F-25
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED):
CONTRACTUAL AGREEMENTS:
ARGENTINA. In December 1994, the Company, through its wholly-owned
subsidiary, Casino Magic-Neuqu n, entered into a 12-year concession agreement
with the Province of Neuqu n, Argentina. Casino Magic-Neuqu n which began
operations in January 1995 operates two casinos in the Province of Neuqu n in
the cities of Neuqu n City and San Mart n de los Andes. The Company has
unrestricted rights to increase the number of gaming positions at both
locations.
CAMPTOWN GREYHOUND RACING, INC. On July 7, 1994, the Company and Alliance
Gaming Corp. (formerly United Gaming) formed two joint ventures ("KGP" and
"KFP") to loan Camptown Greyhound Racing, Inc. ("Camptown') approximately $3.2
million. On October 28, 1994, KFP executed a loan agreement with Boatmen's
Bank of Kansas City ("Boatmen's") whereby Boatmen's loaned $3.2 million to
Camptown. KFP had collateralized the loan with a $3.1 million certificate of
deposit (one-half funded by each party to the joint venture) and, in addition,
guaranteed the repayment of the loan. In January 1996, Camptown filed for
protection under Chapter 11 of U.S. Bankruptcy Code. KFP has satisfied its
obligation under the guarantee, and now owns a second mortgage on Camptown's
facility in Frontense, Kansas in the amount of $3,205,000, plus accrued
interest. The Company has taken steps to protect its investment and rights to
operate gaming devices at the Camptown facility, if and when such operation is
legalized. The Company's $1,580,000 share of the amount loaned by KFP to
Camptown was expensed in 1995.
In January 1997, the Company transferred all of its interest in KGP and KFP to
Alliance Gaming Corp., an unrelated third party, except for a
deminimusdiminimums interest. The consideration for the transfer was Alliance
Gaming Corp.'s agreement to assume certain current financial obligations and
to repay the Company all of its cost in the project if they are successful in
commencing gaming operations at Camptown.
LAKES REGIONAL GREYHOUND PARK. 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. There is no assurance that the Company
will have the funds to pursue such gaming opportunity.
F-26
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED):
PROMOTIONAL SERVICES. In April 1993, the Company entered into an agreement
with Casino Magic Vacations ("CMV"), an unrelated company, to provide
promotional services primarily related to customer travel arrangements to the
Company's Gulf Coast properties. The Company's costs consisted of air charter
fees, CMV commissions, compensation, and monthly operating expense
reimbursements as provided for under the agreement. The Company incurred
promotional costs under the agreement of approximately $12,000,000 and
$6,100,000 for the years ended December 31, 1994 and 1993, respectively. In
October 1994, the Company notified CMV of its intent to reduce costs by
running the air charter promotion in-house and began negotiations with CMV to
terminate the agreement. The Company filed suit against CMV in December 1994.
In August 1995, the Company was awarded $2.2 million, of which $1 million has
been paid. There is no assurance that the Company will collect the balance of
this award; accordingly, this receivable has been fully reserved.
GREECE MANAGEMENT AGREEMENTS In June 1994, the Company negotiated the terms
of definitive agreements pursuant to which it would acquire a 49% interest in
a proposed gaming casino, Porto Carras, Porto Carras is located at the Porto
Carras resort in northeastern Greece. The Company invested approximately $20
million for its 49% interest. The remaining 51% is owned by Touristiki
Georgiki Exagogiki, a Greek company ("TGE"). Under the terms of the
agreement, the Company managed 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
received a royalty of 2% of casino gross revenues. In December 1996 the
Company sold its interest in Porto Carras and terminated all management and
royalty agreements associated with Porto Carras.
In 1995, the Company entered into an agreement with a consortium of Greek
companies to manage and operate an American-style casino to be constructed in
Xanthi, in the Thrace region of Northeastern Greece which is located near the
borders of Bulgaria and Turkey. The Tourism Ministry of Greece has awarded a
license to build and operate the casino to members of the consortium. The
initial phase of the casino operation opened on December 1, 1995. The Company
terminated this agreement in December 1996.
F-27
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED):
LAND ACQUISITIONS.
The Company has acquired land and options to purchase land in order to enhance
the Company's developmental and licensing procurement potential in various
States. However, the Company's ability to develop additional gaming
properties will be subject to its ability to raise additional debt or equity
financing. While the Company believes that such arrangements can, and will,
be made, there are no assurances that the Company will be able to procure such
licensing, nor be able to raise additional debt or equity financing on
acceptable terms.
On July 13, 1993, the Company executed an option agreement, though the year
2000, to acquire certain parcels of land in Alabama which may be suitable for
casino gaming. The total price to exercise the option is $15,000,000 and is
subject to an escalation index. The option includes provisions to pay 4.9% of
income before income taxes of all casinos and related business conducted by
the Company on the optioned property for 10 years and an option to purchase
200,000 shares of the Company's stock at an exercise price of $5.8125 per
share. Aggregate payments made of $1,210,000 are included in options and land
deposits at December 31, 1996.
On August 31, 1993, the Company assigned to the Company's Chairman (then
President and Chief Executive Officer) the Company's rights under a purchase
agreement for the acquisition of approximately 3.5 acres of unimproved land in
downtown St. Louis, Missouri. The purchase agreement was entered into by the
Company on June 16, 1993 and provided the Company the right to purchase the
land at a price of $3,550,000. In consideration for the Company's assignment
of its rights to purchase the land, the Company's Chairman acquired the land
and granted to the Company an option to repurchase the land. On November 30,
1993 the Company exercised its option to purchase the land at a cost of
$3,633,176. No gain or loss was recognized on the sale to the Company. At
December 31, 1996, approximately $4,000,000 is included in property held for
sale related to this transaction.
In December 1993, the Company obtained an option at a cost of $77,500 to
purchase additional land and real estate located in Downtown St. Louis,
Missouri at a cost of $812,500, less the option price. In February 1994, the
Company exercised its option and purchased the property in March 1994. At
December 31, 1996, $820,421 is included in property held for sale related to
this transaction.
F-28
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED):
LAND ACQUISITIONS (CONTINUED).
On January 11, 1994, the Company executed two, $20,000 option agreements to
acquire land in Indiana at a cost of $6,000 per acre on approximately 40
acres, and $7,000 per acre on approximately 119 acres, or $240,000 and
$833,000, respectively, less the option payments. The options expire (i) one
year from the date of the agreements or (ii) on the date the Company receives
a gaming license from the Indiana Gaming Commission, whichever term is longer.
In February 1995, the Company paid $6,000 for a two-year option to purchase
additional land in Indiana at a cost of $7,000 per acre on approximately 35
acres or $245,000, less the option payment. Aggregate payments of $46,000 are
included in options and land deposits at December 31, 1996 with respect to the
Indiana options.
On February 7, 1994, the Company paid $150,000 for a 90-day option to purchase
property in Pennsylvania at a cost of $2,200,000. Under the agreement,
additional land may be conveyed at $40,000 per acre in addition to the
original purchase price. The option was extended for eleven additional 90-day
periods at $50,000 for two 90-day periods, $62,500 for three 90-day periods,
$75,000 for three 90-day periods, and $87,500 for three 90-day periods.
Aggregate payments of $512,500 previously made under this option agreement
were expensed in 1996 and the options were cancelled.
On March 12, 1994, a wholly-owned subsidiary of the Company acquired an option
to purchase certain property located in Boston, Massachusetts for $60,000,000.
In December 1995, the Company abandoned all efforts to pursue gaming at this
site and expensed $8,986,722 in costs associated with this property. This
includes the discounted value of future option payments to be made until the
year 1999.
In June 1994, the Company purchased property in Pennsylvania at a total cost
of approximately $2,000,000 which is included in property held for development
at December 31, 1996 and 1995. In addition to the basic purchase price of the
property, the agreement of sale requires the Company to pay the seller
$5,000,000 if the Company obtains a license to operate a casino gambling
operation on the premises at any time before May 31, 1999.
F-29
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED):
OPTION TO LEASE REAL ESTATE. On December 11, 1993, the Company entered into
an agreement for an option to lease certain property in Indiana. The
agreement requires advance payments of $500,000 in each of four years, and
upon exercise, would allow the Company to lease the subject property at
$1,000,000 per year for twenty years. At December 31, 1996, aggregate
payments of $2,000,000 under this agreement are included in options and land
deposits.
GULF COAST DEVELOPMENT. Future renewals of Casino Magic-Biloxi's Mississippi
gaming license are conditioned upon the completion of a hotel on or near the
premises, or in the alternative, the completion of a hotel and golf course at
Casino Magic-BSL. Both projects are included in the Company's plan for future
capital projects.
CONSULTING AGREEMENTS:
SISSETON-WAHPETON DAKOTA NATION. In early 1996, the Company, through a
wholly-owned subsidiary entered into a consulting agreement with
Sisseton-Wahpeton Dakota Nation ("Sisseton"). The Company provided consulting
services to Sisseton during the development and opening of a temporary casino
facility, on Tribal land, for a fee of $350,000. The agreement also specifies
that the Company provide consulting services to Sisseton after the opening of
the temporary facility for a period of two years and includes unlimited one
year extensions. The fee for these services is based upon gross revenues of
the hotel and casino facility and can range from $0 to $4,500,000 per year.
No fees were earned in 1996 after the opening of the temporary casino
facility. (See Note 2 for related note receivable.)
10. SHAREHOLDERS' EQUITY:
RESTRICTED SHARES
Prior to the initial public offering, the Company sold an additional 900,000
shares of common stock to outside investors at $1.17 per share. Concurrent
with the sale, 450,000 shares of common stock held by the Company's Chairman
and principal shareholder and an employee of the Company were returned to the
Company for cancellation. The net effect of these transactions was an
increase of 450,000 shares outstanding.
In August and September 1994, the Company sold a total of 1,700,000 shares of
common stock to foreign investors. The shares were issued pursuant to
Regulation "S" as an exemption to the provisions under the United States
Securities Act of 1933, as amended (the "Act"). Aggregate proceeds from the
issuance, net of offering costs of $727,750, were $10,173,000.
F-30
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SHAREHOLDERS' EQUITY:(CONTINUED):
UNDESIGNATED SHARES:
In January and February 1995, the Company sold an aggregate of 1,771,000
shares of common stock to foreign investors which were also issued pursuant to
Regulation "S" as an exemption to the provisions under the Act. Aggregate
proceeds from the issuance, net of offering costs of $534,195, were
$8,320,805.
Approximately 12,450,000 of the Company's outstanding shares of common stock
were restricted as to the length of time the shares must be held before
divestment and the quantities that can be traded when sold. Substantially all
of the shares currently held became eligible for trading in limited quantities
commencing after May 1994.
UNDESIGNATED SHARES:
The Board of Directors is authorized to determine, without shareholder
approval, the rights, preferences and privileges of 2,500,000 authorized, but
unused, undesignated shares. Accordingly, the dividend and liquidation rights
of the shareholders of common stock may be subordinate to those of holders of
undesignated shares, if and when such shares are designated and issued.
WARRANT REGISTRATION:
The Company registered up to 2,743,500 shares of common stock for offer and
sale to the holders of outstanding warrants of the Company exercisable at
$1.50 per share, and up to 1,110,000 shares of common stock to the holders of
outstanding warrants of the Company exercisable at $2.75 per share. In
February 1995, the Company filed a post effective amendment to remove from
registration 980,000 remaining shares of common stock issuable to holders of
the foregoing outstanding warrants, at an exercise price of $2.75. As of
December 31, 1995, 2,873,500 warrants were exercised resulting in aggregate
proceeds of $4,381,420, net of registration costs and expenses of $91,330.
F-31
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK AND EMPLOYEE BENEFIT PLANS:
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," effective for
the Company for 1996. Under SFAS 123, companies can either record expense
based on the fair value of stock based compensation upon issuance or elect to
remain under the current "APB Opinion No. 25" method whereby no compensation
cost is recognized upon grant if certain requirements are met. The Company is
continuing to account for its stock-based compensation plans under APB Opinion
No. 25. However, pro forma disclosures as if the Company adopted the cost
recognition requirements under SFAS 123 are presented below.
INCENTIVE STOCK OPTION PLAN:
In 1992, the Company adopted an incentive stock option plan (the "Plan") in
which directors, officers, and key employees of the Company participate. The
Company has registered 3,700,000 shares of the Company's common stock
currently authorized for issuance under the Plan pursuant to stock options.
Under the Plan, options may be granted for a term of up to ten years, except
for options granted to owners of 10% or more of the Company's outstanding
common stock, which must be exercised within five years from the date the
option is granted. Vesting of all options granted is contingent on continued
employment with the Company prior to the exercise date. The option prices are
determined by a stock option committee composed of members of the Board of
Directors (the "Stock Option Committee") and cannot be less than the greater
of (i) the fair market value of the shares on the date the option is granted
or (ii) the average of the closing sales prices for the Company's common stock
for the thirty (30) consecutive trading days commencing forty-five (45)
trading days prior to the date of grant, or less than 110% of the fair market
value of the shares in the case of 10% or more shareholders. Under the plan,
options to purchase a total of 1,502,600, 1,799,730, and 2,191,420 shares of
common stock were outstanding as of December 31, 1996, 1995 and 1994,
respectively. As of December 31, 1996, 867,564 incentive stock options had
been exercised for an aggregate proceeds of $1,086,283. The plan has a
provision which provides for employees to exchange existing stock held for the
exercise price of the option 5. Under this provision, exercies of 66,231
shares in 1996 are shown in the table below which are not reflected in the
statement of shareholder's equity as the exchange resulted in no net increase
in common shares outstanding.
REPRICING OF OPTIONS:
Upon consideration of recommendations of the Company's management, the Stock
Option Committee and the Board of Directors determined that it was in the best
interests of the Company to reduce the exercise price of incentive stock
options, as well as options granted outside of the Plan, so that the exercise
price would more closely reflect the current market price of the Company's
common stock and therefore assist in retaining the interest of such employees,
officers and consultants in the advancement of the Company's business and
rewarding them should such advancement enhance the market value of the
Company's common stock. On July 25, 1996, on January 18, 1994 and on July 27,
1994, the Stock Option Committee and the Board of Directors reduced the
exercise price of incentive stock options and nonincentive stock options to
$3.63, $14.75 and $7.20 per share, respectively.
F-32
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK AND EMPLOYEE BENEFIT PLANS (CONTINUED):
OPTIONS GRANTED OUTSIDE OF THE PLAN:
During February and March 1994, the Company granted options outside the plan
for 44,000 shares of common stock, to each of three executive officers, that
vest over a period of four years, at exercise prices ranging from $14.25 to
$15.75 per share. These options were repriced to $7.20 per share in July 1994
and have been canceled as of December 1995 due to the officers not fulfilling
their obligations under the option agreements.
In April 1994, the Company granted options outside the Plan for 200,000 shares
of common stock to the Sisseton-Wahpeton Dakota Nation (the "Tribe") at an
exercise price of $15.30 per share. The options are exercisable in annual
increments of 20,000 shares each commencing on April 21, 1995 subject to
approvals and the continuation of gaming as contemplated by a consulting
agreement between the Tribe and a wholly-owned subsidiary of the Company.
In July 1994, the Company granted options outside the Plan for 15,000 and
75,000 shares, respectively to each of two outside directors, exercisable at a
price of $7.20 per share. The options are exercisable in the same manner as
those previously granted to the other directors. In March 1994, the Company
granted 25,000 restricted shares of common stock, to each of three executive
officers, that vest over a period of four years. Unearned compensation of
$1,190,625 had been computed at $15.875 per share, the market value at the
date of grant. During 1995, 16,250 shares were vested and the remaining
58,750 have been canceled as a result of officers not fulfilling their
obligations under the related agreements. As a result of this cancellation,
the Company reversed into income amortization of unearned compensation of
$146,072 recognized in 1994.
In June 1995, the Company granted options outside the Plan for 200,000 shares
of common stock to Atlantic Land Corp. ("Atlantic") at an exercise price of
$5.8125 per share. These options were granted as partial compensation for the
exclusive option to purchase land. The options were fully exercisable as of
June 26, 1995.
In November 1995, the Company granted 25,000 restricted shares of common
stock, to an executive officer, that vest over a period of four years.
Unearned compensation of $101,563 has been computed at $4.063 per share, the
market value at the date of grant, and will be amortized through November
1999.
In December 1995, the Company granted options outside the plan for 490,000
shares of common stock to an executive officer, that vest over a period of
five years, at an exercise price of $4.75 per share. The options were granted
at above market prices.
In May 1996, the Company granted 25,000 restricted shares of common stock, to
an executive officer, that vest over a period of four years. Unearned
compensation of $135,938 has been computed at $5.438 per share, the market
value at the date of grant, and will be amortized through May 2000.
F-33
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK AND EMPLOYEE BENEFIT PLANS (CONTINUED):
ADDITIONAL INFORMATION RELATING TO OPTION ACTIVITY (CONTINUED):
On December 31, 1996, 532,850 of a total of 1,345,000 options granted outside
the Plan were exercisable, and 20,000 options have been exercised to date.
On December 31, 1996, 1,091,785 of a total of 2,841,080 options granted under
the Plan were exercisable, and 1,310,900 shares were available for future
grants under the Plan.
Total compensation expense (income), net of recoveries, of $188,580,
($436,571), and $770,180 was recognized for the years ended December 31, 1996,
1995 and 1994, respectively. Compensation expense for the year ended December
31, 1995 consisted of $65,017 of compensation expense reduced by $501,588 of
compensation expense recoveries from prior years as a result of optionees not
fulfilling their obligations under the related agreements.
A summary of the status of the Company's stock options, non-qualified options,
and warrants as of December 31, 1996 and 1995 and changes during the years
ended on those dates is presented below (shares in thousands):
December 31,
1996 1995 .
Wgtd. Avg. Wgtd. Avg.
Shares Exer. Price Shares Exer. Price
Outstanding at beginning
of year 5,108 $7.60 4,943 $7.42
Granted 1,695 3.63 950 5.06
Exercised (424) 1.72 (344) 1.43
Canceled (2,482) 12.00 (441) 4.61
Outstanding at end
of year 3,897 $3.74 5,108 $7.60
Options exercisable at
end of year 2,655 $3.11 3,072 $9.12
Options available for
future grant under the plan 1,311 1,583
Weighted average fair
value of options granted
during the year $1.11 $1.28
The fair value of each option granted during the periods presented is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions: (1) dividend yield of 0%, (2) expected
volatility of 20%, (3) risk-free interest rates of 5.2%, 5.26%, 5.47% and
5.5%, and (4) expected life of 2.25, 4.5, 6.75, and 9 years.
The following table summarizes information about stock options and warrants
outstanding at December 31, 1996:
F-34
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK AND EMPLOYEE BENEFIT PLANS (CONTINUED):
Options Outstanding Options Exercisable
Range of Number Wgtd. Avg. Wgtd. Avg. Number Wgtd. Avg.
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at 12/31/96 Contr. Life Price at 12/31/96 Price
$0.00- $1.17 86,000 0.58 $1.17 39,750 $1.17
1.42- 1.42 600,000 0.49 1.42 600,000 1.42
1.67- 1.67 220,000 0.76 1.67 220,000 1.67
2.75- 2.75 980,000 0.81 2.75 980,000 2.75
2.83- 2.83 48,000 0.58 2.83 34,500 2.83
3.63- 3.63 1,393,600 4.35 3.63 407,785 3.63
5.81- 5.81 200,000 5.48 5.81 200,000 5.81
7.20- 7.20 119,100 3.67 7.20 82,600 7.20
7.35- 7.35 50,000 2.88 7.35 50,000 7.35
15.30- 15.30 200,000 7.30 15.30 40,000 15.30
$0.00-$15.30 3,896,700 2.75 $3.74 2,654,635 $3.11
Had compensation cost for the Company's 1996 and 1995 grants for stock-based
compensation plans been determined consistent with SFAS 123, the Company's net
income and net earnings (loss) per common share for the years ended December
31, 1996 and 1995 would approximate the pro forma amounts below (in thousands,
except per share data):
December 31,
1996 1995
As Reported Pro Forma As Reported Pro Forma
Net Income (Loss) $(31,589) $(32,344) $(10,292) $(11,131)
Earnings per common share
Primary $(0.88) $(0.90) $(0.30) $(0.33)
Fully diluted $(0.89) $(0.91) $(0.31) $(0.33)
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated.
PENSIONS AND OTHER BENEFITS:
The Company currently sponsors no post-retirement or post-employment
employee benefit plans.
CASINO MAGIC CORP. 401(K) PLAN:
In July 1993, the Company adopted The Casino Magic Corp. 401(k) Plan
(the "401(k) Plan"), a defined contribution plan covering all eligible
employees of the Company who have one year of service and are age twenty-one
or older. The 401(k) Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA). Each year, participants may
contribute up to 15% of pretax annual compensation, as defined in the 401(k)
Plan. The Company's matching and/or additional contributions may be
contributed at the discretion of the Company's Board of Directors. The
Company's contributions to the 401(k) Plan are allocated to employed
participants' accounts as of the last day of the plan year. Total employer
contributions to the 401(k) Plan at December 31, 1996, 1995 and 1994 were
approximately $176,000, $177,000 and $145,000, respectively.
F-35
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCENTIVE STOCK OPTION PLAN:In 1992, the Company adopted an incentive
stock option plan (the "Plan") in which directors, officers and key employees
of the Company participate. The Company has registered 3,700,000 shares of
the Company's common stock currently authorized for issuance under the Plan
pursuant to stock options. Under the Plan, options may be granted for a term
of up to ten years, except for options granted to owners of 10% or more of the
Company's outstanding common stock, which must be exercised within five years
from the date the option is granted. Vesting of all options granted is
contingent on continued employment with the Company prior to the exercise
date. The option prices are determined by a stock option committee composed
of members of the Board of Directors (the "Stock Option Committee") and cannot
be less than the greater of (i) the fair market value of the shares on the
date the option is granted or (ii) the average of the closing sales prices for
the Company's common stock for the thirty (30) consecutive trading days
commencing forty-five (45) trading days prior to the date of grant, or less
than 110% of the fair market value of the shares in the case of 10% or more
shareholders. Under the plan, options to purchase a total of 1,799,730,
2,191,420 and 2,138,250 shares of common stock were outstanding as of December
31, 1995, 1994 and 1993, respectively. As of December 31, 1995, 443,814
incentive stock options had been exercised for an aggregate proceeds of
$626,216.
In May 1993, vesting schedules for some of the Plan participants were modified
to allow the aggregate fair market value (determined at the time of the grant
of the option) of the number of shares of common stock purchasable for the
first time during any calendar year not to exceed the $100,000 limitation
imposed by Section 422(d) of the Internal Revenue Code.
OPTIONS GRANTED OUTSIDE OF THE PLAN:
On May 14, 1993, the Company granted options outside the Plan for 60,000
shares of common stock to an outside Director and for 60,000 shares of common
stock to a consultant currently exercisable at $7.20 per share (market value
at date of reprice, originally granted at $20.83 per share). The 60,000
options granted to the director are exercisable in increments of 12,000 shares
each after the first, second, third and fourth years following this election
as director, so long as he consents to serve in such capacity. The options
will terminate at the end of the fifth year following his initial election as
a member of the Board of Directors. The 60,000 options granted to the
consultant are fully exercisable, and will terminate in May 1997.
On April 21, 1993, the Company granted options outside the Plan for 60,000
shares of common stock to each of two consultants in connection with an
agreement to develop, administer and operate air charter services performed
under the name "Casino Magic Vacations." The options were exercisable at
$8.33 per share over a four-year period through October 1997. Unearned
compensation of $670,000 had been computed as the difference between the $8.33
per share exercise price and the $13.92 per share market value at the date of
the grant. These options were canceled in 1995 due to the consultants not
fulfilling their obligations under the option agreements. As a result of this
cancellation, in 1995 the Company reversed into income amortization of
unearned compensation of $265,208 and $72,584 recognized in 1994 and 1993,
respectively.
During February and March 1994, the Company granted options outside the plan
for 44,000 shares of common stock, to each of three executive officers, that
vest over a period of four years, at exercise prices ranging from $14.25 to
$15.75 per share. These options were repriced to $7.20 per share in July 1994
and have been canceled as of December 1995 due to the officers not fulfilling
their obligations under the option agreements.
In April 1994, the Company granted options outside the Plan for 200,000 shares
of common stock to the Sisseton-Wahpeton Dakota Nation (the "Tribe") at an
exercise price of $15.30 per share. The options are exercisable in annual
increments of 20,000 shares each commencing on April 21, 1995 subject to
approvals and the continuation of gaming as contemplated by a consulting
agreement between the Tribe and a wholly-owned subsidiary of the Company.
In July 1994, the Company granted options outside the Plan for 15,000 and
75,000, respectively to each of two outside directors, exercisable at a price
of $7.20 per share. The options are exercisable in the same manner as those
previously granted to the other directors.
In March 1994, the Company granted 25,000 restricted shares of common stock,
to each of three executive officers, that vest over a period of four years.
Unearned compensation of $1,190,625 had been computed at $15.875 per share,
the market value at the date of grant. During 1995, 16,250 shares were vested
and the remaining 58,750 have been canceled as a result of officers not
fulfilling their obligations under the related agreements. As a result of
this cancellation, the Company reversed into income amortization of unearned
compensation of $146,072 recognized in 1994.
In June 1995, the Company granted options outside the Plan for 200,000 shares
of common stock to Atlantic Land Corp. ("Atlantic") at an exercise price of
$5.8125 per share. These options were granted as partial compensation for the
exclusive option to purchase land. The options are fully exercisable as of
June 26, 1995.
In November 1995, the Company granted 25,000 restricted shares of common
stock, to an executive officer, that vest over a period of four years.
Unearned compensation of $101,563 has been computed at $4.063 per share, the
market value at the date of grant, and will be amortized through November
1999.
OPTIONS GRANTED OUTSIDE OF THE PLAN:
In December 1995, the Company granted options outside the plan for 490,000
shares of common stock to an executive officer, that vest over a period of
five years, at an exercise price of $4.75 per share. The options were granted
at above market prices.
REPRICING OF OPTIONS:
Upon consideration of recommendations of the Company's management, the Stock
Option Committee and the Board of Directors determined that it was in the best
interests of the Company to reduce the exercise price of incentive stock
options, as well as options granted outside of the Plan, so that the exercise
price would more closely reflect the current market price of the Company's
common stock and therefore assist in retaining the interest of such employees,
officers and consultants in the advancement of the Company's business and
rewarding them should such advancement enhance the market value of the
Company's common stock. On January 18, 1994 and on July 27, 1994, the Stock
Option Committee and the Board of Directors reduced the exercise price of
incentive stock options and nonincentive stock options to $14.75 and $7.20 per
share, respectively.
ADDITIONAL INFORMATION RELATING TO OPTION ACTIVITY (CONTINUED):
At December 31, 1995, 246,000 of a total of 1,320,000 options granted outside
the Plan were exercisable, and 20,000 options have been exercised to date.
At December 31, 1995, 652,790 of a total of 1,795,980 options granted under
the Plan were exercisable, and 1,904,020 shares were available for future
grants under the Plan.
Unearned compensation, originally in the amount of $457,500, computed as the
difference between the exercise price of the options and the initial public
offering price (market value at the date of grant), is being amortized through
July 1996.
Total compensation expense (income), net of recoveries, of ($436,571),
$770,180 and $238,437 was recognized for the years ended December 31, 1995,
1994 and 1993, respectively. Compensation expense for the year ended December
31, 1995 consisted of $65,017 of compensation expense reduced by $501,588 of
compensation expense recoveries from prior years as a result of optionees not
fulfilling their option agreements.
ADDITIONAL INFORMATION RELATING TO OPTION ACTIVITY (CONTINUED):
Option price Proceeds
Options per share on exercise
Outstanding at December 31, 1992 1,950,000 $ 3,072,500
Granted:
Officers and key employees 441,000 $6.83 -$20.83 6,548,750
Consultants 180,000 $8.33 -$20.83 2,250,000
Non-employee Directors 60,000 $20.83 1,250,000
Canceled or expired:
Officers and key employees (12,750) $1.67 (21,250)
Outstanding at December 31, 1993 2,618,250 13,100,000
Granted:
Officers and key employees 1,484,800 $7.20 -$16.00 16,302,229
Consultants 120,000 $7.20 -$14.75 1,317,000
Non-employee Directors 210,000 $7.20 -$14.75 1,965,000
Others (Sisseton-Wahpeton) 200,000 $15.30 3,060,000
Canceled or expired:
Officers and key employees (1,144,380) $1.17 -$20.83 (17,128,217)
Consultants (120,000)$14.75 -$20.83 (2,135,000)
Non-employee Directors (120,000)$14.75 -$20.83 (2,135,000)
Exercised:
Officers and key employees (155,250) $1.17 -$2.83 (259,000)
Outstanding at December 31, 1994 3,093,420 14,087,012
Granted:
Officers and key employees 725,000 $4.75 -$5.30 3,518,000
Others (Atlantic Land Corp.) 200,000 $5.81 1,162,600
Canceled or expired:
Officers and key employees (473,876) $1.17 -$7.20 (2,639,303)
Consultants (120,000) $8.33 (999,960)
Exercised:
Officers and key employees (288,564) $1.17 -$2.83 (345,966)
Non-employee Directors (20,000) $1.67 (33,333)
Outstanding at December 31, 1995 3,115,980 $ 14,749,050
PENSIONS AND OTHER BENEFITS:
The Company currently sponsors no post-retirement or post-employment employee
benefit plans.
CASINO MAGIC CORP. 401(K) PLAN:
In July 1993, the Company adopted The Casino Magic Corp. 401(k) Plan (the
"401(k) Plan"), a defined contribution plan covering all eligible employees of
the Company who have one year of service and are age twenty-one or older. The
401(k) Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA). Each year, participants may contribute up to
15% of pretax annual compensation, as defined in the 401(k) Plan. The
Company's matching and/or additional contributions may be contributed at the
discretion of the Company's Board of Directors. The Company's contributions
to the 401(k) Plan are allocated to employed participants' accounts as of the
last day of the plan year. Total employer contributions to the 401(k) Plan at
December 31, 1996, 1995 and 1994 were approximately $176,000, $177,000 and
$145,000, respectively.
In October 1995, the FASB issued Staement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," effective for
the Company for 1996. Under SFAS 123, companies can either record expense
based on the fair value of stock based compensation upon issuance or elect to
remain under the current "APB Opinion No. 25" method whereby no compensation
cost is recognized upon grant if certain requirements are met. The Company is
continuing to account for its stock-based compensation plans under APB Opinion
No. 25. However, pro forma disclosures as if the Company adopted the cost
recognition requirements under SFAS 123 are presented below.
In 1992, the Company adopted an incentive stock option plan (the "Plan") in
which directors, officers, and key employees of the Company participate. The
Company has registered 3,700,000 shares of the Company's common stock
currently authorized for issuance under the Plan pursuant to stock options.
Under the Plan, options may be granted for a term of up to ten years, except
for options granted to owners of 10% or more of the Company's outstanding
common stock, which must be exercised within five years from the date the
option is granted. Vesting of all options granted is contingent on continued
employment with the Company prior to the exercise date. The option prices are
determined by a stock option committee composed of members of the Board of
Directors (the "Stock Option Committee") and cannot be less than the greater
of (i) the fair market value of the shares on the date the option is granted
or (ii) the average of the closing sales prices for the Company's common stock
for the thirty (30) consecutive trading days commen cing forty-five (45)
trading days prior to the date of grant, or less than 110% of the fair market
value of the shares in the case of 10% or more shareholders.
A summary of the status of the Company's stock options as of December 31,
1996, 1995, and 1994 and changes during the years ended on those dates is
presented below (shares in thousands):
1996 1995
Wgtd. Avg. Wgtd. Avg.
Shares Exer. Price Shares Exer. Price
Outstanding at beginning
of year 5,106 $7.60 4,943 $7.42
Granted 1,695 3.63 950 5.06
Exercised (424) 1.72 (344) 1.43
Canceled (2,482) 12.00 (442) 4.61
Outstanding at end
of year 3,897 $3.74 5,108 $7.60
Options exercisable at
year-end 2,655 3,072
Options available for
future grant
Weighted average fair
value of options granted
during the year
The fair value of each option granted during the periods presented is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions: (1) dividend yield of 0%, (2) expected
volatility of 20%, (3) risk-free interest rate of 5.5%, and (4) expected life
of 9 years.
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
Range of Number Wgtd. Avg. Wgtd. Avg. Number Wgtd. Avg.
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at 12/31/96 Contr. Life Price at 12/31/96 Price
$0 - $1.42 636,000 0.50 $1.40 636,000 $1.40
1.67- 1.67 220,000 0.76 1.67 220,000 1.67
2.75- 2.75 980,000 0.81 2.75 980,000 2.75
2.83- 2.83 48,000 0.58 2.83 34,500 2.83
3.63- 3.63 1,393,600 4.35 3.63 407,785 3.63
5.81- 15.30 569,100 5.52 9.57 372,600 7.35
$0 -$15.30 3,846,700 2.75 $3.74 2,650,885 $3.11
Had compensation cost for the Company's 1996 and 1995 grants for stock-based
compensation plans been determined consistent with SFAS 123, the Company's net
income and net earnings (loss) per common share for the years ended December
31, 1996 and 1995 would approximate the pro forma amounts below (in thousands,
except per share data):
December 31,
1996 1995
As Reported Pro Forma As Reported Pro Forma
Net Income (Loss) $(31,859) $(32,344) $(10,292) $(10,189)
Earnings per common share
Primary $(0.88) $(0.90) $(0.30) $(0.30)
Fully diluted $(0.89) $(0.91) $(0.31) $(0.31)
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated.
12. WRITE-OFF OF CAPITALIZED COSTS RELATING TO INACTIVE DEVELOPMENTS
In 1995 and 1994 the Company decided to terminate development efforts with
respect to specific properties and jurisdictions. Because of this
determination, significant capitalized amounts relating to land, land options,
joint ventures and construction projects were written-off or revalued. In
addition, certain consulting agreements that were entered into to pursue
gaming opportunities in new jurisdictions were terminated. The amounts
expensed in the fourth quarter of 1995 and 1994 were $14,542,164 and
$5,479,164 respectively.
13. ADVERTISING
The company expenses all production and communication costs of advertising
as incurred. Advertising expense was approximately $5,470,000, $4,472,000,
and $2,650,000 for years ended December 31, 1996, 1995, and 1994,
respectively.
14. RELATED PARTY TRANSACTIONS:
During the years ended December 31, 1996, 1995, and 1994, the Company incurred
$1,346,861, $353,888, and $1,874,747, respectively, for architectural and
design services provided by an architectural firm that is wholly-owned by an
outside director and shareholder of the Company.
During the years ended December 31, 1996, 1995, and 1994, the Company incurred
$154,028, $388,944, and $566,072, respectively, for legal services provided by
a law firm in which an outside director of the Company is a shareholder.
During the year ended December 31, 1996 and 1995, the Company incurred
$219,800, and $387,422, respectively, for charter plane rentals provided by a
company that is wholly owned by the Company's Chairman.
The Company purchased a jet airplane in February 1996 from the Company's
Chairman. The Company paid $1.7 million for the airplane which approximated
fair value at the date of purchase.
15. INCOME TAXES:
Pretax financial income (loss) generated from domestic and foreign sources was
as follows:
DECEMBER 31,
1996 1995 1994
Domestic $ (15,322,992) $ (15,336,975) $ (3,218,490)
Foreign (20,942,537) 1,813,932
- --
Total pretax loss $ (36,265,529) $ (13,523,043) $
(3,218,490)
Provision (benefit) for income taxes for the years ended December 31, 1996,
1995 and 1994 are as follows:
DECEMBER 31,
1996 1995
1994
Federal and state current $ (4,253,704) $ (2,546,443) $ (2,616,095)
Foreign current 827,548 1,099,816 --
Federal deferred 1,250,026 (1,221,514) 2,428,056
Foreign deferred -- (562,723)
- --
Total provision $ (4,676,182) $ (3,230,864) $
(188,039)
F-36
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. INCOME TAXES (CONTINUED):
Components of deferred tax liabilities (assets) are as follows:
DECEMBER 31,
1996 1995
Depreciation and amortization $ 9,535,121 $ 9,123,061
Foreign sourced income 257,949
- --
Gross deferred tax liabilities 9,793,070
9,123,061
Write-off of preopening costs (2,493,074) (1,087,058)
Tax benefits related to non-statutory stock
Options (504,000) (504,000)
Accrued employee benefits and liabilities (1,433,067) (1,589,378)
Abandoned development projects (10,229,821) (3,804,589)
Foreign sourced income -- (562,723)
Net operating loss carryforward (2,269,344) --
Other (798,293)
(507,159)
Gross deferred tax assets (17,727,599)
(8,054,907)
Less valuation allowance $ 8,201,290 $
- --
Net deferred tax liabilities $ 266,761 $
1,068,154
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate
to pre-tax income from continuing operations as a result of the following
differences:
DECEMBER 31,
1996 1995
1994
Statutory U.S. tax rate (35%) $(12,692,935) $ (4,733,065) $ (1,126,472)
Increase (decrease) in rates resulting
from:
Expenses which were non-deductible for
tax purposes 357,805 733,876 985,816
Foreign taxes 827,548 1,099,816 --
Valuation allowance 8,201,290 -- --
State tax benefit (802,174) -- --
Other (577,716) (331,491)
(47,383)
Effective tax rate
((13%), (24%) and (6%),
respectively) $ (4,676,182) $(3,230,864) $
(188,039)
The valuation allowance against deferred tax assets was recorded in
recognition of operating losses incurred by the Company for the last three
years.
Mississippi State taxes were offset by a tax credit for state gaming taxes
based on gross revenues realized by Casino Magic-BSL and Casino Magic-Biloxi.
The credit is the lesser of the annual total gaming taxes paid or the state
income tax. Credit carry-forwards are not permitted.
Louisiana State taxes do not allow for an offset of state gaming taxes based
on gross revenues realized by Louisiana.
F-37
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. GEOGRAPHICAL DISTRIBUTION OF OPERATIONS:
The following represents the geographical distribution of the Company:
(IN THOUSANDS)
1996 1995 1994
Revenues:
United States $161,292 162,415 185,018
Europe 1,910 1,479 --
South America 15,885 13,084 --
General Corporate and
non-operating companies 1,191 745
- --
$180,278 177,723
185,018
Net Income (Loss):
United States $ 8,999 17,478 23,623
Europe (1) (12,753) (1,254) 104
South America 2,409 1,219 --
General Corporate and
non-operating companies (2) (30,244) (27,735)
(26,757)
$(31,589) (10,292)
(3,030)
Identifiable Assets:
United States $315,153 172,746 168,681
Europe 221 21,963 17,452
South America 12,641 15,498 13,289
General Corporate and
non-operating companies 45,836 58,224
53,201
$373,851 268,431
252,623
(1) Includes equity income (loss) from Porto Carras Casino SA.
(2) Includes total interest expense on bonds issued by Casino Magic
Finance Corp.
F-38
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments" requires disclosure of an estimate of the fair
value of certain financial instruments. The carrying amounts and fair values
of the Company's financial instruments at December 31, 1996 are as follows:
CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE
Cash and cash equivalents (Including
restricted cash) 34,546 34,546
Accounts receivable, trade, aircharter,
other, net 2,099 2,099
Notes receivable 4,910 4,910
Notes payable and current maturities of
long-term debt and long-term debt 262,910 277,910
The following methods and assumptions were used by the Company in estimating
its fair value disclosure:
Cash and cash equivalents, accounts receivable, trade, aircharter, other, net.
The carrying amount reported on the consolidated balance sheet approximates
its fair value because of the short naturematurity of these instruments.
Notes receivable. This is a long-term note recievable from an Indian Tribe.
The fair value of the note approximates market value based on the interest
rate of the note and the collateral securing the note.
Notes payable and current maturities of long-term debt and long-term debt.
The fair value of the Company's debt either approximates its carrying value or
is based upon the market price of the debt instruments.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
F-39
<PAGE>
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
YEAR ENDED DECEMBER 31, 1996
(in thousands, except
per share amounts) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Totals
Revenue $43,125 $42,368 $43,271 $51,514
$180,278
Income from operations 5,565 6,473 5,355 (8,550)
8,843
Income (loss) before tax 2,352 2,456 (26,024) (15,050)
(36,266)
Net income (loss) 1,644 1,660 (20,683) (14,210)
(31,589)
Earnings (loss) per share:
Primary 0.05 0.05 (0.57) (0.40)
(0.88)
Fully-diluted 0.05 0.05 (0.57) (0.40)
(0.89)
YEAR ENDED DECEMBER 31, 1995
(in thousands, except
per share amounts) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Totals
Revenue $43,169 $45,185 $47,518 $41,851
$177,723
Income from operations 4,755 2,654 8,225 (10,863)
4,771
Income (loss) before tax 666 (2,258) 5,452 (17,383)
(13,523)
Net income (loss) 322 (1,597) 3,402 (12,419)
(10,292)
Earnings (loss) per share:
Primary 0.01 (0.05) 0.10 (0.36)
(0.30)
Fully-diluted 0.01 (0.05) 0.10 (0.36)
(0.31)
NOTE: Earnings (loss) per share totals will note necessarily agree to the sum
of the quarterly information.
F-40
EMPLOYMENT AGREEMENT
THIS AGREEMENT is dated, made and entered into on March ____, 1997 and
is effective as of the 25th day of July, 1996, by and between Casino Magic
Corp., a Minnesota corporation (the "Company"), and David L. Paltzik (the
"Employee").
RECITALS
WHEREAS, the Company is desirous of obtaining the full-time services of
the Employee:
WHEREAS, Employee commenced his employment with the Company on June 25,
1996.
WHEREAS, the Employee and the Company are each willing to enter into this
employment agreement (the "Agreement'), all on the terms and subject to the
conditions herein contained; and
WHEREAS, Employee is desirous of receiving stock grants and options to
purchase common stock in the company under the Company's Incentive Stock
Option Play, which options and grants require the approval of the Company's
Board of Directors and the Stock Option Committee, respectively; and
WHEREAS, this Agreement is intended to supersede and take the place of all
prior agreements and understandings concerning employment;
.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual
agreements
hereinafter set forth, the parties agree as follows:
1. Employment of the Employee; Term
(a) The Company agrees to and hereby does employ the Employee, and
the Employee accepts such employment and agrees to discharge faithfully,
diligently and to the best of Employee's abilities, the responsibilities of
such employment on the terms and subject to the conditions herein provided.
(b) The initial term of Employee's employment hereunder shall
terminate on December 31, 1998 ("Initial Expiration Date"),unless terminated
earlier as provided in Section 4.
(c) Notwithstanding the foregoing, following the Initial Expiration
Date, Employee's employment shall thereafter continue on an at will basis on
the terms and conditions contained in this Agreement, provided, however, that
all obligations of the Company and the rights of the Employee under Subsection
4(a) will terminate.
2. Duties of the Employee. During the term of Employee's employment
with the Company hereunder, the Employee shall:
(a) Devote substantially all of Employee's business time and
attention necessary to carry out the duties of Employee's employment
thereunder, applying Employee's best effort and skill for the benefit of the
Company.
(b) Act as Vice Presidentof Construction for the Company and perform
such services and assume such duties and responsibilities as are assigned to
Employee by the President, consistent with such office, all in accordance
with the terms of this Agreement, the Articles of Incorporation and
By-Laws of the Company.
(c) Report directly to the President of the Company.
3. Compensation. As compensation and in consideration for the
performance of services by the Employee and Employee's observance of all of
the provisions of this Agreement, the Company agrees to pay or provide, and
Employee agrees to accept, the following:
(a) Salary. During the term of Employee's employment, the Company
shall pay to the Employee, at least semi-monthly, a base salary at an initial
annual rate of $200,000.00. The employee's base salary may be reviewed from
time to time, but at least annually for increases as determined by the
Company.
(b) Benefits. During the term of Employee's employment, the Employee
shag be entitled to three weeks of paid vacation per annum from and after
Employee's employment start date, seven paid holidays annually, and three paid
sick days annually. In addition, during the term of Employee's employment,
the Employee shall be entitled to medical and hospitalization insurance or
reimbursement, consistent with that provided to other salaried employees of
the Company, or as may be established in a written policy by the Board of
Directors. The Company further agrees to waive the 90-day eligibility period.
(c) Business Expenses. The Company shall reimburse the Employee
for business expenses reasonably incurred by the Employee in connection with
the performance of Employee's duties hereunder, upon the presentation by
Employee of receipts and itemized accounts of such expenditures in accordance
with the rules and regulations of the Internal Revenue Code. Such
expenditures shag be subject at all times to the prior approval of the
President of the Company or his designee. Except for expenses previously
approved by such officer or his designee, the Board of Directors of the
Company may take such action as may be necessary to enforce the repayment to
the Company by the Employee of any amounts reimbursed upon finding that such
reimbursement was not made primarily for the purpose of advancing the
legitimate interests of the Company. In lieu of direct payment by the
Employee, the Company, by action of its Board of Directors, may withhold such
disallowed amounts from future compensation of the Employee until the amount
owed to the Company has been recovered.
(d) Moving Allowance. Subject to submission of invoices and
Company approval, the Company will reimburse Employee for the reasonable
expenses incurred in moving his household goods to the Gulf coast area.
(e) Bonus. In addition to the foregoing, Employee shall be
entitled to participate in any executive bonus pool established by the
Company.
(f) Employment Bonus and Lump Sum Relocation Payment. Upon
commencement of employment, Employee is to be paid the sum of $82,500.00,
however, such sum shall be promptly returned to the Company if, prior to
the anniversary of the Employee's initial year
under this Agreement, Employee voluntarily terminates his employment with the
Company or is terminated for "good cause" as set forth in Subsection 4(a).
4. Termination of Agreement.
(a) Termination With Cause. The Company may terminate Employee's
term of employment under this Agreement for "good cause" upon notice of such
termination to the Employee. For purposes of this Agreement, "good cause"
shall mean Employee's (i) failure or refusal to observe or perform any of the
material provisions of this Agreement or any other written agreement with the
Company, or to substantially perform any of the material duties required of
Employee under this Agreement or any other written agreement with the Company,
or (ii) commission of fraud, misappropriation, embezzlement or other acts of
dishonesty, alcoholism, drug addiction or dependency, or conviction for any
crime punishable as a felony or as a gross misdemeanor involving moral
turpitude, which actions have a material adverse effect upon the Employee's
ability to perform the duties which are assumed or assigned under Section 2
hereof, or which actions or occurrences are materially adverse to the
interests of the Company, or (iii) unreasonable refusal or failure to
faithfully perform the duties and responsibilities of Employee's employment
hereunder or to comply with the directions of the President, his designee or
the Board of Directors. Termination of Employee's employment for good cause
under Subsection 4(a)(ii) above shall be effective upon notice. Termination
of Employee's employment for good cause under Subsections 4(a)(i) or 4(a)(iii)
shall be effective upon fourteen days' prior notice; provided that prior to
the giving of such notice of termination, the Company shall notify Employee
that a factual basis for termination for good cause termination such basis.
(b) Termination with Notice. After the Initial Expiration Date,
Employee's term of employment under this Agreement may be terminated by either
party for any reason upon not less than 30 days' prior written notice.
(c) Termination upon Death of Employee. This Agreement shall
automatically terminate in the event of the Employee's death.
(d) Termination If Employee Not Found Suitable by Mississippi Gaming
Commission and Related Matters. Employee's position with the Company may
require a finding of suitability by the Mississippi Gaming Commission or other
state gaming commission, as the case may be. The Company will pay all
investigative fees and costs associated with the Mississippi Gaming Commission
or other state gaming commission suitability determinations. If the Employee
is not found suitable by the Mississippi Gaming Commission or other gaming
commission as the case may be, Employee's employment with the Company shall
thereafter immediately terminate and this Agreement shall be deemed null and
void.
(e) Termination Obligations. In the event of a termination of the
Employee's term of employment in accordance with Section 4, the Company shall
have no further obligation to the Employee under this Agreement, and the
Employee shall only be entitled to payment by the Company for all compensation
accrued under this Agreement to such date of termination. However, such
termination of the Employee's employment shall not terminate or extinguish the
Employee's obligations under Sections 3 or 6 hereof (unless otherwise provided
therein) or Employee's obligation or liability to pay to the Company any
amounts owed to the Company the Employee, including, but not limited to, any
amounts misappropriated or obtained by the Employee, without prejudice to any
other rights or remedies of the Company at law or in equity. Notwithstanding
the foregoing, in the event that the Employee's term of employment is
terminated by the Company other than for "good cause" as provided under
Subsection 4(a) prior to the Initial Expiration Date, the Company shall
continue to pay to the Employee, at least semimonthly, base salary based on
the annualized monthly base salary then being paid to Employee as of the date
of termination) through the Initial Expiration Date. Employee and the Company
acknowledge and agree that no part of any incentive compensation that is based
on the Company's financial performance for a fiscal year, if any, is payable
if Employee's employment is terminated for any reason prior to expiration of
such fiscal year.
(f) Severance Allowance. In the event Employee's term of employment
is terminated by the Company pursuant to Subsections 4(b) or 4(d), Employee
will be entitled to receive a severance allowance in an amount equal to six
months' base salary (based on the annualized monthly base salary then being
paid to Employee as of the date of termination) to be paid out over the six
months following Employee's date of termination in at least semimonthly
installments. No severance allowance will be payable to Employee if the
Employee voluntarily resigns or otherwise terminates employment pursuant to
Subsection 4(b).
(g) Options and Grants. Notwithstanding any provision in this
Agreement to the contrary, should the current President of the Company be
replaced or terminated prior to the Initial Expiration Date, any stock options
or grants given to Employee pursuant to an executed agreement between the
Company and Employee shall promptly vest if, prior to the Initial Expiration
Date: -
(i) Employee is also replaced or terminated; or
(ii) The duties of Employee with the Company or compensation from the
Company changes in any material respect. Within ninety (90) days after the
President is replaced, Employee makes a reasonable good faith determination
that due solely to specified action or inaction of such replacement, he cannot
effectively discharge the duties delineated herein. To be effective, such
determination by Employee must be provided to the Company in a writing which
sets forth the factual basis of such action or inaction by the replacement
President.
5. Disclosure of Confidential Information.
(a) Definition of Confidential Information. For purposes of this
Agreement, "Confidential Information" means any information that is not
generally known to the public that relates to the existing or reasonably
foreseeable business of the Company which has been expressly or implicitly
protected by the Company or which, from all of the circumstances, the Employee
knows or has reason to know that the Company y intends or expects the secrecy
of such information to be maintained. Confidential Information includes, but
is not limited to, information contained in or relating to the customer lists,
account lists, price lists, product designs, marketing plans or proposals,
customer information, merchandising, selling, accounting, finances, know-how,
trademarks, trade names, trade practices, trade secrets and other proprietary
information of the Company.
(b) Employee Shall Not Disclose Confidential Information. The
Employee will not, during the term of Employee's employment or following the
termination of Employee's employment with the Company, use, show, display,
release, discuss, communicate, divulge or otherwise disclose Confidential
Information to any person, firm, corporation, association, or other entity for
any reason or purpose whatsoever, without the prior written consent or
authorization of the Company.
(c) Scope. Employee's covenant in Subsection 5(b) to not disclose
Confidential Information shall not apply to information which, at the time of
such disclosure, may be obtained from sources outside of the Company, its
agents, lawyers or accountants, so long as those sources did not receive the
information directly or indirectly as the result of Employee's action.
(d) Tide. All documents or other tangible or intangible property
relating in any way to the business of the Company which are conceived or
generated by Employee or come into Employee's possession during the employment
period shall be and remain the exclusive property of the Company, and Employee
agrees to return all such documents, and tangible and intangible property,
including, but not limited to, all records, manuals, books, blank forms,
documents, letters, memoranda, notes, notebooks, reports, data, tables,
magnetic tapes, computer disks, calculations or copies thereof, which are the
property of the Company or which relate in any way to the business, customers,
products, practices or techniques of the Company, and all other property of
the Company, including, but not limited to, all documents which in whole or in
part contain any Confidential Information of the Company which in any of these
cases are in Employee's possession or under Employee's control, to the Company
upon the termination of Employee's employment with the Company, or at such
earlier time as the Company may request him to do so.
(e) Compelled Disclosure. In the event a third party seeks to
compel disclosure of Confidential Information by the Employee by judicial or
administrative process, the Employee shall promptly notify the Board of
Directors of the Company of such occurrence and furnish to such Board of
Directors a copy of the demand, summons, subpoena or other process served upon
the Employee to compel such disclosure, and will permit the Company to assume,
at its expense, but with the Employee's cooperation, defense of such
disclosure demand. In the event that the Company refuses to contest such a
third party disclosure demand under judicial or administrative process, or a
judicial order is issued compelling disclosure of Confidential Information by
the Employee, the Employee shall be entitled to disclose such information in
compliance with the terms of such administrative or judicial process or order.
6. Non-competition.
(a) Restriction. Commencing on the date hereof and for so long as
Employee continues to receive compensation under this Agreement (salary or
severance), whether voluntarily or involuntarily and whether or not for good
cause, Employee shall not, without the prior written consent of the Company,
directly or indirectly, engage in, or assist any other person to engage in,
any activity, whether as a proprietor, partner, joint venture, principal,
employer, officer, agent, employee, consultant or beneficial or record owner
(other than as an investor owning less than a 2% interest in an entity whose
securities are regularly traded in a public market), and whether or not for
compensation, that is competitive in any respect with the business of the
Company within the States of Louisiana and Mississippi. For purposes of this
Agreement, the "business of the Company" shall be any business in which the
Company is engaged at the time of Employee's termination of employment or in
which the Company was engaged within six months prior to such termination,
including, but not limited to, a business involved in or relating to gambling
casinos or gaming establishments.
(b) Modification. In the event that any court of competent
jurisdiction determines that the term, the business scope or geographic scope
of the covenants contained in Subsection 6(a) is impermissible due to the
extent thereof, said covenant shall be modified to reduce its terms, business
scope or geographic scope, as the case may be, to the extent necessary to make
said covenant valid, and said covenant shall be enforced as modified.
(c) Non-Compete Consideration. As additional consideration for the
Employee's observance of the non-compete covenant set forth in Subsection
6(a), the Company has granted to Employee incentive stock options to purchase
shares of the Company's common stock.
7. Breach of Restrictive Covenants.
(a) It is agreed that it would be difficult or impossible to
ascertain the measure of damages to the Company resulting from any breach of
Sections 5 or 6, and that injury to the Company from any such breach may be
irremediable. In the event of a breach or threatened breach by the Employee
of the provisions of Section 3, the Company shall be entitled to specific
performance of Section 3 and may seek a temporary or permanent injunction to
enjoin the Employee from breaching Sections 3, in addition to any other rights
or remedies that the Company may have available under applicable law for such
breach or threatened breach, including the recovery of damages. In the event
of a breach of Section 6, damages shall be limited to salary discontinuance of
any and all compensation, including but not necessarily limited to salary and
severance, otherwise payable to Employee under this Agreement
(b) Survival of Restrictive Covenant. The provisions of Section 3
of @ Agreement shall survive the expiration of the term of employee's
employment thereunder, and shall be binding upon the Employee's following the
termination of Employee's employment by the Company.
8. Affiliate. The term "Company" when used in Sections 3, 6 and 7 of
this Agreement shall mean in addition to the Company, any affiliate of the
Company. The terms '"affiliate" or "affiliates" when used in this Agreement
shall mean any corporation that controls the Company, or is controlled by the
Company, or is under common control with the Company.
9. Entire Agreement; Modification. This Agreement constitutes the full
and complete understanding and agreement of the parties with respect to the
employment of the Employee by the Company, and supersedes any prior
understanding or agreement between the parties relating thereto. No
amendment, waiver or modification of any provision of this Agreement shall be
binding unless made in writing and signed by the parties hereto.
10. Assignment. The rights and benefits of the Company and its
permitted assigns under this Agreement shall be fully assignable and
transferable to any other entity:
(a) which is an affiliate of the Company; or
(b) which is not an affiliate and with which the Company has merged or
consolidated, or to which it may have sold substantially all its assets in a
transaction in which it has assumed the liabilities of the Company under this
Agreement, and in the event of any such assignment or transfer, all covenants
and agreements hereunder shall inure to the benefit of, and be enforceable by
or against the successors and assigns of the Company. This Agreement is a
personal service contract and shall not be assignable by the Employee, but all
obligations and agreements of the Employee hereunder shall be binding upon and
enforceable against the Employee and Employee's personal representatives,
heirs, legatees and devisees.
11. Notices. To be effective, all notices, consents or other
communications required or permitted hereunder shall be in writing. A written
notice or other communication shall be deemed to have been given hereunder (i)
if delivered by hand, when the notifying party delivers such notice or other
communication to all other parties to this Agreement, (ii) if delivered by
telecopier or overnight delivery service, on the first business day following
the date of such notice or other communication is transmitted by telecopier or
timely delivered to the overnight courier, or (iii) if delivered by mail, on
the third business day the date such notice or other communication is
deposited in the U.S. mail by certified or registered mail addressed to the
other party. Mailed or telecopied communications shall be as follows unless
written notice of a change of address or telecopier number has been given in
writing in accordance with this Section:
If to Company: Casino Magic Corp.
Attn: Robert Callaway
Bay St. Louis, NE 39520
Facsimile No. (601) 467-3407
If to Employee: Kenneth N. Schultz
9032 Greymonte Circle
Gulfport, MS 39503
12. Waiver. No waiver of any term, condition or covenant of this
Agreement by a party shall be deemed to be a waiver of any subsequent breaches
of the same or other terms, covenants or conditions hereof by such party.
13. Counter Parts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, and all such counterparts
shall constitute one instrument.
14. Construction. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective or valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
15. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Mississippi.
16. Attorney's Fees. In the event a judgment is entered against any
party hereto in a court of competent jurisdiction based upon a breach of the
terms of this Agreement, the prevailing party shall be entitled to receive, as
part of any award, the amount of reasonable attorney's fees and expenses
incurred by the prevailing party in such action A party shall be deemed to
have prevailed if the judgment entered (without including attorney's fees and
expenses) is more favorable to that party than any offer of settlement made to
that party within twenty days after the services of the complaint in such
action.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date flat above written.
CASINO MAGIC CORP. EMPLOYEE
By:
Ed Ernst, President Kenneth N. Schultz
(Type or Print Name of Employee)
July 2, 1996
Mr. Juris Basens
9010 Suntree Lane
Gulfport, MS 39503
Dear Juris:
It is my pleasure to extend an offer to you as Vice President and Chief
Operating Officer for Casino Magic Corp. The terms of the offer is in
accordance with the attached employment agreement. In addition, the Company
will provide to you a stock grant at 25,000 shares which will vest over the
next four and one half (4 1/2) years which is consistent with the Company's
policy. Also, you will be granted options for 75,000 shares under the
Company's qualified stock option plan which will vest in accordance with the
plan.
Juris, I look forward to working with you again.
Very truly yours,
Casino Magic Corp.
Ed Ernst
President & CEO
Enclosure
Accepted By:
Juris Basens
cc: Board Compensation Committee
Marlin Torguson
Bob Callaway
THIS AGREEMENT is dated, made and entered into on September ____, 1996
and is effective as of the 25th day of July, 1996, by and between Casino
Magic Corp., a Minnesota corporation (the "Company"), and Juris Basens (the
"Employee").
RECITALS
WHEREAS, the Company is desirous of obtaining the full-time services of
the Employee:
WHEREAS, Employee commenced his employment with the Company on July 25,
1996.
WHEREAS, the Employee and the Company are each desirous of formalizing
the employment arrangement and are each willing to enter into this employment
agreement (the "Agreement'), all on the terms and subject to the conditions
herein contained; and
WHEREAS, this Agreement is intended to supersede and take the place of all
prior agreements and understandings concerning employment;
.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual
agreements
hereinafter set forth, the parties agree as follows:
1. Employment of the Employee; Term
(a) The Company agrees to and hereby does employ the Employee, and
the Employee accepts such employment and agrees to discharge faithfully,
diligently and to the best of Employee's abilities, the responsibilities of
such employment on the terms and subject to the conditions herein provided.
(b) The initial term of Employee's employment hereunder shall
terminate on December 31, 1998 ("Initial Expiration Date"),unless terminated
earlier as provided in Section 4.
(c) Notwithstanding the foregoing, following the Initial Expiration
Date, Employee's employment shall thereafter continue on an at will basis on
the terms and conditions contained in this Agreement, provided, however, that
all obligations of the Company and the rights of the Employee under Subsection
4(a) will terminate.
2. Duties of the Employee. During the term of Employee's employment
with the Company hereunder, the Employee shall:
(a) Devote substantially all of Employee's business time and
attention necessary to carry out the duties of Employee's employment
thereunder, applying Employee's best effort and skill for the benefit of the
Company.
(b) Act as Vice President and Chief Operating Officer for the Company
and perform such services and assume such duties and responsibilities as are
assigned to Employee by the President, consistent with such office, all in
accordance with the terms of this Agreement, the Articles of Incorporation and
By-Laws of the Company.
(c) Report directly to the President of the Company.
3. Compensation. As compensation and in consideration for the
performance of services by the Employee and Employee's observance of all of
the provisions of this Agreement, the Company agrees to pay or provide, and
Employee agrees to accept, the following:
(a) Salary. During the term of Employee's employment, the Company
shall pay to the Employee, at least semi-monthly, a base salary at an initial
annual rate of $200,000.00. The employee's base salary may be reviewed from
time to time, but at least annually for increases as determined by the
Company.
(b) Benefits. During the term of Employee's employment, the Employee
shag be entitled to three weeks of paid vacation per annum from and after
Employee's employment start date, seven paid holidays annually, and three paid
sick days annually. In addition, during the term of Employee's employment,
the Employee shall be entitled to medical and hospitalization insurance or
reimbursement, consistent with that provided to other salaried employees of
the Company, or as may be established in a written policy by the Board of
Directors. The Company further agrees to waive the 90-day eligibility period.
(c) Business Expenses. The Company shall reimburse the Employee
for business expenses reasonably incurred by the Employee in connection with
the performance of Employee's duties hereunder, upon the presentation by
Employee of receipts and itemized accounts of such expenditures in accordance
with the rules and regulations of the Internal Revenue Code. Such
expenditures shag be subject at all times to the prior approval of the
President of the Company or his designee. Except for expenses previously
approved by such officer or his designee, the Board of Directors of the
Company may take such action as may be necessary to enforce the repayment to
the Company by the Employee of any amounts reimbursed upon finding that such
reimbursement was not made primarily for the purpose of advancing the
legitimate interests of the Company. In lieu of direct payment by the
Employee, the Company, by action of its Board of Directors, may withhold such
disallowed amounts from future compensation of the Employee until the amount
owed to the Company has been recovered.
(d) Bonus. In addition to the foregoing, Employee shall be
entitled to participate in any executive bonus pool established by the
Company.
(e) Employment Bonus Upon commencement of employment, Employee is
to be paid the sum of 520,000.00, however, such sum shall be promptly returned
to the Company if, prior to the anniversary of the Employee's initial year
under this Agreement, Employee voluntarily terminates his employment with the
Company.
4. Termination of Agreement.
(a) Termination With Cause. The Company may terminate Employee's
term of employment under this Agreement for "good cause" upon notice of such
termination to the Employee. For purposes of this Agreement, "good cause"
shall mean Employee's (i) failure or refusal to observe or perform any of the
material provisions of this Agreement or any other written agreement with the
Company, or to substantially perform any of the material duties required of
Employee under this Agreement or any other written agreement with the Company,
or (ii) commission of fraud, misappropriation, embezzlement or other acts of
dishonesty, alcoholism, drug addiction or dependency, or conviction for any
crime punishable as a felony or as a gross misdemeanor involving moral
turpitude, which actions have a material adverse effect upon the Employee's
ability to perform the duties which are assumed or assigned under Section 2
hereof, or which actions or occurrences are materially adverse to the
interests of the Company, or (iii) unreasonable refusal or failure to
faithfully perform the duties and responsibilities of Employee's employment
hereunder or to comply with the directions of the President, his designee or
the Board of Directors. Termination of Employee's employment for good cause
under Subsection 4(a)(ii) above shall be effective upon notice. Termination
of Employee's employment for good cause under Subsections 4(a)(i) or 4(a)(iii)
shall be effective upon fourteen days' prior notice; provided that prior to
the giving of such notice of termination, the Company shall notify Employee
that a factual basis for termination for good cause termination such basis.
(b) Termination with Notice. After the Initial Expiration Date,
Employee's term of employment under this Agreement may be terminated by either
party for any reason upon not less than 30 days' prior written notice.
(c) Termination upon Death of Employee. This Agreement shall
automatically terminate in the event of the Employee's death.
(d) Termination If Employee Not Found Suitable by Mississippi Gaming
Commission and Related Matters. Employee's position with the Company may
require a finding of suitability by the Mississippi Gaming Commission or other
state gaming commission, as the case may be. The Company will pay all
investigative fees and costs associated with the Mississippi Gaming Commission
or other state gaming commission suitability determinations. If the Employee
is not found suitable by the Mississippi Gaming Commission or other gaming
commission as the case may be, Employee's employment with the Company shall
thereafter immediately terminate and this Agreement shall be deemed null and
void.
(e) Termination Obligations. In the event of a termination of the
Employee's term of employment in accordance with Section 4, the Company shall
have no further obligation to the Employee under this Agreement, and the
Employee shall only be entitled to payment by the Company for all compensation
accrued under this Agreement to such date of termination. However, such
termination of the Employee's employment shall not terminate or extinguish the
Employee's obligations under Sections 3 or 6 hereof (unless otherwise provided
therein) or Employee's obligation or liability to pay to the Company any
amounts owed to the Company the Employee, including, but not limited to, any
amounts misappropriated or obtained by the Employee, without prejudice to any
other rights or remedies of the Company at law or in equity. Notwithstanding
the foregoing, in the event that the Employee's term of employment is
terminated by the Company other than for "good cause" as provided under
Subsection 4(a) prior to the Initial Expiration Date, the Company shall
continue to pay to the Employee, at least semimonthly, base salary based on
the annualized monthly base salary then being paid to Employee as of the date
of termination) through the Initial Expiration Date. Employee and the Company
acknowledge and agree that no part of any incentive compensation that is based
on the Company's financial performance for a fiscal year, if any, is payable
if Employee's employment is terminated for any reason prior to expiration of
such fiscal year.
(f) Severance Allowance. In the event Employee's term of employment
is terminated by the Company pursuant to Subsections 4(b) or 4(d), Employee
will be entitled to receive a severance allowance in an amount equal to six
months' base salary (based on the annualized monthly base salary then being
paid to Employee as of the date of termination) to be paid out over the six
months following Employee's date of termination in at least semimonthly
installments. No severance allowance will be payable to Employee if the
Employee voluntarily resigns or otherwise terminates employment pursuant to
Subsection 4(b).
(g) Options and Grants. Notwithstanding any provision in this
Agreement to the contrary, should the current President of the Company be
replaced or terminated prior to the Initial Expiration Date, any stock options
or grants given to Employee pursuant to an executed agreement between the
Company and Employee shall promptly vest if, prior to the Initial Expiration
Date: -
(i) Employee is also replaced or terminated; or
(ii) The duties of Employee with the Company or compensation from the
Company changes in any material respect. Within ninety (90) days after the
President is replaced, Employee makes a reasonable good faith determination
that due solely to specified action or inaction of such replacement, he cannot
effectively discharge the duties delineated herein. To be effective, such
determination by Employee must be provided to the Company in a writing which
sets forth the factual basis of such action or inaction by the replacement
President.
5. Disclosure of Confidential Information.
(a) Definition of Confidential Information. For purposes of this
Agreement, "Confidential Information" means any information that is not
generally known to the public that relates to the existing or reasonably
foreseeable business of the Company which has been expressly or implicitly
protected by the Company or which, from all of the circumstances, the Employee
knows or has reason to know that the Company y intends or expects the secrecy
of such information to be maintained. Confidential Information includes, but
is not limited to, information contained in or relating to the customer lists,
account lists, price lists, product designs, marketing plans or proposals,
customer information, merchandising, selling, accounting, finances, know-how,
trademarks, trade names, trade practices, trade secrets and other proprietary
information of the Company.
(b) Employee Shall Not Disclose Confidential Information. The
Employee will not, during the term of Employee's employment or following the
termination of Employee's employment with the Company, use, show, display,
release, discuss, communicate, divulge or otherwise disclose Confidential
Information to any person, firm, corporation, association, or other entity for
any reason or purpose whatsoever, without the prior written consent or
authorization of the Company.
(c) Scope. Employee's covenant in Subsection 5(b) to not disclose
Confidential Information shall not apply to information which, at the time of
such disclosure, may be obtained from sources outside of the Company, its
agents, lawyers or accountants, so long as those sources did not receive the
information directly or indirectly as the result of Employee's action.
(d) Tide. All documents or other tangible or intangible property
relating in any way to the business of the Company which are conceived or
generated by Employee or come into Employee's possession during the employment
period shall be and remain the exclusive property of the Company, and Employee
agrees to return all such documents, and tangible and intangible property,
including, but not limited to, all records, manuals, books, blank forms,
documents, letters, memoranda, notes, notebooks, reports, data, tables,
magnetic tapes, computer disks, calculations or copies thereof, which are the
property of the Company or which relate in any way to the business, customers,
products, practices or techniques of the Company, and all other property of
the Company, including, but not limited to, all documents which in whole or in
part contain any Confidential Information of the Company which in any of these
cases are in Employee's possession or under Employee's control, to the Company
upon the termination of Employee's employment with the Company, or at such
earlier time as the Company may request him to do so.
(e) Compelled Disclosure. In the event a third party seeks to
compel disclosure of Confidential Information by the Employee by judicial or
administrative process, the Employee shall promptly notify the Board of
Directors of the Company of such occurrence and furnish to such Board of
Directors a copy of the demand, summons, subpoena or other process served upon
the Employee to compel such disclosure, and will permit the Company to assume,
at its expense, but with the Employee's cooperation, defense of such
disclosure demand. In the event that the Company refuses to contest such a
third party disclosure demand under judicial or administrative process, or a
judicial order is issued compelling disclosure of Confidential Information by
the Employee, the Employee shall be entitled to disclose such information in
compliance with the terms of such administrative or judicial process or order.
6. Non-competition.
(a) Restriction. Commencing on the date hereof and for so long as
Employee continues to receive compensation under this Agreement (salary or
severance), whether voluntarily or involuntarily and whether or not for good
cause, Employee shall not, without the prior written consent of the Company,
directly or indirectly, engage in, or assist any other person to engage in,
any activity, whether as a proprietor, partner, joint venture, principal,
employer, officer, agent, employee, consultant or beneficial or record owner
(other than as an investor owning less than a 2% interest in an entity whose
securities are regularly traded in a public market), and whether or not for
compensation, that is competitive in any respect with the business of the
Company within the States of Louisiana and Mississippi. For purposes of this
Agreement, the "business of the Company" shall be any business in which the
Company is engaged at the time of Employee's termination of employment or in
which the Company was engaged within six months prior to such termination,
including, but not limited to, a business involved in or relating to gambling
casinos or gaming establishments.
(b) Modification. In the event that any court of competent
jurisdiction determines that the term, the business scope or geographic scope
of the covenants contained in Subsection 6(a) is impermissible due to the
extent thereof, said covenant shall be modified to reduce its terms, business
scope or geographic scope, as the case may be, to the extent necessary to make
said covenant valid, and said covenant shall be enforced as modified.
(c) Non-Compete Consideration. As additional consideration for the
Employee's observance of the non-compete covenant set forth in Subsection
6(a), the Company has granted to Employee incentive stock options to purchase
shares of the Company's common stock.
7. Breach of Restrictive Covenants.
(a) It is agreed that it would be difficult or impossible to
ascertain the measure of damages to the Company resulting from any breach of
Sections 5 or 6, and that injury to the Company from any such breach may be
irremediable. In the event of a breach or threatened breach by the Employee
of the provisions of Section 3, the Company shall be entitled to specific
performance of Section 3 and may seek a temporary or permanent injunction to
enjoin the Employee from breaching Sections 3, in addition to any other rights
or remedies that the Company may have available under applicable law for such
breach or threatened breach, including the recovery of damages. In the event
of a breach of Section 6, damages shall be limited to salary discontinuance of
any and all compensation, including but not necessarily limited to salary and
severance, otherwise payable to Employee under this Agreement
(b) Survival of Restrictive Covenant. The provisions of Section 3
of @ Agreement shall survive the expiration of the term of employee's
employment thereunder, and shall be binding upon the Employee's following the
termination of Employee's employment by the Company.
8. Affiliate. The term "Company" when used in Sections 3, 6 and 7 of
this Agreement shall mean in addition to the Company, any affiliate of the
Company. The terms '"affiliate" or "affiliates" when used in this Agreement
shall mean any corporation that controls the Company, or is controlled by the
Company, or is under common control with the Company.
9. Entire Agreement; Modification. This Agreement constitutes the full
and complete understanding and agreement of the parties with respect to the
employment of the Employee by the Company, and supersedes any prior
understanding or agreement between the parties relating thereto. No
amendment, waiver or modification of any provision of this Agreement shall be
binding unless made in writing and signed by the parties hereto.
10. Assignment. The rights and benefits of the Company and its
permitted assigns under this Agreement shall be fully assignable and
transferable to any other entity:
(a) which is an affiliate of the Company; or
(b) which is not an affiliate and with which the Company has merged or
consolidated, or to which it may have sold substantially all its assets in a
transaction in which it has assumed the liabilities of the Company under this
Agreement, and in the event of any such assignment or transfer, all covenants
and agreements hereunder shall inure to the benefit of, and be enforceable by
or against the successors and assigns of the Company. This Agreement is a
personal service contract and shall not be assignable by the Employee, but all
obligations and agreements of the Employee hereunder shall be binding upon and
enforceable against the Employee and Employee's personal representatives,
heirs, legatees and devisees.
11. Notices. To be effective, all notices, consents or other
communications required or permitted hereunder shall be in writing. A written
notice or other communication shall be deemed to have been given hereunder (i)
if delivered by hand, when the notifying party delivers such notice or other
communication to all other parties to this Agreement, (ii) if delivered by
telecopier or overnight delivery service, on the first business day following
the date of such notice or other communication is transmitted by telecopier or
timely delivered to the overnight courier, or (iii) if delivered by mail, on
the third business day the date such notice or other communication is
deposited in the U.S. mail by certified or registered mail addressed to the
other party. Mailed or telecopied communications shall be as follows unless
written notice of a change of address or telecopier number has been given in
writing in accordance with this Section:
If to Company: Casino Magic Corp.
Attn: Robert Callaway
Bay St. Louis, NE 39520
Facsimile No. (601) 467-3407
If to Employee: Juris Basens
9010 Suntree Lane
Gulfport, MS 39503
12. Waiver. No waiver of any term, condition or covenant of this
Agreement by a party shall be deemed to be a waiver of any subsequent breaches
of the same or other terms, covenants or conditions hereof by such party.
13. Counter Parts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, and all such counterparts
shall constitute one instrument.
14. Construction. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective or valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
15. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Mississippi.
16. Attorney's Fees. In the event a judgment is entered against any
party hereto in a court of competent jurisdiction based upon a breach of the
terms of this Agreement, the prevailing party shall be entitled to receive, as
part of any award, the amount of reasonable attorney's fees and expenses
incurred by the prevailing party in such action A party shall be deemed to
have prevailed if the judgment entered (without including attorney's fees and
expenses) is more favorable to that party than any offer of settlement made to
that party within twenty days after the services of the complaint in such
action.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date flat above written.
CASINO MAGIC CORP. EMPLOYEE
By:
Ed Ernst, President Juris Basens
(Type or Print Name of Employee)
EMPLOYMENT AGREEMENT
THIS AGREEMENT is dated, made and entered into on March ____, 1997 and
is effective as of the 23rd day of July, 1996, by and between Casino Magic
Corp., a Minnesota corporation (the "Company"), and David L. Paltzik (the
"Employee").
RECITALS
WHEREAS, the Company is desirous of obtaining the full-time services of
the Employee:
WHEREAS, Employee commenced his employment with the Company on July 23,
1996.
WHEREAS, the Employee and the Company are each willing to enter into this
employment agreement (the "Agreement'), all on the terms and subject to the
conditions herein contained; and
WHEREAS, Employee is desirous of receiving stock grants and options to
purchase common stock in the company under the Company's Incentive Stock
Option Play, which options and grants require the approval of the Company's
Board of Directors and the Stock Option Committee, respectively; and
WHEREAS, this Agreement is intended to supersede and take the place of all
prior agreements and understandings concerning employment;
.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual
agreements
hereinafter set forth, the parties agree as follows:
1. Employment of the Employee; Term
(a) The Company agrees to and hereby does employ the Employee, and
the Employee accepts such employment and agrees to discharge faithfully,
diligently and to the best of Employee's abilities, the responsibilities of
such employment on the terms and subject to the conditions herein provided.
(b) The initial term of Employee's employment hereunder shall
terminate on December 31, 1998 ("Initial Expiration Date"),unless terminated
earlier as provided in Section 4.
(c) Notwithstanding the foregoing, following the Initial Expiration
Date, Employee's employment shall thereafter continue on an at will basis on
the terms and conditions contained in this Agreement, provided, however, that
all obligations of the Company and the rights of the Employee under Subsection
4(a) will terminate.
2. Duties of the Employee. During the term of Employee's employment
with the Company hereunder, the Employee shall:
(a) Devote substantially all of Employee's business time and
attention necessary to carry out the duties of Employee's employment
thereunder, applying Employee's best effort and skill for the benefit of the
Company.
(b) Act as Vice President/Marketing for the Company and perform such
services and assume such duties and responsibilities as are assigned to
Employee by the President, consistent with such office, all in accordance
with the terms of this Agreement, the Articles of Incorporation and
By-Laws of the Company.
(c) Report directly to the President of the Company.
3. Compensation. As compensation and in consideration for the
performance of services by the Employee and Employee's observance of all of
the provisions of this Agreement, the Company agrees to pay or provide, and
Employee agrees to accept, the following:
(a) Salary. During the term of Employee's employment, the Company
shall pay to the Employee, at least semi-monthly, a base salary at an initial
annual rate of $200,000.00. The employee's base salary may be reviewed from
time to time, but at least annually for increases as determined by the
Company.
(b) Benefits. During the term of Employee's employment, the Employee
shag be entitled to three weeks of paid vacation per annum from and after
Employee's employment start date, seven paid holidays annually, and three paid
sick days annually. In addition, during the term of Employee's employment,
the Employee shall be entitled to medical and hospitalization insurance or
reimbursement, consistent with that provided to other salaried employees of
the Company, or as may be established in a written policy by the Board of
Directors. The Company further agrees to waive the 90-day eligibility period.
(c) Business Expenses. The Company shall reimburse the Employee
for business expenses reasonably incurred by the Employee in connection with
the performance of Employee's duties hereunder, upon the presentation by
Employee of receipts and itemized accounts of such expenditures in accordance
with the rules and regulations of the Internal Revenue Code. Such
expenditures shag be subject at all times to the prior approval of the
President of the Company or his designee. Except for expenses previously
approved by such officer or his designee, the Board of Directors of the
Company may take such action as may be necessary to enforce the repayment to
the Company by the Employee of any amounts reimbursed upon finding that such
reimbursement was not made primarily for the purpose of advancing the
legitimate interests of the Company. In lieu of direct payment by the
Employee, the Company, by action of its Board of Directors, may withhold such
disallowed amounts from future compensation of the Employee until the amount
owed to the Company has been recovered.
(d) Bonus. In addition to the foregoing, Employee shall be
entitled to participate in any executive bonus pool established by the
Company.
(e) Employment Bonus Upon commencement of employment, Employee is
to be paid the sum of 520,000.00, however, such sum shall be promptly returned
to the Company if, prior to the anniversary of the Employee's initial year
under this Agreement, Employee voluntarily terminates his employment with the
Company.
4. Termination of Agreement.
(a) Termination With Cause. The Company may terminate Employee's
term of employment under this Agreement for "good cause" upon notice of such
termination to the Employee. For purposes of this Agreement, "good cause"
shall mean Employee's (i) failure or refusal to observe or perform any of the
material provisions of this Agreement or any other written agreement with the
Company, or to substantially perform any of the material duties required of
Employee under this Agreement or any other written agreement with the Company,
or (ii) commission of fraud, misappropriation, embezzlement or other acts of
dishonesty, alcoholism, drug addiction or dependency, or conviction for any
crime punishable as a felony or as a gross misdemeanor involving moral
turpitude, which actions have a material adverse effect upon the Employee's
ability to perform the duties which are assumed or assigned under Section 2
hereof, or which actions or occurrences are materially adverse to the
interests of the Company, or (iii) unreasonable refusal or failure to
faithfully perform the duties and responsibilities of Employee's employment
hereunder or to comply with the directions of the President, his designee or
the Board of Directors. Termination of Employee's employment for good cause
under Subsection 4(a)(ii) above shall be effective upon notice. Termination
of Employee's employment for good cause under Subsections 4(a)(i) or 4(a)(iii)
shall be effective upon fourteen days' prior notice; provided that prior to
the giving of such notice of termination, the Company shall notify Employee
that a factual basis for termination for good cause termination such basis.
(b) Termination with Notice. After the Initial Expiration Date,
Employee's term of employment under this Agreement may be terminated by either
party for any reason upon not less than 30 days' prior written notice.
(c) Termination upon Death of Employee. This Agreement shall
automatically terminate in the event of the Employee's death.
(d) Termination If Employee Not Found Suitable by Mississippi Gaming
Commission and Related Matters. Employee's position with the Company may
require a finding of suitability by the Mississippi Gaming Commission or other
state gaming commission, as the case may be. The Company will pay all
investigative fees and costs associated with the Mississippi Gaming Commission
or other state gaming commission suitability determinations. If the Employee
is not found suitable by the Mississippi Gaming Commission or other gaming
commission as the case may be, Employee's employment with the Company shall
thereafter immediately terminate and this Agreement shall be deemed null and
void.
(e) Termination Obligations. In the event of a termination of the
Employee's term of employment in accordance with Section 4, the Company shall
have no further obligation to the Employee under this Agreement, and the
Employee shall only be entitled to payment by the Company for all compensation
accrued under this Agreement to such date of termination. However, such
termination of the Employee's employment shall not terminate or extinguish the
Employee's obligations under Sections 3 or 6 hereof (unless otherwise provided
therein) or Employee's obligation or liability to pay to the Company any
amounts owed to the Company the Employee, including, but not limited to, any
amounts misappropriated or obtained by the Employee, without prejudice to any
other rights or remedies of the Company at law or in equity. Notwithstanding
the foregoing, in the event that the Employee's term of employment is
terminated by the Company other than for "good cause" as provided under
Subsection 4(a) prior to the Initial Expiration Date, the Company shall
continue to pay to the Employee, at least semimonthly, base salary based on
the annualized monthly base salary then being paid to Employee as of the date
of termination) through the Initial Expiration Date. Employee and the Company
acknowledge and agree that no part of any incentive compensation that is based
on the Company's financial performance for a fiscal year, if any, is payable
if Employee's employment is terminated for any reason prior to expiration of
such fiscal year.
(f) Severance Allowance. In the event Employee's term of employment
is terminated by the Company pursuant to Subsections 4(b) or 4(d), Employee
will be entitled to receive a severance allowance in an amount equal to six
months' base salary (based on the annualized monthly base salary then being
paid to Employee as of the date of termination) to be paid out over the six
months following Employee's date of termination in at least semimonthly
installments. No severance allowance will be payable to Employee if the
Employee voluntarily resigns or otherwise terminates employment pursuant to
Subsection 4(b).
(g) Options and Grants. Notwithstanding any provision in this
Agreement to the contrary, should the current President of the Company be
replaced or terminated prior to the Initial Expiration Date, any stock options
or grants given to Employee pursuant to an executed agreement between the
Company and Employee shall promptly vest if, prior to the Initial Expiration
Date: -
(i) Employee is also replaced or terminated; or
(ii) The duties of Employee with the Company or compensation from the
Company changes in any material respect. Within ninety (90) days after the
President is replaced, Employee makes a reasonable good faith determination
that due solely to specified action or inaction of such replacement, he cannot
effectively discharge the duties delineated herein. To be effective, such
determination by Employee must be provided to the Company in a writing which
sets forth the factual basis of such action or inaction by the replacement
President.
5. Disclosure of Confidential Information.
(a) Definition of Confidential Information. For purposes of this
Agreement, "Confidential Information" means any information that is not
generally known to the public that relates to the existing or reasonably
foreseeable business of the Company which has been expressly or implicitly
protected by the Company or which, from all of the circumstances, the Employee
knows or has reason to know that the Company y intends or expects the secrecy
of such information to be maintained. Confidential Information includes, but
is not limited to, information contained in or relating to the customer lists,
account lists, price lists, product designs, marketing plans or proposals,
customer information, merchandising, selling, accounting, finances, know-how,
trademarks, trade names, trade practices, trade secrets and other proprietary
information of the Company.
(b) Employee Shall Not Disclose Confidential Information. The
Employee will not, during the term of Employee's employment or following the
termination of Employee's employment with the Company, use, show, display,
release, discuss, communicate, divulge or otherwise disclose Confidential
Information to any person, firm, corporation, association, or other entity for
any reason or purpose whatsoever, without the prior written consent or
authorization of the Company.
(c) Scope. Employee's covenant in Subsection 5(b) to not disclose
Confidential Information shall not apply to information which, at the time of
such disclosure, may be obtained from sources outside of the Company, its
agents, lawyers or accountants, so long as those sources did not receive the
information directly or indirectly as the result of Employee's action.
(d) Tide. All documents or other tangible or intangible property
relating in any way to the business of the Company which are conceived or
generated by Employee or come into Employee's possession during the employment
period shall be and remain the exclusive property of the Company, and Employee
agrees to return all such documents, and tangible and intangible property,
including, but not limited to, all records, manuals, books, blank forms,
documents, letters, memoranda, notes, notebooks, reports, data, tables,
magnetic tapes, computer disks, calculations or copies thereof, which are the
property of the Company or which relate in any way to the business, customers,
products, practices or techniques of the Company, and all other property of
the Company, including, but not limited to, all documents which in whole or in
part contain any Confidential Information of the Company which in any of these
cases are in Employee's possession or under Employee's control, to the Company
upon the termination of Employee's employment with the Company, or at such
earlier time as the Company may request him to do so.
(e) Compelled Disclosure. In the event a third party seeks to
compel disclosure of Confidential Information by the Employee by judicial or
administrative process, the Employee shall promptly notify the Board of
Directors of the Company of such occurrence and furnish to such Board of
Directors a copy of the demand, summons, subpoena or other process served upon
the Employee to compel such disclosure, and will permit the Company to assume,
at its expense, but with the Employee's cooperation, defense of such
disclosure demand. In the event that the Company refuses to contest such a
third party disclosure demand under judicial or administrative process, or a
judicial order is issued compelling disclosure of Confidential Information by
the Employee, the Employee shall be entitled to disclose such information in
compliance with the terms of such administrative or judicial process or order.
6. Non-competition.
(a) Restriction. Commencing on the date hereof and for so long as
Employee continues to receive compensation under this Agreement (salary or
severance), whether voluntarily or involuntarily and whether or not for good
cause, Employee shall not, without the prior written consent of the Company,
directly or indirectly, engage in, or assist any other person to engage in,
any activity, whether as a proprietor, partner, joint venture, principal,
employer, officer, agent, employee, consultant or beneficial or record owner
(other than as an investor owning less than a 2% interest in an entity whose
securities are regularly traded in a public market), and whether or not for
compensation, that is competitive in any respect with the business of the
Company within the States of Louisiana and Mississippi. For purposes of this
Agreement, the "business of the Company" shall be any business in which the
Company is engaged at the time of Employee's termination of employment or in
which the Company was engaged within six months prior to such termination,
including, but not limited to, a business involved in or relating to gambling
casinos or gaming establishments.
(b) Modification. In the event that any court of competent
jurisdiction determines that the term, the business scope or geographic scope
of the covenants contained in Subsection 6(a) is impermissible due to the
extent thereof, said covenant shall be modified to reduce its terms, business
scope or geographic scope, as the case may be, to the extent necessary to make
said covenant valid, and said covenant shall be enforced as modified.
(c) Non-Compete Consideration. As additional consideration for the
Employee's observance of the non-compete covenant set forth in Subsection
6(a), the Company has granted to Employee incentive stock options to purchase
shares of the Company's common stock.
7. Breach of Restrictive Covenants.
(a) It is agreed that it would be difficult or impossible to
ascertain the measure of damages to the Company resulting from any breach of
Sections 5 or 6, and that injury to the Company from any such breach may be
irremediable. In the event of a breach or threatened breach by the Employee
of the provisions of Section 3, the Company shall be entitled to specific
performance of Section 3 and may seek a temporary or permanent injunction to
enjoin the Employee from breaching Sections 3, in addition to any other rights
or remedies that the Company may have available under applicable law for such
breach or threatened breach, including the recovery of damages. In the event
of a breach of Section 6, damages shall be limited to salary discontinuance of
any and all compensation, including but not necessarily limited to salary and
severance, otherwise payable to Employee under this Agreement
(b) Survival of Restrictive Covenant. The provisions of Section 3
of @ Agreement shall survive the expiration of the term of employee's
employment thereunder, and shall be binding upon the Employee's following the
termination of Employee's employment by the Company.
8. Affiliate. The term "Company" when used in Sections 3, 6 and 7 of
this Agreement shall mean in addition to the Company, any affiliate of the
Company. The terms '"affiliate" or "affiliates" when used in this Agreement
shall mean any corporation that controls the Company, or is controlled by the
Company, or is under common control with the Company.
9. Entire Agreement; Modification. This Agreement constitutes the full
and complete understanding and agreement of the parties with respect to the
employment of the Employee by the Company, and supersedes any prior
understanding or agreement between the parties relating thereto. No
amendment, waiver or modification of any provision of this Agreement shall be
binding unless made in writing and signed by the parties hereto.
10. Assignment. The rights and benefits of the Company and its
permitted assigns under this Agreement shall be fully assignable and
transferable to any other entity:
(a) which is an affiliate of the Company; or
(b) which is not an affiliate and with which the Company has merged or
consolidated, or to which it may have sold substantially all its assets in a
transaction in which it has assumed the liabilities of the Company under this
Agreement, and in the event of any such assignment or transfer, all covenants
and agreements hereunder shall inure to the benefit of, and be enforceable by
or against the successors and assigns of the Company. This Agreement is a
personal service contract and shall not be assignable by the Employee, but all
obligations and agreements of the Employee hereunder shall be binding upon and
enforceable against the Employee and Employee's personal representatives,
heirs, legatees and devisees.
11. Notices. To be effective, all notices, consents or other
communications required or permitted hereunder shall be in writing. A written
notice or other communication shall be deemed to have been given hereunder (i)
if delivered by hand, when the notifying party delivers such notice or other
communication to all other parties to this Agreement, (ii) if delivered by
telecopier or overnight delivery service, on the first business day following
the date of such notice or other communication is transmitted by telecopier or
timely delivered to the overnight courier, or (iii) if delivered by mail, on
the third business day the date such notice or other communication is
deposited in the U.S. mail by certified or registered mail addressed to the
other party. Mailed or telecopied communications shall be as follows unless
written notice of a change of address or telecopier number has been given in
writing in accordance with this Section:
If to Company: Casino Magic Corp.
Attn: Robert Callaway
Bay St. Louis, NE 39520
Facsimile No. (601) 467-3407
If to Employee: David L. Paltzik
411 Caribe Place
Gulfport, MS 39507
12. Waiver. No waiver of any term, condition or covenant of this
Agreement by a party shall be deemed to be a waiver of any subsequent breaches
of the same or other terms, covenants or conditions hereof by such party.
13. Counter Parts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, and all such counterparts
shall constitute one instrument.
14. Construction. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective or valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
15. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Mississippi.
16. Attorney's Fees. In the event a judgment is entered against any
party hereto in a court of competent jurisdiction based upon a breach of the
terms of this Agreement, the prevailing party shall be entitled to receive, as
part of any award, the amount of reasonable attorney's fees and expenses
incurred by the prevailing party in such action A party shall be deemed to
have prevailed if the judgment entered (without including attorney's fees and
expenses) is more favorable to that party than any offer of settlement made to
that party within twenty days after the services of the complaint in such
action.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date flat above written.
CASINO MAGIC CORP. EMPLOYEE
By:
Ed Ernst, President David L. Paltzik
(Type or Print Name of Employee)
AGREEMENT
DATE: 12 December 1996
PARTIES: Touristiki Georgiki Exagogiki S.A. ("TGE")
9 Frangini Street
Thessaloniki
Greece
Parral Compania Naviera S.A. ("Parral")
c/o MN Trust
Rue Saint-Ldger 8, P.O. Box 24
1211 Geneva 4
Switzerland
Casino Magic (Europe) B.V. ("CME")
Emmaplein 5, 1075 AW Amsterdam
P.O. Box 75215, 1070 AE Amsterdam
The Netherlands
Casino Magic Hellas Management Services S.A. ("CMH")
711 Casino Magic Drive
Bay St. Louis, MS 39520
U.S.A.
Casino Magic Corp. ("CMC")
711 Casino Magic Drive
Bay St. Louis, MS 39520
U.S.A.
RECITALS
A. TGE, Parral, CME, CMC and Casino Magic Management Services Corp.
("CMMSC") entered into that certain joint venture agreement dated 14 June 1994
which was amended by agreement dated 29 April 1995 (such joint venture
agreement, as amended is referred to herein as the "Joint Venture Agreement").
B. Pursuant to the Joint Venture Agreement, Porto Carras
Casino S.A. ("PCC") was created to own and operate a gaming casino at the
Sithonia Hotel at Porto Carras (the "Casino") and to operate the Sithonia
Hotel. On 30 December 1994, the Republic of Greece granted PCC a gaming
license to operate a casino at Porto Carras (the "Gaming License").
C. Pursuant to the terms of the Joint Venture Agreement, PCC entered
into a lease for the Sithonia Hotel with TGE dated 3 August 1994, as amended
(the "Lease").
D. Pursuant to the terms af the Joint Venture Agreement, PCC entered
into a management agreement with CME dated 29 April 1995 (the "Management
Agreement").
E. Pursuant to the terms of the Joint Venture Agreement, PCC entered
into a license agreement with CMC (the "CMC License").
F. Pursuant to the terms O:E the Joint Venture Agreement, PCC entered
into a license agreement with TGE (the "TGE License").
G. On 29 April 1995 TGE, Parral, CME, CMMSC and CMC entered into an
agreement which contained a number of provisions including an agreement by CME
to advance certain funds to PCC (the "April 1995 Agreement").
H. Parral and CME entered into a management fee agreement dated as of
29 April 1995 pursuant to which CME was permitted to manage certain other
casinos in Greece and was obligated to make certain payments to Parral (the
"Management Fee Agreement").
I. In September 1996, CME advanced funds to PCC to cover an immediate
cash shortfall.
J. The Tax Authorities of Thessaloniki by decisions numbered 157/96
and 158/96 notified PCC of the assessment of a fine against PCC (the "Fine
11).
K. PCC is continuing to experience a severe cash shortage and cannot
survive without an immediate additional cash infusion. As of the date hereof,
the parties hereto and PCC have entered into an agreement with the Buyer
pursuant to which all of the outstanding shares of PCC will be sold to Buyer
(the "Sale Agreement").
L. The parties hereto have from time to time made claims that other
parties hereto have not fulfilled their respective obligations under the
Operative Aqreements and otherwise.
M. The purpose of this Agreement is to provide a settlement of all
past claims and disputes so that the transactions contemplated by the Sale
Agreement can be concluded.
AGREEMENT:
The parties hereto, each intending to be legally bound, agree that upon the
consilmmation of the transactions contemplated by the Sale Agreement, the
following agreements will become effective:
ARTICLE 1 - DEFINITIONS
In this Agreement, including the Recitals, the following expressions shall
have the meanings indicated below:
"April 1995 Agreement" shall have the meaning ascri-bed to it in Recital G
hereto.
"Buyer" shall mean Murbec Inc, a company incorporated, organized and ex4-sting
under the laws of Quebec, Canada, with a place of business at 1320 Graham
Blvd, Suite 335, town of Mount Royal, Quebec, Canada or another company
designated by Murbec Inc.
"Casino" shall have the meaning ascribed to it in Recital B hereto.
"CMC" shall mean casino magic Corp.
"CMC License" shall have the meaning ascribed to it in Rec'ital E hereto.
"CME" shall mean Casino Magic (Europe) B.V.
"CMHII shall mean Casino Magic Management Hellas, S.A.
"CMMSCII shall mean Casino Magic Management Services Corp.
"Fine" shall have the meaning ascribed to it in Recital J hereto.
"Gaming License,, shall have the meaning ascribed to it in Recital B hereto.
"Joint Venture Agreement" shall have the meaning ascribed to it in Recital A
hereto.
"Lease" shall have the meaning ascribed to it in Recital C hereto.
"Management Agreement" shall have the meaning ascribed to it in Recital D
hereto.
"Management Fee Agreement" shall have the meaning ascribed to it in Recital H
hereto.
"Operative Agreements" shall mean collectively the Joint Venture Agreement,
the Lease, the Management Agreement, the CMC License, the TGE License, the
April 1995 Agreement and the Management Fee Agreement.
"Parral" shall mean Parral Compania Naviera, S.A.
IIPCC" shall mean Porto Carras Casino S.A.
"Sale Agreement" shall have the meaning ascribed to it in Recital K hereto.
"TGE" shall mean Touristiki Georgiki Exagogiki, S.A.
'ITGE License" shall have the meaning ascribed to it in Recital F hereto.
ARTICLE 2 - MUTUAL RELEASES
2. 1 TGE and Parral, an behalf of themselves and on behalf of their
respective agents, representatives, officers, directors, shareholders,
successors and assigns hereby unconditionally and f orever release and
discharge each of CME, CMH and CMC, and each of their officers, directors,
employees, shareholders, subsidiaries, agents, attorneys, successors and
assigns (including without limitation all persons Twho have served as
directors of CME, CMH or CMC prior to the date hereof and all persons who may
so serve in the future), from any and all actions, causes of actions, claims,
suits and/or debts, whether known or unknown, asserted o-unasserted, and
howsoever arising (whether based in contract, tort, statute or otherwise),
which any of them now or in the future may have concerning, relating or
referring to any facts, circumstances, occurrences or events existing or
occurring at any time prior to and through the date the transactions
contemplated by tl7ie Sale Agreement are consummated, including without
limitation, any such actions, causes of actions, claims, suits and/or debts,
which arise out of or are related to the Operative Agreements.
2.2 TGE and Parral, on behalf of themselves and on behalf of @-heir
respective agents, representatives, officers, directors, shareholders,
successors and assigns hereby unconditionally and forever release and
discharge PC,@-, and its officers, directors, employees, shareholders, agents,
attorneys, successors and assigns (including without limitation all persons
who have served as directors of PCC prior to the date hereof and all persons
who may so serve in the future), from any and all actions, causes of actions,
claims, suits and/or debts, whether known or unknown, asserted or unassarted,
and howsoever arising (whether based in contract, tort, statute or otherdise),
which any of them now or in the future may have concerning, relating or
referring to any facts, circumstances, occurrences or events existing or
occurring at any time prior to and through the date the transactions
contemplated by time prior to and through the date the transactions
contemplated by the Sale Agreement are consummated, including without
limitation, (any such actions, causes of actions, claims, suits and/or debts,
which arise out of or are related to the Operative Agreements.
Notwithstanding the foregoing sentence, TGE does not release its claim for
rent which is due and payable as of the date hereof or ng in the future. TGE
does, however, pursuant to this Clause elease any claim of default by PCC
under the Lease through te the transactions contemplated by the Sale Agreement
are consummated.
2.3 CMH, CME and CMC, on behalf of themselves and on behalf of their
resioective agents, representatives, officers, directors, shareholders,
successors and assigns hereby unconditionally and forever release and
discharge TGE and Parral, and their respective officers, directors, employees,
shareholders, agents, attorneys, successors and assigns (including without
limitation all persons who have served as directors of TGE or Parral prior to
the date hereof and all persons who may so serve in the future), from any and
all actions, causes of actions, claims, suits and/or debts, whether known or
unknown, asserted or unasserted, and howsoever arising (whether based in
cant--act, tort, statute or otherwise), which any of them now or in the future
may have concerning, relating or referring to any facts, circumstances,
occurrences or events existing or occurring at any time prior to and through
the date the transactions contemplated by the Sale Agreement are consummated,
including without limitation, any such actions, causes of actions, claims,
suits and/or debts, which arise out of or are related to the Operative
Agreements.
ARTICLE 3 - OPERAT = AGREEMENTS
3.1 Joint Venture Agreement. The Joint Venture Agreement will
terminate, and no party thereto shall have any liabilities or obligations
pursuant thereto from and after such termination.
3.2 Management Agreement. CMH shall agree to an immediate termination of
the Management Agreement.
3.3 April 1995 Acireement. The April 1995 Agreement will terminate, and no
party thereto shall have any liabilities or obligations pursuant thereto from
and after such termination.
3.4 Management Fee Agreement. The Management Fee Agreement will
terminate, and no party thereto shall have any liabilities or obligations
pursuant thereto from and after such termination.
3.5 Lease. The Lease shall remain in effect notwithstanding the
consummation of the transactions contemplated by the Sale Agreement.
3.6 CMC License. The CMC License will be amended as provided in the Sale
Agreement.
3.7 TGE License. The TGE License shall remain in effect notwithstanding
the consummation of the transactions contemplated by the Sale Agreement.
ARTICLE 4 - MISCELLANEOUS
4. 1 Governincr Laws. This Agreement shall be governed by and
construed in accordance with the laws of England.
4.2 Counterparts and Execution. This Agreement may be executed in any
number of counterparts and with facsimi signatures. Any single
counterpart or set of counterparts signed, in either case by the parties
hereto either as originals or as facsimile copies, shall constitute a full and
original agreement for all purposes.
4.3 Notices. In any case where any notice Or Other COMMunications is
required or permitted to be given hereunder, such notice or co=unication shall
be in Twriting and (a) personally delivered by means of courier or other
available f orm, (b) sent by postage prepaid registered airmail, or (c)
transmitted by telex or (d) transmitted by telefax, as follows:
(a) If to TGE:
Touristiki Georgiki Exagogiki S.A.
Porto Carras, Neos Marmaras, Sithonia
63081 Halkidiki
Greece
Telecopier No.: (375) 71229
With copy to:
Touristiki Georgiki Exagogiki S.A.
28 Akadimias Street
106 71 Athens
Greece
Telecopier No.: (1)3644103
(b) If to Parral:
Parral Compania Naviera S.A
c/o MN Trust
Rue Saint-Ldger 8, P.O. Box 24
1211 Geneva 4
Switzerland
Telecopier No.: (22) 313 31 20
With copy to:
Mr. E.K. Stavrianakis
Attorney at Law
Albany House
324/326 Regent Street
London, WlR SAA
Telecopier No. (071) 436 3618
(c) If to CME:
Casino Magic (Europe) B.V.
Attn: Chief Executive Officer
711 Casino Magic Drive
Bay St. Louis, MS 39520
Telecopier No.: (601) 467-7998
(d) If to CMH:
Casino Magic Hellas Management Services,
S.A.
Attn: Chief Executive Officer
711 Casino magic Drive
Bay Saint Louis, Mississippi 39520
Telecopier No.: (601) 467-7998
(e) If to CMC:
Casino Maqic Corp.
Attn: Chief Executive Officer
711 Casino Magic Drive
Bay Saint Louis, Mississippi 39520
Telecopier No.: (601) 467-7998
(f) If to CME, CMH or CMC a copy to:
General Counsel
Casino Magic Crop.
711 Casino maqic Drive
Bay Saint Louis, Mississippi 39520
Telecopier No.: (601) 467-7998
All such notices or other communications shall be deemed to have been given or
received (i) upon reciaipt if personally delivered, (ii) on the fifth day
following posting if by mail, (iii) when sent with confirmed answerback if by
telex, and (iv) when sent with transmission confirmation evidence if by
telefax.
4.4 Arbitration. Any disputes arising out of this Agreement, including
any questions regarding its existence, validity or termination shall be
referred to and finally resolved by arbitration in London under the Rules of
the London Court of International Arbitration, which Rules are deemed to be
incorporated by reference into this Clause. Such arbitration shall be
conducted in accordance with the provisions of the Arbitration Act 1979.
4.5 Bindinct Effect; Assicrnment. Except as otherwise expressly
provided, this Agreement shall inure to the benefit and be binding upon each
party hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first written above.
TOURISTIKI GEORGIKI EXAGOGIKI S.A.
By:
Title: Chairman of the Board of Directors
PARRAL COMPANI NAVIERA S.A.
By:
Title:
CASINO MAGIC
HELLAS MANAGEMENT SERVICES S.A.
By:
Title:
CASINO MAGIC (EUROPE) B.V.
By:
Title:
CASINO MAGIC CORP.
By:
Title:
AGREEMENT
THIS AGREEMENT is made this .12. day of December 1996 by and between:
Parral Compania Naviera S.A., a company incorporated, organized and existing
under the laws of Panama with a place of business at rue Saint-Leger 8, P.O.
Box 24, 1211 Geneva 4, Switzerland, (hereinafter referred to as
"Parral/Seller"),
Casino Magic (Europe) B.V., a company incorporated, organized and existing
under the laws of the Netherlands with its registered office at Emmaplein 5,
1075 AW Amsterdam, P.O. Box 75215, 1070 AE Amsterdam, the Netherlands,
(hereinafter referred to as "CME/Seller"),
on the one part, and
Murbec Inc, a company incorporated, organized and existing under the laws of
Quebec, Canada, with a place of business at 1320 Graham Blvd., Suite 335, town
of Mount Royal, Quebec, Canada or another company designated by Murbec Inc,
(hereinafter referred to as "Buyer"),
on the other part, and
Porto Carras Casino S.A., a company incorporated, organized and existing under
the laws of Greece, with its registered office at 9 Frangini Street,
Thessaloniki, Greece, (hereinafter referred to as "PCC/Company"),
Casino Magic Hellas Management Services S.A., a company incorporated,
organized and existing under the laws of Greece, with its registered of f ice
at 57, Themistokli Sofouli Street, Kalamaria, Greece, (hereinafter referred to
as "CMH/Manager"),
Touristiki Georgiki Exagogiki S.A., a company incorporated, organized and
existing under the laws of Greece, with its registered of f ice at 9 Frangini
Street, Thessaloniki, Greece, (hereinafter referred to as "TGE/Lessor"),
Casino Magic Corp. a company incorporated, organized and existing under the
laws of the State of Minnesota, USA, with a place of business at 711 Casino
Magic Drive, Bay St. Louis, MS 39520, U.S.A., (hereinafter referred to as
"CMC/Licensor").
The above parties have reached an agreement for the sale of all of the
outstanding shares in the share capital of PCC (the "Shares") to Buyer on the
following terms:
1.1. Buyer agrees to acquire 51% of the Shares from Parral for the
consideration of a sum of US$1,000,000 net of any charges whatsoever, payable
in immediately available funds to Parral or in the manner described in clause
8.3. hereof, and the obligations undertaken under the terms of this Agreement.
Buyer agrees to acquire 49% of the Shares of PCC from CME for the
consideration of US$l and the obligations undertaken under the terms of this
Agreement.
1.2. Any charges, taxes or other payments whatsoever related to the
transfer of the shares or which may be imposed as a result thereof will be
borne exclusively by Buyer. Parral and CME shall not be liable to make any
payment whatsoever in connection with the transfer of the Shares to Buyer or
in connection with PCC in general, except any payment that CME may be under
the obligation to make under clause 3 hereof.
2.1 Buyer acknowledges that PCC has and will have at the time of closing
the transaction hereby agreed (the "Closing") significant obligations and
liabilities and is satisfied about it.
2.2 Parral, CME, PCC, CMH, TGE and CMC make no representations or
warranties whatsoever in respect of the obligations and liabilities of PCC
except the following:
(i) PCC, CME, PARRAL and CMH warrant that the gaming equipment of the
Porto Carras Casino has been purchased and not leased by PCC and that PCC has
not granted any contractual security interest on such equipment.
(ii) PCC warrants that it has not entered into any employment contracts
with its employees other than usual employment contracts under Greek law and
in particular that it has not entered into employment contracts of unusually
lengthy period or contracts with special advisors on a long term basis. It is
however acknowledged and agreed that PCC has recognized prior service of
certain employees with TGE and assumed relevant liabilities in connection with
the accrual of severance pay in favour of these employees.
(iii) PCC warrants that income tax for financial year 1995, calculated on
the basis of declared income, has been paid.
2.3 Buyer unconditionally guarantees and undertakes that all of the
obligations and liabilities of PCC accrued and/or accruing to the date of the
Closing which could result in personal liability on the part of any members of
the board of directors of PCC past or present shall be paid and satisfied in
full.
2.4 CME, Parral, CMC, CMH and PCC acknowledge that the liabilities on the
books of PCC owing to CME, CMC and CMH were intended to be treated as equity
contributions and not as obligations of PCC to CME, CMC and CMH. At the
Closing, Parral and CME shall take all necessary actions to have those
liabilities of PCC owing to CME, CMH and CMC converted into share capital of
PCC. All the shares which will be issued as a result of such conversion of
liabilities into share capital will at and upon Closing also be transferred to
the Buyer for the consideration of US$l and the obligations undertaken on the
terms of this Agreement.
3. PCC, CMC, CME and CMH will at and upon Closing mutually release each of
the other entities from any claims whatever. In consideration for such
release CMC shall procure that CME shall pay PCC at the Closing the sum of
US$500.000.
4. With regard to the lease between PCC and TGE for the Sithania Hotel, it
is agreed subject to the Closing that there will be no increase or decrease in
the Minimum Rent (as defined in the Lease Contract) after the increase which
becomes effective on lst January 1997, provided the formula for percentage
rent will remain unchanged. The past due amounts owed to TGE under the lease
must be paid as soon as possible after the Closing. As of November 30, 1996
the total amount owed to TGE under the lease did not exceed GRD 195-000-GOO
5. The management agreement between CMH and PCC will on Closing be terminated.
6. The license agreement between CMC and PCC will be amended at Closing to
provide for the elimination of the royalty set forth therein and to provide
for termination six months after the Closing.
7.1. CME and PCC warrant that there are no other agreements between PCC
and any company affiliated with CME or obligations of PCC towards any company
affiliated with CME except this Agreement and those mentioned herein.
7.2. PARRAL and PCC warrant that there are no other agreements between
PCC and PARRAL or obligations of PCC towards PARRAL except this Agreement.
7.3. TGE and PCC warrant that there are no other agreements between PCC
and TGE or obligations of PCC towards TGE except this Agreement; the lease for
the SITHONIA hotel, PCC's obligation to make payments f or common services
shared with TGE and normal trade payables.
8.1 The consummation of the transactions hereby agreed will be contingent
upon the approval of the transfer of the Shares to Buyer by the Greek Gaming
Commission, the Greek Minister of Tourism and any other competent Greek Gaming
Authorities f or the transfer of the Shares which approvals must be obtained
within three months f from the date hereof. If the Closing cannot be effected
due to delay on the part of the Greek Gaming Commission (or any other
competent Gaming Authority f or such approval to be obtained) then the 3-month
period shall be extended further as it shall be reasonably required.
8.2 The closing will take place not later than five (5) working days from
the date on which the approval by the Greek Gaming Commission (and any other
competent Authority involved related to Gaming) shall have been given,
PROVIDED ALWAYS that Buyer has duly complied with all its obligations
hereunder.
8.3 Subject to the satisfaction of the requirements referred to in Clauses
8.1 and 8.2 above, at the Closing Buyer shall in exchange of the transfer of
the Shares pay to Parral the sum of US$1,000,000 net of any withholdings,
taxes or any other charges whatsoever in immediately available funds and shall
pay to CME the sum of US$l. Provided that the Buyer shall have the option to
pay to Parral a sum of S$500.000 in immediately available funds at the
Closing and a sum of US$500.000 within 6 months from the date of Closing
secured by a bank guarantee acceptable to Parral to be delivered at the time
of Closing.
9. 1 During the period from the date of this Agreement to the date of the
Closing, Buyer will make sure that PCC will continue to properly operate the
Casino and will contribute to PCC in time the funds required for PCC to meet
its obligations punctually and in particular and in order of priority:
(a) pay all taxes and social security contributions that are currently
overdue and all interest, fines and penalties associated with any non payment
or late payment thereof and pay all taxes and social security contributions
as they come due and all interest, fines and penalties associated with any non
payment or late payment thereof, including 20@. of the fine that has been
imposed on PCC anticipated to be ascertained before 31 December 1996;
(b) pay all the employees as THEIR- salaries, bonuses and
other benefits come due;
(c) pay or otherwise settle amounts to the suppliers, vendors, directors
and other creditors of PCC and persons to whom PCC is obligated as they become
due, including those already due;
(d) maintain an appropriate amount of working capital to permit PCC to
properly operate in a normal and reasonable manner; and
(e) maintain cash in the cage of at least GRD 130,000,000.
9.2 Buyer shall make arrangements for an immediate cash infusion to be
made to PCC to enable PCC to meet its financial obligations. In this respect,
Buyer shall procure that an amount of GRD 400,000,000 be paid to PCC as
follows:
GRD 150,000,000 shall be paid by Buyer to PCC by 16 December 1996; and
GRD 130,000,000 shall be paid by Buyer to PCC by 8t-h January 1997; and
GRD 120,000,000 Shall be paid by Buyer to PCC at the Closing.
9.3 CMH as the manager of PCC during the (interim) period to the Closing,
shall, in conjunction with Buyer's representative, use PCC's available funds
(including those contributed by Buyer) in discharge of the
obligations/liabilities of PCC in the order of priority referred to in the
foregoing Clause 9.1.
10.1 Buyer will immediately after the execution of this Agreement,
nominate five members for the board of directors of PCC. Parral and CME shall
immediately hold an extraordinary meeting of the General Assembly of the
shareholders of PCC and elect the members of the board of directors so
nominated by Buyer. Buyer shall procure that the new members of the Board of
Directors immediately after being elected pass a resolution approving,
retroactively, any and all acts undertaken by Lynn Simmons, as managing
director of PCC, including the signing of this Agreement, until that date.
10.2 From the date hereof through the Closing or the termination of this
Agreement, CMH shall, in conjunction with Buyer's representative, continue to
manage PCC pursuant to the current management agreement between PCC and CMH in
a manner consistent with the past and will not make any substantial changes in
the operations of PCC without the approval of Buyer; provided, however, that
CMH shall not be entitled to any compensation under such management agreement
during such period. In addition, from the date hereof through the Closing or
the termination of this Agreement, no royalties shall accrue to CMC under the
license agreement between CMC and PCC.
10. 3 Buyer will immediately make all appropriate applications and submit
fully all documents required to the Greek Gaming Commission and any other
competent Greek Authorities related to Gaming. All parties hereto will use
their best good faith efforts to obtain approval of the transfer of the Shares
to Buyer from the competent Greek Authorities related to Gaming at the
shortest time after the execution of this Agreement as the intention of the
parties hereto is to consummate this Agreement and proceed to the Closing as
soon as possible.
11. I If the transaction does not close for any reason by 12 March 1997 or
such later date as provided for in Clause 8.1 above, this Agreement shall
terminate and the funds advanced by Buyer will be considered a loan to PCC and
will be repaid by PCC out of free cash f low or at the time of any sale of
PCC; provided however that if this Agreement be breached by Buyer and Buyer
does not remedy such breach within five working days from receiving notice of
the breach by any of the other parties to this Agreement, PCC will have no
obligation to repay any funds advanced to it by Buyer under clause 9.2 hereof.
Notice to the Buyer is valid if delivered and addressed to Mr. Nikos
Salavrakos 8, Valaoritou Str. Athens, Tel 3638123, 3615315.
11.2 In the event that Buyer is not in default hereunder, on 31, January
1997 and approval of the Greek Gaming Commission and any other competent Greek
Gaming Authorities required have not yet been given, Buyer may terminate this
Agreement by written notice of such termination to Parral and CME given
immediately thereafter. In the event that Buyer so terminates this Agreement,
the funds advanced by Buyer to PCC will be considered a loan to PCC and will
be repaid by PCC out of free cash flow or at the time of any sale of PCC.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement in
seven (7) originals as of the day and year first written above.
PARRAL COMPANIA NAVIERA S.A.
By:
Title:
CASINO MAGIC (EUROPE) B.V.
By:
Title:
MURBEC, Inc.
By:
Title:
PORTO CARRAS CASINO S.A.
By:
Title:
CASINO MAGIC HELLAS
MANAGEMENT SERVICES S.A.
By:
Title:
TOURISTIKI GEORGIKI
EXAGOGIKI S.A.
By:
Title:
CASIO MAGIC CORP.
By:
Title:
Kansas Gaming Ventures, Inc.
6601 South Beimuda Road
Las Vegas, Nevada 89119
January 22,1997
Kansas Magic Corp.
c/o Casino Magic Corp.
711 Casino Magic Drive
Bay St. Louis, Mississippi 39520
Gentlemen:
We refer to the (a) Operating Agreement dated November 23, 1994 of Kansas
Gaming Partners, L.C., a Kansas limited liability company ("KGP"), among KGP.,
Kansas Gaming Ventures, Inc., a Nevada corporation and wholly-owned subsidiary
of Alliance Gaming Corporation, a Nevada corporation ("KGVI"), and Kansas
Magic Corp., a Minnesota corporation and wholly-owned subsidiary of Casino
Magic Corp. ("KMC"), and (b) Operating Agreement dated November 23, 1994 of
Kansas Financial Partners, L.L.C., a Kansas limited liability company ("KFP";
together with KGP, the "Kansas LLCs"), among KFP, KGVI and KMC (the
agreements, referred to in clauses- (a) and (b), the "Operating Agreements").
Capitalized terms not defined herein have the meanings ascribed to them in the
Operating Agreements.
The Kansas LLCs have undertaken certain development work to date related
to the Camptown racetrack in Frontenac, Kansas (the "Project"). KMC no longer
desires to continue such development work and KMC therefore desires
to-restructure the Kansas LLCs in order to provide that Kansas Alliance Corp.,
a Nevada corporation and an affiliate of KGVI (the "Transferee"), will acquire
from KMC a 49.9% Membership Interest in each of the Kansas LLCs presently
owned by KMC, which will assign, transfer and set over each of such 49.9%
Membership Interests to the Transferee, as provided herein, thereby causing
the Transferee to own 49.9% of the equity interests in each of the Kansas
LLCS, with the option to acquire the remaining .I% Membership lnterests
therein, as provided herein. Inconnectiontherewiththc Transferee will make the
payments to KMC provided for herein.
The parties agree as follows:
1) Effective on the date hereof, KMC hereby assigns, transfers and sets
over to the Transferee, KMC's entire right, title and interest in a 49.9%
Membership
Interest in each of the Kansas LLCs . including without limitation, KMC's
capital accounts associated with such Membership interest. In connection
with such transaction, (a) KMC shall hereafter promptly upon request execute,
deliver and cause to be recorded and/or filed such additional or supplemental
documents and instruments (including confirmatory deeds, limited Usability
company certificate amendments, transfers and assignments, including those in
the form attached hereto as t ) as KGVI may from time to time reasonably
request and (b) the parties shall, if KGVI requests, promptly execute and
deliver appropriate amendments to the Operating Agreements.
2) (a) KGVI and the Transferee shall have the right, in their sole
discretion,. to conduct all operations and management of the Kansas LLCS,
without the requirement to consult with or obtain the approval or consent of
KMC (consistent with the Operating Agreements, as amended to implement this
letter agreement); in connection therewith,, KGVI and the Transferee shall
have the right to make all determinations relating to funding (or the failure
to fund) the Project and any and all related or ancillary amounts. In
addition, KGVI and the Transferee shall have the right to abandon or
discontinue efforts in respect of the Project at any time (the date of any
such abandonment or discontinuance, the "Project Termination Date") without
obligation to KMC or any of its affiliates, except with respect to the
obligations set forth in Section 3 below. In furtherance of the foregoing,
KMC shall cause such members of any board of directors, management or
operating committee or similar capacity who have been appointed by it to
resign as of the date of this letter agreement and to be replaced with
designees of KGVI and the Transferee.
(b) KGVI, KMC and the Transferee agree that, effective as of this date, each
of the Operating
Agreements is amended as follows,
(i) Section 4.2 of each of the Operating Agreements is amended to read as
follows:
"Each Member (excluding, however, KMC) agrees to make additional
capital. contributions in cash in an amount equal to 50% of the amounts
necessary, in the event of the exercise of the Option, to consummate such
transactions as are agreed upon by the affirmative vote of the owners of mot-e
than 50% of all Membership Interests.";
(ii) The fourth and fifth sentences of Section 6.1 of each of the
Operating Agreements are amended to read as follows: "Each Member shall
have authority to bind the Company, by execution of documents or otherwise, to
any obligation not inconsistent with this Agreement or the Act.
Notwithstanding the foregoing, Kansas Magic Corp., acting alone, shall have no
right, power or authority whatsoever to bind or obligate the Company to any
contract., debt, agreement, liability or obligation, and the signature or
other written concurrence of another Member of the Company shall be necessary
for the Company to be so bound or obligated. Subject to, and without
affecting, Article XIII of the Articles of Organization of the Company, no
person dealing with any Member shall be required to determine the Member's
authority to act on behalf of the Company or to determine any facts or
circumstances bearing upon the existence of such authority."
(iii) The first sentence of Section 7. 1.1 of each of the Operating Agreements
is amended to read as follows: "No Member shall Transfer any portion of its
interest in the Company or enter into any agreement by which any person shall
become interested in the Company unless the prior written consent of the
owners of more than 50% of all Membership Interests is obtained pursuant to
Section 7.2 of this Agreement.";
(iv) The first sentence of Section 7.2 of each of the Operating Agreements
is amended to read as follows: "Prior written consent will be deemed obtained
only when the owners of a Majority In. Interest approve such Transfer in
writing,"; and
(v) Section 7.4 of each of the Operating Agreements is amended to read as
follows- "The Members, upon the affirmative vote of the owners of a Majority
In Interest, may admit additional Members on the terms and conditions agreed
upon at the time of such admittance; provided that such additional Member
shall be subject to this Agreement and shall so agree in writing upon
request."
(c) KMC agrees that it shall not bind or seek or attempt to bind either of
the LLCs to any liability or obligation without obtaining the prior written
consent of KGVI, which consent may be denied or conditioned in the sole and
absolute discretion. of KGVI. KMC shall indemnify and hold harmless KG- VI
and the Transferee and their respective affiliates from any breach or
violation of the terms of this paragraph by KMC, including costs and
attorneys' fees incurred in defending against any such liability or obligation
or in enforcing its right to indemnity hereunder.
3) The Transferee shall be obligated to pay to King Hershey Koch & Stone
for the benefit of KMC, as provided herein, as the full consideration and
purchase price for KMC's 49.9% Membership Interest in each of the Kansas LLCS,
as described above, up to S25,000. In addition, KGVI shall be obligated to
pay to KMC an additional contingent purchase price (the 'Contingent Purchase
Price"), as follows-. The Contingent Purchase Price shall be equal to the
lesser of (a) S 1,700.000, plus a return thereon of 10% per year, compounded
annually (beginning on the date hereof) until paid in full, and (b) the
cumulative cash otherwise available for distribution to
KGVI, or the Transferee as permitted by the Operating Agreements, derived from
the Project from the date hereof through the earlier to occur of January 22,
2017 and the Project Termination Date (thus, KMC shall receive all cash
otherwise available for distribution to KGVI and the Transferee (but not, for
example, cash available for distribution to additional Members other than KGVI
or the Transferee) from the Project, as described above, until KMC has
received in the aggregate S 1,700,000 plus 10% interest per year, compounded
annually, or until January 7, 2017, whichever occurs first). The Contingent
Purchase Price shall be payable prior to the time that any cash distributions
from the Project are made to KGVT. or the Transferee. KGVI and the Transferee
shall be responsible to make such payments solely from such cash derived from
the Project and neither KGVI nor the Transferee nor any of their respective
affiliates shall be liable to KMC for any other amount or in any other respect
related to the transactions contemplated hereby. Notwitbstanding the
foregoing, KGVI or the Transferee, may, at any time, in their sole option,
accelerate payment of the unpaid portion of the Contingent Purchase Price, in
whole or in part-t, to an earlier time than otherwise provided above.
4) Except for the future right to receive the Contingent Purchase Price as
set forth in Section 3 above, KMC shall have no right to receive any
distributions or returns of capital with respect to or by reason of the 49.9%
Membership Interest being transferred to the Transferee, all of such interests
in each of the Kansas and LLCs being transferred, assigned and set over to the
Transferee as provided herein.
5) Each party represents to the other that it has full corporate authority
to enter into and to consummate the transactions contemplated hereby, and that
such transactions have been duly authorized by all necessary corporate,
shareholder and other action and that this letter agreement (a) does not
violate any instrument or agreement binding upon such party and (b)
constitutes the legal and valid obligations of such party, and is enforceable
against such party in accordance with its terms. Each party represents to the
other that except as set forth in Section 7 below, no consent of any
governmental authority or other third party is required for the consummation
of the transactions contemplated hereby. KMC represents that it has not bound
either of the Kansas LLCs to any -liability, obligation, contract, debt,
undertaking or incurred or permitted to exist any obligation, liability or
lien against the Kansas LLCs or their properties or assets. The
representations above shall survive the execution and delivery of This letter
agreement and the consummation of the transactions contemplated hereby and, in
the event of any breach of any of such representations by KMC, KGVI and the
Transferee shall be entitled, in addition to au other rights and remedies at
law or in equity, to withhold amounts otherwise payable as provided iii
Section 3 above and to apply such withheld amounts to the amounts of KGVI's
and the Transferee's damage resulting therefrom.
6) Each of the Kansas, LLCs and KGVI agrees to indemnify, defend and hold
harmless KMC and its affiliates from and against any and all loss, cost or
expense, including reasonable attorney's fees and disbursements, resulting or
arising from the operation of the Kansas LLCs with respect to any event or
circumstance first existing or arising after the date hereof
7) This letter agreement (a) shall be governed by and construed-d in
accordance with the internal laws of Kansas, without regard to principles of
conflicts of laws, (b) may be executed in counterparts and delivered by
facsimile transmission, (c) shall not be assigned or delegated by KMC without
the prior written consent of KGVI (but may be assigned by KGVI or the
Transferee); subject to the foregoing, shall be binding upon and inure the
benefit of the parties' respective successors and assigns. Each party
consents to the jurisdiction of any federal or state court sitting in Kansas
City, Kansas over any dispute arising thereunder or related hereto.
8) The transactions contemplated by this letter agreement (and the
performance of each party's obligations hereunder) are subject to appropriate
regulatory approvals. including the approval of the Kansas Racing Commission,
if required; in such regard, each. party agrees to make all necessary
appropriate filings, appear at all necessary or appropriate hearings and
otherwise reasonably cooperate with the other to obtain such regulatory
approvals.
9) The parties acknowledge that (a) KGVI and the Transferee shall be
permitted (in their sole discretion) to admit additional members to either or
both of the Kansas LLCS, in which case the parties' respective Membership
Interests shall be reduced proportionately, and (b) neither KGVI nor the
Transferee shall have any fiduciary or other obligations to KMC or any of
KMC's affiliates, other than the obligations explicitly set forth herein, and
KGVI and the Transferee shall be permitted to operate, finance and manage the
Kansas LLCs and the Project in their sole discretion in such manner as they
determine, and (c) KGVI and the Transferee shall have the eight to acquire
KMC's . 1% interest in each of the Kansas LLCs at any time upon written notice
to KMC for S1,000 in cash (by wire transfer or check), in which case KMC shall
assign, transfer and set over to KGVI and/or the Transferee such interest
documents and instruments in the form attached hereto as Exhibit A(with
appropriate conforming changes) or such other form as KGVI shall reasonably
request,
Please indicate your agreement to the foregoing by signing a copy of this
letter
agreement where indicated below.
Very truly yours,
Kansas Gaming Ventures, Inc.
By:
Name: Scott Schweinfurth
Title: Treasurer
Ageed to,
Kartsas Magic Corp.
By:
Name: Robert Callaway
Title: Secretary
[Transferee]
By:
Name:
Title:
<PAGE>
Exhibit A
[KANSAS GAMING PARTNERS]
ASSIGNMENT OF MEMBERSHIP INTEREST AND
ADMISSION OF NEW MEMBER
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are
acknowledged, Kansas Magic Corp. (the "Transferor"), the owner of a 50%
membership interest in Kansas Gaming Partners, L.L.C. (the "LCC"), hereby
assigns, transfers, bargains and conveys
to (the "Transferee") all of the Transferor's Tight, title and interest in and
to a 49.9% Membership Interest in the LLC owned by the Transferor (the
"Interest"). The Transferor is retaining ownership of a 10% ' Membership
Interest in the LLC, subject to the terms of a letter agreement dated January
- -1 1997 between the Transferor and Kansas Gaming Ventures, Inc. and the
Transferee (the "Letter Agreement"). The Transferee accepts the foregoing
assignment of the Interest and agrees that it -is bound by, and its ownership
of the Interest is subject to, the Operating Agreement of the LLC dated
November 23, 1994, as amended by certain provisions of the Letter Agreement.
Kansas Gaming Ventures, Inc.. ("KGVI") consents to the foregoing assignment of
the Interest, and KGVI and the Transfcror agree that the Trarisferee is
admitted as a new Member of the LLC.
WITNESS our hands and seals this day of Janua-ry , 1997.
KANSAS GAMING VENTURES, INC.
By:
Name: Robert Callaway
Title: Secretary
[Transferee]
By:
Name:
Title:
KANSAS GAMING VENTURES, INC.
By:
Name:
Title:
[KANSAS FINANCIAL PARTNERS]
ASSIGNMENT OF MEMBERSHIP INTEREST AND
ADMISSION OF NEW MEMBER
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are
acknowledged, Kansas Magic Corp. (the "Transferor"), the owner of a 50%
membership interest in Kansas Financial Partners, L.L.C. (the "L.LC") hereby
assigns, transfers, bargains and conveys
to (the "Transferee") all of the Transferor's right, title
and interest in and to a
49.9% Membership Interest in the LLC owned by the Transferor (the "Interest").
The Transferor is retaining ownership of a.10% Membership Interest in the
LLC, subject to the terms of a letter agreement dated January _, 1997 between
the Transferor and Kansas Gaming Ventures, Inc, and the Transferee (the
"Letter Agreement"). The Transferee accepts the foregoing assignment of the
Interest and agrees that it is bound by, and its ownership of the Interest is
subject to, the Operating Agreement of the LLC dated November 23, 1994, as
amended by certain provisions of the Letter Agreement. Kansas Gaming
Ventures, Inc. ("KGVT") consents to the foregoing assignment of the Interest,
and KGVI and the Transferor agree that the Transferee is admitted as a new
Member of the LLC.
WITNESS our hands and seals this _ day of January, 1997.
KANSAS MAGIC CORP.
By:
Name: Robert Callaway
Title: Secretary
[Transferere]
By:
Name:
Title:
KANSAS GAMING VENTURES, INC
By:
Name:
Title:
<PAGE>
FIRST AMENDNENT
TO
ARTICLES OF ORGANIZATION
OF
KANSAS GAMING PARTNERS, L.L.C.
The undersigned, for purposes of amending the Aiticies of Organization of
Kansas Gaming Panners, L.L.C., filed on July 19, 1994 ("Alticies of
Organizadon"), adopts the
following:
1. Article VM of the Articles of Organization is amended to read as
follows:
Management of the Company shall be reserved in its members; Kansas
Gaming Venmres, Inc., a Nevada corporation, Kansas Alliance Corp.. a Nevada
corporation, and Kansas Magic Co-rp., a Minnesota corporation, whose addresses
are c/o King Rershey Koch & Stone, Suite 2100, 2345 Grand Boulevard., Kaasas
City, Missouri 641 08.
2. The Articles of Organization are amended by adding the following new
Article XIII:
"ARTICLE XIII
Notice is hereby given that Kansas Magic Corp., acting along, has no
right, power or authority whatsoever to bind or obligate the Company to any
contract, debt, agreement, liability or obligation, and the signature or other
written concurrence of another member of the Company shall be necessary for
the Company to be so bound or obligated."
3. Except as modified by this First Amendment, the Articles of
Organization are ratified by the parties.
This First Amendment to the Articles of Organization was duly executed on
this day of January, 1997, and is filed in accordance with the Act.
KANSAS GAMING VENTURES, INC.
By:
Name:
Title:
KANSAS ALLIANCE CORP.
By:
Name:
Title:
FIRST AMENDMENT
TO
ARTICLES OF ORGANIZATION
OF
KANSAS FINANCIAL PARTNERS, L.L.C.
The undersigned, for the purpose of amending the Articles of Organization
of Kansas Financial partners, L.L.C., filed on July 19, 1994 ("Articles of
Organization"), adopts the following:
Article VIII of the Articles of Organization is amended to read as follows:
Management of the Company shall be reserved in its members: Kansas Gaming
Ventures, Inc., a Nevada corporation, Kansas Alliance Corp., a Nevada
corporation, and Kansas Magic Corp., a Minnesota corporation, whose addresses
are c/o King Hershey Koch & Stone, Suite 2100, 2345 Grand Boulevard, Kansas
City, Missouri 64108.
2. The Articles of Organization are amended by adding the following new
ARTICLE XIII:
"ARTICLE XIII
Notice is hereby given that Kansas Magic Corp., acting along, has no right,
power or authority whatsoever to bind or obligate the Company to any contract
debt, agreement, liability or obligation, and the signature or other written
concurrence of another member of the Company shall be necessary for the
Company to be so bound or obligated."
3. Except as modified by this First Amendment, the Articles of
Organization
as originally filed remain in effect and are ratified by the parties.
This First Amendment to the Articles of Organization was duty executed on this
day of January, 1997, and is filed in accordance with the Act.
KANSAS GAMING VENTURES, INC.
By:
Name:
Title:
KANSAS ALLIANCE CORP.
By:
Name:
Title:
Exhibit 21.1
Subsidiaries of Casino Magic Corp.
State of Other Names
Incorporation Under Which
Subsidiary or Organization Business is
Conducted
Atlantic-Pacific Corp. South Dakota
Goldiggers
Biloxi Casino Corp. Mississippi
Casino Magic - Biloxi
Boston Casino Corp. Massachusetts
None
Bucks County Casino Corp. Pennsylvania
None
Casino Magic (Europe) B.V. Netherlands
Casino Magic (Europe)
Casino Magic American Corp. Minnesota
Dakota Magic
Casino Magic Finance Corp. Mississippi
None
Casino Magic Neuquen S.A. Argentina
Casino Magic - Argentina
Casino One Corporation Mississippi
None
Kansas Magic Corp. Minnesota
None
Mardi Gras Casino Corp. Mississippi
Casino Magic - Bay St. Louis
St. Louis Casino Corp. Missouri
None
Jefferson Casino Corp. Louisiana
None
Subsidiary of Jefferson Casino Corp.
Casino Magic of Louisiana Corp. Louisiana
Casino Magic - Bossier City
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 28, 1997 included in this Form 10-K for the year
ended December 31, 1996, into the Company's previously filed Registration
Statements File Nos. 33-73632, 33-79674, 33-84030, 33-93650, 33-93916, and
33-99248
/s/ Arthur Andersen LLP
New Orlenas, Louisiana
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1996, CONSOLIDATED FINANCIAL STATEMENTS OF CASINO MAGIC CORP. AND ITS
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 34,546,166
<SECURITIES> 5,767
<RECEIVABLES> 2,889,489
<ALLOWANCES> 0
<INVENTORY> 825,816
<CURRENT-ASSETS> 41,956,497
<PP&E> 286,011,977
<DEPRECIATION> 42,319,405
<TOTAL-ASSETS> 370,601,691
<CURRENT-LIABILITIES> 48,448,985
<BONDS> 258,261,231
0
0
<COMMON> 356,371
<OTHER-SE> 63,268,343
<TOTAL-LIABILITY-AND-EQUITY> 370,601,691
<SALES> 180,277,843
<TOTAL-REVENUES> 180,277,843
<CGS> 0
<TOTAL-COSTS> 171,434,538
<OTHER-EXPENSES> 27,191,029
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,917,805
<INCOME-PRETAX> (36,265,529)
<INCOME-TAX> (4,676,182)
<INCOME-CONTINUING> 8,843,305
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,589,347)
<EPS-PRIMARY> (0.88)
<EPS-DILUTED> (0.89)
</TABLE>
