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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996 Commission File Number 0-20648
BOOMTOWN, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 94-3044204
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 399, Verdi, Nevada 89439-0399
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 345-8680
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Common Stock, $.01 par value per share
(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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 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. Yes X No
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The aggregate market value of the voting stock held by non-affiliates of the
Registrant (based on the closing price as reported on the NASDAQ/NMS on
December 20, 1996) was approximately $7 7/8. The number of outstanding
shares of the Registrants Common Stock as of December 20, 1996 was 9,255,264.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
part of this Form 10-K as indicated. None.
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PART I
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ITEM 1. BUSINESS
THE COMPANY AND ITS PROPOSED MERGER WITH HOLLYWOOD PARK, INC.
Boomtown, Inc. ( the "Company" or "Boomtown") owns and operates land
based, dockside and riverboat gaming operations in diverse markets in Verdi,
Nevada ("Boomtown Reno"), Biloxi, Mississippi ("Boomtown Biloxi") Harvey,
Louisiana ("Boomtown New Orleans" or "Boomtown Belle") and Las Vegas, Nevada
("Boomtown Las Vegas" or "Blue Diamond"), The Company's properties offer
hotel accommodations (at Boomtown Reno and Boomtown Las Vegas), gaming and
other entertainment amenities to primarily middle income, value oriented
customers. Boomtown offers 130,000 square feet of gaming space with
approximately 4,349 slot machines and 162 gaming tables. At all of the
Boomtown properties, Boomtown reinforces an "old west" theme throughout the
customers' visit with the use of western memorabilia in its interior decor,
country/western music and the western dress of its employees. The Company
believes it distinguishes itself from other casino properties through its
theme and a relaxed, friendly environment provided for customer loyalty.
On April 23, 1996, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Hollywood Park, Inc. ("Hollywood Park")
relating to the strategic combination of Hollywood Park and the Company.
Pursuant to the Merger Agreement and subject to the terms and conditions set
forth therein, the Company would become a wholly-owned subsidiary of
Hollywood Park (the "Merger"). Pursuant to the Merger Agreement, at the
effective date of the Merger (the "Effective Date"), each issued and
outstanding share of Boomtown Common Stock will be converted into the right
to receive 0.625 (the "Exchange Ratio"), of a share of Hollywood Park Common
Stock. The Merger is intended to be structured as a tax-free reorganization
for tax purposes and will be accounted for as a purchase for financial
reporting purposes.
As of April 23, 1996, the Company had approximately 11,602,432 shares of
Common Stock outstanding and Hollywood Park had approximately 21,093,957
shares of Common Stock outstanding (in each case assuming the exercise of all
outstanding options, warrants, rights or conversion privileges relating to
Common Stock). Upon the consummation of the Merger, it is expected that
former Boomtown stockholders will own approximately 25.6% of the outstanding
shares of Hollywood Park Common Stock (assuming the exercise of all
outstanding options, warrants, rights or conversion privileges relating to
the Company's Common Stock).
At the Effective Date, Hollywood Park's Board of Directors will be
expanded from seven (7) to eleven (11) members and will be comprised of seven
(7) directors selected by Hollywood Park (the "Hollywood Park Directors") and
four (4) directors selected by the Company (the "Boomtown Directors").
Hollywood Park will nominate the initial Company Directors (or replacements
elected by a majority of the Boomtown Directors) for re-election at the first
three annual stockholder meetings following the Effective Date. Upon the
Effective Date and for a period of three years thereafter the Executive
Committee of Hollywood Park's Board of Directors will consist of four (4)
Hollywood Park Directors and two (2) Boomtown Directors, including R.D.
Hubbard, Chief Executive Officer of Hollywood Park, Timothy J. Parrott,
Chairman of the Board and Chief Executive Officer of Boomtown, Richard J.
Goeglein, a current member of the Board of Directors of Boomtown and three
designees of Hollywood Park. In addition, Hollywood Park will establish a
three (3) person Office of the Chairman comprised of Hollywood Park's and
Boomtown's Chief Executive Officers and Hollywood Park's President of Sports
and Entertainment.
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The closing of the Merger is subject to numerous conditions precedent,
including (i) the approval of the stockholders of the Company and Hollywood
Park (while approvals were received in November and October 1996,
respectively), (ii) the approval of requisite governmental authorities,
including the necessary gaming authorities in the jurisdictions in which the
parties conduct business, (to date, only Mississippi gaming approval has been
obtained) and the expiration or termination of the applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(completed on June 20, 1996), (iii) the availability of sufficient financing
of up to $163.5 million to fund up to $60 million of future gaming projects
and to fund the repurchase of Boomtown's outstanding 11-1/2% First Mortgage
Notes (the "Notes") if put to Boomtown by the holders of the Notes as a
consequence of the Merger and (iv) the consent to the Merger by the holders
of a majority of the outstanding principal amount of the Notes. There can be
no assurance that any or all of these conditions precedent, will be satisfied
or that the proposed merger with Hollywood Park will be consummated. The
Merger is expected to be completed by the end of the first quarter of
calendar 1997.
Certain additional matters relating to the signing of the Merger
Agreement and a complete description of the Merger Agreement are more fully
described in the Company's Form 8-K dated April 23, 1996, including the
Agreement and Plan of Merger file as exhibit 2.1 thereto, and filed with the
Securities and Exchange Commission on May 3, 1996.
The following table provides certain information relating to the gaming
and hotel room data at Boomtown's existing properties as of September 30,
1996:
<TABLE>
<CAPTION>
Boomtown Boomtown Boomtown Boomtown
Reno New Orleans Biloxi Las Vegas Total (1)(2)
--------- ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Casino Square Footage 40,000 30,000 33,000 30,000 133,000
Slot Machines 1,307 912 1,030 1,100 4,349
Table Games 44 56 37 25 162
Hotel Rooms 122 0 0 300 422
</TABLE>
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(1) On August 12, 1996, Boomtown entered into an agreement with the lessor of
the Blue Diamond resort and certain other parties pursuant to which, upon
consummation of the Merger, Boomtown will terminate its ongoing interest in
the Blue Diamond resort. See "Business of Boomtown-Boomtown Las Vegas."
(2) Includes data for Boomtown Las Vegas.
BACKGROUND
GAMING IN THE UNITED STATES. Until the mid-1980's, casino gaming was
legal in only Nevada and Atlantic City, New Jersey. Since that time,
legalized gaming has proliferated throughout the United States to include
land based, dockside and riverboat gaming fueled by the need for states and
local jurisdictions to generate revenues in the face of budget concerns,
create jobs for the community and promote economic development without
increasing general taxation. Gaming has expanded to include not only
riverboat and dockside gaming, but also state sponsored video lotteries,
small stakes casino gaming and full-scale casinos owned and operated on
native American land.
In 1986, the first significant move toward the expansion of legalized
gaming occurred with the authorization of a state operated video lottery in
Montana. Casino style gaming again expanded
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in 1987 when the United States Supreme Court upheld casino gaming on Indian
reservations. Subsequently the Indian Gaming Regulatory Act of 1988 was
issued regulating Indian gaming. In 1991 Mississippi became the first state
to legalize casino gaming outside of Nevada and New Jersey, although
restricting full scale casinos to dockside riverboats along the Mississippi
river. Since that time dockside, riverboat or small stakes, land based
gaming has been legalized in additional states including Colorado, Iowa,
Illinois, Indiana, Louisiana, Mississippi, Missouri and South Dakota. Video
lottery gaming is now legal in at least five states (Louisiana, Oregon, South
Dakota, Rhode Island and Montana) and full-scale Native American gaming is
now legal in at least 13 states (Arizona, Connecticut, Iowa, Louisiana,
Michigan, Minnesota, Mississippi, Nebraska, New York, North Carolina, South
Dakota, Washington and Wisconsin). Several other jurisdictions in North
America have considered legalizing gaming or expanding permitted gaming that
already exists in their area. However, several referendums and legislation
proposing gaming expansion have failed to pass and other legislation has been
stalled.
THE BOOMTOWN CONCEPT AND MARKETING STRATEGY
Boomtown's strategy is to offer casino gaming and a broad range of
amenities in a casual, friendly western atmosphere targeting middle income,
value-oriented customers. The Boomtown concept includes the following:
"OLD WEST" THEME Interest in the "old west" and the history of the
United States during the 1800's has increased in recent years. Boomtown
believes that a major reason first time customers stop at Boomtown's sites is
their heavily themed appearance, with their flavor of the old west. Boomtown
enhances its "old west" flavor through the use of western memorabilia in its
interior decor, county/western music and the western dress of its employees.
The Company has heavily themed all its sites by presenting the "old west" as
experienced in each locale during the 1800's including the area architecture,
clothing, memorabilia, history, food and entertainment.
CASUAL, FRIENDLY ATMOSPHERE. An integral part of the Boomtown concept is
to provide its customers with a casual, friendly atmosphere which management
believes distinguishes Boomtown from many large gaming establishments.
Important ingredients in accomplishing this objective, in the view of
management, have been to instill in its employees a sense of pride in
Boomtown and to nurture a sense of "family". The Company develops and
reinforces these feeling through continuous training, employee "town
meetings", management staff meetings and Company sponsored recreation and
entertainment activities. The employees are taught through formal and
informal training to practice the Company slogan "catch the friendlies at
Boomtown" and the Company S.E.C.R.E.T. ("Serve Every Customer Right Every
Time"). The Company regards these concepts as critical ingredients of its
employee and customer service philosophy and uses these concepts at all its
locations. The Company believes that its friendly atmosphere instills
customer loyalty and results in repeat business.
VALUE-ORIENTED MIDDLE MARKET CUSTOMER BASE. Boomtown focuses on the
middle market by providing moderately priced, high value amenities, including
restaurants serving "all you can eat" buffet meals at an average price of
approximately $5, low cost entertainment and hotel room rates which average
$33. As a result of its middle market orientation and broad customer base,
Boomtown generally experiences high customer volume and relatively low per
customer revenues. Currently, approximately 80% of the Company's gaming
revenues are from slot machines, providing a stable source of cash flows.
Boomtown has not generally offered credit to it patrons.
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BROAD ARRAY OF MARKETING PROGRAMS. During 25 years of operations in
Reno, Boomtown has developed a broad array of marketing programs to increase
revenues and market share. In addition to billboards, print media, radio and
television, the Company has developed innovative charter flights
("FunFlight"), bus programs and a successful format for numerous special
events, including gaming and golf tournaments and other sporting events. The
bus and FunFlight programs are well suited to the Company's current locations.
The Company's FunFlight program brings customers to Boomtown Reno from
over 30 cities in the western United States, and to Boomtown Biloxi from over
20 cities in the southeast. A computer data base is used to target and
prioritize valued customers for repeat FunFlight business. In fiscal 1996,
the program brought in over 32,000 customers on 390 flights that provided an
estimated 15% of Boomtown Reno's gaming revenue. Boomtown Reno's bus
programs attracted approximately 243,000 customers on approximately 6,550
buses during fiscal 1996. At Boomtown Biloxi, the bus program brought 187,000
customers to its Biloxi casino on 5,221 buses. Boomtown also sponsors
numerous special events such as golf and other sporting tournaments, gaming
tournaments and other special promotions, which are targeted at premium
gaming players and are often provided on a complimentary basis.
BOOMTOWN RENO
Boomtown Reno has been operating for over a quarter century and is
located seven miles west of Reno on interstate 80, the major highway
connecting Northern California and Reno. Boomtown Reno was the originator of
the Company's "old west" theme and has established a loyal customer base
primarily drawn from Interstate 80 traffic. The Company believes its
distinguishes itself from other casinos in the Reno area by its emphasis on
the old west theme and by promoting the Company's casual, friendly
atmosphere. Boomtown Reno caters to middle income customers and markets
itself as Reno's only gaming and entertainment property complete with
amenities for the entire family. Boomtown Reno currently employs
approximately 1,100 employees.
Boomtown Reno offers its guests a 40,000-square foot casino, including
1,307 slot machines and 44 table games (including blackjack ("21),
multiaction 21, caribbean stud, royal match, let-it ride, craps, roulette,
poker and pai gow poker) and two keno Games, a 122-room hotel, a 16-acre
truck stop with approximately 200 parking spaces, a 203-space, full service
recreational vehicle park, a service station, a mini-mart and other related
amenities. In addition, Boomtown Reno offers a 35,000-square foot family
entertainment center featuring a dynamic motion theater, an indoor 9-hole
western-themed miniature golf course, a restaurant and a replica of an 1800's
Ferris Wheel. The Company believes that the entertainment center is the only
facility offering these attractions at a single site in Northern Nevada. In
addition, the family entertainment center helps distinguish Boomtown Reno
from other Reno casino hotels as a destination offering entertainment for the
entire family.
Boomtown Reno offers a full service/buffet, and one combination buffet
restaurant which served over 1.2 million meals in fiscal 1996, as well as a
140-seat upscale steakhouse and a 220-seat deli restaurant in the family
entertainment center. Boomtown Reno's facilities also include four bars for
casino and restaurant patrons. Boomtown Reno's food and beverage services
and hotel accommodations are moderately priced.
Boomtown Reno's 24-hour vehicle facilities include its truck stop, a
service station and a full-service convenience store which operate 365
days-a-year. The truck stop has the capacity to pump over 10.5 million
gallons of fuel annually and pumped approximately 6.2 million gallons in
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fiscal 1996 while servicing approximately 250,000 trucks. The Company
estimates that the service station provided gasoline and related services to
another 250,000 vehicles in fiscal 1996.
Boomtown Reno's recreational vehicle park opened in August 1989, and
occupancy has increased from 23% for the 1990 fiscal year to 72% in 1996.
Recreational vehicle park occupancy in Reno is heavily weighted toward the
summer months and averaged over 96% at Boomtown during the fourth quarter of
fiscal year 1996. The Company estimates its recreational vehicle park
generated nearly 100,000 visitors to its casino in fiscal 1996.
Boomtown Reno is highly dependent on the traffic flow on Interstate 80.
According to the Nevada Department of Transportation, during 1995, over 8.8
million vehicles traveled west on Interstate 80 between Boomtown and the
California border. Based on statistics compiled by the State of Nevada
during the Company's 1996 fiscal year, the Company believes that
approximately 16% of the traffic to and from Reno stops at Boomtown Reno.
Direct access is provided to Boomtown Reno from Interstate 80 by off-ramps
for eastbound and westbound traffic. Customers stopping at Boomtown Reno
from Interstate 80 represent a substantial majority of its customer base.
Adverse weather conditions, particularly in the winter months, have
resulted in significant declines in traffic on Interstate 80 for varying
periods, which decline has adversely affected the Company's results of
operations. If traffic on Interstate 80 is significantly reduced for an
extended period or the off-ramps providing access to Boomtown Reno are
impaired for an extended period due to poor weather conditions, road
modifications and repairs or other factors, the financial performance and
operations of the Company will be adversely affected. Interruptions of
traffic on Interstate 80 during weekends, when the Company typically
generates 50% of its weekly revenues, or in the summer months, would have a
particularly harmful effect on the Company. Additionally, a decline in the
Reno gaming market or loss of gaming customers traveling to Reno for any
reason, including increased competition from other gaming areas or
governmental regulations limiting the growth of Reno's gaming establishments,
could have a material adverse effect on the Company's results of operations.
RENO GAMING MARKET. Reno's primary visitor attraction is gaming. The
greater Reno area accounts for substantially all casino gaming which occurs
in Washoe County; Nevada. Reno continues to promote itself as a major
entertainment destination center, and remains the third largest gaming region
in the United States behind Las Vegas and Atlantic City. Reno is a popular
resort area which attracts tourists from throughout the country by offering
gaming as well as numerous other summer and winter recreational activities.
Reno is located approximately 50 miles from Lake Tahoe, another popular
recreational area. The continued popularity of Reno is evidenced in the
increase in the number of visitors traveling to Reno. According to the
Reno/Lake Tahoe Convention and Visitors Authority, over 4.8 million tourists
visited Reno in 1995. Traffic on Interstate 80 from the west increased from
7.8 million vehicles in 1987 to 8.8 million in 1995. Air passenger service
to Reno's airport has also significantly expanded in recent years. According
to the Reno/Sparks Convention and Visitors Authority, the number of
passengers flying into Reno increased from 1.5 million in 1989 to 2.9 million
in 1995.
Casino gaming has grown steadily in the greater Reno area over the past
decade and, in 1995, gaming revenues totaled $748 million. According to
statistics compiled by the State of Nevada, casino gaming revenues in Washoe
County increased between fiscal 1986 and fiscal 1994, at an average annual
compound growth rate of approximately 6% and is expected to grow as a result
of several recent events. During 1994 the Clarion Hotel Casino opened its
second hotel tower, adding 287 new rooms and additional casino areas. At a
final cost of $46 million, the National Bowling
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Stadium was completed and opened during the first fiscal quarter of 1995.
The facility will be the site of major bowling tournaments hosted by the
American Bowling Congress and the Women's International Bowling Congress. In
October 1995, Harrahs Reno completed construction of a 442 room Hampton Inn
hotel tower to complement its existing hotel/casino facilities, bringing its
total rooms to 1,007. In July 1995, Circus Circus and The Eldorado, through
a joint venture, opened the $230 million Silver Legacy Hotel and Casino which
includes 60,000 square feet of gaming space, 1,700 rooms and a variety of
entertainment amenities. Additionally, other casino expansion projects have
been completed including the Peppermill Hotel Casino and John Asquaga's
Nugget, or are in the process of expansion including the Clarion Hotel
Casino and the Sands Regency.
COMPETITION. Boomtown Reno competes directly with casinos in the Reno
downtown area for its customers. However, since a substantial percentage of
Boomtown Reno customers stop at Boomtown Reno as they are driving to and from
other Reno area casinos, the Company believes that Boomtown Reno's success is
favorable influenced by the success of other Reno casinos. Nevertheless, the
Company's Reno operations are highly dependent upon the customers coming to
and from Reno to gamble, and a decline in the Reno gaming market or loss of
gaming customers due to increased competition from other gaming areas could
have a material diverse effect on the Company's results of operations.
FUTURE EXPANSION. Boomtown Reno's current plans upon closing of its
pending merger with Hollywood Park include an expansion to add approximately
200 additional hotel rooms, a restaurant, an entertainment lounge, 10,000
square feet of meeting space, retail space, additional parking and other
amenities. The meeting space would allow Boomtown Reno to add another market
segment composed of small groups, meetings and conventions. Boomtown Reno's
hotel is currently capacity constrained, as occupancy is currently over 96%
during the summer months and is 100% on virtually all weekends throughout the
year. The Reno expansion project is expected to commence shortly following
the Merger.
Assuming completion of this expansion project, the Company will have used
less than 66 of the 569 acres it owns on both sides of Interstate 80. The
Company's long-term goals with respect to its Reno site is to continue phased
expansion of its gaming, hotel and other entertainment facilities in order to
become a major themed destination resort.
BOOMTOWN BILOXI
Boomtown Biloxi, a Mississippi Limited Partnership (the "Mississippi
Partnership"), is majority owned and controlled by Boomtown and commenced
operations in July 1994 and occupies nine acres on Biloxi's historic back
bay. The dockside property consists of a land based facility which houses all
non-gaming operating space and a 33,000-square foot casino constructed on a
400 x 110 foot barge permanently moored to the land-based building. The
Company's "old west" theme is the first of its kind in the Gulf Coast area,
and management believes the casual atmosphere and western theme distinguishes
Boomtown Biloxi from competing casinos in the back bay. The casino offers
1,030 slot machines, 37 table games (including blackjack, craps, roulette,
Caribbean stud, tournament let-it ride, pai gow poker, poker, three card
poker and royal match) and other non-gaming amenities including a full
service buffet/menu service restaurant, a 120 seat deli-style restaurant, a
western dance hall/cabaret and a 20,000-square foot family entertainment
center. The family entertainment center, complete with a dynamic motion
theater, and the western theme distinguish Boomtown Biloxi from other casinos
on the Mississippi Gulf Coast as a destination offering entertainment for the
entire family. Boomtown Biloxi currently employs approximately 871 employees.
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Boomtown Biloxi is located one-half mile from Interstate 110, the main
highway connecting Interstate 10 and the Gulf of Mexico. Interstate 10 is
the main thoroughfare connecting New Orleans Louisiana and Mobile, Alabama.
According to the Mississippi Department of Transportation, over 12 million
vehicles travel past the Boomtown Biloxi site on Interstate 110 each year.
Auto accessibility to the site is superior when approaching from the north
due to its immediate proximity to the Interstate 110 spur from Interstate 10,
which provides the bulk of traffic to the Gulf Coast region. Boomtown Biloxi
is constructed in the Back Bay and is the first casino visible to auto
traffic traveling south on Interstate 110.
OPERATING STRUCTURE In October 1993, prior to beginning construction on
the facility, Boomtown entered into a 99-year lease with Raphael Skrmetta,
which was subsequently transferred to his son Eric Skrmetta ("Skrmetta") for
the site located on the back bay in Biloxi. The lease stipulates base rent
based on gaming revenue with a minimum of $500,000 and a maximum of $2
million monthly, plus 5 percent of gaming revenues in excess of $25 million
("Percentage Rent"). At current revenue levels, the base rent is $2 million
and is expected to remain at this maximum level. If gaming revenue exceeds
$50 million dollars, the percentage rent increases to 6% of all gaming
revenue over $50 million. For the first two years of the lease, Skrmetta
forgave the "base rent" ($2 million per year) in exchange for a 15 percent
limited partnership interest in the Partnership.
Under the terms of the partnership agreement, quarterly distributions are
made to Skrmetta in relationship to his percentage interest in Boomtown
Biloxi. The distributions are based on his pro rate share of the cash flow
generated by the property after deducting normal capital expenditures and
total debt service.
Each of the Company and Skrmetta (or his transferees) has an option
exercisable after three years, but not later than approximately seven years,
following commencement of gaming operations to exchange Skrmetta's (or his
transferees') interest in the Partnership for, at Skrmetta's option, cash or
a number of shares (or a combination thereof) of Boomtown's Common Stock
equal to the value of the 15% interest in the Mississippi Partnership. The
value of the Mississippi Partnership is equal to the difference between (A)
six times the sum of (i) Partnership net income for the last completed fiscal
year preceding the exchange, plus (ii) depreciation and amortization charges
for such year, plus (iii) the provision for any income taxes for accounting
purposes for such year, plus (iv) interest expense on long-term debt for such
fiscal year, and (B) the sum of all of the Mississippi Partnership's long
term debt (provided that debt in excess of $2.5 million which is incurred in
connection with the acquisition of property, plant and equipment is not
included until one year after the in-service date for the asset with which
the debt is associated).
Upon commencement of operations at Boomtown Biloxi, the Company entered
into an agreement with Hospitality Franchise Systems, Inc. ("HFS") whereby
HFS advanced $11 million in return for ownership of the Biloxi barge and
shell building. Also under this agreement, HFS was to receive 20% of the
adjusted earnings before interest, taxes, depreciation and amortization
("EBITDA") as defined in the related contract. HFS was also to provide
marketing services to Boomtown Biloxi. The assets under this agreement, as
well as the related contractual arrangements, were subsequently transferred
to National Gaming Corporation, Inc. ("NGC"). Boomtown Biloxi leases the
assets back from NGC under a 25 year lease with a 25 year renewal option.
In November, 1995 Boomtown executed an agreement with NGC whereby $2.4
million was returned to NGC in return for a reduction of the EBITDA
distributions from 20% to 16%. Additionally, for $100,000 the Company
secured an option to buy the barge from NGC as well as to
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buy out the EBITDA participation at a cost approximating the original
investment made by HFS less the $2.4 million that was paid. The option
terminates on March 31, 1997 but is renewable for an additional two years for
$100,000 a year.
For a discussion of the terms of the transactions described above, see
Boomtown's Registration Statement on Form S-4 filed with respect to the
registration of Boomtown's 11 1/2% First Mortgage Notes Due 2003, filed May
4, 1994 (the "1994 Registration Statement on Form S-4").
BILOXI AND THE MISSISSIPPI GAMING MARKET In 1990, the Mississippi
Legislature passed the Mississippi Gaming Control Act, which provided for
legalized dockside gaming at the discretion of the 14 counties that either
border the Gulf Coast or the Mississippi River. As of November 30, 1996
dockside gaming was permissible in nine of the 14 eligible counties in the
State and gaming operations had commenced in Adams, Coahoma, Hancock,
Harrison, Tunica, Warren and Washington counties. The law permits unlimited
stakes gaming on permanently moored vessels on a 24-hour basis and does not
restrict the percentage of space which may be utilized for gaming. There are
no limitations on the number of gaming licenses which may be issued in
Mississippi and state and local gaming taxes for gaming operations in Biloxi
approximate 12% of gaming revenues, plus certain fees.
The Mississippi Gulf Coast has a long tradition as a vacation
destination. Biloxi is within a one and one-half hour drive from New Orleans
and a one hour drive from Mobile, Alabama. With a local population of
approximately 300,000, the Gulf Coast area draws an estimated two million
visitors annually, primarily from Louisiana, Mississippi, Alabama, Florida
and Georgia. Direct airline flight service is provided to Gulfport/Biloxi
from Atlanta, Houston, Orlando and St. Petersburg. Excluding Louisiana, a
200-mile radius around Biloxi encompasses more than 3.3 million people with
an average age of 32. A 300-mile radius, excluding Louisiana, contains more
than 7.7 million people. Area activities include beaches, golf, fishing
boating and water skiing.
With the advantage of the coastal beaches, the peak season occurs during
the summer months of June through August. The major factor that contributes
to the strong swing in seasonality is the limited number of quality rooms on
the coast. Numerous casino properties currently in existence or under
construction are building hotel rooms to support the region as an
entertainment destination resort.
COMPETITION Dockside gaming has grown rapidly on the Mississippi Gulf
Coast, increasing from no dockside casinos in March of 1992 to 11 operating
casinos by November 30, 1996. Boomtown Biloxi's dockside casino operation
has numerous competitors, some of which have greater name recognition, and
financial and marketing resources than the Company. Boomtown Biloxi also
competes with Louisiana casino operators. Additional casinos are planned for
the Gulf Coast and Louisiana areas, and although not all of the casinos
planned are likely to be developed, the Mississippi Gulf Coast gaming
environment has become increasingly competitive. The Biloxi and Gulf Coast
markets are therefore experiencing market dilution and any additional casinos
could dilute gaming win even further. The Company is addressing this
competition issue by intensifying its marketing efforts to promote Boomtown
Biloxi's western theme and family entertainment center and believes it will
be able to continue to effectively compete in this market. However, there
can be no assurance that such measures will be successful in addressing the
intense competition in this area.
Management believes Boomtown Biloxi's biggest obstacle to aggressively
competing in the Biloxi/Gulf Coast area is its location. The property is
positioned on the Back Bay of Biloxi approximately one mile north of the
"strip" on coastal Highway 90. The majority of the casinos in
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the Biloxi, Gulfport area are located on Highway 90. The property is
difficult to reach when approached from the south due to the lack of an off
ramp on Interstate 110 north although, Boomtown Biloxi is working with state
and local officials regarding plans and funding for such an off ramp.
However, the property is the first casino visible to auto traffic when
traveling south on Interstate 110.
FUTURE EXPANSION The Company's current plan is to expand Boomtown Biloxi
by adding a minimum of 200 and up to 500 hotel rooms adjacent to the casino
as well as additional parking facilities.
BOOMTOWN NEW ORLEANS
Boomtown New Orleans, a Louisiana limited partnership (the "Louisiana
Partnership"), is majority owned and controlled by Boomtown and commenced
operations in August 1994 on a 50-acre site in Harvey, Louisiana,
approximately ten miles from the famous French Quarter of New Orleans.
Gaming operations are conducted from a 250-foot replica of a paddlewheel
riverboat offering 912 slot machines and 56 table games (including blackjack
("21"), craps, poker, roulette, pai gow poker, let-it ride and caribbean
stud) in a 30,000 square foot casino. The land-based facility adjacent to the
riverboat dock is composed of a western-themed, 88,000-square foot casino.
The first floor of the building opened December 1994, and offers the patrons
of the Boomtown Belle a deli-style restaurant, a 20,000-square foot family
entertainment center and a western saloon/dance hall. In addition, the
land-based facility provides for staging of the gaming vessel. This facility
is the only one of its type in the New Orleans area and it attracts both
families and adults by providing entertainment for non-gaming customers while
also providing incentive for gaming customers to increase the frequency and
duration of their visits. The Company believes it distinguishes itself from
other casinos in the New Orleans area by its location, emphasis on the
Company's old west theme and promoting its friendly, casual atmosphere.
Boomtown New Orleans currently employs approximately 900 employees.
OPERATING STRUCTURE On November 18, 1996, the Company entered into an
agreement with its partner in the venture, Eric Skrmetta ("Skrmetta") in
which the Company agreed to pay $5,673,000 in return for Skrmetta's 7.5%
interest in the Partnership in addition to releasing the Company from any and
all claims, liabilities and causes of action of any kind arising from or
related to the Louisiana Partnership agreement ("Minority Purchase
Agreement"). The terms set forth thereto require Boomtown to pay a down
payment of $500,000 (which amount was paid) with the remaining $5,173,000 to
be paid not later than August 10, 1997. Additionally, the $5,173,000 shall
be reduced by a discount for the time that the amount or any portion thereof
is paid in full prior to August 10, 1997.
NEW ORLEANS AND THE LOUISIANA GAMING MARKET Riverboat gaming was
legalized in Louisiana in July 1991, with the enactment of the Riverboat
Economic Development and Gaming Control Act. The law currently limits the
number of gaming licenses to 15 riverboat licenses of which 14 have already
been granted. One land based casino is also permitted in New Orleans.
Louisiana law requires that all riverboats be built after January 1, 1992
and be of "period" construction, at least 150 feet in length and have a
600-passenger minimum capacity. Twenty-four hour unlimited stakes gaming is
permitted on the riverboats, which are required to cruise for 90 minutes
every three hours. Fourteen riverboats operate in the state of Louisiana in
the areas of Shreveport, Lake Charles, New Orleans and Baton Rouge. Four
boats are currently operational in
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the New Orleans area (including the Company's riverboat). However, one of
the four which is located in downtown New Orleans is scheduled to move to
Shreveport in the fall of 1997.
The annual license fee to conduct gaming activities on a riverboat in
Louisiana is $50,000 for the first year of operations and $100,000 per year
thereafter. An additional fee of 18.5% of net gaming proceeds is charged by
the state, and local municipalities may charge a fee of up to $2.50 per
passenger boarding the riverboat. In the case of the Company's riverboat,
this fee was negotiated to 6% of net gaming proceeds.
In addition to riverboat casinos, a single, large-scale land-based casino
to be operated by Harrah's Jazz was approved for the City of New Orleans. A
temporary facility was constructed in New Orleans, and the casino began
operations in 1995. After almost seven months of operations, Harrah's Jazz
filed a Chapter 11 bankruptcy on November 22, 1995, due to numerous
occurrences including disappointing gaming revenues. Harrah's is currently
in negotiations with the State of Louisiana and attempting to reorganize and
commence operations. The land based casino may open as soon as mid-1997.
The New Orleans metropolitan area has a local resident population of over
1.3 million people and attracts over 9 million tourists annually. The "West
Bank", which is located in Jefferson Parish, and is the site of Boomtown New
Orleans, has more than 250,000 local residents.
A large majority of the Boomtown Belle customers are local residents of
the West Bank. These customers are primarily blue-collar, working class and
suburban/rural. Boomtown believes that these customers are attracted by the
Company's value-oriented, middle market philosophy and the relaxed western
atmosphere. Studies have indicated that these customers are loyal to the
West Bank and do not like to travel into the downtown New Orleans urban area.
On November 5, 1996, referenda on the continuation of riverboat gaming
were held on a parish-by parish basis in each parish where riverboat gaming
operations were permitted. Voters in all parishes in which riverboat gaming
is currently conducted elected to continue to permit operations. In the
Boomtown Belle's parish the continuation of riverboats passed overwhelmingly
with a 68% approval rate.
COMPETITION Boomtown New Orleans currently competes with other riverboat
casinos in Louisiana and dockside gaming casinos in Mississippi, some of
which have greater name recognition and greater financial and marketing
resources than Boomtown. The Company believes that Boomtown New Orleans will
face additional competition from a land-based casino in the City of New
Orleans if it again becomes operational. The Company believes that its
riverboat operation competes primarily on the basis of the riverboat's
location and overall atmosphere. Current Louisiana gaming legislation
authorizes a total of 15 riverboat casino licenses statewide, of which 14
have been granted. The Company also believes the local residents of Westbank
who frequent the Boomtown Belle are loyal to the West Bank and do not like to
travel into the downtown New Orleans urban area. If new casinos draw
significant numbers of customers from the West Bank, however, or the Boomtown
Belle's customers do travel to other casinos, customer counts and revenues of
the Boomtown Belle would be adversely affected.
FUTURE EXPANSION The Boomtown Belle's current plan is to complete an
expansion of its land-based facility to include a 350 seat full service buffet
and a 150 seat specialty, fine dining restaurant to complement the entertainment
package offered. The Louisiana expansion project is expected to commence
shortly following the Merger.
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BOOMTOWN LAS VEGAS
Boomtown Las Vegas commenced operations in May 1994 on a 56-acre site at
the interchange of Blue Diamond Road and Interstate 15, the principal
thoroughfare connecting Southern California to Las Vegas. The property is
heavily themed as an old mining town, or reflected on the outside facade and
the interior decor. Boomtown Las Vegas includes a 30,000 square foot casino
with 1,100 slot machines and 25 gaming tables, 300 hotel rooms, a 460-space
full service recreational vehicle park, two restaurants, an entertainment
lounge and a replica of an old mine where customers can pan for real gold.
Boomtown Las Vegas currently employs approximately 900 employees.
OPERATING STRUCTURE Prior to opening, Boomtown owned a 50% interest in
Blue Diamond Hotel and Casino, Inc. ("Blue Diamond"), the operating company
leasing the hotel/casino facility and the land (the "Resort"), and was
primarily responsible for the development and management of the Resort. In
June 1994, Boomtown exercised its right to acquire the remaining 50% of Blue
Diamond from Edward P. Roski, Jr. ("Roski") in exchange for 714,286 shares of
Boomtown's Common Stock. Roski is a member of the Board of Directors of
Boomtown and an affiliate of IVAC, a California general partnership ("IVAC"),
which owns the land and building leased by Boomtown Las Vegas for the Resort.
Boomtown has loaned IVAC $27.3 million (the "IVAC Loans") which was used to
help construct the Resort. The IVAC Loans are secured by separate deeds of
trust on the Resort, which deeds of trusts are subordinate to separate deeds
of trust securing Blue Diamond and Boomtown's obligations in connection with
the Indenture (as defined under "Management's Discussion and Analysis of
Financial Condition and Results of Operations"). Boomtown receives interest
income of $2.7 million annually from IVAC as a result of these loans. In
turn, Blue Diamond pays rent to IVAC in the amount of $5.4 million annually
to lease the facility ("Property Lease").
Blue Diamond further had the right to purchase the Resort from IVAC in
accordance within terms of an option which expired in November 1996. On
August 12, 1996, Boomtown, Blue Diamond, Hollywood Park, Roski, IVAC and
Majestic Realty entered into the Blue Diamond Swap Agreement (the "Swap
Agreement") pursuant to which the parties agreed that, immediately following
consummation of the Merger, and contingent upon the closing of the Merger,
Boomtown and Blue Diamond (or any transferee thereof as set forth in the Swap
Agreement) would exchange their entire interest in the Resort (including the
IVAC Loans which will be transferred to IVAC and as a result will no longer
be owed to or collectible by Boomtown), and effectively transfer all interest
in the Resort to Roski, in exchange for a $5.0 million unsecured promissory
note (the "First Note") and an unsecured promissory note (the "Second Note")
equal in amount to be issued by Hollywood Park to Roski for the purchase of
his Boomtown stock referred to in the following paragraph (valued at
approximately $3.5 million) and assumption by Roski, IVAC or an affiliate of
certain liabilities (the "Swap"). The First Note has an interest rate equal
to the prime rate plus one and one half percent (1.5%) per annum and provides
for annual principal payments of $1.0 million plus accrued interest and
maturing on the date that is five years after the closing Exchange Date. The
Second Note has an interest rate equal to the prime rate plus one-half
percent (5%) per annum and provides for a payment of all principal plus
accrued interest on the date that is three (3) years after the closing.
In exchange for its interest in the Resort, Boomtown will receive notes
payable to Boomtown with an estimated value totaling $8.5 million, an
estimated cash payment of $2.1 million, release from lease obligations under
the Resort lease, Roski's assumption of certain liabilities and note
obligations totaling approximately $3.8 million and the ongoing expenses of
the Resort. Additionally, Roski will assume all operating leases including
any residual balances due under such leases. The Swap Agreement requires
approvals from applicable gaming authorities and Boomtown
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intends to seek the consent of the holders of a majority of the outstanding
principal amount on the Notes. Boomtown will incur an after-tax loss of $35.7
million as a result of the Swap (which has been reflected in it's results of
operations for the fiscal year ending September 30, 1996). The Swap would be
effected immediately following the Merger.
In accordance with the terms of the Swap Agreement, with certain
exceptions set forth in the Swap Agreement, the Company will continue to
operate the property until consummation of the Merger. Boomtown and Blue
Diamond will be responsible for the liabilities of the Resort prior to the
Swap and Roski will be responsible for the liabilities of the Resort
subsequent to the Swap. In addition, Roski will resign from Boomtown's Board
of Directors, effective as of the closing of the Swap. Subject to certain
conditions set forth in the Swap Agreement, the Swap may be effectuated
through any structure agreed upon by Boomtown and Hollywood Park. If the
Swap were not consummated for any reason, Boomtown would continue to operate
the property through the expiration of the lease term in July 1999, and the
IVAC Notes would be required to be repaid to Boomtown at such time.
On August 12, 1996, Hollywood Park and Roski further entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") pursuant to which Hollywood
Park will, concurrently with the Swap, purchase the stock in Boomtown held by
Roski ("Roski Stock"). Its market price on the date of the Swap (estimated to
be $3.5 million). The purchase price of approximately $3.5 million paid for by
an unsecured promissory note having an interest rate equal to the prime rate
plus one percent (1%) per annum and providing for four equal annual principal
payments plus accrued interest and maturing on the date that is four years after
the closing.
Boomtown took a non-cash, pre-tax charge of $36.6 million related to the
Swap Agreement. The charge is comprised of the write-offs of Boomtown's
investment in lease of $12.7 million, an $18.9 million write-down of the related
party notes receivable to $8.5 million and the write down of the remaining net
assets less the liabilities assumed by Roski of $5.0 million. In the event that
the actual amount of the second note is less than the $3.5 million, the Company
will incur an additional loss on the loss on the sale of Blue Diamond.
For a full discussion of the terms of the above described transactions and
relationships, see Boomtown's 1994 Registration Statement on Form S-4, and
Hollywood Park, Inc.'s Form S-4 dated September 18, 1996 as filed with the SEC.
CURRENT FACILITY EXPANSION ISSUES
The Company's planned expansion at its current facilities are subject to
numerous contingencies, including financial and regulatory constraints. These
factors could lead to a decision by the Company not to proceed with all or a
portion of the expansions for its current facilities and delay the Company's
expansion plans. The Company currently plans to utilize advances from Hollywood
Park upon closing of its pending merger to assist in financing the expansion
projects. In the event the Merger were not to be completed, financing required
for the expansion projects would be severely jeopardized. The Company has not
obtained any financing for any if the proposed expansion projects, independent
of the Merger, and there is no assurance that the Company would be able to
obtain such financing on acceptable terms, even if the Merger is completed. In
the event the Company does proceed with any expansion project, such project is
subject to the Company's ability to secure all required permits as well as risks
typically associated with any construction project, including possible shortages
of materials or skilled labor, engineering or environmental problems, work
stoppages, weather interference and unanticipated cost increases. In addition,
the Company has
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experienced disruptions of its operations during past construction projects,
and there can be no assurance that the expansion of any operating facility
would not adversely affect such operating facility's performance. Once
commenced, construction projects are subject to cost overruns, as the Company
experienced with two of its recently completed projects. As a result of the
above factors, there can be no assurance that any expansion projects will
ever be commenced or completed or that any such project will be completed
within the time frame or the budget contemplated by the Company.
ADDITIONAL EXPANSION OPPORTUNITIES; POTENTIAL INDIANA PROJECT
The Company actively seeks to expand its operations into jurisdictions that
have legalized casino gaming. The Company believes that the Boomtown concept,
coupled with its experienced management team, provides a strong basis for
expanding into other gaming jurisdictions. The Company evaluates new sites
primarily on the basis of four criteria: (i) proximity to interstate highways or
major thoroughfares, (ii) ease of access, (iii) proximity to major population or
tourist centers and (iv) amount of space for themed casino/entertainment,
parking and expansion.
STATUS OF PROPOSED GAMING PROJECTS
In December 1995, the Company through its wholly-owned subsidiary,
Boomtown Hoosier, Inc., a Nevada Corporation ("Boomtown Hoosier"), along with
Hilton Gaming (Switzerland County) Corporation ("Hilton Switzerland"), formed
a joint venture for the purpose of acquiring Pinnacle Gaming Development
Corp., a Colorado corporation ("Pinnacle"), which has a pending application
for one of two remaining riverboat gaming licenses to be awarded for
operations on the Ohio River in Indiana. The application, as amended on
December 27, 1995, is for a license in Switzerland County, Indiana which is
located approximately 35 miles south of Cincinnati, Ohio. The
Boomtown-Hilton (the "Indiana Project") is planned to include a cruising
riverboat with 38,000 square feet of casino space and supporting land-based
facilities that will incorporate a "western river-town" themed entertainment
complex with up to 300 hotel rooms, a 700 seat multi-purpose special events
room and several restaurants and retail operations. Pinnacle further owns
options to lease and purchase real property in Switzerland County where the
land based facilities will be constructed. The Company currently
contemplates that the aggregate cost of the Indiana Project will be
approximately $120 million.
Pursuant to the terms of the agreements relating to the Indiana Project,
Hilton Switzerland and Boomtown Hoosier have formed Indiana Ventures LLC, a
Nevada limited liability Company (the "JV Entity") for the purpose of acquiring
Pinnacle and otherwise pursuing the Indiana Project. Hilton Switzerland and
Boomtown Hoosier each own 48.5% (the "Original Percentages") of the JV Entity,
with the remaining interests held by a non-voting minority partner. So long as
Hilton Switzerland and Boomtown Hoosier hold the Original Percentages (which is
dependent upon each such party meeting its share of the capital commitments of
the JV Entity), Hilton Switzerland and Boomtown Hoosier will share management
control of the project. In the event the parties no longer hold the Original
Percentages, the party with the larger interest will have management control of
the project, with certain minority projections.
In December 1995, Switzerland County Development Corporation, a Nevada
Corporation and a wholly-owned subsidiary of JV Entity, agreed to acquire
Pinnacle for an aggregate purchase price of $4,331,000, $100,000 of which has
been paid, with the remainder to be paid upon the achievement of certain
milestones, including Pinnacle receiving a certificate of suitability from the
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Indiana Gaming Commission pursuant to its pending application, the ground
breaking of the Indiana Project, and the commencement of operations. The JV
Entity has the right to terminate the agreement for the purchase of Pinnacle at
anytime subject to payment of certain termination fees of up to $400,000
depending upon when the termination notice is delivered. In December 1995, the
JV Entity further acquired options to lease additional land in Switzerland
County which would provide the site which the Company intends to utilize for
construction of the land based facilities for the Indiana Project. There is no
assurance that the JV Entity will receive the necessary license and other
governmental approvals and environmental permits to proceed with the Indiana
Project.
REGULATION AND LICENSING
NEVADA
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and (ii) various local regulations.
The Company's gaming operations are subject to the licensing and regulatory
control of the Nevada Gaming Commission ("Nevada Commission"), the Nevada State
Gaming Control Board ("Nevada Board"), Washoe County and the Clark County Liquor
and Gaming Licensing Board ("CCLGLB"). The Nevada Commission, the Nevada Board,
Washoe County and the CCLGLB are collectively referred to as the "Nevada Gaming
Authorities".
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things; (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
though taxation and licensing fees. Changes in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.
The Company's subsidiaries which operate Boomtown Reno and Boomtown Las
Vegas are required to be licensed by the Nevada Gaming Authorities. The gaming
licenses require the periodic payment of fees and taxes and are not
transferable. The Company is registered by the Nevada Commission as a publicly
traded corporation ("Registered Corporation") and as such , it is required
periodically to submit detailed financial and operating reports to the Nevada
Commission and furnish any other information which the Nevada Commission may
require. No person may become a stockholder of, or receive any percentage of
profits from, the operating subsidiaries without first obtaining licenses and
approvals from the Nevada Gaming Authorities. The Company and its operating
subsidiaries have obtained from the Nevada Gaming Authorities the various
registrations, approvals, permits and licenses required in order to engage in
gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or its
operating subsidiaries, in order to determine whether such individual is
suitable or should be licensed as a business associate of a gaming licensee.
Officers, directors and certain key employees of the operating subsidiaries must
file applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers,
directors and key employees of the Company
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who are actively and directly involved in gaming activities of the operating
subsidiaries may be required to be licensed or found suitable by the Nevada
Gaming Authorities. The Nevada Gaming Authorities may deny an application
for licensing for any cause which they deem reasonable. A finding of
suitability is comparable to licensing, and both require submission of
detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must
pay all the costs of the investigation. Changes in licensee positions must
be reported to the Nevada Gaming Authorities and in addition to their
authority to deny an application for a finding of suitability or licensure,
the Nevada Gaming Authorities have jurisdiction to disapprove a change in a
corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue to have a
relationship with the Company or its operating subsidiaries, the companies
involved would have to server all relationships with such person. In addition,
the Nevada Commission may require the Company or the operating subsidiaries to
terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability and questions pertaining to
licensing are not subject to judicial review in Nevada.
The Company and its operating subsidiaries are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing transactions
by the operating subsidiaries must be reported to, or approved by, the Nevada
Commission.
If it were determined that the Nevada Act was violated by either of the
operating subsidiaries, the gaming licenses they hold could be limited,
conditioned, suspended or revoked, subject to compliance with certain statutory
and regulatory procedures. In addition, the operating subsidiary, the Company,
and the persons involved could be subject to substantial fines for each separate
violation of the Nevada Act, at the discretion of the Nevada Commission.
Further, a supervisor could be appointed by the Nevada Commission to operate the
Company's gaming properties and, under certain circumstances, earnings generated
during the supervisor's appointment (except for the reasonable rental value of
the Company's gaming properties) could be forfeited to the State of Nevada.
Limitation, conditioning or suspension of any gaming license or the appointment
of a supervisor could (and revocation of any gaming license would) materially
adversely affect the Company's gaming operations and its results of operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of the Company's voting
securities determined, if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any persons who acquires more than 5% of Boomtown's
voting securities to report the acquisition to the Nevada Commission. The
Nevada Act requires that beneficial owners of more than 10% of the Company's
voting securities apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails the written
notice requiring such filing. Under certain circumstances, an "institutional
investor", as defined in the Nevada Act, which requires more than 10%, but not
more than 15%, of the Company's voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the joint securities for investment purposes only. An
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institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held
in the ordinary course of business as an institutional investor and not for
the purpose of causing, directly or indirectly, the election of a majority of
the members of the Board of Directors of the Company, any change in the
Company's corporate charter, bylaws, management, policies or operations or
any of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding Boomtown's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i)
voting on all matters voted on by stockholders; (ii) making financial and
other inquiries of management of the type normally made by securities
analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent.
If the beneficial holder of voting securities who must 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 person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is subject
to disciplinary action if, after it receives notice that a person is unsuitable
to be a stockholder or to have any other relationship with the Company or the
operating subsidiaries, the Company (i) pays that person any dividend or
interest upon voting securities of Boomtown, (ii) allows that person to
exercise, directly or indirectly, any voting right conferred through securities
held by that person, (iii) pays remuneration in any form to that person for
services rendered or otherwise, or (iv) fails to pursue all lawful efforts to
require such unsuitable person to relinquish his voting securities for cash at
fair market value. Additionally, the CCLGLB has taken the position that it has
the authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation to file applications, be investigated
and be found suitable to own the debt security of a Registered Corporation. If
the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered Corporation can be
sanctioned, including the loss of its approvals, if without the prior approval
of the Nevada Commission, it (i) pays to the unsuitable person any dividend,
interest, or any distribution whatsoever; (ii) recognizes any voting right by
such unsuitable person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the
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Nevada Act. However, to date, the Nevada Commission has not imposed such a
requirement on the Company.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Such approval, if given, does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities. Any representation to the contrary is unlawful.
Changes in control of the Company through merger (including the Merger),
consolidation, stock or asset acquisitions, management or consulting agreements,
or any act or conduct by a person where by such person obtains control of the
Company, may not occur without the prior approval of the Nevada Commission.
Entities seeking to acquire control of a Registered Corporation must satisfy the
Nevada Board and Nevada Commission in a variety of stringent standards prior to
assuming control of such Registered Corporation. The Nevada Commission may also
require controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licenses as part of the approval process
relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licensees and Registered Corporations that are
affiliated with those licensees, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes of acquiring control of the
Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, as payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, also pay certain fees and taxes to the
State of Nevada.
Any person who is licensed, registered, required to be registered, or is
under common control with such persons (collectively, "Licensees"), and who
proposes to become involved in a gaming venture outside of Nevada, is required
to deposit with the Nevada Board, and thereafter maintain, a revolving fund in
the amount of $10,000 to pay the expenses of the Nevada Board's investigation of
their participation in such foreign gaming. The revolving fund is subject to
increase or decrease in
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the discretion of the Nevada Commission. Thereafter, Licensees are required
to comply with certain reporting requirements imposed by the Nevada Act. A
licensee is also subject to disciplinary action by the Nevada Commission it
knowingly violates any laws of the foreign jurisdiction pertaining to the
foreign gaming operation, fails to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada
gaming operations, engages in activities that are harmful to the State of
Nevada or its ability to collect gaming taxes and fees, or employs a person
in the foreign operation who has been denied a license or finding of
suitability in Nevada on the ground of personal unsuitability.
MISSISSIPPI
The ownership and operation of casino facilities in Mississippi are subject
to extensive state and local regulation. Regulation is primarily effected
through the licensing and regulatory control of the Mississippi Gaming
Commission and the Mississippi State Tax Commission (the "Mississippi Gaming
Authorities").
The Mississippi Gaming Control Act (the "Mississippi Act"), which legalized
dockside casino gaming in Mississippi, was enacted on June 29, 1990. Although
not identical, the Mississippi Act is similar to the Nevada Gaming Control Act.
Effective October 29, 1991, the Mississippi Gaming Commission adopted
regulations which are also similar in many respects to the Nevada gaming
regulations.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Gaming Commission seek to: (i) prevent unsavory or unsuitable
persons from having any direct or indirect involvement with gaming at any time
or in any capacity; (ii) establish and maintain responsible accounting practices
and procedures; (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Gaming Commission; (iv) prevent
cheating and fraudulent practices; (v) provide a source of state and local
revenues through taxation and licensing fees; and (vi) ensure that gaming
licensees, to the extent practicable, employ Mississippi residents. The
regulations are subject to amendment and interpretation by the Mississippi
Gaming Commission. Changes in Mississippi laws or regulations may limit or
otherwise materially affect the types of gaming that may be conducted and such
changes, if enacted could have an adverse effect on the Company and the
Company's Biloxi, Mississippi gaming operations.
The Mississippi Act provides for legalized dockside gaming at the
discretion of the 14 counties that either border the Gulf Coast or the
Mississippi River, but only if the voters in such counties have not voted to
prohibit gaming in that county. As of November 30, 1996, dockside gaming was
permissible in nine of the fourteen eligible counties in the State and gaming
operations had commenced in Adams, Coahoma, Hancock, Harrison, Tunica, Warren
and Washington counties. Under Mississippi law, gaming vessels must be located
on the Mississippi River or on navigable waters in eligible counties along the
Mississippi River on in the waters lying south of the counties along the
Mississippi Gulf Coast. At least one lawsuit is pending with respect to the
expansion of eligible gaming sites in Mississippi Gulf Coast counties. The law
permits unlimited stakes gaming on permanently moored vessels on a 24-hour basis
and does not restrict the percentage of space which may be utilized for gaming.
There are no limitations on the number of gaming licenses which may be issued in
Mississippi.
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Boomtown is required periodically to submit detailed financial and
operating reports to the Mississippi Gaming Commission and furnish any other
information which the Mississippi Gaming Commission may require. The Company
and any subsidiary of the Company (or partnership in which the subsidiary is
a partner) that operates a casino in Mississippi (a "Mississippi Gaming
Subsidiary"), is subject to the licensing and regulatory control of the
Mississippi Gaming Authorities. If the Company is unable to continue to
satisfy the registration requirements of the Mississippi Act, the Company and
its Mississippi Gaming Subsidiaries cannot own or operate gaming facilities
in Mississippi. Each Mississippi Gaming Subsidiary must obtain gaming
licenses from the Mississippi Gaming Commission to operate casinos in
Mississippi. A gaming license is issued by the Mississippi Gaming Commission
subject to certain conditions, including continued compliance with all
applicable state laws and regulations and physical inspection of the casinos
prior to opening.
Gaming licenses are not transferable, are initially issued for a two-year
period and must be renewed periodically thereafter. Boomtown Biloxi's gaming
license was renewed in 1996 for a two-year period expiring June 20, 1998. No
person may become a shareholder of or receive any percentage of profits from a
gaming licensee subsidiary of a holding company without first obtaining licenses
and approvals from the Mississippi Gaming Commission. The Company has obtained
such approvals in connection with the licensing of Boomtown Biloxi.
Certain officers and employees of Boomtown and the officers, directors and
certain key employees of the Company's Mississippi Gaming Subsidiary must be
found suitable or be investigated by the Mississippi Gaming Commission. The
Company believes that findings of suitability with respect to such persons
associated with Boomtown Biloxi have been applied for or obtained in connection
with the licensing of Boomtown Biloxi. However, the Mississippi Gaming
Commission in its discretion may require additional person to file applications
for suitability. Employees associated with gaming must obtain work permits that
are subject to immediate suspension under certain circumstances. In addition,
any person having a material relationship or involvement with the Company may be
required to be found suitable or licensed, in which case those persons must pay
the costs and fees associated with such investigation. The Mississippi Gaming
Commission may deny an application for a license for any cause that it deems
reasonable. Changes in licensed positions must be reported to the Mississippi
Gaming Commission. In addition to its authority to deny an application for a
license, the Mississippi Gaming Commission has jurisdiction to disapprove a
change in corporate position. The Mississippi Gaming Commission has the power
to require any Mississippi Gaming Subsidiary and Boomtown to suspend or dismiss
officers, directors and other key employees or sever relationships with other
persons who refuse to file appropriate applications or whom the authorities find
unsuitable to act in such capacities.
At any time, the Mississippi Gaming Commission has the power to investigate
and require the finding of suitability of any record or beneficial shareholder
of the Company. Mississippi law requires any person who acquires more than 5%
of the common stock of a publicly traded holding company to report the
acquisition to the Mississippi Gaming Commission, and such person may be
required to be found suitable. Also, any person who becomes a beneficial owner
of more than 10% of Boomtown's Common Stock, as reported to the Securities and
Exchange Commission, must apply for a finding of suitability by the Mississippi
Gaming Commission and must pay the costs and fees that the Mississippi Gaming
Commission incurs in conducting the investigation. The Mississippi Gaming
Commission has generally exercised its discretion to require a finding of
suitability of any beneficial owner of more than 5% of the Company's Common
Stock. However, the Mississippi Gaming Commission has adopted a policy that
could permit certain institutional investors to beneficially own up to 10% of a
public company's stock without a finding of suitability. If a
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shareholder who must be found suitable is a corporation, partnership or trust,
it must submit detailed business and financial information, including a list of
beneficial owners.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Mississippi Gaming
Commission may be found unsuitable. Any person found unsuitable and who holds,
directly or indirectly, any beneficial ownership of the securities of the
Company beyond such time as the Mississippi Gaming Commission prescribes, may be
guilty of a misdemeanor. The Company is subject to disciplinary action if,
after receiving notice that a person is unsuitable to be a shareholder or to
have any other relationship with the Company or its Mississippi Gaming
Subsidiaries, the Company: (i) pays the unsuitable person any dividend or other
distribution upon the voting securities of the Company; (ii) recognizes the
exercise, directly or indirectly, of any voting rights conferred by securities
of the Company; (iii) recognizes the exercise, directly or indirectly, of any
voting rights conferred by securities held by the unsuitable person; (iv) pays
the unsuitable person any remuneration in any form for services rendered or
otherwise, except in certain limited and specific circumstances; or (v) fails to
pursue all lawful efforts to require the unsuitable person to divest himself or
the securities, including, if necessary, the immediate purchase of the
securities for cash at a fair market value.
The Company may be required to disclose to the Mississippi Gaming
Commission upon request the identities of the holders of any debt securities.
In addition, the Mississippi Gaming Commission under the Mississippi Act may, in
its discretion, (i) require holders of securities of registered corporations to
file applications, (ii) investigate such holders, and (iii) require such holders
to be found suitable to own such securities. Although the Mississippi Gaming
Commission generally does not require the individual holders of obligations such
as notes to be investigated and found suitable, the Mississippi Gaming
Commission retains the discretion to do so for any reason, including but not
limited to a default, or where the holder of the debt instrument exercises a
material influence over the gaming operations of the entity in question. Any
holder of debt securities required to apply for a finding of suitability must
pay all investigative fees and costs of the Mississippi Gaming Commission in
connection with such an investigation.
The Gaming Subsidiary must maintain a current stock ledger in its principal
office in Mississippi and Boomtown must maintain a current list of stockholders
in the principal offices of the Gaming Subsidiary which must reflect the record
ownership of each outstanding share of any class of equity security issued by
Boomtown. The stockholder list may thereafter be maintained by adding reports
regarding the ownership of such securities that it receives from Boomtown's
transfer agent. The ledger and stockholder lists must be available for
inspection by the Mississippi Gaming Commission at any time. If any securities
of Boomtown 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
Gaming Commission. A failure to make such disclosure may be grounds for finding
the record holder unsuitable. Boomtown must also render maximum assistance in
determining the identity of the beneficial owners.
The Mississippi Act requires that the certificates representing securities
of a publicly-traded corporation (as defined in the Mississippi Act) bear a
legend to the general effect that such securities are subject to the Mississippi
Act and the regulations of the Mississippi Gaming Commission. The Mississippi
Gaming Commission has the power to impose additional restrictions on the holders
of the Company's securities at any time. The Company has received a waiver from
this legend requirement from the Mississippi Gaming Commission.
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Substantially all loans, leases, sales of securities and similar
financing transactions by a Mississippi Gaming Subsidiary must be reported to
or approved by the Mississippi Gaming Commission. A Mississippi Gaming
Subsidiary may not make an issuance or a public offering of its securities,
but may hypothecate casino facilities, if it obtains the prior approval of
the Mississippi Gaming Commission. The Company may not make an issuance or
public offering of its securities without the prior approval of the
Mississippi Gaming 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 such purposes. Such approval, if given, does not constitute a
recommendation or approval of the investment merits of the securities subject
to the offering. Any representation to the contrary is unlawful.
Change in control of the Company through merger (including the Merger),
consolidation, acquisition of assets, management or consulting agreements or
any form of takeover, and certain recapitalizations and stock purchases by
Boomtown, cannot occur without the prior approval of the Mississippi Gaming
Commission. The Mississippi Gaming Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control, to
be investigated and licensed as part of the approval process relating to the
transaction.
The Mississippi legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Mississippi and
corporations whose stock is publicly traded that are affiliated with those
licensees, may be injurious to stable and productive corporate gaming. The
Mississippi Gaming Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Mississippi's gaming industry and to further Mississippi's policy to: (i)
assure the financial stability of corporate gaming operators and their
affiliates; (ii) preserve the beneficial aspects of conducting business in
the corporate form; and (iii) promote a neutral environment for the orderly
governance of corporate affairs. Approvals are, in certain circumstances,
required from the Mississippi Gaming Commission before the Company may make
exceptional repurchases of voting securities above the current market price
of its Common Stock (commonly called "greenmail") or before a corporate
acquisition opposed by management may be consummated. Mississippi's gaming
regulations will also require prior approval by the Mississippi Gaming
Commission if the Company adopts a plan of recapitalization proposed by its
Board of Directors opposing a tender offer made directly to the shareholders
for the purpose of acquiring control of the Company.
Neither the Company nor any subsidiary may engage in gaming activities in
Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Gaming Commission. The Mississippi
Gaming Authorities may require determinations that, among other things, there
are means for the Mississippi Gaming Authorities to have access to
information concerning the out-of-state gaming operations of the Company and
its affiliates. The Mississippi Gaming Commission must approve any future
gaming operations of the Company outside Mississippi. The Mississippi Gaming
Commission has approved Boomtown's operations in Nevada and Louisiana but
must approve Boomtown's operations in any other jurisdictions.
If the Mississippi Gaming Commission decides that a Mississippi Gaming
Subsidiary violated a gaming law or regulation, the Mississippi Gaming
Commission could limit, condition, suspend or revoke the license of the
Gaming Subsidiary. In addition, a Mississippi Gaming Subsidiary, the Company
and the persons involved could be subject to substantial fines for each
separate violation. Because of such a violation, the Mississippi Gaming
Commission could appoint a
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supervisor to operate the casino facilities. Limitation, conditioning or
suspension of any gaming license or the appointment of a supervisor could
(and revocation of any gaming license would) materially adversely affect the
Company and the Mississippi Gaming Subsidiary's gaming operations and the
Company's results of operations.
License fees and taxes, computed in various ways depending on the type of
gaming involved, are payable to the State of Mississippi and to the counties
and cities in which a Mississippi Gaming Subsidiary's respective operations
will be conducted. Depending upon the particular fee or tax involved, these
fees and taxes are payable either monthly, quarterly or annually and are
based upon (i) a percentage of the gross gaming revenues received by the
casino operation, (ii) the number of slot machines operated by the casino or
(iii) the number of table games operated by the casino. The license fee
payable to the State of Mississippi is based upon "gaming receipts"
(generally defined as gross receipts less pay outs to customers as winnings)
and equals 4 percent of gaming receipts of $50,000 or less per month, 6
percent of gaming receipts over $50,000 and less than $134,000 per month, and
8 percent of gaming receipts over $134,000. The foregoing license fees are
allowed as a credit against the partners' Mississippi income tax liability
for the year paid.
In October 1994, the Mississippi Gaming Commission adopted two new
regulations. Under the first regulation, as condition of licensure or
license renewal, casino vessels on the Mississippi Gulf Coast that are not
self-propelled must be moored to withstand a Category 4 hurricane with 155
mile per hour winds and 15 foot tidal surge. Boomtown Biloxi believes that
it currently meets this requirement. The second regulation requires as a
condition of licensure or license renewal that a gaming establishment's plan
include a 500-car parking facility in close proximity to the casino complex
and infrastructure facilities, the expenditures for which will amount to at
least 25% of the casino cost. Such facilities shall include any of the
following: a 250 room hotel of at least a two star rating as defined by the
current edition of the Mobil Travel Guide, a theme park, golf courses,
marinas, tennis complex, entertainment facilities, or any other such facility
as approved by the Mississippi Gaming Commission as infrastructure. Parking
facilities, roads, sewage and water systems, or facilities normally provided
by cities and/or counties are excluded. The Mississippi Gaming Commission may
in its discretion reduce the number of rooms required, where it is shown to
the Commission's satisfaction that sufficient rooms are available to
accommodate the anticipated visitor load. The Company believes that Boomtown
Biloxi currently meets such requirements and was relicensed by the
Mississippi Gaming Commission effective June 20, 1996 for an additional
two-year period. In addition, Boomtown Biloxi is planning to construct and
operate a hotel to satisfy this requirement; however, there can be no
assurance that it will be successful in completing such a hotel or that it
would be able to obtain a waiver from such requirement; however, there can be
no assurance that it will be successful in completing such a hotel. It is
probable that the Mississippi Gaming Commission will require further
development on the casino site including hotel rooms and additional parking
prior to Boomtown Biloxi being relicensed in June 1998.
The sale of food or alcoholic beverages at the Boomtown Biloxi property
is subject to licensing, control and regulation by the applicable state and
local authorities. The agencies involved have full power to limit,
condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect upon the
operations of the affected casino or casinos. Certain officers and managers
of Boomtown and Boomtown Biloxi must be investigated by the Alcoholic
Beverage Control Division of the State Tax Commission (the "ABC") in
connection with Boomtown Biloxi's liquor permits. Changes in licenses
positions must be approved by the ABC.
LOUISIANA
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The ownership and operation of a riverboat gaming vessel is subject to
the Louisiana Riverboat Economic Development and Gaming Control Act (the
"Louisiana Act"). As of May 1, 1996, gaming activities are regulated by the
Louisiana Gaming Control Board (the "Board"). The Board is responsible for
issuing the gaming license and enforcing the laws, rules and regulations
relative to riverboat gaming activities. The Board is empowered to issue up
to 15 licenses to conduct gaming activities on a riverboat of new
construction in accordance with applicable law. However, no more than six
licenses may be granted to riverboats operating from any one parish.
The laws and regulations of Louisiana seek to (i) prevent unsavory or
unsuitable persons from having any direct or indirect involvement with gaming
any time or in any capacity; (ii) establish and maintain responsible
accounting practices and procedures; (iii) maintain effective control over
the financial practices of licensees, including establishing procedures for
reliable record keeping and making periodic reports to the Board; (iv)
prevent cheating and fraudulent practices; (v) provide a source of state and
local revenues through fees; and (vi) ensure that gaming licensees, to the
extent practicable, employ and contract with Louisiana residents, women and
minorities.
The Louisiana Act specifies certain restrictions and conditions relating
to the operation of riverboat gaming, including but not limited to the
following: (i) gaming is not permitted while a riverboat is docked, other
than for forty-five minutes between excursions, unless dangerous weather or
water conditions exist; (ii) each round trip riverboat cruise may not be less
than three nor more than eight hours in duration, subject to specified
exceptions; (iii) agents of the Board are permitted on board at any time
during gaming operations; (iv) gaming devices, equipment and supplies may be
purchased or leased from permitted suppliers; (v) gaming may only take place
in the designated river or waterway; (vi) gaming equipment may not be
possessed, maintained, or exhibited by any person on a riverboat except in
the specifically designated gaming area, or a secure area used for
inspection, repair, or storage of such equipment; (vii) wagers may be
received only from a person present on a licensed riverboat; (viii) persons
under 21 are not permitted in designated gaming areas; (ix) except for slot
machine play, wagers may be made only with tokens, chips, or electronic cards
purchased from the licensee aboard a riverboat, (x) licensees may only use
docking facilities and routes for which they are licensed and may only board
and discharge passengers at the riverboat's licensed berth; (xi) licensees
must have adequate protection and indemnity insurance; (xii) licensees must
have all necessary federal and state licenses, certificates and other
regulatory approvals prior to operating a riverboat and (xiii) gaming may
only be conducted in accordance with the terms of the license and the rules
and regulations adopted by the Board.
No person may receive any percentage of the profits from the Partnership
without first being found suitable. In March 1994, the Partnership, its
officers, key personnel, partners and persons holding a 5% or greater
interest in the partnership were found suitable by the predecessor to the
Board. A gaming license is deemed to be a privilege under Louisiana law and
as such may be denied, revoked, suspended, conditioned or limited at any time
by the Board. In issuing a license, the Board must find that the applicant is
a person of good character, honesty and integrity and the applicant is a
person whose prior activities, criminal record, if any, reputation, habits
and associations do not pose a threat to the public interest of the State of
Louisiana or to the effective regulation and control of gaming, or create or
enhance the dangers of unsuitable, unfair or illegal practices, methods, and
activities in the conduct of gaming or the carrying on of business and
financial arrangements in connection therewith. The Board will not grant any
licenses unless it finds that: (i) the applicant is capable of conducting
gaming operations, which means that the applicant can demonstrate the
capability, either through training, education, business experience, or a
combination of the above to operate a gaming casino; (ii) the proposed
financing of the riverboat and the gaming
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operations is adequate for the nature of the proposed operation and from a
source suitable and acceptable to the Board; (iii) the applicant demonstrates
a proven ability to operate a vessel of comparable size, capacity and
complexity to a riverboat in its application for a license; (v) the applicant
designates the docking facilities to be used by the riverboat; (vi) the
applicant shows adequate financial ability to construct and maintain a
riverboat; (vii) the applicant has a good faith plan to recruit, train and
upgrade minorities in all employment classifications; and (viii) the
applicant is of good moral character.
The Board may not award a license to any applicant who fails to provide
information and documentation to reveal any fact material to qualifications
or who supplies information which is untrue or misleading as to a material
fact pertaining to the qualification criteria; who has been convicted of or
plead NOLO CONTENDERE to an offense punishable by imprisonment of more than
one year; who is currently being prosecuted for or regarding whom charges are
pending in any jurisdiction of an offense punishable by more than one year
imprisonment; if any holder of 5% or more in the profits and losses of the
applicant has been convicted of or plead guilty or NOLO CONTENDERE to an
offense, which at the time of conviction is punishable as a felony.
The transfer of a license is prohibited. The sale, assignment, transfer,
pledge, or disposition of securities which represent 5% or more of the total
outstanding shares issued by a holder of a license is subject to Board
approval. A security issued by a holder of a license must generally disclose
these restrictions.
A licensee (the Partnership) must periodically report the following
information to the Board, which is not confidential and is to be available
for public inspection; the licensee's net gaming proceeds from all authorized
games; the amount of net gaming proceeds tax paid; and all quarterly and
annual financial statements presenting historical data that are submitted to
the Board, including annual financial statements that have been audited by an
independent certified public accountant.
The Board has adopted rules governing the method for approval of the area
of operations, the rules and odds of authorized games and devices permitted,
and prescribe grounds and procedures for the revocation, limitation or
suspension of licenses and permits.
On April 19, 1996, the Louisiana legislature adopted legislation
requiring statewide local elections on a parish-by-parish basis to determine
whether to prohibit or continue to permit licensed riverboat gaming, licensed
video poker gaming, and licenses land-based gaming in Orleans Parish. The
applicable local election took place on November 5, 1996, and the voters in
the parish of the Partnership voted to continue licenses riverboat and video
poker gaming. However, it is noteworthy that the current legislation does not
provide for any moratorium on future local elections on gaming.
EMPLOYEES
As of December 1, 1996, the Company had a total of 4,102 employees, of
whom 1,132 were in gaming operations, 120 were in hotel operations, 922 were
in food and beverage, 22 were in vehicle services, 73 were in the family
entertainment centers and 1,833 were employed in other operations. The
Company does not directly employ the captains, crew and maintenance personnel
who operate and maintain the Boomtown Belle Riverboat. None of the Company's
employees are represented by a labor union. Management considers its labor
relations to be good.
ITEM 2. PROPERTIES
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Boomtown Reno owns 569 acres of land at the Boomtown Reno location. The
Company also owns all of the facilities located at Boomtown Reno, including
the casino, hotel, fun center, truck stop and recreational vehicle park.
Current operations are located on approximately 61 acres. Of the remaining
acreage, approximately 60 acres are zoned commercial and 444 acres are
noncommercial. Boomtown Reno also owns the related water rights. In
addition, Boomtown Reno maintains and operates its own sewer treatment
facility at the site.
The Boomtown Reno operating facility includes 40,000 square feet of
casino space and a 35,000 square foot family entertainment center.
Additionally, the property includes a 16-acre truck stop with approximately
200 parking spaces, a 203-space, full-service recreational park, a service
station, a mini mart and other related amenities. See "Boomtown Reno" for
further description of the Reno property.
The Company leases all buildings and ground at its Boomtown Las Vegas
property site. On June 30, 1993, Blue Diamond entered into a lease with
IVAC, a California general partnership, for the Boomtown Las Vegas building
and related land of 56 acres. The lease is for an initial terms of five
years with renewal options in certain very limited circumstances. Subject to
the terms of the lease, Blue Diamond has an option to acquire the leased
property for a six-month period, commencing May 20, 1996. Boomtown and IVAC,
among other parties, have entered into the Swap Agreement to effect the Blue
Diamond Swap, pursuant to which the lease would terminate and Boomtown would
exchange its entire interest in the Boomtown Las Vegas resort for certain
promissory notes and an assumption of certain liabilities by IVAC. See
"Boomtown Las Vegas" for a further description of the Las Vegas Property.
During November 1993, the Mississippi Partnership entered into a 99-year
lease of an 8.9 acre site in Biloxi, Mississippi. This land is being used to
operate the land-based amenities and parking for its dockside casino at
Boomtown Biloxi. The Mississippi Partnership has also entered into several
leases from 10 to 25 years on additional land being used for additional
parking. Upon commencement of operations on July 18, 1994, the Partnership
sold its casino barge and building to Hospitality Franchise Systems, Inc.
("HFS") for $11 million and immediately leased them back for 25 years for a
rental amount based on adjusted earnings before interest, taxes, depreciation
and amortization, as defined in the relevant contract. HFS subsequently
transferred the contract to National Gaming Corporation, Inc. ("NGC"). All
land-based facilities, including restaurants, bars, fun center, and
entertainment facility are owned by Boomtown Biloxi. Boomtown Biloxi also
leases submerged tidelands at the casino site from the State of Mississippi.
The term of the lease is ten years with a five-year option to renew. Annual
rent is set forth in the lease.
In November, 1995 Boomtown executed an agreement with NGC whereby $2.4
million was returned to NGC in return for a reduction of the EBITDA
distributions from 20% to 16%. Additionally, the Company secured an option
to buy the barge from NGC as well as to buy out the EBITDA participation at a
cost approximating the original investment made by HFS less the $2.4 million
that was paid in. The option terminates on March 31, 1997 but is renewable
for an additional two years for $100,000 a year.
In November 1993, the Partnership completed the purchase of approximately
50 acres located in Jefferson Parish, 10 miles from downtown New Orleans,
Louisiana, for approximately $3 million. This property is used for
land-based amenities related to its riverboat casino at Boomtown New Orleans.
At this property, Boomtown New Orleans owns all facilities, including the
riverboat restaurants, bars, fun center and entertainment facility. See
"ITEM 1. Business" for further discussion of the Company's properties.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, Boomtown is engaged in legal proceedings in the course
of its business, including the following matters:
In September 1995, Boomtown was named a defendant in a class action suit
in the United States District Court in New Jersey in which the plaintiffs
have alleged that numerous companies operating casinos in the United States
have conspired to exclude card counters from their establishments. (Hyland
v. Griffin Investigations, et al). A class has not yet been certified in the
action. Boomtown disputes the claims made in this matter and intends to
contest them vigorously. Motions to dismiss are in the process of being
filed by Boomtown and other defendants.
A demand for arbitration was filed by Eric Skrmetta, a limited partner,
with the American Arbitration Association, alleging that Boomtown breached
the Louisiana Partnership Agreement and its fiduciary duty to limited
partners resulting in a less than anticipated distribution to Mr. Skrmetta.
On November 18, 1996, the Company entered into settlement agreement with Mr.
Skrmetta in which the Company agreed to pay $5,673,000 in return for
Skrmetta's 7.5% interest in the Louisiana Partnership in addition to
releasing the Company from any and all claims, liabilities and causes of
action of any kind arising from or related to the Partnership agreement. The
terms set forth thereto require Boomtown to pay a down payment of $500,000 on
or before December 5, 1996 with the remaining $5,173,000 to be paid not later
than August 10, 1997. Additionally, the $5,173,000 shall be reduced by a
discount for the time that the amount or any portion thereof is paid in full
prior to August 10, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In November 1996, the Company's shareholders voted to approve and adopt
the Agreement and Plan of Merger dated April 23, 1996 (the "Merger
Agreement"), among Boomtown, Hollywood Park, Inc., a Delaware Corporation
("Hollywood Park"), and Hollywood Park Acquisition, Inc., a wholly-owned
subsidiary of Hollywood Park ("Sub"), pursuant to which Boomtown will merge
with Sub and become a wholly-owned subsidiary of Hollywood Park.
Votes For: 6,424,286
Votes Against: 161,425
Votes Abstaining: 24,125
Broker Non-votes: --
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Pursuant to the Company's initial public offering, the Common Stock
commenced trading on October 23, 1992. The initial public offering price was
$10.00 per share. The Common Stock is quoted on NASDAQ National Market under
the symbol "BMTN". The following table sets forth, for the periods
indicated, the high and low sales price per share of the Common Stock as
reported by NASDAQ.
HIGH LOW
------- -------
FISCAL YEAR ENDING SEPTEMBER 30, 1994
First Quarter 23 3/4 14 1/2
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Second Quarter 21 1/4 14 1/4
Third Quarter 19 1/2 13
Fourth Quarter 20 1/4 12 1/2
FISCAL YEAR ENDING SEPTEMBER 30, 1995
First Quarter 16 3/4 12 1/4
Second Quarter 16 1/2 10 5/8
Third Quarter 13 3/4 10 1/2
Fourth Quarter 12 3/8 9
FISCAL YEAR ENDING SEPTEMBER 30, 1996
First Quarter 11 3/4 5
Second Quarter 7 1/8 5 3/8
Third Quarter 6 5/8 4 5/8
Fourth Quarter 5 1/4 4 1/8
FISCAL YEAR ENDING SEPTEMBER 30, 1997
First Quarter 8 1/2 4 1/4
As of December 27, 1996, there were approximately 543 holders of record
of Boomtown's Common Stock. The Company's transfer agent estimates that
there are approximately 6,000 stockholders, in total.
No dividends have been paid on the Company's Common Stock in the past and
the Company anticipates that for the foreseeable future all earnings, if any,
will be retained for the operation and expansion of its business. Under an
Indenture entered into by the Company on November 10, 1993, the Company's
ability to pay cash dividends and other payments is subject to certain
restrictions as set forth therein. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Debt Offering".
28
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(Table in thousands, except per share data)
The following selected consolidated financial data as of and for each of
the fiscal years ended September 30, 1992, 1993, 1994, 1995 and 1996 are
derived from the audited consolidated financial statements of the Company.
This data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and the
consolidated financial statements and the related notes thereto included
elsewhere in this report.
Consolidated Statement of Operations Data:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues:
Gaming $ 42,009 $ 42,416 $ 76,326 $189,306 $188,368
Non-gaming 13,714 16,231 27,049 42,461 47,674
-------- -------- -------- -------- --------
55,723 58,647 103,375 231,767 236,042
Operating expenses:
Gaming 17,782 18,373 31,230(1) 79,044 80,196
Non-gaming 10,425 11,891 23,438(1) 34,110 39,269
Marketing, general and administrative 13,412 15,949 33,284(2) 94,890 93,057
Pre-opening expenses -- -- 15,787 -- --
Discontinued projects/future development -- -- -- 6,054 1,603
Depreciation and amortization 3,528 3,839 5,891 10,422 10,618
Loss on sale of Blue Diamond -- -- -- -- 36,563
Compensation charge for SAR
and stock option plans (2) 2,783 -- -- -- --
Non-recurring charge for environmental
remediation (3) 425 -- -- -- --
-------- -------- -------- -------- --------
48,355 50,052 109,630 224,520 261,306
-------- -------- -------- -------- --------
Income (loss) from operations 7,368 8,595 (6,255) 7,247 (25,264)
Interest expense, net of capitalized interest (3,368) (1,033) (5,631) (13,434) ( 13,838)
Interest and other income 130 426 2,624 3,081 4,193
Loss on marketable securities -- -- (1,691) --
-------- -------- -------- -------- --------
Income (loss) before minority interest,
income taxes and extraordinary loss 4,130 7,988 (10,953) (3,106) (34,909)
Minority interest -- -- 351 1,105 645
Income (loss) before income taxes
and extraordinary loss 4,130 7,988 (10,602) (2,001) (34,264)
Provision (benefit) for income taxes 1,669 3,036 (2,779) 876 794
-------- -------- -------- -------- --------
Income (loss) before extraordinary loss 2,461 4,952 (7,823) (2,877) 35,058
Extraordinary loss-early extinguishment
of debt, net of tax (4) -- (370) (229) -- --
-------- -------- -------- -------- --------
Net income (loss) $ 2,461 $ 4,582 ($ 8,052) ($ 2,877) ($ 35,058)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Income (loss) before extraordinary loss
applicable to common stock (5) $ 2,261 $ 4,902 ($ 7,823) ($ 2,877) ($ 35,058)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Income (loss) before extraordinary loss
per share of common stock $ 0.61 $ 0.65 ($ 0.90) ($ 0.31) ($ 3.79)
Extraordinary loss per share $ -- ($ 0.05) ($ 0.03) $ -- $ --
-------- -------- -------- -------- --------
Net income (loss) per share of common stock $ 0.61 $ 0.60 ($ 0.93) ($ 0.31) ($ 3.79)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average shares outstanding 3,708 7,503 8,690 9,228 9,248
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 5,026 $ 17,593 $ 11,391 $ 20,775 $ 23,101
Total assets $ 55,916 $108,616 $238,467 $239,198 $205,988
Short-term debt (including
current maturities of long-term debt) $ 669 $ 9 $ 2,195 $ 2,948 $ 5,032
Long-term debt $ 31,973 $ -- $105,140 $106,547 $103,729
Redeemable preferred stock $ 2,000 $ -- $ -- $ -- $ --
Stockholders equity $ 13,311 $101,035 $108,018 $105,245 $ 70,387
</TABLE>
- ----------
1) Certain amounts for general and administrative expenses have been
reclassified to non-casino expenses from amounts reported on the Company's
Form 10-K at 9/30/94.
2) The compensation charge for SAR and stock option plans included (i)
expenses relating to increases in the value of SARs to the holders and
(ii) for fiscal 1992, a non-recurring expense of $2.2 million relating to
accelerated vesting and exercisability provisions of the SARs and
outstanding stock options. Upon the closing of the Company's initial public
offering in October 1992, all SARs converted to stock options.
3) The Company recognized in the third quarter of fiscal 1992 a non-recurring
charge of $425,000 or the estimated full cost of remediation for
hydrocarbons on its property.
4) The Company recognized an extraordinary non-cash charge of $370,000 (net of
tax) and $229,000 (net of tax) for the write-off of unamortized loan fees
in connection with the early repayment of a $15 million subordinated term
loan immediately following the October 1992 initial public offering, and
the early repayment of a $15 million senior note during April 1993 with
proceeds from the Company's reducing revolving credit facility and the
cancellation of a credit facility as a result of the placement of $103.5
million First Mortgage Notes in November 1993.
5) Income before extraordinary loss applicable to common stock is less than
income before extraordinary loss for fiscal years 1991, 1992, and 1993 due
to a $50,000 quarterly dividend which was paid on outstanding Preferred
Stock through the date of redemption of the Preferred Stock in October
1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Boomtown's revenues consist primarily of gaming revenues from slot and
video poker machines ("slot machines"), table games and keno as well as
non-gaming revenues generated from the properties' family entertainment
centers, food and beverage sales, hotel room sales and Boomtown's
recreational vehicle parks. Gaming operations have historically contributed
a significant portion of Boomtown's total revenues and substantially all of
its income from operations. In fiscal 1996, gaming operations contributed
approximately 80% of Boomtown's total revenues. The gaming revenue from slot
machines is the primary component of Boomtown's gaming
30
<PAGE>
operations, providing approximately 80% of Boomtown's gaming revenues.
Boomtown's non-gaming operations are designed primarily to enhance the gaming
revenues and operating profits of its gaming operations and contribute a
relatively small percentage of Boomtown's income from operations after
deducting promotional allowances and operating costs.
The discussion and analysis set forth below should be read in conjunction
with the Company's consolidated financial statements and notes thereto
included elsewhere herein.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Revenues:
Gaming 73.8% 81.7% 79.8%
Non-gaming 26.2 18.3 20.2
------- ------- -------
100.0 100.0 100.0
Operating expenses:
Gaming 30.2 34.1 34.0
Non-gaming 22.7 14.7 16.6
Marketing, general & administrative 32.2 41.0 39.4
Pre-opening expenses 15.3 -- --
Loss on sale of Blue Diamond -- -- 15.5
Discontinued projects/future development -- 2.6 .7
Depreciation and amortization 5.7 4.5 4.5
------- ------- -------
106.1 96.9 110.7
Loss from operations (6.1) 3.1 (10.7)
Interest expense, net of capitalized interest (5.4) (5.8) (5.9)
Interest Income 2.5 1.3 1.8
Loss in marketable securities (1.6) -- --
Loss before minority interest,
income taxes and extraordinary loss (10.6) (1.4) (14.8)
Minority interest 0.3 .5 .3
------- ------- -------
Loss before income taxes
and extraordinary loss (10.3) (.9) (14.5)
Provision (benefit) for income taxes (2.7) .4 .3
------- ------- -------
Loss before extraordinary loss (7.6) (1.3) (14.8)
Extraordinary loss-early extinguishment
of debt, net of tax (0.2) -- --
------- ------- -------
Net loss (7.8)% (1.3)% (14.8)%
------- ------- -------
------- ------- -------
</TABLE>
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
31
<PAGE>
During the year ended September 30, 1996 total revenues were $236.0
million compared to $231.8 million in the prior year. The improvement in
revenues resulted from higher gaming revenues at the Company's Reno, Nevada
and Biloxi, Mississippi casinos, offset by lower gaming revenues at its Las
Vegas, Nevada and New Orleans, Louisiana gaming properties. Gaming revenues
primarily consist of gaming revenues from slot machines, table games and
keno. Reno revenues grew 5.2% over the prior year period primarily as a
result of higher traffic volume on Interstate 80, where the casino receives
the majority of its customer volume. Boomtown Biloxi's revenues have improved
due to expansion of the gaming market in the Gulf Coast region combined with
higher marketing and promotional efforts at the Boomtown property. Biloxi
revenues were up 10.0% over the prior year. Gaming revenues at the Company's
Las Vegas property continued to be less than expected and lower than the
prior year resulting from increased competition with other casino operators
for the local customer market in the Las Vegas area. In New Orleans revenues
were negatively affected by additional cruising of its riverboat casino as
mandated by law.
Non-gaming revenues primarily consist of revenues generated from food and
beverage, hotel, recreational vehicle park, family entertainment center,
truckstop, service station, mini-mart and other. Non-gaming revenues for the
years ended September 30, 1996 and 1995 were $47.7 million and $42.5 million
respectively. Non-gaming revenues are generated from the Company's family
entertainment centers, truckstop, food and beverage sales, cabaret show,
hotel room sales, recreational vehicle park and other entertainment
amenities. The increases in non-gaming revenues were recorded at all four of
the Boomtown casinos, with the majority of the consolidated improvement due
to higher fuel sales at the Reno truckstop as well as the expansion of the
cabaret show at the New Orleans casino property.
The consolidated gaming margin percentage was 57.4% for fiscal 1996,
compared to 58.2% in the prior year. The decline is primarily a result of a
change in the calculation of gaming taxes at Boomtown New Orleans resulting
in the taxes being reclassified and charged as a gaming expense in the
current year period. During the prior year, the taxes were calculated based
on a flat charge per admission and recorded as general and administrative
expenses. Additionally, the Company's consolidated gaming margin was
negatively affected by gaming leases entered into in April 1995 resulting in
higher gaming equipment lease expense during the period. The decline in the
consolidated gaming margin was offset by improvements from Boomtown Biloxi
resulting from the discontinuance of the property's Fun Flight program in
October 1995.
Marketing, general and administrative expenses primarily consist of
advertising and promotional costs, salaries and wages and related benefits,
non-gaming taxes and licenses, professional fees and other overhead expenses.
Marketing expenses were $22.4 million and $19.6 million for years ended
September 30, 1996 and 1995 respectively, 14.3% increase over the prior year.
Marketing expenses consist of costs associated with printed advertising,
outdoor signs, media advertising, promotional events, the Company's bus tour
and Fun Flight programs and other marketing expenses. The increase in
marketing expenses during fiscal 1996 resulted from additional advertising in
Biloxi and Las Vegas in order to promote the Boomtown brand and compete with
the local customer market in those areas. Higher promotional events and
player's club redemption costs at all Boomtown casinos also contributed to
the increase.
General and administrative ("G&A") expenses were $70.6 million for the year
ended September 30, 1996, a 6.2% decline from the $75.3 million recorded during
the prior year. G&A expenses were less at the Company's Las Vegas and New
Orleans properties offset by higher
32
<PAGE>
expenses in Biloxi. The reduction at Boomtown New Orleans primarily resulted
from a reclassification of gaming taxes from G&A to gaming operating expenses
during the current year. Lower expenses at Boomtown Las Vegas resulted from
a reduction of overhead costs in most casino departments due to cost control
efforts. The increase in Boomtown Biloxi's G&A expenses was attributable to
higher property rent and building and grounds maintenance associated with the
aging of the building and barge. The Company continues to concentrate on
aggressive cost reduction programs for all of its properties.
During the year ended September 30, 1996 the Company incurred charges of
approximately $1.1 million related to its pending merger with Hollywood Park,
as well as $500,000 associated with its license application in the state of
Indiana.
Depreciation and amortization expense rose 1.8% to $10.6 million for year
ended September 30, 1996, resulting from depreciation on property and
equipment purchases at Boomtown properties during 1996. Additionally, the
increase is partially attributable to the restructuring of certain operating
leases to capital leases at the Company's Biloxi and New Orleans properties,
capitalizing the equipment and depreciating the costs over the remaining
estimated useful lives.
During the year ended September 30, 1996, the Company took a non-cash
charge of $36.6 million related to an agreement between the Company, the
owner and lessor ("Roski") of the Boomtown Las Vegas property ("Resort") and
Hollywood Park ("Swap Agreement") which would effectively provide for an
early termination of the existing property lease between Boomtown and IVAC (a
California general partnership owned by Roski). The agreement provides that
upon consummation of the Company's proposed merger with Hollywood Park,
Boomtown would transfer its entire interest in the Resort to Roski in
exchange for certain assets and assumption by Roski, IVAC or an affiliate of
certain liabilities and termination of the lease. The charge included the
write-off of the Company's investment in lease of $12.7 million, a $18.9
million write-down of the related party notes receivable to $8.5 million, and
the write-off of the remaining net assets less the liabilities assumed by
Roski of $5.0 million (approximate value at June 30, 1996). The after-tax
loss amounted to $35.7 million, or $3.86 per share. Consummation of the Swap
is subject to obtaining all necessary governmental approvals, including
gaming approval. In addition the Company intends to solicit the consent of
the holders of a majority amount of the principal amount of the Notes to
effect the Swap Agreement.
The recorded provision for income taxes for the year ended September 30,
1996, does not reflect the anticipated benefit from the write-off associated
with the Swap Agreement. The write-off of the $12.7 million investment in
lease is not deductible for income tax purposes. In addition, the remaining
income tax benefit arising from the Swap Agreement has been offset by a
valuation allowance because of the uncertainty regarding the future
realization of the related deferred tax asset.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Gaming revenues as a percent of total revenues increased from 73.8% to
81.7% from fiscal 1994 to fiscal 1995. This was due to the opening of the
three new gaming properties, particularly Boomtown Biloxi and Boomtown New
Orleans. Boomtown Biloxi and Boomtown New Orleans' gaming revenues provide
approximately 90% and 97% of each Partnership's total revenue, respectively.
Gaming revenues increased 148% or $113 million, primarily due to the opening
of the three new gaming properties in the third and fourth quarters of fiscal
1994. Boomtown Reno's gaming revenue decreased 3% from $43.8 million to
$42.6 million due to severe winter weather conditions in the first two fiscal
quarters. The new properties, Boomtown Las Vegas, Biloxi and
33
<PAGE>
New Orleans contributed $32.9 million, $41.7 million and $72.2 million,
respectively, to gaming revenues.
Non-gaming revenues increased $15.4 million from $26.7 million to $42.0
million. The increases were primarily related to the opening of the new
gaming properties. Boomtown Biloxi contributed an increase of $1.9 million
and $1.6 million from its food and beverage operation and its family
entertainment center, respectively in addition to other income of $223,000;
Boomtown New Orleans contributed increases of $789,000 and $548,000 from its
family entertainment center, its food and beverage operation and the cabaret,
respectively, in addition to other income of $374,000; and Boomtown Las Vegas
contributed increases of $4.9 million, $2.2 million and $1.2 million from its
food and beverage, hotel operations and recreational vehicle park,
respectively, in addition to other income of $581,000. Boomtown Reno's
non-gaming revenues increased by $717,000 of which $314,000 was due to the
opening of a steakhouse in May 1994. The remainder of the increases at
Boomtown Reno were related to the family entertainment center, hotel,
recreational vehicle park and entry fees for gaming and golf tournaments.
Gaming operating expenses increased $47.8 million or 153% from fiscal
1994 to fiscal 1995 and as a percent of revenues from 30.2% to 34.1%. Gaming
operating expenses as a percent of total revenues were 29.6%, 31.9%, 41.9%
and 34.5% at Reno, Las Vegas, Biloxi and New Orleans, respectively. Except
for Biloxi, the variance is due primarily to the difference in gaming tax
rates. Biloxi's variance is primarily due to the addition of the FunFlight
program in fiscal 1995 which had operating expenses of $3.1 million and
revenues of $1.4 million. In addition, an increase of $5.4 million was
related to gaming equipment lease expenses due to the sale and leaseback of
certain furniture, fixtures and equipment at the various properties that
occurred during the end of the 1994 fiscal year and at the beginning of the
1995 fiscal year.
Non-gaming operating expenses consist of costs incurred for food and
beverage, hotel, recreational vehicle park, family entertainment center,
truckstop, service station, mini-mart and other. Non-gaming operating
expenses increased $10.7 million. The increases were primarily related to
the opening of the three new gaming properties in fiscal 1994.
Marketing, general and administrative expenses increased from $33.3
million in fiscal 1994 to $94.9 million in fiscal 1995, an increase of $61.6
million. This increase was primarily due to the opening of the three new
gaming properties ($59.9 million) in fiscal 1994. The remainder of the
increase is due to the addition of the player's slot club and promotions
related to bus tour programs at Boomtown Reno.
Discontinued projects primarily consists of write-offs and accruals for
development costs associated with the Company's research and pursuit into
various gaming jurisdictions for the purpose of applying for gaming licenses.
Significant write-offs in the third quarter included development costs
related to the following projects; Lawrenceburg, Indiana (approximately $4.3
million), the state of Missouri ($727,000), the state of Iowa ($335,000) and
other miscellaneous projects ($220,000). In addition, the Company terminated
a merger and related agreements with National Gaming Corporation, Inc., (the
"Merger") in April 1995. As a result, the Company wrote-off $450,000 of
accumulated expenses related to the transaction.
Income from operations improved from a loss from operations of $6.3
million in fiscal 1994 to income from operations of $7.2 million in fiscal
1995, for the reasons set forth above.
34
<PAGE>
Interest expense, net of capitalized interest increased by $7.8 million.
This was due to a decrease in capitalized interest of $5.2 million offset by
an increase in interest expense of $2.6 million. Capitalized interest was
significantly higher in the prior fiscal year due to the construction of
Boomtown Biloxi, Boomtown Las Vegas and Boomtown New Orleans. Interest
expense is higher for fiscal 1995 compared to fiscal 1994 primarily due to
the additions of $3.1 million of long-term debt during the end of the fourth
quarter of fiscal 1994 and additions of $5.9 million in the second quarter of
fiscal 1995. The weighted average long-term debt outstanding and the related
interest rate for the year ended September 30, 1995 was $111.9 million and
11.7%, respectively. Loss on marketable securities was $1.7 million in fiscal
1994. This loss was due to a decline in the market value of investments in
two short-term government bond funds purchased for approximately $50.0
million.
The minority partners' share of operations of the consolidated
partnership of Mississippi-I Gaming, L.P. and Louisiana-I Gaming, L.P. are
reported as "minority interest". The $1.1 million of loss related to
minority interests in fiscal 1995 is comprised of $2.0 million loss related
to Mississippi-I Gaming, L.P. offset by $9 million of income related to
Louisiana-I Gaming, L.P. The $351,000 of minority interest in fiscal 1994 is
related primarily to the minority interest in Mississippi-I Gaming, L.P.
The Company has a state income tax provision of $1.1 million related to
net income generated from Boomtown New Orleans and a federal income tax
benefit of approximately $300,000. The Company's federal income tax benefit
(effective rate of 15%) is lower than the federal statutory rate due to
amortization of goodwill and an increase in nondeductible items as a result
of a change in deductibility of meals and entertainment from 80% to 50%. At
September 30, 1995, the Company had deferred tax assets and deferred tax
liabilities of approximately $7.1 million and $8.2 million, respectively.
The Company believes that the future benefits from the deferred tax assets
will be realized in full.
As a result of the factors discussed above, the net loss decreased $5.2
million from a loss of $8.1 million in fiscal 1994 to a loss of $2.9 million
in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity at September 30, 1996 was
cash and cash equivalents of approximately $23.1 million, which increased
from $20.8 million at September 30, 1995. Boomtown generated net cash from
operating activities of $11.4 million in fiscal 1996. The net cash provided
from operating activities during fiscal year were derived from a net loss of
$35.1 million primarily related to the non-cash write-off of Blue Diamond of
$36.5 million, net decrease in accounts payable, accrued liabilities and
accrued compensation of $219,000 a decrease in prepaid expenses of $208,000,
depreciation expense of $10.6 million and other sources of $2.2 million, net.
Additionally, the Company paid $2.5 million to the lessor of the Boomtown
Biloxi barge as a pre-payment of the property lease. Under the agreement,
Boomtown returned the $2.4 million to NGC in return for a reduction of the
EBITDA distributions from 20% to 16%. Additionally, for $100,000, Boomtown
secured an option to buy the barge back from NGC as well as to buy out the
EBITDA participation at a cost approximating the original investment made by
HFS less the $2.4 million that was paid back. The option terminates on March
31, 1997 but is renewable for an additional two years for $100,000 a year.
The net uses of cash in investing activities in fiscal 1996 totaled $5.5
million. Cash used for capital expenditures totaled $5.7 million and was
principally used for the purchase of equipment. Sources of cash included
proceeds from the sale of furniture, fixtures and equipment of $215,000.
35
<PAGE>
Net uses of cash flow from financing activities totaled $3.5 million and
consisted of proceeds from additions to long-term debt of $377,000. Uses for
financing activities consisted of principal payments on long-term debt of
$3.9 million.
At September 30, 1996, the Company's debt included $103.5 million
principal amount of 11.5% First Mortgage Notes Due 2003. Interest on the
notes is payable semiannually in arrears each May 1 and November 1. The
Company also has five notes payable in the aggregate amount of $5.0 million.
Three of the notes totaling $1.3 million are secured by equipment, furniture,
and fixtures, bear interest at 11.5% and mature in September 1997. The
fourth note, with a balance of $3.2 million at September 30, 1996, is secured
by the gaming vessel in Harvey, Louisiana, bears interest at 13.0% and
matures January 1999. The fifth note, with a balance of $448,000 at
September 30, 1996, is secured by gaming equipment, bears interest at 12.25%
and matures December 1997. In addition, the Company also has five capital
lease obligations for equipment with a balance of $2.7 million at September
30, 1996.
The Company believes that its current available cash and cash equivalents
and anticipated cash flow from operations will be sufficient to fund the
Company's working capital and normal recurring expenditures through the end
of fiscal 1997.
The statements set forth above regarding the Company's estimates of its
liquidity and capital expenditure requirements, the sufficiency of its
resources and, any expectation that the Swap would be consummated are
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to the safe harbors created
thereby. Future operating results of the company may be adversely affected
as a result of a number of factors, including without limitation, seasonally
(historically, the Company's operating results have been strongest in the
summer months, and weakest in the winter months), weather conditions (severe
winter storms have in the past had a significant adverse effect on the
company's operating results), the general level of demand for gaming and
entertainment facilities, competition in the gaming industry and
uncertainties in general and economic, regulatory and political conditions
effecting the gaming industry, difficulties in integrating business of the
Company and Hollywood Park following the proposed merger and lack of
financing following the proposed merger with Hollywood Park and failure to
satisfy any conditions of the Swap. Any of the above factors, among others,
could cause the company's operating results to be weaker than expected, and
could cause the company's cash requirements to differ materially from the
Company's current estimates.
QUARTERLY RESULTS (TABLE IN THOUSANDS)
The following table sets forth unaudited data regarding operations for each
quarter of fiscal 1995 and 1996. This information, in the opinion of
management, includes all normal recurring adjustments necessary to fairly
state the information set forth therein. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Year Ended September 30, 1995
------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Gaming $44,776 $46,374 $48,682 $49,474
Non-gaming 9,390 9,216 11,263 12,592
------- ------- ------- -------
54,166 55,590 59,945 62,066
Expenses:
Gaming 17,934(1) 18,277(1) 17,875(1) 19,148
Year Ended September 30, 1996
-------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net revenues:
Gaming $44,993 $46,376 $47,981 $49,018
Non-gaming 10,627 10,517 12,863 13,667
------- ------- ------- -------
55,620 56,893 60,844 62,685
Expenses:
Gaming 19,656 20,118 19,875 20,547
36
<PAGE>
Year Ended September 30, 1995
------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Non-gaming 7,541 7,463 8,847 10,259
Marketing, general and
administrative 23,492(1) 23,709(1) 25,524(1) 27,975
Discontinued projects/future
development -- 334 5,720 --
Depreciation and
amortization 2,541 2,595 2,500 2,786
Loss on sale of
Blue Diamond -- -- -- --
------- ------- ------- -------
51,508 52,378 60,466 60,168
------- ------- ------- -------
Income (loss) from
operations 2,658 3,212 (521) 1,898
Interest expense (2,808) (3,518) (3,479) (3,629)
Interest and other income 515 961 796 809
Income (loss) before minority
interest, income taxes
and extraordinary loss 365 655 (3,204) (922)
Minority interest 45 24 43 993
------- ------- ------- -------
Income (loss) before
income taxes and
extraordinary 410 679 (3,161) 71
Provision (benefit) for
income taxes 174 278 (1,312) 1,736
------- ------- ------- -------
Net income (loss) $ 236 $ 401 ($ 1,849) ($ 1,665)
------- ------- ------- -------
------- ------- ------- -------
Year Ended September 30, 1996
-------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net revenues:
Gaming $44,993 $46,376 $47,981 $49,018
Non-gaming 10,627 10,517 12,863 13,667
------- ------- ------- -------
55,620 56,893 60,844 62,685
Expenses:
Gaming 19,656 20,118 19,875 20,547
Non-gaming 8,879 8,344 10,816 11,230
Marketing, general and
administrative 23,037 23,230 23,200 23,590
Discontinued projects/future
development -- -- 761 842
Depreciation and
amortization 2,557 2,742 2,837 2,482
Loss on sale of
Blue Diamond -- -- 36,563 --
------- ------- ------- -------
54,129 54,434 94,052 58,691
------- ------- ------- -------
------- ------- ------- -------
Income (loss) from
operations 1,491 2,459 (33,208) 3,994
Interest expense (3,341) (3,492) (3,529) (3,476)
Interest and other income 765 859 1,785 784
Income (loss) before minority
interest, income taxes
and extraordinary loss (1,085) (174) (34,952) 1,302
Minority interest 385 240 253 (233)
------- ------- ------- -------
Income (loss) before
income taxes and
extraordinary (700) 66 (34,699) 1,069
Provision (benefit) for
income taxes (343) 18 276 843
------- ------- ------- -------
Net income (loss) ($ 357) $ 48 ($34,975) $ 226
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
- ----------------------------------------------
(1) Gaming equipment lease expense has been reclassified from marketing,
general and administrative to gaming expenses.
37
<PAGE>
DEBT OFFERING
(Note: Unless otherwise defined herein, capitalized terms used in this
section have the meanings set fourth in the Indenture entered into in
connection with the Company's debt offering described below (the
"Indenture"). The Indenture is incorporated by reference to this Report as
Exhibit 10.36 hereto).
In November 1993 the Company closed the issuance and sale of an aggregate
of $103.5 million principal amount of 11 1/2% First Mortgage Notes due
November 1, 2003 (the "Notes") and warrants to purchase 472,500 shares of the
Company's Common Stock (the "Warrants"). The Notes and Warrants were sold in
units in a private placement to certain qualified institutional buyers.
Interest on the Notes is payable semiannually in arrears on each May 1 and
November 1 commencing May 1, 1994.
As more fully explained in the Indenture, the Notes will be redeemable at
the option of the Company, in whole or in part, on or after November 1, 1998,
initially at a premium to par and decreasing to par with each anniversary
date until maturity, plus accrued and unpaid interest, if any, to the date of
redemption. Also, prior to November 1, 1998, the Company may redeem Notes
with the net proceeds from any offering of capital stock of the Company
subject to certain exceptions at the redemption prices set forth in the
Indenture, provided at least 75% in aggregate principal amount of the Notes
originally issued must remain outstanding immediately after such redemption.
Upon a Change of Control of the Company, each holder of Notes will have the
right to require the Company to repurchase any or all outstanding Notes owed
by such holder at 101% of the principal amount hereof, plus accrued and
unpaid interest to the repurchase date.
The Notes are unconditionally guaranteed by the operating subsidiary of
Boomtown Reno, by similar guaranties of the operating subsidiaries of
Boomtown Biloxi, Boomtown New Orleans and Boomtown Las Vegas, and will be
unconditionally guaranteed by each Significant Restricted Subsidiary
hereafter formed or acquired by the Company (the "Guaranties"); provided that
the Guaranty provided by the operating subsidiary of Boomtown Las Vegas (Blue
Diamond) is limited to the amounts of certain loans or advances made to Blue
Diamond and IVAC, the current owner of the land and improvements underlying
the Blue Diamond resort, until any exercise of the Resort Purchase Option.
A first priority deed of trust on the Boomtown Reno resort secures the
Guaranty provided by Boomtown Gaming. Other collateral for the Notes and
Subsidiary Guarantees includes the following (the "Collateral"): (i) subject
to obtaining any necessary Gaming Authority approvals, the Company's stock or
equity interests of each existing and future Subsidiary, (ii) substantially
all of the Company's other assets, other than cash and deposit accounts,
(iii) first priority indirect liens on the Boomtown Las Vegas real estate
(but securing only the amounts advanced to Boomtown Las Vegas), subject to
certain permitted liens, (iv) a pledge of all loans or advances made to the
operating subsidiaries of Boomtown Biloxi, Boomtown New Orleans, Boomtown Las
Vegas, Boomtown Reno and any other Significant Restricted Subsidiary acquired
or formed in the future, the liens (if any) securing such loans and all
notes, collateral documents, intercreditor agreements and other documents
relating to such loans or liens and (v) first priority liens on substantially
all of the assets of the operating subsidiaries of Boomtown Biloxi, Boomtown
New Orleans and any other Significant Restricted Subsidiary formed or
acquired in the future, in each case to the extent such liens and priority
interests are obtainable by the Company solely by granting and filing,
recording or delivery of possession and subject to certain permitted liens.
Notwithstanding the foregoing, if the Company maintains during any six full
consecutive fiscal quarters a Consolidated Coverage Ratio of at least
38
<PAGE>
3.5 to 1.00 and has a rating increase after the date of the Indenture, the
Company will not be required to continue to pledge existing and future equity
interests in Non-Restricted Subsidiaries and, subject to certain additional
conditions, will be able to redesignate Restricted Subsidiaries acquired or
formed after the date of the Indenture as Non-Restricted Subsidiaries are
generally not subject to the covenants and other restrictions of the
Indenture.
The Indenture contains significant limitations on the Company's ability
to incur additional debt. The Notes and related guaranties are senior
secured obligations of the Company and its existing subsidiaries, and rank
senior in right of payment to all of their respective existing and future
subordinated indebtedness and PARI PASSU with the Company and its existing
subsidiaries' permitted PARI PASSU indebtedness. The Indenture permits the
Company to incur up to $5 million in PARI PASSU indebtedness owing to one or
more financial institutions which may be ratably secured by the Collateral
and permits the operating subsidiaries of the Company to incur up to $10
million of additional indebtedness for the purpose of financing the
acquisition of specific assets, secured by liens on those assets. The
Indenture permits the issuance of additional PARI PASSU indebtedness which is
ratably secured by the Collateral if (i) at the time and giving effect to the
incurrence thereof, the Company's Consolidated Coverage Ratio is at least 3.5
to 1.00, (ii) the Company's ratio of Consolidated Funded Debt to Consolidated
Total Capitalization does not exceed .5 to 1.00 and (iii) the Company, after
giving effect to the incurrence of such indebtedness, obtains and maintains a
rating in respect of the Notes that is at least one gradation above the
Notes' rating on the issuance date. The Indenture also permits the issuance
of unsecured indebtedness maturing after the maturity of the Notes and
subject to certain other terms and conditions, if the Company's Consolidated
Coverage Ratio, after giving effect to such indebtedness on a pro forma
basis, for the last four quarters is at least 2.25 to 1.00. In addition, in
connection with the exercise by the Company of options to purchase the entire
interest in Boomtown Las Vegas, the Company may incur up to $50 million of
unsecured subordinated debt without complying with any of the foregoing tests.
The Indenture contains certain covenants which could limit the Company's
operating flexibility under certain circumstances, including, but not limited
to, limitations on incurring debt described above, issuing preferred equity
interests and entering into operating leases; limitation on dividends, stock
repurchases and subordinated debt redemptions; limitation in incurring liens;
limitations on transaction with affiliates; limitations on mergers,
consolidations and sale of assets; and limitations on amending existing
partnership and facility construction agreements.
The ability of the Company to make interest payments on the Notes will
depend on the Company's ability to generate sufficient cash flow from
operations. The Company believes that cash flow from the operations of
Boomtown Reno, Boomtown Biloxi, Boomtown New Orleans and Boomtown Las Vegas
should be sufficient to enable the Company to make the required interest
payment on the Notes. However, the operations of Boomtown Reno, Boomtown
Biloxi, Boomtown New Orleans and Boomtown Las Vegas are subject to
significant business, economic, regulatory and competitive uncertainties and
contingencies, many of which are beyond the control of the Company. As a
result, there can be no assurance that any of the Company's operations will
continue to generate its current level of cash flow or that the Company's
proposed future expansion projects will not adversely affect the Company's
future cash flows which, in either case, could significantly impair the
Company's ability to make the required payments of the Notes. Failure of the
Company to make the required payments of the Notes or to otherwise comply
with the terms and conditions of the Indenture could lead to an accelerations
of the Notes and foreclosure on the Company's stock and other properties, or
the exercise of other remedies available to secured creditors which could
have a material adverse effect on the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
39
<PAGE>
The information is incorporated by reference to the financial statements
data listed in Item 14 of Part IV of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
40
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages as of
December 20, 1996 are as follows:
Name Age Title
---- --- -----
Executive Officers
- ------------------
Timothy J. Parrott 49 Chairman of the Board and Chief
Executive Officer
Phil E. Bryan 56 President and Chief Operating Officer
and Director
Robert F. List 60 Executive Vice President, Corporate
Counsel, Secretary and Director
Mary J. Shick 38 Senior Vice President of Marketing
Jon L. Whipple 31 Vice President of Finance
James W. Middagh 51 Senior Vice President of Operations
Jerald Day 48 Vice President of Gaming Operations
Donald Dixon 58 Vice President of Human Resources
Directors
- ---------
Richard J. Goeglein 62 Private Investor
Peter L. Harris 53 Chief Executive Officer, Expressly
Portraits, Inc.
Edward P. Roski, Jr. 57 President, Majestic Realty Co.
Delbert W. Yocam 52 Independent Consultant
Mr. Parrott joined the Company in June 1987 as President and Treasurer
and was elected Chairman of the Board and Chief Executive Officer of the
Company in September 1992. Mr. Parrott has served as Chairman of the Board
and Chief Executive Officer of Boomtown Hotel and Casino, Inc. ("Boomtown
Casino", which the Company acquired in June 1987) since May 1988. Mr.
Parrott is responsible for setting the overall direction, leadership,
culture, focus and service standards of the Company. Since 1984, Mr. Parrott
has served as Chief Executive Officer of Parrott Investment
41
<PAGE>
Company, a family-held investment company with agricultural interests in
California. Mr. Parrott is a director of Chronicle Publishing Company in San
Francisco, California.
Mr. Bryan joined Boomtown in April 1996 as President and Chief Operating
Officer and member of the Company's Board of Directors. Mr. Bryan's gaming and
hospitality career spans more than three decades and has included executive
posts in both Northern and Southern Nevada. Just prior to joining Boomtown, Mr.
Bryan served as President and CEO of Las Vegas-based Casino Data Systems (CDS).
Mr. Bryan has also served as President and CEO of Gold River Hotel and Casino in
Laughlin, Nevada and General Manager and CEO at Reno Peppermill Hotel/Casino.
He is also active in a host of community and tourism activities including the
Board of Trustees for the Desert Research Institute and the Board of Very
Special Arts of Nevada. Mr. Bryan has also served as Vice Chairman of the
Nevada Commission on Tourism, President of the Gaming Industry Association,
Chairman of Festival Reno and Chairman of the Reno City Charter Review
Committee.
Mr. List has been a director of the Company since October 1992. Mr. List
joined Boomtown as a Senior Vice President and Corporate Counsel in March
1993. In April, 1996, he became Secretary of the Corporation and in November,
1996, he was elected Executive Vice President. Mr. List served as Attorney
General of Nevada from 1971 to 1979 and as Governor of Nevada from 1979 to
1983. After leaving public office and prior to joining Boomtown, Mr. List
served as managing shareholder of the Reno office of the law firm Beckley,
Singleton, DeLanoy, Jemison & List. Mr. List is primarily responsible for
pursuing new location opportunities, assisting in due diligence, negotiating
contracts and coordinating legal, licensing and regulatory requirements.
Ms. Shick joined Boomtown as Senior Vice President, Marketing, in
November, 1995. Immediately prior to joining the Company Ms. Shick served as
Director of Marketing for Harrah's Casino in New Orleans, Louisiana. In her
position at Harrah's she was charged with developing and implementing the
marketing strategy for Harrah's Basin Street temporary casino and that
company's $800 million New Orleans permanent casino. Prior to joining the
Harrah's New Orleans project Ms. Shick was Director of Marketing for Harrah's
Casino Hotel in Laughlin, Nevada. Prior to joining Harrah's she served as
Marketing Officer for FirsTier Banks, N.A. Ms. Shick is responsible for the
overall marketing strategy and programs for Boomtown and the introduction of
the Boomtown product in new markets.
Mr. Whipple joined Boomtown in September of 1995 and was promoted to Vice
President of Finance in November, 1996. Prior to Boomtown, Mr. Whipple most
recently served as Accounting Manager for Reno, Nevada-based International
Game Technology (IGT). Mr. Whipple is responsible for overseeing all
financial affairs of Boomtown, including the financial operations and
reporting for Boomtown and the Company's four casinos.
Mr. Middagh joined Boomtown Casino in 1966 and served in various
management and supervisory capacities from 1972 until 1981 when he was
appointed Vice President of Operations. In September, 1992, Mr. Middagh was
promoted to Senior Vice President of Operations in March, 1993. Mr. Middagh
is primarily responsible for site planning, design and construction of new
properties and expansion of existing facilities.
Mr. Day joined Boomtown Casino in 1977 and served in various supervisory
capacities until 1981 when he was appointed Games Manager. Mr. Day was
appointed Director of Gaming in 1987 and was promoted to Vice President of
Gaming Operations in 1993. Mr. Day is responsible for developing and
implementing the necessary operational systems and controls at the new
locations in addition to assisting in due diligence for potential expansion
opportunities.
42
<PAGE>
Mr. Dixon joined Boomtown in 1978 and served in various management
capacities including Director of Administrative Services, when, in 1993, he
was promoted to Vice President of Human Resources. In this capacity he is
responsible for current and new property human resources management,
planning, policy development, and management. He has similar
responsibilities in Risk and Benefits Management.
Mr. Goeglein has been a director of the Company since October 1992. Mr.
Goeglein has been a private investor since 1987. Since 1990, Mr. Goeglein
has been President and the principal shareholder of Gaming Associates, Inc.,
which develops and manages gaming operations in selected niche markets. From
1984 to 1987, Mr. Goeglein was President and Chief Operating Officer of
Holiday Corporation, the parent corporation of, among others, Holiday Inns
and Harrah's Hotels and Casinos. Mr. Goeglein also serves on the Board of
Directors of AST Research, Inc. and Platinum Software Corp.
Mr. Harris has been a director of the Company since April 1994. Mr.
Harris has served as President and Chief Executive Officer of Expressly
Portraits, Inc., a retail chain of portrait photography studios, since August
1995. Between 1993 and 1995, Mr. Harris served in turn around roles as
Reorganization Administrator of American Fashion Jewels, a retail company,
and then as Chief Executive Officer of Accolade, Inc., a video games and
personal computer games company. Mr. Harris served as President and Chief
Executive Officer of F.A.O. Schwartz from 1985 to 1992. Mr. Harris also
serves on the Board of Directors of Pacific Sunwear of California, Inc.
Mr. Roski has been a director of the Company since June 1993. Mr. Roski
has been associated with Majestic Realty Co. ("Majestic") since 1966 and has
served as President of Majestic since January 1994. He served as Executive
Vice President and Chief Operating Officer of Majestic from 1978 to 1994.
Mr. Roski also serves as Vice Chairman of the Board of Commerce Construction
Co., Inc., President and a director of Majestic Management Co., Inc., and
President and a director of CCC Rentals, Inc., wholly-owned subsidiaries of
Majestic.
Mr. Yocam has been a director of the Company since December 1995. Mr.
Yocam has been an independent consultant since November 1994. From September
1992 to November 1994, Mr. Yocam was President, Chief Operating Officer and a
director of Tektronix, Inc. From November 1989 to September 1992 he was an
independent consultant. Mr. Yocam also serves on the Board of Directors of
Adobe Systems, Inc., Integrated Measurement Systems, Inc. and Oracle
Corporation.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than
ten percent (10%) of a reqistered class of the company's equity securiteies,
to file certain reports regarding ownership of, and transactions in, the
company's securities with the Securities and Exchange Commission (the "SEC").
Such officers, directors and ten percent stockholders are also required by
SEC rules to furnish the Company with copies of all Section 16(a) forms that
they file.
Based solely on its review of such forms received by it, or written
representations from certain reporting persons, the Company believes that
during fiscal 1996 all Section 16(a) filing requirements applicable to its
officers, directors and ten percent stockholders were complied with, except
that the Form 3 required to filed on behalf of Mary Shick was filed late by
the Company.
43
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation received for services
rendered to the company in all capacities during the fiscal years ended
September 30, 1994, 1995 and 1996 by (i) the Company's Chief Executive
Officer, (ii) each of the four other most highly compensated executive
officers, serving as executive officers at the end of the last fiscal year,
whose salary plus bonus exceeded $100,000 during the last fiscal year and
(iii) Richard N. Scott, who would have qualified as an executive officer
pursuant to item (ii) but for the fact that he was not serving as an
executive officer as of the end of the last fiscal year.
<TABLE>
<CAPTION>
Long-Term
Compensation
--------------
Annual Compensation Awards
------------------- --------------
Securities
Underlying All Other
Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) SAR's ($)
- --------------------------- ---- ------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
Timothy J, Parrott 1996 375,000 0 112,500 0
Chairman of the Board 1995 357,019 0 0 0
and Chief Executive Officer 1994 314,146 0 0 0
Robert F. List 1996 214,999 0 100,000 0
Executive Vice President 1995 215,600 0 0 0
and Corporate Counsel 1994 194,282 0 0 0
Phil E. Bryan 1996 137,307 0 150,000 0
President and Chief 1995 -- -- -- --
Operating Officer 1994 -- -- -- --
James W. Middagh 1996 135,695 0 45,000 0
Senior Vice President of 1995 131,635 0 0 667 (1)
Operations 1994 117,768 0 0 614 (1)
Donald E. Dixon 1996 128,000 0 18,750 0
Vice President Human 1995 115,269 0 0 0
Resources 1994 94,198 0 0 0
FORMER EXECUTIVE OFFICER
- ------------------------
Richard N. Scott (2) 1996 273,492 0 84,500 0
President and Chief 1995 254,366 0 0 4,362(1)
Operating Officer 1994 230,752 0 0 12,768(1)
</TABLE>
- ------------
(1) Represents life insurance premiums.
(2) Mr. Scott resigned as President and Chief Operating Officer effective April
30, 1996.
44
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth, as to the Named Officers, certain
information relating to stock options granted during the fiscal year ended
September 30, 1996.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock Price
Appreciation
Individual Grants for Option Term (2)
-----------------------------------------------------------------------------
Number
of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise or
Granted in Fiscal Base Price Expiration
Name (#) Year(1) ($/Sh) Date 5% ($) 10%($)
- -------------------------- ---------- ----------- ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
- --------------------------
Timothy J. Parrott 150,000(3) 9.9% 6.25 02/25/03 381,657 889,422
112,500 7.4% 6.25(4) 10/08/05 442,192 1,120,600
Robert F. List 80,000(3) 5.3% 6.25 03/25/03 203,550 474,359
100,000 6.6% 6.25 (4) 10/08/05 393,059 996,089
Phil E. Bryan 150,000 9.9% 5.875 04/23/06 554,213 1,404,486
James W. Middagh 60,000(3) 4.0% 6.25 02/25/03 152,663 355,769
45,000 3.0% 6.25(4) 10/08/05 176,877 448,240
Donald E. Dixon 3,500(3) 0.2% 6.25 10/26/02 8,905 20,753
25,000(3) 1.7% 6.25 03/25/03 63,609 148,237
18,750 1.2$ 6.25(4) 10/08/05 73,699 186,767
FORMER EXECUTIVE OFFICER
- ------------------------
Richard N. Scott 112,500(3) 7.4% 6.25 02/25/03 286,242 667,067
84,500 5.6% 6.35(4) 10/08/05 332,135 841,695
</TABLE>
- ----------------
(1) The total number of shares subject to options granted to employees in
fiscal 1996 was 1,514,000. In October 1996, all employees, excluding
executive officers and outside directors, who were granted options at an
exercise price in excess of $9.00 per share were offered the opportunity
to surrender those grants in exchange for an equal number of options
having a per share exercise price of $9.00, the closing price of the
Company's Common Stock on October 6, 1995 (the "October Repricing"). In
exchange, such repriced options, to the extent vested, were not
exercisable until April 10, 1996. In connection with the execution of
the Merger Agreement, in April 1996, all employees, including executive
officers but excluding outside directors, who were granted options at an
exercise price in excess of $6.25 per share were offered the opportunity
to surrender those grants in exchange
45
<PAGE>
for an equal number of options having a per share exercise price of
$6.25, which is equal to the product of (A) the $10.00 per share closing
price of Hollywood Park Common Stock on April 22, 1996, the date
immediately preceding the date of the Merger Agreement, and (B) 0.625,
which is the number of shares of Hollywood Park Common Stock into which
each issued and outstanding share of Company Common Stock shall convert
upon the effective time of the Merger (the "April Repricing"). In
exchange, such repriced options shall not be exercisable until the
earlier of (i) the closing of the Merger or (ii) the termination of the
Merger Agreement. The 1,514,000 option shares granted to employees in
fiscal 1996 referenced above does not include the double counting of
579,000 option shares resulting from (i) options granted pursuant to the
October Repricing and repriced pursuant to the April Repricing and (ii)
options initially granted in fiscal 1996 and repriced pursuant to the
April Repricing.
(2) The above method of calculation and assumed annual rates of appreciation
have been determined solely in accordance with calculations specified in
the rules and regulations of the SEC and do not represent the Company's
estimate or projection of future stock price or the Company's estimate
of the true value of the options. In accordance with the SEC rules,
potential realizable value assumes that the stock price increases from
the date of grant until the end of the option term at the annual rate
specified (5% and 10%). As a result of the April Repricing, pursuant to
which the expiration dates of original options did not change, options
regranted to the Named Officers pursuant to the April Repricing have
terms ranging from six years and five months to nine years and five
months. The potential realizable values indicated for such options are
rounded up to the nearest full year. Potential realizable value is net
of the option exercise price. For an analysis of the value of
outstanding options of the Company as of September 30, 1996, based upon
the $4.125 closing price of the Company's Common Stock as of such date,
see the table entitled "Aggregate Option Exercises in Last Fiscal Year
and Year End Option Values."
(3) Represents option originally granted prior to fiscal 1996 and
surrendered for repricing pursuant to the April Repricing and,
therefore, treated as being granted in fiscal 1996.
(4) Represents option originally granted in October 1995 at a per share
exercise price of $9.00 and surrendered for repricing pursuant to the
April Repricing.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the value of
unexercised options as of September 30, 1996 held by the Named Officers. No
options were exercised by the Named Officers during the fiscal year ended
September 30, 1996.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End($)(1)
---------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS
- --------------------------
Timothy J. Parrott 236,244 225,000 689,283 --
Robert F. List 23,900 160,000 -- --
Phil E. Bryan -- 150,000 -- --
James W. Middagh 52,518 90,000 130,120 --
Donald E. Dixon 8,875 38,375 -- --
FORMER EXECUTIVE OFFICERS
- -------------------------
Richard N. Scott 141,355 168,875 392,704 --
</TABLE>
46
<PAGE>
- --------------
(1) Market value of underlying securities based on the $4.125 closing price
of the Company's Common Stock on September 30, 1996, minus the exercise
price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors is composed
of three non-employee directors, Richard J. Goeglein, Peter L. Harris and Edward
P. Roski, Jr.
Edward P. Roski, Jr. serves as a director of Blue Diamond. Timothy J.
Parrott, the Company's Chairman of the Board and Chief Executive Officer, serves
as a member of the Board of Directors of Blue Diamond. Mr. Roski and affiliates
of Mr. Roski are parties to the Boomtown Las Vegas transaction described above
under "Business-Boomtown Las Vegas-Operating Structure."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of December 15, 1996 by (i) each person or entity who is known by
the Company to own beneficially more than 5% of the outstanding shares of its
Common Stock; (ii) each of the Company's directors; (iii) each of the officers
named in the Summary Compensation Table (the "Named Officers"); and (iv) all
directors and executive officers as a group. A total of 9,269,673 shares of the
Company's Common Stock were issued and outstanding as of December 15, 1996.
NUMBER
OF PERCENT
DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS SHARES (1) OWNED
- ------------------------------------------------- ----------- -------
State of Wisconsin Investment Board (2).............. 915,000 9.7%
P.O. Box 7842
Madison, WI 53707
Legg Mason Special Investment Trust, Inc. (3)........ 900,000 9.6%
7 East Redwood Street
Baltimore, MD 21203-7023
Edward P. Roski, Jr. (4)............................. 724,586 7.8%
c/o Majestic Realty Co.
13191 Crossroads Parkway North, 6th Floor
City of Industry, CA 91746-3497
Timothy J. Parrott (5)............................... 579,245 6.1%
c/o Boomtown, Inc.
P.O. Box 399
Verdi, NV 89439-0399
Kenneth Rainin....................................... 530,666 5.7%
c/o Rainin Research Group
5400 Hollis Street
Emeryville, CA 91608
47
<PAGE>
Richard N. Scott (6)................................. 141,420 1.5%
James W. Middagh (7)................................. 52,519 *
Robert F. List (8)................................... 25,801 *
Donald E. Dixon (9).................................. 10,251 *
Richard J. Goeglein (10)............................. 8,499 *
Peter L. Harris (11)................................. 3,034 *
Delbert W. Yocam (12)................................ 1,300 *
Phil E. Bryan (13)................................... -- --
All executive officers and directors
as a group (11 persons) (14)....................... 1,429,236 14.8%
- ----------------
* Less than one percent.
(1) The number and percentage of shares beneficially owned is determined
under rules of the Securities and Exchange Commission (the "SEC"), and
the information is not necessarily indicative of beneficial ownership
for any other purpose. Under such rules, beneficial ownership includes
any shares as to which the individual has sole or shared voting power or
investment power and also any shares which the individual has the right
to acquire within 60 days of December 15, 1996 through the exercise of
any stock option or other right. Unless otherwise indicated in the
footnotes, each person has sole voting and investment power (or shares
such powers with his or her spouse) with respect to the shares shown as
beneficially owned.
(2) The beneficial share number is as of August 31, 1996 and is based on
information received from the State of Wisconsin Investment Board.
(3) The beneficial share number is as of August 1996 and is based on
information received from Legg Mason Special Investment Trust ("Legg
Mason"). The shares are held by Legg Mason, with Legg Mason Fund
Advisor, Inc., a wholly owned subsidiary of Legg Mason, Inc., having the
power to vote and dispose of such shares.
(4) Includes 5,199 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 15, 1996. See "Business-Boomtown Las Vegas-Operating
Structure." Mr. Roski is a director of the Company.
(5) Includes 236,244 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 15, 1996. Mr. Parrott is Chairman of the Board and Chief
Executive Officer of the Company.
(6) Includes 141,355 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 15, 1996. Mr. Scott resigned as President, Chief Operating
Officer and a director of the Company effective April 30, 1996.
48
<PAGE>
(7) Includes 52,518 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 15, 1996. Mr. Middagh is Senior Vice President of Operations
of the Company.
(8) Includes 23,900 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 15, 1996. Mr. List is Senior Vice President and Corporate
Counsel and a director of the Company.
(9) Includes 9,750 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 15, 1996. Mr. Dixon is Vice President Human Resources of the
Company.
(10) Includes 6,498 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 15, 1996. Mr. Goeglein is a director of the Company.
(11) Includes 3,033 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 15, 1996. Mr. Harris is a director of the Company.
(12) Includes 1,300 shares issuable upon the exercise of a stock option to
purchase shares of Common Stock which is exercisable within 60 days of
December 15, 1996. Mr. Yocam is a director of the Company.
(13) Mr. Bryan is President, Chief Operating Officer and a director of the
Company.
(14) Includes 362,192 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 15, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION OF BOOMTOWN CASINO
In May 1988, the Company acquired all of the outstanding stock of
Boomtown Casino for $16.7 million in cash (the "1988 Acquisition"). In order
to finance the 1988 Acquisition, including the retirement of existing debt,
the Company sold equity securities to Kenneth Rainin and Timothy J. Parrott,
and Boomtown Casino entered into various loan documents with Merrill Lynch
Interfunding Inc. Pursuant to a stock purchase agreement, Mr. Rainin
purchased 2,000 shares of Preferred Stock and 3,042,000 shares of Common
Stock for an aggregate purchase price of approximately $4 million in cash,
and Mr. Parrott purchased 270,738 shares of Common Stock for an aggregate
purchase price of $222,000, of which $1,000 was paid in cash and $221,000 by
a promissory note (the "Promissory Note") secured by a pledge to the Company
of all of the shares owned by Mr. Parrott. In November 1994, the Promissory
Note was amended to provide that (i) interest on the Promissory Note, which
accrues at a rate of 6.0% per annum, compounded annually, is payable in
arrears on the last day of December, commencing December 31, 1995, (ii)
principal is payable in four annual installments beginning December 31, 1995,
and (iii) the shares owned by Mr. Parrot would be released from the pledge
and would no longer secure the amounts outstanding under the promissory Note.
BOOMTOWN LAS VEGAS TRANSACTIONS
See "Business-Boomtown Las Vegas-Operating Structure" for a description of
Boomtown Las Vegas transactions.
49
<PAGE>
EMPLOYMENT AGREEMENTS
On the following dates, the Company entered into Employment Agreements
(the "Employment Agreements") with the following executive officers (the
"Officers"), pursuant to which the Officers will be employed for the terms
and paid the initial base salaries set forth below opposite their names:
DATE OF TERM OF INITIAL
OFFICER AGREEMENT AGREEMENT BASE SALARY
- ------- --------- --------- -----------
Jerald R. Day 10/08/95 1 year $120,000.00
Donald E. Dixon 10/08/95 1 year $120,000.00
Robert F. List 10/08/95 3 years $120,000.00
James W. Middagh 10/08/95 2 years $135,000.00
Timothy J. Parrott 10/08/95 3 years $375,000.00
Richard N. Scott 10/08/95 3 years $265,000.00
Mary Shick 11/08/95 1 year $145,000.00
Phil E. Bryan 04/30/96 3 years $300,000.00
In addition to the above terms, each Employment Agreement provides that
in the event of a change of control of the Company, all options granted to
the Officer prior to such change of control shall become fully vested and
exercisable. For purposes of the Employment Agreements, a change of control
includes (i) the date on which any person or entity owns at least 50% of the
total voting power of the Company; (ii) a change in the composition of the
Company's Board of Directors occurring within a two-year period, as a result
of which fewer than a majority of the directors are (a) directors of the
Company as of the date of the Employment Agreement or (b) elected or
nominated for election to the Board with the affirmative vote of a majority
of the incumbent directors at the time of such election or nomination, and
(iii) the approval by the stockholders of the Company of (x) a merger of the
Company with another corporation in which such stockholders shall own less
than 50% of the voting securities of the surviving corporation (including the
Merger) or (y) a plan of complete liquidation of the Company or the sale of
all or substantially all of the assets of the Company. Notwithstanding the
above, Mr. Bryan's Employment Agreement excludes the Merger from the
definition of a change of control. In addition, each Employment Agreement
provides that in the event of termination of employment without cause, the
Officer shall receive a severance payment consisting of, among other things,
base salary for the number of years set forth in the above table under "Term
of Agreement," subject to mitigation in the event the Officer obtains
alternative employment during the applicable severance payment period, as
well as accelerated vesting of the Officer's stock options. In addition, the
Employment Agreements provide for the Officers to receive such fringe
benefits and perquisites as may be granted or established by the Company from
time to time, including an automobile allowance.
STOCK OPTION GRANTS
In October 1995, the Compensation Committee of the Board of Directors
authorized the grant to the following Officers of nonstatutory stock options
under the Company's 1990 Stock Option Plan for the number of shares of Common
Stock and at the exercise prices set forth below opposite their names:
NUMBER OF EXERCISE PRICE
OFFICER SHARES PER SHARE
- ------- --------- --------------
50
<PAGE>
Jerald R. Day 18,750 $6.25
Donald E. Dixon 18,750 $6.25
Robert F. List 100,000 $6.25
James W. Middagh 45,000 $6.25
Timothy J. Parrott 112,500 $6.25
Richard N. Scott 84,500 $6.25
Mary Shick 50,000 $6.25
The foregoing options were originally granted at a per share exercise
price of $9.00, which was equal to the closing sale price of the Company's
Common Stock on the market trading day immediately preceding the date of
grant, except that Ms. Shick's option was originally granted at a per share
exercise price of $7.50, which was equal to the closing sales price of the
Company's Common Stock on the market trading day immediately preceding her
hire date. All of such options were surrendered for repricing pursuant to
the April Repricing. With the exception of the options granted to Ms. Shick,
all of the shares subject to such options shall not become exercisable until
October 8, 2003; provided, however, that (i) one-third of the shares subject
to the above described options shall become exercisable in the event the
closing price of the Company's Common Stock remains at or above $18.00 for a
least five consecutive market trading days, (ii) one-third of the shares
subject to the above described options shall become exercisable in the event
the closing price of the Company's Common Stock remains at or above $22.50
for at least five consecutive market trading days, and (iii) the remaining
one-third of the shares subject to the above described options shall become
exercisable in the event the closing price of the Company's Common Stock
remains at or above $27.00 for at least five consecutive market trading days.
With respect to the options granted to Ms. Shick, one-fourth of the shares
subject to such options shall become exercisable on November 8, 1996, and
each one year anniversary thereafter.
In December 1995 and March 1996, Jon L. Whipple was granted options to
purchase 4,000 and 7,500 shares at per share exercise prices of $9.00 and
$6.375, respectively, which prices were equal to the closing sales price of
the Company's Common Stock on the market trading day immediately preceding
the date of grant. Such options were surrendered for repricing pursuant to
the April Repricing. One-fourth of the shares subject to each such option
shall become exercisable on each one year anniversary following the
respective date of grant.
In April 1996, Phil E. Bryan was granted an option to purchase 150,000
shares at a per share exercise price of $5.875, which was equal to the
closing sales price of the Company's Common Stock on the market trading day
immediately preceding the date of grant. One-fourth of the shares subject to
such option shall become exercisable on April 23, 1997 and each one year
anniversary thereafter.
51
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following items are filed as part of this Report:
ITEM(S) PAGES
(1) BOOMTOWN, INC. FINANCIAL STATEMENTS:
Report of Ernst & Young LLP, Independent Auditors . . . . . . . 57
Consolidated Balance Sheets, September 30, 1995 and 1996 . . . 58
Consolidated Statements of Operations of each of the three
years in the period ended September 30, 1996 . . . . . . . . . 59
Consolidated Statements of Stockholders Equity three
years in the period ended September 30, 1996 . . . . . . . . . 60
Consolidated Statements of Cash Flows for each of the
three years in the period ended September 30, 1996 . . . . . . 61
Notes to Consolidated Financial Statements . . . . . . . . . . 62-78
(2) BOOMTOWN, INC. FINANCIAL STATEMENT SCHEDULE:
II Valuation and Qualifying Accounts . . . . . . . . . . . . . 79
(3) MISSISSIPPI - GAMING, L.P. FINANCIAL STATEMENTS:
Report of Ernst & Young LLP, Independent Auditors . . . . . . . 80
Balance Sheets, September 30, 1995 and 1996 . . . . . . . . . . 81
Statements of Operations of each of the three
years in the period ended September 30, 1996 . . . . . . . . . 82
Statements of Capital Partners' (Deficit) three
years in the period ended September 30, 1996 . . . . . . . . . 83
Statements of Cash Flows for each of the three
years in the period ended September 30, 1996 . . . . . . . . . 84
Notes to Financial Statements . . . . . . . . . . . . . . . . . 85-92
(4) MISSISSIPPI - GAMING, L.P. FINANCIAL STATEMENT SCHEDULES:
52
<PAGE>
II Valuation and Qualifying Accounts . . . . . . . . . . . . . 93
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(5) LOUISIANA - I GAMING, L.P. FINANCIAL STATEMENTS:
Report of Ernst & Young LLP, Independent Auditors . . . . . . . 94
Balance Sheets, September 30, 1995 and 1996 . . . . . . . . . . 95
Statements of Operations of each of the three
years in the period ended September 30, 1996 . . . . . . . . . 96
Statements of Partners' Capital three
years in the period ended September 30, 1996 . . . . . . . . . 97
Statements of Cash Flows for each of the three
years in the period ended September 30, 1996 . . . . . . . . . 98
Notes to Financial Statements . . . . . . . . . . . . . . . . . 99-104
(6) LOUISIANA - I GAMING, L.P. FINANCIAL STATEMENTS
II Valuation and Qualifying Accounts . . . . . . . . . . . . . 105
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(7) EXHIBITS
Not Applicable
(8) BLUE DIAMOND HOTEL & CASINO, INC. FINANCIAL STATEMENTS:
Report of Ernst & Young LLP, Independent Auditors . . . . . . . 106
Balance Sheets, September 30, 1995 and 1996 . . . . . . . . . . 107
Statements of Operations of each of the three
years in the period ended September 30, 1996 . . . . . . . . . 108
Statements of Stockholders Deficit three
years in the period ended September 30, 1996 . . . . . . . . . 109
Statements of Cash Flows for each of the three
years in the period ended September 30, 1996 . . . . . . . . . 110
53
<PAGE>
Notes to Financial Statements . . . . . . . . . . . . . . . . . 111-119
(9) BLUE DIAMOND HOTEL & CASINO, INC. FINANCIAL STATEMENT SCHEDULES:
II Valuation and Qualifying Accounts . . . . . . . . . . . . . 120
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
(b) Reports on Form 8-k
Not Applicable
(c) Exhibits
See item 14(a)(9) above.
(d) Financial Statement Schedules
See Items 14(a)(2), 14(a)(4), 14(a)(6) and 14(a)(8) above.
54
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Boomtown, Inc.
We have audited the accompanying consolidated balance sheets of Boomtown,
Inc. (the "Company") as of September 30, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended September 30, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based upon 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 consolidated 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 consolidated financial position of Boomtown, Inc.
at September 30, 1995 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Reno, Nevada
November 15, 1996, except
for Note 13 as to which the
date is November 18, 1996
55
<PAGE>
BOOMTOWN, INC.
CONSOLIDATED BALANCE SHEETS
September 30,
----------------------------
1995 1996
------------ ------------
ASSETS:
Current assets:
Cash and cash equivalents (including
restricted cash of approximately
$2,400,000 at September 30, 1995) $ 20,775,459 $ 23,100,628
Accounts receivable, net 924,135 941,657
Income taxes receivable 1,507,900 1,814,767
Inventories 2,715,305 1,725,086
Prepaid expenses 7,025,438 7,333,578
Other current assets 765,465 1,761,874
------------ ------------
Total current assets 33,713,702 36,677,590
Property, plant and equipment at cost, net 150,955,320 145,330,557
Goodwill, net 6,643,522 6,267,473
Investment in lease, net 13,077,084 --
Notes receivable from a related party 27,293,713 8,682,672
Other assets 7,514,789 9,029,606
------------ ------------
$239,198,130 $205,987,898
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 3,746,862 $ 3,812,207
Accrued compensation 2,929,761 3,610,527
Other accrued liabilities 9,740,297 8,823,737
Accrued interest payable 4,959,375 5,004,669
Income taxes payable 506,408 750,891
Long-term debt due within one year 2,948,479 5,031,803
------------ ------------
Total current liabilities 24,831,182 27,033,834
Long-term debt due after one year (net of
unamortized discount of approximately
$2,657,000 and $2,448,000 at September 30,
1995 and 1996, respectively) 106,547,154 103,729,330
Deferred income taxes 1,621,088 3,183,322
Deferred gain on sale leaseback 212,720 112,270
Minority interest 740,849 1,541,904
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock, $.01 par value, 20,000,000 shares
authorized, 9,233,074 and 9,266,193 issued and
outstanding at September 30, 1995 and 1996,
respectively, net of a note receivable
from stockholder of $221,000 103,452,520 103,652,658
Retained earnings (deficit) 1,792,617 ( 33,265,420)
------------ ------------
Total stockholders' equity 105,245,137 70,387,238
------------ ------------
$239,198,130 $205,987,898
------------ ------------
------------ ------------
See accompanying notes.
56
<PAGE>
BOOMTOWN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------------------
Revenues: 1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Gaming/hotel operations:
Gaming $ 76,325,756 $189,306,449 $188,367,987
Family entertainment center 3,655,695 6,387,171 6,300,118
Food and beverage 7,972,610 15,612,782 16,313,765
Hotel and recreational vehicle park 3,082,100 6,584,341 7,288,889
Showroom 329,229 439,999 822,587
Truck stop, service station and mini-mart 10,858,277 10,810,632 14,400,707
Other income 1,151,643 2,625,994 2,547,943
------------ ------------ ------------
103,375,310 231,767,368 236,041,996
Costs and expenses:
Gaming/hotel operations:
Gaming 30,817,518 73,233,127 73,479,300
Gaming equipment leases 412,083 5,810,987 6,716,480
Family entertainment center 1,762,244 3,273,941 3,331,914
Food and beverage 8,179,235 17,638,522 19,212,609
Hotel and recreational vehicle park 1,706,028 3,167,647 3,002,330
Showroom 2,129,917 307,909 683,216
Truckstop, service station and mini-mart 9,661,188 9,722,133 13,038,299
Marketing and promotion 7,523,815 19,592,628 22,438,835
General and administrative 25,760,026 75,297,110 70,618,583
Pre-opening expenses 15,786,832 -- --
Discontinued projects/future development -- 6,054,069 1,603,007
Loss on sale of Blue Diamond -- -- 36,562,612
Depreciation and amortization 5,891,490 10,422,319 10,618,363
------------ ------------ ------------
109,630,376 224,520,392 261,305,548
------------ ------------ ------------
Income (loss) from operations (6,255,066) 7,246,976 (25,263,552)
Interest expense, net of capitalized interest (5,631,546) (13,433,618) (13,838,132)
Interest and other income 2,624,224 3,080,941 4,192,989
Loss on marketable securities (1,691,125) -- --
------------ ------------ ------------
Loss before minority interests in
operations of consolidated partnerships,
extraordinary item and income taxes (10,953,513) (3,105,701) (34,908,695)
Minority interests in operations of
consolidated partnerships 351,250 1,104,865 644,846
------------ ------------ ------------
Loss before extraordinary item
and income taxes (10,602,263) (2,000,836) (34,263,849)
(Benefit) provision for income taxes (2,779,289) 876,111 794,188
------------ ------------ ------------
Loss before extraordinary loss (7,822,974) (2,876,947) (35,058,037)
Extraordinary loss-early extinguishment
of debt, net of tax effect of approximately
$141,000 ( 229,152) -- --
------------ ------------ ------------
Net Loss ($8,052,126) ($2,876,947) ($35,058,037)
------------ ------------ ------------
------------ ------------ ------------
Loss before extraordinary loss
per share of common stock ($ 0.90) ($ 0.31) ($ 3.79)
Extraordinary loss per share ($ 0.03) $ -- ($ --)
------------ ------------ ------------
Net loss per share
of common stock ($ 0.93) ($ 0.31) ($ 3.79)
------------ ------------ ------------
------------ ------------ ------------
Shares used in calculating net loss
per share of common stock 8,689,898 9,227,824 9,247,740
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
BOOMTOWN, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
57
<PAGE>
Years ended September 30, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Common Stock Retained Total
---------------------------- Earnings Stockholders'
Shares Amount (Deficit) Equity
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances, September 30, 1993 8,505,880 $ 88,313,045 $ 12,721,690 $101,034,735
Issuance of common stock
warrants -- 2,995,290 -- 2,995,290
Employer 401(k)
cotributions 4,238 75,339 -- 75,339
Shares issued in exchange for
additional interest in Blue
Diamond Hotel & Casino, Inc. 714,286 11,964,290 -- 11,964,290
Net Loss -- -- (8,052,126) (8,052,126)
---------- ------------ ------------ ------------
Balances, September 30, 1994 9,224,404 103,347,964 4,669,564 108,017,528
Employer 401(k) contributions 8,670 104,556 -- 104,556
Net loss -- -- (2,876,947) (2,876,947)
---------- ------------ ------------ ------------
Balances, September 30, 1995 9,233,074 103,452,520 1,792,617 105,245,137
Employer 401(k) contributions 33,119 200,138 -- 200,138
Net loss -- -- (35,058,037) (35,058,037)
---------- ------------ ------------ ------------
Balances, September 30, 1996 $9,266,193 $103,652,658 ($33,265,420) $ 70,387,238
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
</TABLE>
See accompanying notes.
BOOMTOWN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
58
<PAGE>
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($ 8,052,126) ($ 2,876,947) ($35,058,037)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 5,891,490 10,422,319 10,618,361
Deferred income taxes (4,145,124) 1,614,405 2,597,503
Gain (loss) on sale of property, plant
and equipment (57,396) 163,695 190,763
Lease expense recorded in exchange for
limited partnership interest 389,040 2,000,000 1,500,000
Loss on sale of Blue Diamond -- -- 36,562,612
Minority interests in operations of
consolidated partnerships (351,250) (1,104,865) (644,846)
Changes in operating assets and liabilities:
Accounts receivable, net (1,011,183) 396,967 (255,759)
Income taxes receivable -- (1,507,900) (439,978)
Inventories (2,452,850) 301,086 153,659
Prepaid expenses (4,970,650) 92,652 (208,140)
Other current assets 189,993 (243,703) (996,409)
Other assets (3,831,763) 555,852 (326,325)
Accounts payable 7,950,267 (5,405,515) 148,831
Accrued compensation 631,320 1,319,605 680,766
Other accrued liabilities 4,466,665 4,189,024 (1,048,406)
Accrued interest payable 4,959,000 -- 45,295
Income taxes payable 212,803 23,605 330,179
Pre-payment of property lease -- -- (2,480,387)
------------- ------------- -------------
Net cash (used in) provided by operating activities (181,764) 9,940,280 11,369,682
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 17,464,443 7,952,685 214,925
Payments for purchases of property, plant and
equipment (114,728,915) (15,145,562) (5,678,962)
Payments of future development costs (1,775,293) 1,870,749 --
Loans to a related party (7,793,713) -- --
Change in construction related payables 679,609 (1,471,738) (83,486)
------------- ------------- -------------
Net cash used in investing activities (106,153,869) (6,793,866) (5,547,523)
Cash flows from financing activities:
Proceeds from line-of-credit borrowings -- 5,000,000 --
Repayments of line-of-credit borrowings -- (5,000,000) --
Net proceeds from additions to long-term debt 100,239,271 8,794,062 377,185
Principal payments on long-term debt (106,526) (2,362,515) (3,874,175)
Distributions to limited partner -- (193,056) --
------------- ------------- -------------
Net cash provided by financing activities 100,132,745 6,238,491 (3,496,990)
------------- ------------- -------------
Net (decrease) increase in cash and cash equivalents (6,202,888) 9,384,905 2,325,169
Cash and cash equivalents:
Beginning of year 17,593,442 11,390,554 20,775,459
------------- ------------- -------------
End of year $ 11,390,554 $20,775,459 $23,100,628
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
59
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION - The consolidated financial
statements include the accounts of Boomtown, Inc. (the "Company" or
"Boomtown"), a Delaware corporation and all of its controlled subsidiaries
and partnerships. The significant operating subsidiaries include gaming
operations in Reno, Las Vegas ("Blue Diamond"), Biloxi ("Mississippi
Partnership") and New Orleans ("Louisiana Partnership"). All significant
intercompany accounts and transactions have been eliminated.
BOOMTOWN'S PROPOSED MERGER WITH HOLLYWOOD PARK, INC. ("HOLLYWOOD PARK")
- -On April 23, 1996, the Boomtown entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Hollywood Park relating to the strategic
combination of Hollywood Park and Boomtown. Pursuant to the Merger Agreement
and subject to the terms and conditions set forth therein, the Company would
become a wholly-owned subsidiary of Hollywood Park (the "Merger"). Pursuant
to the Merger Agreement, at the effective date of the Merger (the "Effective
Date"), each issued and outstanding share of Boomtown Common Stock will be
converted into the right to receive 0.625 (the "Exchange Ratio") of a share
of Hollywood Park Common Stock. The Merger is intended to be structured as a
tax-free reorganization, for income tax purposes and will be accounted for as
a purchase for financial reporting purposes.
USE OF ESTIMATES - The accompanying consolidated financial statements
have been prepared in conformity with generally accepted accounting
principles which require the Company's management to make estimates and
assumptions that affect the amounts reported therein. Actual results could
vary from such estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of cash on
hand and in banks, interest bearing deposits and highly liquid investments
with original maturities of three months or less. Cash equivalents are
carried at cost which approximates market. The Company paid interest of
approximately $107,000 (net of $5,895,000 capitalized), $13,111,000 (net of
$701,000 capitalized), and $13,793,000 (none capitalized) and income taxes of
approximately $1,089,000, $746,000, and $688,500 during the years ended
September 30, 1994, 1995 and 1996, respectively. Long-term debt incurred for
the purchase of property and equipment during the years ended September 30,
1994, 1995 and 1996 amounted to approximately $6,296,000, $1,677,000 and
$2,763,000, respectively.
Included in cash and cash equivalents at September 30, 1995 was
approximately $2,400,000 held for future construction by the Mississippi
Partnership (Note 7).
CONCENTRATIONS OF CREDIT RISK - The Company places its cash in short-term
investments which potentially subject the Company to concentrations of credit
risk. Such investments are made with financial institutions having a high
credit quality and are collateralized by securities issued by the United
States Government and other investment grade securities.
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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<PAGE>
INVENTORIES - Inventories consist primarily of fuel and petroleum
products, food and beverage stock and hotel linens, uniforms and supplies and
are stated at the lower of cost (determined using the first-in, first-out
method) or market.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization of
property, plant and equipment is provided on the straight-line method over
the lessor of the estimated useful lives of the respective assets or the
lease term. The estimated useful lives for each class of fixed assets are as
follows:
Buildings and improvements 20-35 years
Furniture and fixtures 7-10 years
Gaming equipment 5-10 years
Outdoor signs 10-20 years
Other assets 3-15 years
In connection with the Swap Agreement (see Note 4) Blue Diamond's
property and equipment were written down to net realizable value as of
September 30, 1996 and depreciation and amortization ceased.
INTANGIBLES - Goodwill relates to the acquisition of the Reno property in
1988 and the investment in lease (at September 30, 1995) which resulted when
the Company purchased the remaining 50% ownership interest in Blue Diamond
(Note 4). Also, as more fully discussed in Note 4, Blue Diamond had an option
to purchase the Resort during a period of six months beginning in May 1996,
and ending in November 1996. However, through execution of the "Swap
Agreement" as discussed in Note 4, Roski and Boomtown entered into an
agreement to terminate the "Property Lease", whereby Boomtown would
immediately cease operations of the Blue Diamond Resort simultaneous with the
closing of Boomtown's merger with Hollywood Park, Inc., as previously
discussed. As a result of the Swap Agreement, the investment in lease was
expensed in fiscal 1996. Goodwill is being amortized on the straight-line
method over twenty-five years. Accumulated amortization at September 30,
1995 and 1996 was approximately $3,314,000 and $3,145,000, respectively.
The carrying value of intangibles is periodically evaluated by management
and if facts and circumstances (including undiscounted cash flows) indicate
an impairment, the amount is reduced and an impairment loss is recorded.
GAMING REVENUES AND PROMOTIONAL ALLOWANCES - In accordance with industry
practice, the Company recognizes as gaming revenues the net win from gaming
activities, which is the difference between gaming wins and losses. Revenues
in the accompanying consolidated statements of operations exclude the retail
value of rooms, food and beverage and other promotional allowances provided
to customers without charge. The estimated costs of providing such
promotional allowances have been classified as gaming operating expenses
through interdepartmental allocations as follows:
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
61
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Years ended September 30,
----------------------------------
1994 1995 1996
---------- ----------- -----------
Food and beverage $5,433,000 $11,638,000 $12,746,000
Hotel 172,000 400,000 299,000
Other 43,000 167,000 210,000
---------- ----------- -----------
Total costs allocated to
gaming operating expenses $5,648,000 $12,205,000 $13,255,000
---------- ----------- -----------
STOCK BASED COMPENSATION - The Company accounts for its stock option
plans in accordance with the provisions of the Accounting Principles Board's
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees". In
1995, the Financial Accounting Standards Board released Statement of
Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock Based
Compensation". SFAS 123 provides an alternative to APB 25 and is effective
for fiscal years beginning after December 15, 1995. The Company expects to
continue to account for its stock plans in accordance with APB 25.
Accordingly, SFAS 123 is not expected to have a material impact on the
Company's consolidated financial position or results of operations.
ADVERTISING COSTS - Advertising costs are expensed as incurred.
Advertising expenses for the years ended September 30, 1994, 1995 and 1996
totaled approximately $2.6 million, $6.7 million and $6.3 million,
respectively.
FUTURE DEVELOPMENT COSTS - The Company capitalizes costs associated with
new gaming projects until 1) the project is no longer considered viable and
the costs are expensed or 2) the likelihood of the project is relatively
certain and the costs are reclassified to pre-opening and expensed when
operations commence. During the year ended September 30, 1995, the Company
expensed approximately $6.1 million of future development costs. During
fiscal 1996, future development costs were approximately $1.6 million and
included costs associated with its pending merger with Hollywood Park, Inc.
and its proposed gaming project in the state of Indiana. These amounts are
classified as discontinued projects and future development costs in the
accompanying statements of operations.
PRE-OPENING EXPENSES - Pre-opening expenses were associated with the
acquisition, development and opening of the Company's new casino resorts.
These amounts were expensed in fiscal 1994, when the casinos commenced
operations and include items that were capitalized as incurred prior to
opening and items that are directly related to the opening of the property
and are non-recurring in nature.
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES - The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes", which requires the
62
<PAGE>
Company to record deferred income taxes for temporary differences that are
reported in different years for financial reporting and for income tax
purposes and classifies deferred tax liabilities and assets into current and
non-current amounts based on the classification of the related assets and
liabilities.
MINORITY INTEREST - Minority interest represents the minority limited
partners' proportionate share of the equity and operations of the
consolidated partnerships.
NET LOSS PER SHARE - Net loss per share is computed using the weighted
average number of shares of common stock outstanding and common equivalent
shares from stock options and warrants are excluded from the computation
because their effect is anti-dilutive.
Fully diluted loss per share amounts are the same as primary per share
amounts for the periods presented.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1994
and 1995 consolidated financial statements to conform to the 1996
presentation.
2. ISSUANCE OF COMMON STOCK AND WARRANTS
During October 1992, the Company sold 2,901,786 shares of common stock in
an initial public offering which generated net proceeds of approximately $26
million after deducting underwriting discounts and expenses. In addition, a
stockholder of the Company (the "Selling Stockholder") sold 835,714 shares of
common stock in the public offering and received proceeds to repay a
subordinated term note and $2 million to redeem all of its outstanding
preferred stock held by the Selling Stockholder.
In connection with the Company's initial public offering, the Company
sold to the underwriters for an aggregate of $25,000, warrants to purchase
162,500 shares of the Company's common stock at $12 per share. The warrants
expire October 1997 and 50% became exercisable in October 1993 and the
remaining 50% became exercisable in October 1994. At any time after October
1994 and prior to the expiration of the warrants, the holders have a one time
right to demand a registration of the underlying shares, with expenses of
such registration to be paid by the Company.
During June 1993, the Company sold 2,223,380 shares of common stock in a
public offering which generated net proceeds of approximately $57.2 million
after deducting underwriting discounts and expenses. The proceeds were used
to fund a portion of the construction costs of the new gaming facilities and
for general corporate purposes. In addition, a stockholder of the Company
sold 1,686,620 shares of common stock in the public offering and received
proceeds, net of underwriting discounts, of $43.9 million.
During November 1993, in connection with the placement of the First
Mortgage Notes (Note 5), the Company issued 472,500 warrants to purchase
Common Stock at $21.19 per share. The warrants became exercisable on
December 10, 1993, and expire on November 1, 1998.
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
September 30,
--------------------------------
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<PAGE>
1995 1996
------------ ------------
Buildings and improvements $102,979,000 $105,097,000
Equipment 24,834,000 29,834,000
Boat 18,925,000 18,925,000
Land and land improvements 17,397,000 17,690,000
Furniture and fixtures 13,166,000 13,428,000
Construction-in-progress 1,631,000 1,370,000
------------ ------------
178,932,000 186,344,000
Less accumulated depreciation
and amortization 27,977,000 35,949,000
Write-down of assets in connection
with the Swap Agreement (see Note 4) -- 5,065,000
------------ ------------
$150,955,000 $145,330,000
------------ ------------
------------ ------------
The construction-in-progress amounts at September 30, 1995 and 1996,
relate primarily to the costs associated with the on-going construction of
the land-based facility in Harvey, Louisiana.
Amortization of leased assets is included in depreciation and
amortization expense.
4. RELATED PARTY TRANSACTIONS
STOCKHOLDER NOTE - the note receivable from a stockholder was issued in
connection with the stockholder's purchase of the Company's common stock and
therefore has been presented as a reduction of common stock in the
accompanying consolidated balance sheets. This note, as amended, bears
interest at 6 % with interest and principal payable in four annual
installments commencing December 31, 1996.
IVAC NOTE - prior to the commencement of operations at Boomtown Las
Vegas, the Company loaned IVAC, a California general partnership controlled
by Edward P. Roski ("Roski") and a member of the Company's Board of
Directors (the "Stockholder"), approximately $27.3 million (the "IVAC Notes")
for purposes of constructing the Blue Diamond Resort (the "Resort"). One of
the notes has a principal balance of $7.5 million and the other note, a
variable principal note, has a principal balance of $19.8 million at
September 30, 1995 and 1996, and both notes bear interest at 10%. These
notes were written down to their net realizable value under the Swap
Agreement of approximately $8.5 million at September 30, 1996. The IVAC
Notes are secured by separate deeds of trust on the resort, which deeds of
trust are subordinate to separate deeds of trust securing Blue Diamond and
the Company's obligations in connection with the Indenture. As defined in
the terms of the IVAC Notes, interest became payable upon commencement of
Blue Diamond's Las Vegas operations. Interest income related to the IVAC
Notes amounted to approximately $2,729,000
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. RELATED PARTY TRANSACTIONS (CONTINUED)
during the years ended September 30, 1995 and 1996, respectively and offsets
a portion of the rent discussed in the following paragraph. Interest
receivable from IVAC at September 30, 1995 and 1996 amounted to approximately
$227,000, respectively.
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<PAGE>
Prior to commencing gaming operations at the Las Vegas site on May 20,
1994, the Company owned 50% of Blue Diamond and the Stockholder owned the
remaining 50% of Blue Diamond. After commencement of operations of Blue
Diamond, the Company exercised its option to purchase all of the
stockholder's ownership interest in Blue Diamond for 714,286 shares of the
Company's common stock. Blue Diamond is leasing the resort from IVAC for an
initial term of five years with certain renewal options in certain very
limited circumstances. Blue Diamond had an option to purchase the resort
from IVAC exercisable during a period of six months beginning in May 1996, in
exchange for, at IVAC's option, either 1) shares of the Company's common
stock (which would be at a minimum of 2.5 million shares) or 2) cash (which
amount would be a minimum of $33 million). At the time of exercise, the
investment in lease would be capitalized as a part of the resort purchase
price. In addition, the Company's loans to IVAC including accrued interest
(preceding paragraph) would be capitalized as part of the resort purchase
price.
TERMINATION OF LAS VEGAS PROPERTY LEASE - On August 12, 1996, Boomtown,
Blue Diamond, Hollywood Park, Roski, IVAC and Majestic Realty entered into
the Blue Diamond Swap Agreement (the "Swap Agreement") pursuant to which the
parties agreed that, upon consummation of the Merger, and contingent upon the
closing of the Merger, Boomtown and Blue Diamond (or any transferee thereof
as set forth in the Swap Agreement) would exchange their entire interest in
the Blue Diamond Resort (the "Resort") (including the IVAC Loans), and
effectively transfer all interest in the Resort to Roski, in exchange for a
$5.0 million unsecured promissory note (the "First Note") and will have an
unsecured promissory note (the "Second Note") equal in amount to the note to
be issued by Hollywood Park to Roski for the purchase of his Boomtown Common
Stock referred to in a following paragraph (valued at approximately $3.5
million) and assumption by Roski, IVAC or an affiliate of certain liabilities
(the "Swap"). The First Note has an interest rate equal to the prime rate
plus one and one half percent (1.5%) per annum and will provide for annual
principal payments of one million dollars ($1,000,000) plus accrued interest
and maturing on the date that is five years after the Exchange Date (as such
term is defined in the Swap Agreement). The Second Note will have an interest
rate equal to the prime rate plus one-half percent (.5%) per annum and will
provide for a payment of all principal plus accrued interest on the date that
is three (3) years after the Exchange Date. Consummation of the Swap is
subject to obtaining all necessary Governmental approvals, including gaming
approval.
In exchange for its interest in the Resort, the Company will receive
notes from Roski payable to Boomtown with an estimated value totaling $8.5
million, an estimated cash payment of $2.1 million, release from lease
obligations under the Resort lease, Roski's assumption of certain liabilities
and note obligations totaling approximately $3.8 million and the ongoing
expenses of the Resort. Additionally, Roski will assume all operating leases
including any residual balances due under such leases. The Swap Agreement
requires approvals from applicable gaming authorities and Boomtown intends to
seek the consent of the holders of a majority of the outstanding principal
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. RELATED PARTY TRANSACTIONS (CONTINUED)
amount on the Notes where defined. The Swap would be effected immediately
following the Merger which is expected to be completed by the end of the
first quarter of calendar 1997.
In accordance with the terms of the Swap Agreement, with certain
exceptions set forth in the Swap Agreement, the Company will continue to
operate the property until consummation of the
65
<PAGE>
Merger. Boomtown and Blue Diamond will be responsible for the liabilities of
the Resort prior to the Swap and Roski will be responsible for the
liabilities of the Resort subsequent to the Swap. In addition, Roski will
resign from Boomtown's Board of Directors, effective as of the Exchange Date.
Subject to certain conditions set forth in the Swap Agreement, the Swap may
be effectuated through any structure agreed upon by Boomtown and Hollywood
Park. If the Swap were not consummated for any reason, Boomtown would
continue to operate the property through the expiration of the lease term in
July 1999, and the IVAC Notes would be required to be repaid to Boomtown at
such time.
Additionally, on August 12, 1996, Hollywood Park and Roski further
entered into a Stock Purchase Agreement (the "Stock Purchase Agreement")
pursuant to which Hollywood Park will, concurrently with the Swap, purchase
the stock in Boomtown held by Roski ("Roski Stock") for its market price on
the date of the Swap (estimated to be $3.5 million). The purchase price of
will be paid through the issuance of an unsecured promissory note having an
interest rate equal to the prime rate plus one percent (1%) per annum and
providing for four equal annual principal payments plus accrued interest and
maturing on the date that is four years after the Exchange Date. The Stock
Purchase Agreement may also be terminated by Hollywood Park in the event that
Boomtown and Hollywood Park, in accordance with the provisions set forth in
the Swap Agreement, elect to utilize a structure to effect the Swap which
would require Roski to retain the Roski Stock.
The Company took a non-cash, pre-tax charge of $36.6 million related to
the Swap Agreement. The charge is comprised of the write-off of the
Company's investment in lease of $12.7 million, an $18.9 million write-down
of the related party notes receivable to $8.5 million and the write-down of
the remaining net assets less the liabilities assumed by Roski of $5.0
million. In the event that the actual amount of the Second Note is less than
$3.5 million the Company will incur an additional loss on the sale of Blue
Diamond.
The Company owns an 85% interest in the Mississippi Partnership. As a
result of executing a lease for the property upon which the Mississippi
Partnership's Biloxi, Mississippi gaming facility is located (Note 7), a 15%
limited partnership interest was transferred to an individual (the "Lessor")
in lieu of base rent payments for the first two years. After three years of
operation, either the Company or the Lessor may exercise an option to convert
the Lessor's ownership interest into the Company's common stock or cash, at
the option of the Lessor, at an amount calculated per the agreement which is
based upon a multiple of earnings.
The Company owns a 92.5% interest in the Louisiana Partnership. The
remaining 7.5% limited partnership interest is owned by the Lessor identified
in the preceding paragraph (the "Partner"). Quarterly distributions to all
partners, will be required in both the Mississippi Partnership and the
Louisiana Partnership based upon the pro-rata share of cash flow generated,
as
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. RELATED PARTY TRANSACTIONS (CONTINUED)
defined. Subsequent to year-end the Company entered into an agreement to
purchase the lessor's 7.5% partnership interest (see Note 13).
5. LONG-TERM DEBT
Long-term debt consists of the following:
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<PAGE>
September 30,
----------------------------
1995 1996
----------- ------------
11.5% first mortgage notes
(net of unamortized discount
of approximately $2,657,000
and $2,448,000 as of
September 30, 1995 and
1996, respectively) $100,842,000 $101,052,000
13% note payable 4,336,000 3,227,000
Capital lease obligations 1,126,000 2,734,000
11.5% notes payable 2,431,000 1,300,000
12.25% note payable 760,000 448,000
----------- -------------
109,495,000 108,761,000
Less amounts due within one year 2,948,000 5,032,000
----------- -----------
$106,547,000 $103,729,000
----------- -----------
----------- -----------
On November 24, 1993, the Company completed the private placement of
$103.5 million of 11.5% First Mortgage Notes Due November 2003 (the "Notes").
Interest on the Notes is payable semi-annually. The Notes will be
redeemable at the option of the Company, in whole or in part, on or after
November 1, 1998, at a premium to the face amount ($103.5 million) which
decreases on each subsequent anniversary date, plus accrued interest to the
date of redemption. The Notes are secured by substantially all of the
Company's assets.
The Indenture governing the Notes places certain business, financial and
operating restrictions on the Company and its subsidiaries including, among
other things, the incurrence of additional indebtedness, issuance of
preferred equity interests and entering into operating leases; limitations on
dividends, repurchases of capital stock of the Company and redemptions of
subordinated debt; limitations on amending existing partnership and facility
construction agreements; and limitations on the use of proceeds from the
issuance of the Notes.
The 13%, 11.5% and 12.25% notes payable are secured by property, plant
and equipment with net book values of approximately $17,296,000, $2,922,000
and $718,000, at September 30, 1996. The notes mature in January 1999,
September 1997, and January 1998, respectively.
The capital lease obligations are secured by equipment with a net book
value of $3,632,000 at September 30, 1996. The capital lease obligations
mature between September 1997 and January 1998.
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT (CONTINUED)
Principal maturates of long-term debt by fiscal year as of September 30,
1996 are as follows:
1997 $5,032,000
1998 2,084,000
1999 593,000
2000 --
2001 --
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<PAGE>
Thereafter 103,500,000
------------
$111,209,000
------------
------------
6. INCOME TAXES
The (benefit) provision for income taxes consists of the following:
Years ended September 30,
-----------------------------------------
1994 1995 1996
------------ ---------- ----------
Current:
Federal $ 947,000 ($1,805,000) ($669,000)
State 195,000 768,000 870,000
------------ ---------- ----------
1,142,000 (1,037,000) 201,000
Deferred (primarily federal) (3,921,000) 1,913,000 593,000
------------ ---------- ----------
($2,779,000) $876,000 $794,000
------------ ---------- ----------
The difference between the Company's (benefit) provision for income taxes
as presented in the accompanying consolidated statements of operations and a
provision (benefit) for income taxes computed at the federal statutory rate
is comprised of the items shown in the following table as a percentage of
pre-tax earnings (loss):
Years ended September 30,
-----------------------------
1994 1995 1996
------- -------- ------
Income tax (benefit) provision
at the statutory rate (34.0%) (34.0%) (34.0%)
Goodwill amortization 1.6 8.3 .8
Meals and entertainment 1.3 17.5 .4
Loss on investments 5.4 -- --
Loss on sale of Blue Diamond -- -- 31.7
State income taxes, net of federal benefit (1.4) 41.0 1.8
Merger costs -- -- 1.3
Operating loss benefit limitation -- 8.0 --
Others, net .9 3.0 .3
------ ----- -----
(26.2%) 43.8% 2.3%
------ ----- -----
------ ----- -----
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES (CONTINUED)
The significant components of the deferred income tax assets and
liabilities included in the accompanying consolidated balance sheets are as
follows:
<TABLE>
<CAPTION>
September 30,
-------------------------------
1995 1996
----------- ----------
<S> <C> <C>
Deferred income tax assets:
Pre-opening costs, net of amortization $3,768,000 $2,607,000
Compensation accrued for stock
68
<PAGE>
appreciation rights and stock option plans 1,062,000 1,062,000
Loss on sale of Blue Diamond -- 1,722,000
Alternative minimum tax credit
carryforwards 887,000 1,071,000
Capital loss carryforwards 575,000 6,911,000
Operating loss carryforwards 160,000 160,000
Merger expenses -- 402,000
Accrued expenses 1,410,000 1,829,000
Less valuation allowance - loss
carryforwards and merger expenses (735,000) (7,473,000)
----------- ----------
7,127,000 8,291,000
Deferred income tax liabilities:
Excess of book basis over tax basis
of assets acquired 3,232,000 3,187,000
Depreciation 3,692,000 5,466,000
Prepaid expenses 1,322,000 1,101,000
State deferreds -- 249,000
----------- ----------
8,246,000 10,003,000
----------- ----------
Net deferred income tax (liability) asset ($1,119,000) $1,712,000
----------- ----------
----------- ----------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company and its subsidiaries lease facilities,
billboards and certain equipment under noncancelable operating lease
arrangements with terms in excess of one year. The aggregate future minimum
annual rental commitments as of September 30, 1996 under operating leases having
noncancelable lease terms in excess of one year are as follows:
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Related Party
(Note 4) Other
----------- -----------
1997 $ 5,429,000 $10,257,000
1998 5,429,000 3,437,000
1999 3,456,000 1,568,000
2000 -- 451,000
2001 -- 340,000
Thereafter -- 871,000
----------- -----------
$14,314,000 $16,924,000
----------- -----------
----------- -----------
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<PAGE>
TERMINATION OF LAS VEGAS PROPERTY LEASE - as more fully discussed in Note 4
the Company entered into the Swap Agreement pursuant to which Boomtown will be
released from its obligations under the Resort Lease.
BARGE LEASE - The Mississippi Partnership sold the barge in Biloxi,
Mississippi and the building upon the barge housing the casino to HFS Gaming
Corporation ("HFS"), a Delaware corporation. $2.4 million of the $11 million
sales price was held by the Company to be used for the development and
construction at the Mississippi casino site. Simultaneously with the sale, the
Mississippi Partnership leased the barge and building for 25 years and was
granted the option to purchase the leased asset for fair market value at the end
of the lease or upon the occurrence of certain events as defined in the lease
agreement. In the event of default by the Mississippi Partnership, HFS may
terminate the lease or require the Mississippi Partnership to repurchase the
assets for fair market value. HFS agreed to provide certain marketing services
for the Mississippi Partnership. The Mississippi Partnership will pay HFS
aggregate rent under the lease and payments for services under the marketing
agreement equal to approximately 20% of the annual adjusted earnings before
interest, taxes, depreciation and amortization, as defined, for the Partnership
(including the proposed hotel). As the lease payments represent contingent
rentals, they are excluded from the future minimum annual rental commitments
schedule above. HFS subsequently transferred its contractual rights to National
Gaming Corporation, Inc. ("NGC").
In November, 1995 Boomtown executed an agreement with NGC whereby the $2.4
million was returned to NGC in return for reduction of the EBITDA distributions
from 20% to 16%. Additionally, the Company secured an option to buy the barge
from NGC as well as to buy out the EBITDA participation at a cost approximating
the original investment made by HFS less the $2.4 million that was paid. The
option terminates on March 31, 1997, but is renewable for an additional two
years for $100,000 a year.
TIDELANDS LEASE - The Mississippi Partnership leases submerged tidelands at
the casino site from the State of Mississippi. Annual rent is $525,000 and the
term of the lease is ten years with a five-year option to renew. Rent in the
second five-year period of the lease will be determined in accordance with
Mississippi law. Annual rent in the five-year renewal term will be based on an
appraisal obtained by the State of Mississippi.
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LAND LEASE WITH A RELATED PARTY - The Company signed an agreement to lease
property through the Mississippi Partnership intended for the development,
construction and operation of the Mississippi gaming facility. The Mississippi
Partnership invested $2 million as a long-term deposit on the lease and
committed to annual rentals of base rent (estimated at $2 million) and
percentage rent (5% of adjusted gaming win over $25 million), plus $200,000 per
year during the first ten years of the lease. The Mississippi Partnership
exchanged a 15% interest with the lessor in lieu of base rent payments for the
first two years. Rent expense is being charged to operations for the two year
period and the lessor's limited partner capital account is being credited. The
lease term is 99 years and is cancelable upon one year's notice.
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<PAGE>
RENTAL EXPENSE - Included in the accompanying consolidated statements of
operations, rental expense was approximately, $3,879,000 (including $389,000 in
contingent rentals), $16,102,000 (including $511,000 in contingent rentals) and
$19,243,000 (including $729,000 in contingent rentals) during the years ended
September 30, 1994, 1995 and 1996, respectively. During the years ended
September 30, 1994, 1995, and 1996, $2,418,000, $8,140,000 and $8,363,000,
respectively, of rental expense was with related parties.
SELF-INSURANCE - The Company maintains a plan of partial self-insurance for
medical and dental coverage for substantially all full-time employees and their
dependents. Claims aggregating between $50,000 and $75,000 or more per
individual during the policy year are fully covered by insurance. Management
has established reserves considered adequate to cover estimated future payments
on claims incurred through September 30, 1996.
GAMING LICENSE REQUIREMENTS - In October 1994, the Mississippi Gaming
Commission adopted a regulation that requires, as a condition of licensure or
license renewal, for a gaming establishment's plan to include various
expenditures including parking facilities and infrastructure facilities
amounting to at least 25% of the casino cost. Although the Company believes
they have satisfied this requirement, there can be no assurance the Mississippi
Gaming Commission will not require further development on the casino site
including hotel rooms and additional parking facilities. Additionally, there
can be no assurance that the Partnership will be successful in completing such a
project or that the Partnership would be able to obtain a waiver if the
Partnership decides not to build.
8. FUNFLIGHT PROGRAM
The Company operates a gaming junket program under the name Boomtown
FunFlights. This program contracts with agents in various cities to book
passengers on a chartered airplane for either overnight or "turn-around" flights
to Boomtown Reno. The agents are paid a commission for each passenger booked.
The passenger pays a nominal "boarding fee" which is recorded as revenue upon
the passenger's arrival at the casino. The Company pays all costs associated
with this program.
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTION PLANS
STOCK OPTION PLAN - On March 8, 1991, the Company's Board of Directors
adopted a non-qualified stock option plan for officers and key employees (the
"Option Plan"). The Option Plan authorized the grant of up to 198,744 shares of
the Company's common stock. All available shares under the Option Plan were
granted retroactive to October 1, 1989 to one individual at $.66 per share
subject to certain contingent exercisability provisions. This option was
amended in 1992, to provide full vesting and exercisability as of June 30, 1992,
and it expires in March 2001.
The Option Plan was amended and restated on September 10, 1992 to provide
for the granting to employees of the Company of incentive stock options and for
the granting of non-statutory stock options and stock purchase rights to
employees and consultants of the Company. The
71
<PAGE>
options granted will be for various terms not exceeding ten years and will
vest over periods determined at the date of grant. The exercise price for
incentive stock options granted will be not less than the fair market value
of the common stock at the date of grant. At September 30, 1996, the total
number of shares reserved for issuance under the Option Plan is 1,892,066 of
which options to purchase 1,726,742 shares have been granted at exercise
prices ranging from $.66 to $6.25 per share. At September 30, 1996, options
to purchase 586,992 shares of the Company's common stock at exercise prices
ranging from $.66 to $6.25 per share were exercisable.
During the year ended September 30, 1996 the Company's Board of Directors
repriced certain non-executive options of the Option Plan totaling 165,000
shares to $9.00 from prices ranging from $11.50 to $20.75. Subsequently a
repricing occurred concurrent with the Merger Agreement (April 23, 1996) whereby
virtually all options outstanding, under the Option Plan as of such date were
repriced to $6.25.
1992 DIRECTORS' OPTION PLAN - On September 10, 1992, the Company's Board of
Directors adopted a directors' option plan (the "Directors' Plan") whereby each
non-employee director is granted an option to purchase 3,900 shares of the
Company's' common stock upon joining the Board and an option to purchase 1,300
shares of common stock on each anniversary date thereafter during their tenure
as a director. The options granted have a ten-year term and vest ratably over a
three-year period. The exercise price is the fair market value of the common
stock on the date of grant. Options granted under the Directors' Plan may be
exercised only (1) while the optionee director is serving as a director on the
Company's Board, (2) within twelve months after termination by death or
disability, or (3) within three months after termination as a director for any
other reason. A total of 45,000 share have been granted under this plan at
original exercise prices ranging from $4.88 to $26.50 per share. At September
30, 1996, options to purchase 19,064 shares of the Company's common stock at
prices ranging from $12.00 to $26.50 were exercisable under this plan.
1993 EMPLOYEE STOCK BONUS PLAN - On February 25, 1993, the Company's Board
of Directors adopted a Stock Bonus Plan (the "Bonus Plan") which covers certain
employees of the Company. The Company has authorized and reserved 5,000 shares
of common stock for granting under the Bonus Plan. The shares granted under the
plan vest ratably over a four-year period. At September 30, 1996, the Company
has not granted any shares under the Bonus Plan.
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. 401(k) PLAN
On January 1, 1993, the Company's Board of Directors approved a voluntary
savings and investment plan (the "401(k) Plan"). The 401(k) Plan is available
to all eligible employees of the Company and subsidiaries. Under the 401(k)
Plan the Company will match 50% of employees' contributions up to a maximum of
5% of the employees' wages. The Company's 401(k) Plan expense was
approximately, $233,000, $384,000 and $623,000 during the years ended September
1994, 1995, and 1996, respectively.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
72
<PAGE>
CASH AND CASH EQUIVALENTS: The carrying amount reported on the accompanying
consolidate balance sheets for cash and cash equivalents approximates their fair
value.
NOTES RECEIVABLE: The fair value of the Company's notes receivable at September
30, 1995 was estimated by discounting the future cash flows using interest rates
determined by management to reflect the credit risk and remaining maturities of
the related notes receivable. The September 30, 1996 value was based on the
negotiated price with Roski as discussed in Note 4.
11.5% FIRST MORTGAGE NOTES: The fair value of the Company's other long-term
notes are estimated based upon market quotes of notes with similar
characteristics and remaining maturities.
OTHER LONG-TERM DEBT: The fair values of the Company's notes payable and
capital lease obligations are estimated using discounted cash flow analyses,
based on the Company's current incremental borrowing rates for similar types of
borrowing instruments.
The carrying amounts and fair values of the Company's financial instruments
at September 30, 1995 and 1996 are as follows:
September 30, 1995
---------------------------------
Carrying
Amount Fair Value
------------ -------------
Cash and cash equivalents $ 20,775,000 $20,775,000
Notes receivable $ 27,294,000 $26,652,000
11.5% first mortgage notes $100,842,000 $95,738,000
Other long-term debt $ 8,653,000 $ 8,390,000
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
September 30, 1996
---------------------------------
Carrying
Amount Fair Value
------------ -------------
Cash and cash equivalents $ 23,101,000 $ 23,101,000
Notes receivable $ 8,683,000 $ 7,947,000
11.5% first mortgage notes $101,052,000 $106,605,000
Other long-term debt $ 7,709,000 $ 7,606,000
73
<PAGE>
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. SUMMARIZED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
In connection with the Notes issued in November 1993 (Note 5), the
subsidiaries of the Company (guarantor entities) have guaranteed the Notes.
Summarized consolidating financial information follows:
SUMMARIZED CONSOLIDATING FINANCIAL INFORMATION
As of and for the year ended September 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Guarantor Entities
----------------------------------------
Boomtown, Blue Diamond Boomtown Non-wholly Elimination's & Boomtown
Inc. Hotel & Hotel & Owned Reclassifications Inc.
(parent co.) Casino, Inc. Casino, Inc. Subsidiaries Dr(Cr) (consolidated)
-----------------------------------------------------------------------------------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 24,346 $ 4,756 $ 6,779 $ 11,170 ($ 10,373) $ 36,678
Advances to affiliates 112,391 -- -- -- (112,391) --
Non-current assets 44,360 3,080 59,576 96,087 (33,793) 169,310
-------- ------- ------- -------- -------- --------
$181,097 $ 7,836 $66,355 $107,257 ($156,557) $205,988
-------- ------- ------- -------- -------- --------
-------- ------- ------- -------- -------- --------
Current liabilities $ 6,652 $11,054 $ 4,523 $ 15,178 ($ 10,373) $ 27,034
Non-current liabilities 106,159 -- 209 2,460 (261) 108,567
Advances from parent -- 33,785 11,479 67,127 (112,391) --
Equity 68,286 (37,003) 50,144 22,492 (33,532) 70,387
-------- ------- ------- -------- -------- --------
$181,097 $ 7,836 $66,355 $107,257 ($156,557) $205,988
-------- ------- ------- -------- -------- --------
-------- ------- ------- -------- -------- --------
Revenues $ -- $44,721 $67,618 $123,703 $ -- $236,042
Income (loss) from operations ($ 21,455) ($26,007) $ 3,602 $ 18,596 $ -- ($ 25,264)
Equity in earnings (loss)
of consolidated
subsidiaries and
partnerships ($ 12,559) $ -- $ -- $ -- $ 12,559 $ --
Net loss ($ 22,499) ($24,194) $ 1,496 $ 9,494 $ 645 ($ 35,058)
-------- ------- ------- -------- -------- --------
-------- ------- ------- -------- -------- --------
Net cash provided by (used in)
operating activities $ 1,503 ($ 3,606) ($ 308) $ 13,781 $ -- $ 11,370
Net cash used in
investing activities (544) (1,928) (3,075) -- (5,547)
Net cash provided by (used in)
financing activities (1,857) 4,083 4,564 (10,287) -- (3,497)
-------- ------- ------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents (354) (67) 2,328 419 -- 2,326
Cash and cash equivalents:
Beginning of year 10,811 2,630 1,334 6,000 -- 20,775
-------- ------- ------- -------- -------- --------
End of year $ 10,457 $ 2,563 $ 3,662 $ 6,419 $ -- $ 23,101
-------- ------- ------- -------- -------- --------
-------- ------- ------- -------- -------- --------
</TABLE>
Notes to Summarized Consolidated Financial Information (unaudited)
(1) Blue Diamond Hotel & Casino, Inc. is a wholly-owned subsidiary that is
consolidate in the accompanying consolidated financial statements.
(2) Boomtown Hotel and Casino, Inc. is a wholly-owned subsidiary that is
consolidated in the accompanying consolidated financial
statements. These amounts do not include the operations of the
Company's wholly-owned subsidiaries which are general partners of
the Company's non-wholly owned subsidiaries. The operations of
such wholly-owned subsidiaries are insignificant and have been
included in the column "Non-wholly Owned Subsidiaries".
(3) "Non-wholly Owned Subsidiaries" include Boomtown, Inc's. wholly-owned
subsidiaries in Mississippi and Louisiana and 100% of the assets,
liabilities and equity of the limited partnerships formed to
operate the gaming facilities in those states.
BOOMTOWN, INC.
74
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. SUMMARIZED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
(4) Eliminations consist of Boomtown, Inc.'s (a) investment in the guarantor
entities, (b) advances to the guarantor and non-guarantor entities and
subsidiaries and (c) equity in earnings (loss) of consolidated subsidiaries
and partnerships. The advances are subordinated in right of payment to the
guarantees of the Notes.
13. SUBSEQUENT EVENT
On November 18, 1996 the Company entered into an agreement with Eric
Skrmetta, the lessor, in which the Company agreed to pay $5,673,000 in return
for Skrmetta's 7.5% interest in the Louisiana Partnership in addition to
releasing the Company from any and all claims, liabilities and causes of action
of any kind arising from or related to the Partnership agreement. Terms of the
agreement, required Boomtown to make a deposit of $500,000 by December 5, 1996
and the remaining $5,173,000 to be paid not later than August 10, 1997.
Additionally, the $5,173,000 shall be reduced by a discount for the time that
the amount or any portion thereof is paid in full prior to August 10, 1997.
75
<PAGE>
BOOMTOWN, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions Deductions
Balance at Charged to Write-offs,
beginning of Costs and net of Balance at
Description Period Expenses Collections End of Period
- ----------------------------------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Year ended September 30, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts: $ 29 $108 ($ 93) $ 44
Year ended September 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts: $ 44 $210 ($139) $115
Year ended September 30, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts: $115 $283 ($223) $175
</TABLE>
76
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Executive Committee
Mississippi-I Gaming, L.P.,
a Mississippi Limited Partnership
We have audited the accompanying balance sheets of Mississippi-I Gaming, L.P.
(the Partnership), a Mississippi limited partnership, as of September 30, 1995
and 1996, and the related statements of operations, and statements of partners'
capital (deficit) and cash flows for each of the three years in the period ended
September 30, 1996. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and schedule 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 the Partnership at September
30, 1995 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
New Orleans, Louisiana
October 31, 1996
77
<PAGE>
MISSISSIPPI-I GAMING, L.P.
BALANCE SHEETS
(in thousands)
September 30,
-------------------------
1995 1996
---------- ----------
ASSETS:
Current assets:
Cash and cash equivalents $ 2,928 $ 2,907
Accounts receivable, net 55 148
Inventories 511 363
Prepaid expenses and other current assets 2,171 2,584
------- -------
Total current assets 5,665 6,002
Property and equipment, at cost, net 33,837 35,671
Other assets 2,317 4,479
------- -------
Total assets $41,819 $46,152
------- -------
------- -------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):
Current liabilities:
Accounts payable $ 550 $ 481
Accrued compensation 499 765
Other accrued liabilities 2,796 2,918
Note payable - Boomtown, Inc. 37,672 41,432
Accrued interest payable - Boomtown, Inc. 2,399 2,651
Long-term debt and capital lease
obligations due within one year (Note 5) 284 1,570
------- -------
Total current liabilities 44,200 49,817
Long-term debt and capital lease
obligations due after one year (Note 5) 320 60
Commitments and contingencies (Note 6)
Partners' capital (deficit):
General partner -- --
Limited partners (2,701) (3,725)
------- -------
Total partners' capital (deficit) (2,701) (3,725)
------- -------
Total liabilities and partners'
capital (deficit) $41,819 $46,152
------- -------
------- -------
See accompanying notes.
78
<PAGE>
MISSISSIPPI-I GAMING, L.P.
STATEMENTS OF OPERATIONS
(in thousands)
Years ended September 30,
----------------------------------
1994 1995 1996
---------- ---------- ----------
Revenues:
Gaming (including funflight program) $ 8,073 $41,675 $45,471
Family entertainment center 573 2,219 2,232
Food and beverage 541 2,396 2,953
General Store -- -- 130
Other income 14 237 386
------- ------- -------
9,201 46,527 51,172
Costs and expenses:
Gaming (including funflight program) 3,211 17,193 15,054
Gaming equipment leases 190 2,281 2,313
Family entertainment center 261 1,046 1,141
Food and beverage 490 2,438 3,032
General Store -- -- 98
Marketing 1,259 5,479 7,345
Management fee-Boomtown, Inc. -- 756 732
General and administrative 1,577 12,681 13,544
Property rent 623 4,365 4,011
Pre-opening expenses 5,476 -- --
Depreciation and amortization 234 1,338 1,683
------- ------- -------
13,321 47,577 48,953
------- ------- -------
Income (loss) from operations (4,120) (1,050) 2,219
Interest expense, net of capitalized interest (765) (4,365) (4,904)
Interest income 25 43 48
Gain on sale of assets -- -- 59
------- ------- -------
Net loss ($ 4,860) ($ 5,372) ($ 2,578)
------- ------- -------
------- ------- -------
Net loss allocated to partners:
General partner ($ 226) ($ 166) ($ 54)
Limited partners (4,634) (5,206) (2,524)
------- ------- -------
($ 4,860) ($ 5,372) ($ 2,578)
------- ------- -------
------- ------- -------
See accompanying notes.
79
<PAGE>
MISSISSIPPI-I GAMING, L.P.
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
Years ended September 30, 1994, 1995 and 1996
(in thousands)
Limited Partners Total
--------------------
Partners'
General Boomtown Capital
Partner Inc. Other (Deficit)
------- -------- -------- ---------
Balances, September 30, 1993 $ -- $ -- $ -- $ --
Capital contributions 250 4,750 389 5,389
Net loss ( 226) ( 4,283) ( 351) ( 4,860)
---- ------ ------ ------
Balances, September 30, 1994 24 467 38 529
Capital contributions 142 -- 2,000 2,142
Net loss ( 166) ( 2,741) ( 2,465) ( 5,372)
---- ------ ------ ------
Balances, September 30, 1995 -- ( 2,274) ( 427) ( 2,701)
Capital contributions 54 -- 1,500 1,554
Net loss ( 54) ( 863) ( 1,661) ( 2,578)
---- ------ ------ ------
Balances, September 30, 1996 $ -- ($3,137) ($ 588) ($3,725)
---- ------ ------ ------
---- ------ ------ ------
See accompanying notes.
MISSISSIPPI-I GAMING, L.P.
STATEMENTS OF CASH FLOWS
80
<PAGE>
<TABLE>
<CAPTION>
Increase (decrease) in cash and cash equivalents
(in thousands)
Years ended September 30,
------------------------------
1994 1995 1996
--------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($ 4,860) ($5,372) ($2,578)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Lease expense recorded in exchange
for limited partnership interest 389 2,000 1,500
Depreciation and amortization 234 1,338 1,683
Gain (loss) on the sale of property
and equipment ( 54) 146 35
Changes in operating assets and liabilities:
Accounts receivable, net ( 267) 212 ( 93)
Inventories ( 596) 85 ( 138)
Prepaid expenses and other
current assets ( 2,009) 288 ( 413)
Other assets ( 2,238) ( 1) ( 2,295)
Accounts payable 679 ( 211) 15
Accrued compensation 285 214 266
Other accrued liabilities 1,197 1,599 129
Accrued interest payable - Boomtown, Inc. 760 1,639 252
------- ------ ------
Net cash provided by (used in)
operating activities ( 6,480) 1,937 ( 1,637)
------- ------ ------
Cash flows from investing activities:
Payments for purchases of property
and equipment ( 45,274) ( 1,705) ( 1,277)
Reductions of other assets 3 -- --
Increase (decrease) in construction related
payables 344 ( 344) ( 82)
Proceeds from sale of property and equipment 14,083 34 --
------- ------ ------
Net cash used in investing activities ( 30,844) ( 2,015) ( 1,359)
------- ------ ------
Cash flows from financing activities:
Advances from Boomtown, Inc. ( 3,088) -- --
Note payable-Boomtown, Inc., net 36,780 1,033 3,814
Proceeds from additions to long-term debt -- 857 --
Principal payments on long-term debt -- ( 253) ( 839)
Equity investment by general partner 250 -- --
Equity investment by Boomtown, Inc. 4,750 -- --
------- ------ ------
Net cash provided by financing activities 38,692 1,637 2,975
------- ------ ------
Net increase (decrease) in cash and
cash equivalents 1,368 1,559 ( 21)
Cash and cash equivalents:
Beginning of year 1 1,369 2,928
------- ------ ------
End of year $ 1,369 $2,928 $2,907
------- ------ ------
------- ------ ------
</TABLE>
See accompanying notes.
81
<PAGE>
MISSISSIPPI-I GAMING, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
BASIS OF PRESENTATION AND NATURE OF BUSINESS - Mississippi - I Gaming,
L.P. (the "Partnership"), a Mississippi limited partnership, is a majority
owned and controlled partnership of Boomtown, Inc. ("Boomtown"). Boomtown
owns an 80% limited partnership interest and through its wholly-owned
subsidiary, Bayview Yacht Club, Inc. (a Mississippi corporation and the
general partner of the Partnership), Boomtown owns an additional 5% general
partnership interest in the Partnership. A 15% limited partnership interest
was transferred to an individual as a result of executing a lease for the
property upon which the gaming facility is located (Note 6). Under the terms
of the Partnership agreement, after three years of operation, either Boomtown
or the lessor may exercise an option to convert the lessor's ownership
interest into Boomtown common stock or cash at an amount calculated per the
agreement which is based upon a multiple of earnings. The Partnership
agreement also provides for quarterly distributions to be made to the
partners. The Partnership also leases the casino barge and building from
National Gaming Corporation for an amount equal to 16% of earnings before
depreciation, interest and taxes.
ADVERTISING - Advertising costs are expensed as incurred. Advertising
expenses for the years ended September 30, 1994, 1995 and 1996, totaled
$585,000, $1.6 million and $1.8 million, respectively.
USE OF ESTIMATES - The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles which
require the Partnership's management to make estimates and assumptions that
effect the amounts reported therein. Actual results could vary from such
estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of cash on
hand and in banks. The Partnership considers highly liquid investments with
original maturates of three months or less as cash equivalents. Purchases of
property and equipment of approximately $83,000 are included in accounts
payable in the accompanying balance sheet at September 30, 1995. Long-term
debt (capital leases) incurred for the purchase of property and equipment
during the year ended September 30, 1996 totaled approximately $1,981,000.
CONCENTRATIONS OF CREDIT RISK - The Partnership places its cash in an
interest bearing account with a financial institution. The account is
collateralized by securities issued by the United States Government and other
high-quality credit instruments.
FAIR VALUES OF FINANCIAL INSTRUMENTS - The carrying amounts reported in
the accompanying balance sheets for cash and cash equivalents approximately
their respective fair values. The carrying amounts of the Company's
borrowings under its debt agreements approximate their fair value. The fair
value was based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
INVENTORIES - Inventories consist primarily of food and beverage stock
and uniforms, and are stated at the lower of cost (determined using the
first-in, first-out method) or market.
82
<PAGE>
MISSISSIPPI-I GAMING, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
DEPRECIATION AND AMORTIZATION - Depreciation and amortization of property
and equipment is provided on the straight-line method over the useful lives
of the respective assets which range from three to thirty-five years.
Amortization of certain lease costs is provided using the straight-line
method over the term of the individual leases which range from three to ten
years. Accumulated amortization of the lease costs as of September 30, 1995
and 1996 is $49,000 and $71,000, respectively. The unamortized balance of
$173,000 and $151,000 is included in prepaid expenses on the accompanying
balance sheet at September 30, 1995 and 1996, respectively.
PRE-OPENING EXPENSES - Pre-opening expenses were associated with the
acquisition, development and opening of the dockside casino. These amounts
include items that were capitalized as incurred prior to opening and items
that are directly related to the opening of the dockside casino. They were
expensed when the Partnership commenced gaming operations on July 22, 1994.
INCOME TAXES - No provision for income taxes has been made in the
accompanying financial statements since any liability is that of the
individual partners and not of the Partnership. The tax basis exceeded the
book basis of the Partnership's assets and liabilities by approximately $3.0
million and $2.0 million at September 30, 1995 and 1996, respectively.
GAMING REVENUES AND PROMOTIONAL ALLOWANCES - In accordance with industry
practice, the Partnership recognizes as gaming revenues the net win from
gaming activities, which is the difference between gaming wins and losses.
Revenues in the accompanying statements of operations exclude the retail
value of food, beverage and other promotional allowances provided to
customers without charge. The estimated costs of providing such promotional
allowances have been classified as gaming operating expenses through
interdepartmental allocations as follows:
Years ended September 30,
------------------------------------
1994 1995 1996
-------- ---------- ----------
Food and beverage $592,000 $3,068,000 $3,791,000
Other -- 48,000 41,000
-------- ---------- ----------
Total costs allocated to gaming
operating expenses $592,000 $3,116,000 $3,832,000
-------- ---------- ----------
-------- ---------- ----------
RECLASSIFICATIONS - Certain amounts in the 1994 and 1995 financial
statements have been reclassified to conform to the 1996 presentation.
MISSISSIPPI-I GAMING, L.P.
83
<PAGE>
NOTES TO FINANCIAL STATEMENTS
2. PREPAID EXPENSES AND OTHER CURRENT ASSETS
The components of prepaid expenses and other current assets consist of
the following:
September 30,
--------------------------
1995 1996
----------- -----------
Prepaid insurance premiums $ 672,000 $ 789,000
Land lease -related party -- 500,000
Tidelands lease (Note 6) 416,000 394,000
Other prepaid leases 645,000 339,000
Prepaid taxes and licenses 182,000 184,000
Other current assets 256,000 378,000
----------- -----------
$ 2,171,000 $ 2,584,000
----------- -----------
----------- -----------
The components of other assets consist of the following:
September 30,
--------------------------
1995 1996
----------- -----------
Pre-payment of property lease $ -- $ 2,188,000
Land lease -related party 2,000,000 2,000,000
Other assets 317,000 291,000
----------- -----------
$ 2,317,000 $ 4,479,000
----------- -----------
----------- -----------
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30,
--------------------------
1995 1996
----------- -----------
Buildings and improvements $31,985,000 $32,864,000
Equipment 1,878,000 4,022,000
Furniture and fixtures 1,362,000 1,649,000
Land 96,000 226,000
Construction in progress 1,000 16,000
----------- -----------
35,322,000 38,777,000
Less accumulated depreciation
and amortization 1,485,000 3,106,000
----------- -----------
$33,837,000 $35,671,000
----------- -----------
----------- -----------
Equipment recorded under capital lease obligations totaled $1,981,000
with accumulated amortization of $123,000 at September 30, 1996.
Amortization of leased assets is included in depreciation and amortization
expense.
MISSISSIPPI-I GAMING, L.P.
NOTES TO FINANCIAL STATEMENTS
84
<PAGE>
4. NOTE PAYABLE - BOOMTOWN, INC.
Note payable - Boomtown, Inc., consists of advances to the Partnership
from Boomtown used to fund the pre-opening expenses, construction of the
land-based facility and to acquire furniture, fixtures and equipment. The
principal of the note is variable and is due on demand along with the
interest. Interest is calculated on the note at 11.5% and is based on the
average monthly outstanding balance. Payments are applied first to the
accrued interest and then to principal. In addition, management of Boomtown
has agreed to continue to fund the Partnership's negative cash flows.
Certain cash payments were made by Boomtown on behalf of the Partnership,
primarily while in the Partnership's development stage and are included in
the accompanying statements of cash flows for the year ended September 30,
1994.
During 1996 software leased under a capital lease by Boomtown was
capitalized by the Partnership resulting in an increase in the note payable
of approximately $221,000. Also, a payment made by Boomtown on behalf of the
Partnership to secure a decrease in the barge lease (see Note 6) resulted in
an increase in the note payable of approximately $2,480,000. Both of these
transactions are included in the accompanying statement of cash flows for the
year ended September 30, 1996.
The Partnership incurred interest costs of $760,000 (net of $1,346,000
capitalized), $4,239,000 and $4,727,000 on advances and notes from Boomtown
for the years ended September 30, 1994, 1995 and 1996, respectively. No
interest was capitalized in 1995 or 1996.
The advances, note payable, accrued interest payable and interest expense
to Boomtown are eliminated in the consolidated financial statements of
Boomtown.
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consists of the following:
September 30,
--------------------------
1995 1996
----------- -----------
11.5% Note payable $ 604,000 320,000
Capital lease obligations -- 1,310,000
----------- -----------
604,000 1,630,000
Less amounts due within one year 284,000 1,570,000
----------- -----------
$ 320,000 $ 60,000
----------- -----------
----------- -----------
The note payable is secured by furniture, fixtures and equipment with net
book values of approximately $657,000 and $569,000 at September 30, 1995 and
1996, respectively, and the note matures in September 1997. Interest of
$85,000 and $55,000 was paid on this note during the years ended September
30, 1995 and 1996, respectively.
MISSISSIPPI-I GAMING, L.P.
NOTES TO FINANCIAL STATEMENTS
85
<PAGE>
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
The capital lease obligations are secured by furniture, fixtures and
equipment with net book values of approximately $1,858,000 at September 30,
1996. The obligations mature between August of 1997 and January 1999.
Interest of $61,000 was paid on the obligations during the year ended
September 30, 1996.
Principal maturities of long-term debt and capital lease obligations by
fiscal year as of September 30, 1996 are as follows:
1997 $1,570,000
1998 44,000
1999 16,000
----------
$1,630,000
6. COMMITMENTS AND CONTINGENCIES
DEBT GUARANTEES - On November 24, 1993, Boomtown completed the private
placement of $103.5 million of 11.5% First Mortgage Notes due November 2003
(the "Notes"). The Notes are secured by, among other things, a full and
unconditional guarantee by the Partnership, as defined in the Indenture to
the Notes. The Indenture governing the Notes places certain business,
financial and operating restrictions on Boomtown and its subsidiaries
including, among other things, the incurrence of additional indebtedness,
issuance of preferred equity interests and entering into operational leases;
limitations on dividends, repurchase of capital stock of Boomtown and
redemption's of subordinated debt; limitations on transactions with
affiliates; limitations on mergers, consolidations and sales of assets;
limitations on amending existing partnership and facility construction
agreements; and limitations on the use of proceeds from the issuance of the
Notes.
The Partnership is a guarantor for a $1.1 million promissory note for
Blue Diamond Hotel & Casino, Inc., a wholly owned subsidiary of Boomtown,
Inc., with an outstanding balance of $442,000 at September 30, 1996.
In addition, the Company is a guarantor for a ship mortgage with an
outstanding balance of $3.2 million at September 30, 1996, of Louisiana - I
Gaming, L.P., a majority owned and controlled partnership of Boomtown.
OPERATING LEASES - The Partnership leases its facilities and operating
equipment under noncancelable operating lease arrangements with terms in
excess of one year.
LAND LEASES WITH RELATED PARTIES - During 1993 Boomtown signed an
agreement to lease property through the Partnership intended for the
development, construction and operation of the gaming facility. The
Partnership invested $2 million as a long-term deposit on the lease and
committed to annual rentals of base rent (estimated at $2 million) and
percentage rent (5% of adjusted gaming win over $25 million). The
Partnership exchanged a 15% interest with the lessor
MISSISSIPPI-I GAMING, L.P.
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
86
<PAGE>
in lieu of base rent payments for the first two years of the lease. Rent
expense was charged to operations for the two year period and the lessor's
limited partner capital account is being credited. Boomtown or the lessor
have an option to convert the lessors' partnership interest into Boomtown
Common Stock (see Note 1). The lease term is 99 years and is cancelable upon
one year's notice.
BARGE LEASE UNDER AGREEMENT - On July 22, 1994, the Partnership sold the
barge moored in Biloxi, Mississippi and the building upon the barge housing
the casino to HFS Gaming Corp. ("HFS"), a Delaware corporation.
Approximately $2.4 million of the $11.0 million sales price was held by
Boomtown to be used for the development and construction at the casino site.
Simultaneously with the sale, the Partnership leased the barge and building
for 25 years and was granted the option to purchase the leased asset for fair
market value at the end of the lease or upon occurrence of certain events as
defined in the lease agreement. In the event of default by the Partnership,
HFS may terminate the lease or require the Partnership to repurchase the
assets for fair market value. HFS agreed to provide certain marketing
services for the Partnership. The Partnership will pay HFS aggregate rent
under the lease and payments for services under the marketing agreement equal
to approximately 20% of the annual adjusted earnings before interest, taxes,
depreciation and amortization, as defined, for the Partnership (including the
proposed hotel). As the lease payments represent contingent rentals, they
are excluded from the future minimum annual rental commitments schedule
below. HFS subsequently transferred the contract to National Gaming Corp.
("NGC").
In November 1995 Boomtown executed an agreement with NGC whereby the $2.4
million was returned to NGC in return for a reduction of the EBITDA
distributions from 20% to 16%. Additionally, for $100,000, the Partnership
secured an option to buy the barge from NGC as well as to buy out the EBITDA
participation at a cost approximating the original investment made by HFS
less the $2.4 million that was paid. The option terminates on March 31,
1997, but is renewable for an additional two years at $100,000 per year.
TIDELANDS LEASE - The Partnership leases submerged tidelands at the
casino site from the State of Mississippi. Annual rent is $525,000 and the
term of the lease is ten years with a five-year option to renew. Rent in the
second five-year period of the lease will be determined in accordance with
Mississippi law, based on an appraisal obtained by the State of Mississippi.
The aggregate future minimum annual rental commitments as of September
30, 1996 under operating leases having noncancelable lease terms in excess of
one year is as follows:
1997 $3,393,000
1998 1,430,000
1999 843,000
2000 409,000
2001 340,000
Thereafter 871,000
----------
$7,286,000
----------
----------
MISSISSIPPI-I GAMING, L.P.
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
87
<PAGE>
Rental expense included in the accompanying statements of operations for
the years ended September 30, 1994, 1995 and 1996 totaled $616,000,
$7,388,000 and $7,557,000, respectively ($418,000, $2,711,000 and $2,934,000
with related parties, respectively). Of these amounts, $227,000, $6,877,000
and $6,827,000 represented minimum rentals, respectively and $389,000,
$511,000 and $729,000 represented contingent rentals, respectively.
SELF-INSURANCE - The Partnership maintains a plan of partial
self-insurance for medical and dental coverage for substantially all
full-time employees and their dependents. Claims in excess of $50,000 for
policy year ended February 28, 1995, and $75,000 for policy years ended
February 28, 1996 and 1997, per individual are fully covered by insurance.
Management has established reserves (approximately $489,000 at September 30,
1996) considered adequate to cover estimated future payments on claims
incurred through September 30, 1994, 1995 and 1996.
GAMING LICENSE REQUIREMENTS - In October 1994, the Mississippi Gaming
Commission adopted a regulation that requires, as a condition of licensure or
license renewal, for a gaming establishment's plan to include various
expenditures including parking facilities and infrastructure facilities
amounting to at least 25% of the casino cost. Although the Partnership
believes they have satisfied this requirement, there can be no assurance the
Mississippi Gaming Commission will not require further development on the
casino site including hotel rooms and additional parking facilities.
Additionally, there can be no assurance that the Partnership will be
successful in completing such a project or that the Partnership would be able
to obtain a waiver if the Partnership decides not to build.
7. 401(k) PLAN
The Partnership's employees are covered under the Boomtown, Inc., 401(k)
Plan (the "Plan"). Under the Plan, the Partnership will match 50% of
employees' contributions up to a maximum of 5% of the employees' wages. The
Partnership recorded $4,000, $35,000 and $112,000 of expense during the years
ended September 30, 1994, 1995 and 1996, respectively, related to their
matching contributions.
8. MANAGEMENT FEE
Boomtown is responsible for managing the operations of the Boomtown
subsidiaries (collectively the "Subsidiaries"). During 1995 and 1996
Boomtown charged the Subsidiaries for their pro-rata share of the costs it
incurred relative to this management function (the "Management Fee"). During
the years ended September 30, 1995 and 1996 the Partnership recorded
Management Fees of $756,000 and $732,000, respectively (none in 1994).
MISSISSIPPI-I GAMING, L.P.
NOTES TO FINANCIAL STATEMENTS
9. OTHER EVENTS
88
<PAGE>
BOOMTOWN'S PROPOSED MERGER WITH HOLLYWOOD PARK, INC. ("HOLLYWOOD PARK")
- - On April 23, 1996, Boomtown entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Hollywood Park relating to the strategic
combination of Hollywood Park and Boomtown. Pursuant to the Merger Agreement
and subject to the terms and conditions set forth therein, Boomtown would
become a wholly-owned subsidiary of Hollywood Park (the "Merger"). Pursuant
to the Merger Agreement, at the effective date of the Merger, each issued and
outstanding share of Boomtown Common Stock will be converted into the right
to receive 0.625 of a share of Hollywood Park Common Stock. The Merger is
intended to be structured as a tax-free reorganization for income tax
purposes and the merger will be accounted for as a purchase for financial
reporting purposes. The shareholders of Boomtown and Hollywood Park have
approved the Merger. To date, the Merger has only been approved by
Mississippi gaming authorities, and is subject to the approval of other
relevant gaming jurisdictions.
On November 26, 1996 the Partnership paid approximately $500,000 to amend
an operating lease for certain slot machines, whereby the Partnership will
purchase the slot machines at the end of the lease term (August 1997) for
approximately $554,000. The cost of the slot machines under this capital
lease obligation is approximately $2.5 million and will be depreciated over
the remainder of their useful lives.
89
<PAGE>
MISSISSIPPI - I GAMING, L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions Deductions
Balance at Charged to Write-offs,
beginning of Costs and net of Balance at
Description Period Expenses Collections End of Period
- ---------------------------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Year ended September 30, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts: $16 $92 ($74) $34
Year ended September 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts: $ 6 $43 ($33) $16
Year ended September 30, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts: $-- $ 6 $-- $ 6
</TABLE>
90
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Executive Committee
Louisiana-I Gaming, L.P.,
a Louisiana Limited Partnership
We have audited the accompanying balance sheets of Louisiana-I Gaming, L.P.
(the Partnership), a Louisiana limited partnership, as of September 30, 1995
and 1996, and the related statements of operations, and statements of
partners' capital and cash flows for each of the three years in the period
ended September 30, 1996. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 the Partnership at September
30, 1995 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended September 30, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
New Orleans, Louisiana
November 6, 1996,
except for Note 9, as to which
the date is November 18, 1996
91
<PAGE>
LOUISIANA - I GAMING, L.P.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30,
1995 1996
--------- ---------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 3,072 $ 3,512
Accounts receivable, net 147 94
Inventories 567 205
Prepaid expenses 1,369 1,357
--------- ---------
Total current assets 5,155 5,168
Property and equipment, at cost, net (Note 2) 55,716 55,776
Other assets 302 161
--------- ---------
Total assets $ 61,173 $ 61,105
--------- ---------
--------- ---------
LIABILITIES AND PARTNERS' CAPITAL:
Current liabilities:
Accounts payable $ 732 $ 704
Accrued compensation 609 843
Other accrued liabilities 2,787 2,907
Note payable - Boomtown, Inc. 36,290 25,695
Accrued interest payable - Boomtown, Inc. (Note 3) 322 242
Long-term debt due within one year (Note 4) 1,604 2,097
--------- ---------
Total current liabilities 42,344 32,488
Commitment and contingencies (Note 5)
Long-term debt due after one year (Note 4) 3,750 2,288
Deferred gain 213 112
Partners' capital:
General partner 743 1,301
Limited partners 14,123 24,916
--------- ---------
Total partners' capital 14,866 26,217
--------- ---------
Total liabilities and partners' capital $ 61,173 $ 61,105
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
92
<PAGE>
LOUISIANA - I GAMING, L.P.
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Gaming $ 12,100 $ 72,157 $ 69,674
Family entertainment center -- 789 884
Food and beverage 41 589 583
Cabaret -- 333 823
Other income 61 435 567
------------ ------------ ------------
12,202 74,303 72,531
Costs and expenses:
Gaming 4,122 24,759 27,127
Gaming equipment leases -- 866 1,695
Family entertainment center -- 459 562
Food and beverage 62 607 719
Cabaret -- 208 683
Other operating expenses -- -- 80
Marketing 574 3,762 4,295
Management fee-Boomtown, Inc. -- 1,068 960
General and administrative 3,355 20,887 17,292
Pre-opening expenses 5,272 -- --
Depreciation and amortization 249 2,415 2,741
------------ ------------ ------------
13,634 55,031 56,154
Income (loss) from operations ( 1,432) 19,272 16,377
Interest and other income (expense), net ( 521) ( 4,879) ( 4,305)
------------ ------------ ------------
Net income (loss) ($ 1,953) $ 14,393 $ 12,072
------------ ------------ ------------
Net income (loss) allocated to partners:
General partner ($ 98) $ 720 $ 604
Limited partners ( 1,855) 13,673 11,468
------------ ------------ ------------
($ 1,953) $ 14,393 $ 12,072
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
LOUISIANA - I GAMING, L.P.
93
<PAGE>
STATEMENTS OF PARTNERS' CAPITAL
Years ended September 30, 1994, 1995 and 1996
(in thousands)
<TABLE>
<CAPTION>
Limited Partners
---------------------- Total
General Boomtown Partners'
Partner Inc. Other Capital
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Balances, September 30, 1993 $ -- $ -- $ -- $ --
Capital contributions 250 4,750 1 5,001
Net loss ($ 98) ( 1,855) -- ( 1,953)
-------- -------- -------- -----------
Balances, September 30, 1994 152 2,895 1 3,048
Net income 720 12,740 933 14,393
Distributions ( 129) ( 2,252) ( 193) ( 2,574)
-------- -------- -------- -----------
Balances, September 30, 1995 743 13,383 741 14,867
Net income 604 10,563 905 12,072
Distributions ( 46) ( 572) ( 104) ( 722)
-------- -------- -------- -----------
Balances, September 30, 1996 $ 1,301 $ 23,374 $ 1,542 $ 26,217
-------- -------- -------- -----------
-------- -------- -------- -----------
</TABLE>
See accompanying notes.
LOUISIANA - I GAMING, L.P.
STATEMENTS OF CASH FLOWS
94
<PAGE>
Increase (decrease) in cash and cash equivalents
(in thousands)
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 1,953) $ 14,393 $ 12,072
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 249 2,415 2,741
Loss (gain) on the sale of property
and equipment -- 144 ( 93)
Changes in operating assets and liabilities:
Accounts receivable, net ( 78) ( 69) 19
Inventories ( 467) ( 100) 310
Prepaid expenses ( 1,225) ( 144) 11
Other assets ( 85) 109 112
Accounts payable 299 433 ( 28)
Accrued compensation 348 261 234
Other accrued liabilities 1,251 1,422 119
Accrued interest payable-Boomtown, Inc. 132 190 ( 79)
--------- --------- ---------
Net cash provided by
(used in) operating activities ( 1,529) 19,054 15,418
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property
and equipment -- 6,653 2
Increase in construction related payables 1,128 ( 1,128) --
Reductions of other assets 151 -- --
Payments for purchases of property
and equipment ( 52,641) ( 10,943) ( 1,718)
--------- --------- ---------
Net cash used in investing activities ( 51,362) ( 5,418) ( 1,716)
--------- --------- ---------
Cash flows from financing activities:
Advances from Boomtown, Inc. ( 1,400) -- --
Note payable-Boomtown, Inc. 51,917 ( 18,008) ( 11,537)
Loan costs -- ( 101) --
Proceeds from long-term debt -- 6,206 --
Principal payments on long-term debt -- ( 1,095) ( 1,725)
Equity investment by general partner 250 -- --
Equity investment by Boomtown, Inc. 4,750 -- --
Equity investment by limited partner 1 -- --
Partnership distributions -- ( 193) --
--------- --------- ---------
Net cash provided by (used in)
financing activities 55,518 ( 13,191) ( 13,262)
--------- --------- ---------
Net increase in cash and cash equivalents 2,627 445 440
Cash and cash equivalents:
Beginning of year -- 2,627 3,072
--------- --------- ---------
End of year $ 2,627 $ 3,072 $ 3,512
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes
95
<PAGE>
LOUISIANA - I GAMING, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
BASIS OF PRESENTATION AND NATURE OF BUSINESS - Louisiana-I Gaming, L.P.
(the "Partnership" or the "Company"), a Louisiana limited partnership is a
majority owned and controlled partnership of Boomtown, Inc. ("Boomtown").
Boomtown owns an 87.5% limited partnership interest and through its
wholly-owned subsidiary, Louisiana Gaming Enterprises, Inc. (a Louisiana
corporation and the general partner of the Partnership), Boomtown owns an
additional 5% interest in the Partnership. The remaining 7.5% limited
partnership is owned by an individual (see Note 9). The Partnership was
formed on April 20, 1993 and was in the construction and development phase
and had no operating revenues or expenses until commencing gaming operations
on August 6, 1994. Under the terms of the partnership agreement, after three
years of operation, either Boomtown or the individual may exercise an option
to convert the individual's ownership interest in the Partnership into
Boomtown common stock or cash, at an amount calculated per the partnership
agreement. The partnership agreement also provides for quarterly
distributions to be made to the partners.
USE OF ESTIMATES - The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles which
require the Company's management to make estimates and assumptions that
affect the amounts reported therein. Actual results could vary from such
estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of cash on
hand and in banks. The Partnership considers highly liquid investments with
original maturates of three months or less as cash equivalents. The
Partnership paid interest of approximately $387,000, $4,629,000 and
$3,672,000 on a note payable to Boomtown in 1994, 1995 and 1996,
respectively. Loan fees of $242,000 were excluded from proceeds of long-term
debt acquired during the year ended September 30, 1995.
FAIR VALUES OF FINANCIAL INSTRUMENTS - The carrying amounts reported in
the accompanying balance sheets for cash and cash equivalents approximate
their respective fair values. The carrying amounts of the Company's
borrowings under its debt agreements approximate their fair value. The fair
value was based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
CONCENTRATION OF CREDIT RISK - The Partnership places its temporary cash
in an interest-bearing account with a financial institution. The account is
collateralized by securities issued by the United States Government and other
high quality credit instruments.
INVENTORIES - Inventories consist primarily of food and beverage stock
and uniforms and are stated at the lower cost (determined using the first-in,
first-out method) or market.
ADVERTISING COSTS - Advertising costs are expensed as incurred and
totaled $306,000, $1.4 million and $1.4 million in fiscal 1994, 1995 and
1996, respectively.
DEPRECIATION AND AMORTIZATION - Depreciation of property and equipment is
provided on the straight-line method over the useful lives of the respective
assets which range from three to thirty-five years.
96
<PAGE>
LOUISIANA - I GAMING, L.P.
NOTES TO FINANCIAL STATEMENTS
PRE-OPENING EXPENSES - Pre-opening expenses were associated with the
acquisition, development and opening of the riverboat casino. These amounts
include items that were capitalized as incurred prior to opening and items
that are directly related to the opening of the dockside casino. Such
amounts were expensed when the Partnership commenced gaming operations on
August 6, 1994.
INCOME TAXES - No provision for income taxes has been made in the
accompanying financial statements since any liability is that of the partners
and not of the Partnership. The book basis exceeded the tax basis of the
Partnerships' assets and liabilities by approximately $220,000 and
$3,300,000, respectively at September 30, 1995 and 1996.
GAMING REVENUES AND PROMOTIONAL ALLOWANCES - In accordance with industry
practice, the Partnership recognizes as gaming revenues the net win from
gaming activities, which is the difference between gaming wins and losses.
Revenues in the accompanying statements of operations exclude the retail
value of food, beverage and other promotional allowances provided to
customers without charge. The estimated costs of providing such promotional
allowances have been classified as gaming operating expenses through
interdepartmental allocations as follows:
Years ended September 30,
---------------------------------
1994 1995 1996
-------- ---------- ----------
Food and beverage $612,000 $2,092,000 $2,509,000
Other 7,000 1,000 1,000
-------- ---------- ----------
Total costs allocated to gaming
operating expenses $619,000 $2,093,000 $2,510,000
-------- ---------- ----------
-------- ---------- ----------
RECLASSIFICATIONS - Certain reclassification have been made to the 1994
and 1995 financial statements to conform to the 1996 presentation.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
September 30,
--------------------------
1995 1996
--------------------------
Boat $18,925,000 $18,925,000
Buildings and improvements 28,201,000 28,299,000
Land 4,943,000 4,943,000
Equipment 3,009,000 5,390,000
Furniture and fixtures 2,388,000 2,678,000
Construction-in-progress 505,000 506,000
----------- -----------
57,971,000 60,741,000
Less accumulated depreciation 2,255,000 4,965,000
----------- -----------
$55,716,000 $55,776,000
----------- -----------
----------- -----------
The construction-in-progress at September 30, 1995 and 1996, relates
primarily to costs associated with the construction of level two of the
land-based facility.
Amortization of leased assets is included in depreciation and
amortization expense.
97
<PAGE>
LOUISIANA - I GAMING, L.P.
NOTES TO FINANCIAL STATEMENTS
3. NOTE PAYABLE - BOOMTOWN, INC.
Note Payable - Boomtown, Inc., consists of advances to the Partnership
from Boomtown used to fund the pre-opening expenses, construction of the
land-based facility and gaming boat and to acquire furniture, fixtures and
equipment. The principal of the note is variable and is due on demand along
with the interest. However, management of Boomtown will not require payments
except to the extent of the Partnership's available cash flows. Interest is
calculated on the note at 11.5% and is based on the average monthly
outstanding balance. Payments are applied first to accrued interest and then
to principal.
Certain cash payments were made by Boomtown on behalf of the Partnership,
primarily while in the Partnership's development stage, and are included in
the accompanying statements of cash flows for the year ended September 30,
1994.
The Partnership incurred interest costs of $2,844,000, $4,797,000 and
$3,592,000 in 1994, 1995 and 1996 on advances and notes from Boomtown, of
which $2,323,000 and $533,000 was capitalized in fiscal 1994 and 1995,
respectively.
The advances, note payable, accrued interest payable and interest
expenses to Boomtown are eliminated in the consolidated financial statements
of Boomtown.
4. LONG-TERM DEBT
Long-term debt consists of the following:
September 30,
-------------------------
1995 1996
-------------------------
13% note payable $4,336,000 $3,227,000
11.5% note payable 1,018,000 538,000
10.5% capital lease obligation -- 620,000
---------- ----------
5,354,000 4,385,000
Less amounts due in one year 1,604,000 2,097,000
---------- ----------
$3,750,000 $2,288,000
---------- ----------
---------- ----------
Principal maturates of long-term debt by fiscal year as of September 30,
1996 are $2,097,000 in 1997, $1,765,000 in 1998, and $523,000 in 1999.
The 13% note is secured by a first preferred mortgage on the boat with a
net book value of $17,296,000 as of September 30, 1996. This note is payable
in 48 monthly installments of approximately $134,000 and matures in January
1999.
LOUISIANA - I GAMING, L.P.
98
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The 11.5% note payable is secured by various furniture, fixtures and
equipment with a net book value of approximately $873,000 as of September 30,
1996. This note payable is payable in 36 monthly installments of
approximately $48,000 and matures in September 1997.
The 10.5% capital lease obligation is secured by various furniture,
fixtures and equipment with a net book value of $1,046,000 as of September
30, 1996. This note payable is payable in 30 monthly installments of
approximately $26,000 and matures in September 1998.
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Partnership leases various billboards and
operating equipment under noncancelable operating lease arrangements with
terms in excess of one year.
SLOT MACHINE LEASE UNDER AGREEMENT - On March 29, 1995, the Partnership
sold 789 slot machines to Marquis Leasing Company, a subsidiary of First
National Bank of Commerce ("Marquis") for $5.1 million. Simultaneously with
the sale, the Partnership leased the slot machines for three years and was
granted the option to purchase the leased assets for the greater of the fair
market value at the end of the lease or the residual value as stated in the
lease agreement. This transaction resulted in a deferred gain of $327,072,
which is being amortized over the term of the lease.
FURNITURE, FIXTURES AND EQUIPMENT LEASE UNDER AGREEMENT - On November 14,
1994, the Partnership sold furniture, fixtures and equipment to PDS Financial
Corporation for $1.5 million. Simultaneously with the sale, the Partnership
leased the furniture, fixtures and equipment for three years and was granted
the option to purchase the furniture, fixtures and equipment at the fair
market value of the equipment at the end of the lease term. During March
1996, the Company converted this lease to a capital lease obligation whereby
the residual balance on the operating lease was funded and the remaining
outstanding balance was converted into a capital lease (Note 4).
The aggregate future minimum annual rental commitments as of September
30, 1996, under operating leases having noncancelable lease terms in excess
of one year are as follows:
1997 $1,901,000
1998 933,000
1999 16,000
----------
$2,850,000
----------
----------
Rental expense during the year ended September 30, 1994, 1995 and 1996
amounted to approximately $324,000, $2,206,000 and $2,270,000, respectively.
SELF-INSURANCE - The Partnership maintains a plan of partial
self-insurance for medical and dental coverage for substantially all
full-time employees and their dependents. Claims in excess of $75,000 per
individual beginning March 1, 1995 are fully covered by insurance.
Management has established reserves considered adequate to cover estimated
future payments on claims.
LOUISIANA - I GAMING, L.P.
NOTES TO FINANCIAL STATEMENTS
99
<PAGE>
DEBT GUARANTEES - On November 24, 1993, Boomtown completed the private
placement of $103.5 million of 11.5% First Mortgage Notes due November 2003
(the "Notes"). The Notes are secured by, among other things, a full and
unconditional guarantee by the Partnership, as defined in the indenture
relating to the Notes. The Indenture governing the Notes places certain
business, financial and operating restrictions on Boomtown and its
subsidiaries including, among other things, the incurrence of additional
indebtedness, issuance of preferred equity interests and entering into
operating leases; limitations on dividends, repurchases of capital stock of
Boomtown and redemption of subordinated debt; limitations on transactions
with affiliates; limitations on mergers, consolidations and sales of assets;
limitations on amending existing partnership and facility construction
agreements; and limitations on the use of proceeds from the issuance of the
Notes.
In addition, the Partnership is a guarantor for a promissory note, with
an outstanding principal balance of $442,000 at September 30, 1996 of Blue
Diamond Hotel & Casino, Inc., a majority owned and controlled partnership of
Boomtown.
6. 401(K) PLAN
The Company's employees are covered under the Boomtown, Inc., 401(k) Plan
(the "Plan"). Under the Plan, the Company will match 50% of employees'
contributions up to a maximum of 5% of the employees' wages. The Company
recorded approximately $4,000, $23,000 and $114,000 in expense during the
years ended September 30, 1994, 1995 and 1996, respectively, related to their
matching contributions.
7. MANAGEMENT FEE
Boomtown is responsible for managing the operations of the Company and
other of its subsidiaries (collectively the "Subsidiaries"). During 1996,
the Company charged the Subsidiaries for their pro-rata share of the costs it
incurred relative to this management function (the "Management Fee"). During
the years ended September 30, 1995 and 1996, the Company recorded Management
Fees of $1,068,000 and $960,000, respectively (none for 1994).
8. SUBSEQUENT EVENTS
MINORITY PURCHASE AGREEMENT - On November 18, 1996 the Company entered
into an agreement with Eric Skrmetta in which the Company agreed to pay
$5,673,000 in return for Skrmetta's 7 1/2% interest in the Partnership in
addition to releasing the Company from any and all claims, liabilities and
causes of action of any kind arising from or related to the Partnership
agreement. The terms set forth thereto require Boomtown to pay a down
payment of $500,000 on or before December 5, 1996 and the remaining
$5,173,000 to be paid not later than August 10, 1997. Additionally, the
$5,173,000 shall be reduced by a discount for the time that the amount or any
portion thereof is paid in full prior to August 10, 1997.
For a full discussion of the terms of the minority purchase agreement as
described above see exhibit number 10.3(4) attached in the schedule of
exhibits of this filing.
LOUISIANA - I GAMING, L.P.
NOTES TO FINANCIAL STATEMENTS
8. SUBSEQUENT EVENTS (CONTINUED)
100
<PAGE>
BOOMTOWN'S PROPOSED MERGER WITH HOLLYWOOD PARK, INC. ("HOLLYWOOD PARK")
- -On April 23, 1996, Boomtown entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Hollywood Park relating to the strategic
combination of Hollywood Park and Boomtown. Pursuant to the Merger Agreement
and subject to the terms and conditions set forth therein, Boomtown would
become a wholly-owned subsidiary of Hollywood Park (the "Merger"). Pursuant
to the Merger Agreement, at the effective date of the Merger (the "Effective
Date"), each issued and outstanding share of Boomtown Common Stock will be
converted into the right to receive 0.625 (the "Exchange Ratio"), of a share
of Hollywood Park Common Stock. The Merger is intended to be structured as a
tax-free reorganization. The shareholders of Boomtown and Hollywood Park
have approved the Merger. To date, the Merger has only been approved by
Mississippi gaming authorities. The Merger is subject to the approval of
other relevant gaming jurisdictions including Louisiana.
Certain additional matters relating to the signing of the Merger
Agreement and a complete description of the Merger Agreement are more fully
described in the Company's Form 8-K dated April 23, 1996, including the
Agreement and Plan of Merger filed as exhibit 2.1 thereto, and filed with the
Securities and Exchange Commission on May 3, 1996.
On November 5, 1996, referenda on the continuation of riverboat
gaming were held on a parish-by parish basis in each parish where riverboat
gaming operations were permitted. Voters in all parishes in which riverboat
gaming is currently conducted elected to continue to permit operations. In
the Boomtown Belle's parish the continuation of riverboats passed
overwhelmingly with a 68% approval rate.
101
<PAGE>
LOUISIANA - I GAMING, L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions Deductions
Balance at Charged to Write-offs,
beginning of Costs and net of Balance at
Description Period Expenses Collections End of Period
- --------------------------------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Year ended September 30, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts: $ 6 $32 $33 $5
Year ended September 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts: $ 4 $42 $40 $6
Year ended September 30, 1994:
Deducted from asset accounts:
Allowance from doubtful accounts $-- $ 4 $-- $4
</TABLE>
102
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Blue Diamond Hotel & Casino, Inc.
We have audited the accompanying balance sheets of Blue Diamond Hotel &
Casino, Inc. (the "Company") as of September 30, 1995 and 1996, and the
related statements of operations, stockholder's deficit and cash flows for
each of the three years in the period ended September 30, 1996. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based upon 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 the Company at September 30,
1995 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Reno, Nevada
November 8, 1996
103
<PAGE>
BLUE DIAMOND HOTEL & CASINO, INC.
BALANCE SHEETS
(in thousands)
(except share data)
September 30,
1995 1996
-------- -------
ASSETS:
Current assets:
Cash and cash equivalents $ 2,630 $ 2,563
Accounts receivable, net 208 301
Inventories 873 336
Prepaid expenses 1,350 1,367
Other current assets 214 189
-------- -------
Total current assets 5,275 4,756
Property and equipment, net 5,761 1,040
Deferred income taxes 987 1,803
Investment in lease, net 13,077 --
Other assets 53 237
-------- -------
Total assets $ 25,153 $ 7,836
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDER'S DEFICIT:
Current liabilities:
Accounts payable $ 1,119 $ 895
Accrued compensation 545 704
Other accrued liabilities 2,042 1,283
Note payable - Boomtown, Inc. 29,021 33,785
Accrued interest payable - Boomtown, Inc. 3,754 7,372
Long-term debt due within one year (Note 4) 587 800
-------- -------
Total current liabilities 37,068 44,839
Long-term debt due after one year (Note 4) 894 --
Commitment and contingencies (Note 6)
Stockholder's deficit:
Common stock, no par value, 2,500 shares
authorized, 100 shares issued and outstanding 1 1
Accumulated deficit (12,810) (37,004)
-------- -------
Total stockholder's deficit (12,809) (37,003)
-------- -------
Total liabilities and stockholder's deficit $ 25,153 $ 7,836
-------- -------
-------- -------
See accompanying notes.
104
<PAGE>
BLUE DIAMOND HOTEL & CASINO, INC.
STATEMENTS OF OPERATIONS
(in thousands)
Years ended September 30,
----------------------------------
1994 1995 1996
-------- -------- --------
Revenues:
Gaming $12,306 $32,917 $30,547
Food and beverage 2,634 7,558 7,587
Hotel and recreational vehicle park 1,473 4,844 5,549
Family entertainment center 175 334 296
Mini-mart 38 150 157
Showroom 329 107 --
Other income 151 732 585
-------- -------- --------
17,106 46,642 44,721
Costs and Expenses:
Gaming 4,496 12,229 11,677
Gaming equipment leases 222 2,664 2,664
Food and beverage 3,094 9,452 9,840
Hotel and recreational vehicle park 1,080 2,461 2,346
Family entertainment center 92 221 137
Mini-mart 24 94 84
Showroom 2,130 100 --
Marketing 1,338 4,910 5,200
General and administrative 3,695 14,536 13,719
Pre-opening expenses 5,039 -- --
Property rent 1,974 5,455 5,455
Loss on sale of Blue Diamond -- -- 17,734
Management fee-Boomtown, Inc. -- 876 840
Depreciation and amortization 555 1,476 1,032
-------- -------- --------
23,739 54,474 70,728
Loss from operations (6,633) (7,832) (26,007)
Interest and other expense, net 1,210 3,239 3,914
-------- -------- --------
Loss before income tax benefit (7,843) (11,071) (29,921)
Income tax benefit 2,642 3,462 5,727
-------- -------- --------
Net loss ($ 5,201) ($ 7,609) ($24,194)
-------- -------- --------
-------- -------- --------
See accompanying notes.
105
<PAGE>
BLUE DIAMOND HOTEL & CASINO, INC.
STATEMENTS OF STOCKHOLDER'S DEFICIT
Years ended September 30, 1994, 1995 and 1996
(in thousands except share amounts)
Common Stock Total
---------------- Accumulated Stockholder's
Shares Amount Deficit Deficit
------ ------ ----------- -------------
Balances, September 30, 1993 100 $ 1 $ -- $ 1
Net loss -- -- (5,201) (5,201)
------ ------ ----------- -------------
Balances, September 30, 1994 100 1 (5,201) (5,200)
Net loss -- -- (7,609) (7,609)
------ ------ ----------- -------------
Balances, September 30, 1995 100 1 (12,810) (12,809)
Net loss -- -- (24,194) (24,194)
------ ------ ----------- -------------
Balances, September 30, 1996 100 $ 1 ($37,004) ($ 37,003)
------ ------ ----------- -------------
------ ------ ----------- -------------
See accompanying notes.
BLUE DIAMOND HOTEL & CASINO, INC.
STATEMENTS OF CASH FLOWS
106
<PAGE>
Increase (decrease) in cash and cash equivalents
(in thousands)
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($5,201) ($7,609) ($24,194)
Adjustments to reconcile net loss to net
cash used in operating activities:
Loss on sale of Blue Diamond -- -- 17,734
Depreciation and amortization 555 1,476 1,032
Loss (gain) on the sale of property and equipment (11) (169) 86
Changes in operating assets and liabilities:
Accounts receivable, net (523) 315 (93)
Inventories (1,059) 186 249
Prepaid expenses (1,302) (48) (17)
Other current assets (169) (98) 30
Deferred income taxes (1,279) 292 (1,227)
Accounts payable 659 460 (224)
Accrued compensation 252 293 159
Other accrued liabilities 1,682 302 (759)
Accrued interest payable-Boomtown, Inc. 953 2,801 3,618
-------- -------- --------
Net cash used in operating activities (5,443) (1,799) (3,606)
-------- -------- --------
Cash flows from investing activities:
Payments for purchases of property and equipment (9,424) (871) (544)
Reductions of other assets 165 -- --
Proceeds from sale of property and equipment 3,337 1,243 --
-------- -------- --------
Net cash (used in) provided by investing
activities (5,922) 372 (544)
-------- -------- --------
Cash flows from financing activities:
Note payable-Boomtown, Inc. 13,298 2,101 4,764
Payments on advances from Boomtown, Inc. (509) --
Proceeds from long-term debt 490 758 195
Principal payments on long-term debt (106) (617) (876)
-------- -------- --------
Net cash provided by financing activities 13,173 2,242 4,083
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,808 815 (67)
Cash and cash equivalents:
Beginning of year 7 1,815 2,630
-------- -------- --------
End of year $1,815 $2,630 $2,563
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
107
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
BASIS OF PRESENTATION AND NATURE OF BUSINESS - Blue Diamond Hotel & Casino,
Inc. (the "Company" or "Blue Diamond"), a Nevada Corporation incorporated on
November 1, 1989, is a wholly-owned subsidiary of Boomtown, Inc. ("Boomtown").
Previously, Boomtown owned 50% of the Company and Edward P. Roski, Jr.
("Roski"), owned the remaining 50% of the Company. Roski is a member of the
Board of Directors of Boomtown and an affiliate of IVAC, a California general
partnership, which owns the land and building leased by the Company for the
Resort. Boomtown has loaned IVAC $27.3 million (the "IVAC Loans") which was
used to help construct the resort. The IVAC Loans are secured by separate deeds
of trust on the Resort, which deeds of trusts are subordinate to separate deeds
of trust securing Blue Diamond and Boomtown's obligations in connection with
Boomtown's Indenture. Boomtown receives interest income of $2.7 million
annually from IVAC as a result of these loans. In turn, Blue Diamond pays rent
to IVAC in the amount of $5.4 million annually to lease the facility. After
commencement of operations, Boomtown exercised its option to purchase all of
Roski's ownership interest in the Company for 714,286 shares of Boomtown's
Common Stock. The market value of the stock plus professional fees related to
the stock issuance along with capitalized interest of $1.2 million, was
capitalized as an investment in lease on the Company's balance sheet.
BOOMTOWN'S PROPOSED MERGER WITH HOLLYWOOD PARK, INC. ("HOLLYWOOD PARK") -
On April 23, 1996, the Boomtown entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Hollywood Park relating to the strategic
combination of Hollywood Park and Boomtown. Pursuant to the Merger Agreement
and subject to the terms and conditions set forth therein, the Company would
become a wholly-owned subsidiary of Hollywood Park (the "Merger"). Pursuant to
the Merger Agreement, at the effective date of the Merger (the "Effective
Date"), each issued and outstanding share of Boomtown Common Stock will be
converted into the right to receive 0.625 (the "Exchange Ratio"), of a share of
Hollywood Park Common Stock. The Merger is intended to be structured as a
tax-free reorganization, for income tax purposes and will be accounted for as a
purchase for financial reporting purposes.
TERMINATION OF LAS VEGAS PROPERTY LEASE - On August 12, 1996, Boomtown,
Blue Diamond, Hollywood Park, Roski, IVAC and Majestic Realty entered into the
Blue Diamond Swap Agreement (the "Swap Agreement") pursuant to which the parties
agreed that, upon consummation of the Merger, and contingent upon the closing of
the Merger, Boomtown and Blue Diamond (or any transferee thereof as set forth in
the Swap Agreement) would exchange their entire interest in the Blue Diamond
Resort (the "Resort") (including the IVAC Loans), and effectively transfer all
interest in the Resort to Roski, in exchange for a $5.0 million unsecured
promissory note (the "First Note") and an unsecured promissory note (the "Second
Note") equal in amount to the note to be issued by Hollywood Park to Roski for
the purchase of his Boomtown common stock referred to in the following paragraph
(valued at approximately $3.5 million) and assumption by Roski, IVAC or an
affiliate of certain liabilities (the "Swap"). The First Note has an interest
rate equal to the prime rate plus one and one half percent (1.5%) per annum and
provides for annual principal payments of one million dollars ($1,000,000) plus
accrued interest and maturing on the date that is five years after the Exchange
Date (as such term is defined in the
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
108
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
Swap Agreement). The Second Note has an interest rate equal to the prime rate
plus one-half percent (.5%) per annum and provides for a payment of all
principal plus accrued interest on the date that is three (3) years after the
Exchange Date. Consummation of the Swap is subject to obtaining all necessary
Governmental approvals, including gaming approval.
In exchange for its interest in the Resort, Boomtown will receive notes
payable to Boomtown with an estimated value totaling $8.5 million, an estimated
cash payment of $2.1 million, release from lease obligations under the Resort
lease, Roski's assumption of certain liabilities and note obligations totaling
approximately $3.8 million and the ongoing expenses of the Resort.
Additionally, Roski will assume all operating leases including any residual
balances due under such leases. The Swap Agreement requires approvals from
applicable gaming authorities and Boomtown intends to seek the consent of the
holders of a majority of the outstanding principal amount on the Notes (see
Note 3). The Swap would be effected immediately following the Boomtown's Merger
with Hollywood Park which is expected to be completed by the end of the first
quarter of calendar 1997.
In accordance with the terms of the Swap Agreement, with certain exceptions
set forth in the Swap Agreement, the Company will continue to operate the
property until consummation of the Merger. Boomtown and Blue Diamond will be
responsible for the liabilities of the Resort prior to the Swap and Roski will
be responsible for the liabilities of the Resort subsequent to the Swap. In
addition, Roski will resign from Boomtown's Board of Directors, effective as of
the Exchange Date. Subject to certain conditions set forth in the Swap
Agreement, the Swap may be effectuated through any structure agreed upon by
Boomtown and Hollywood Park. If the Swap were not consummated for any reason,
Boomtown would continue to operate the property through the expiration of the
lease term in July 1999, and the IVAC Notes would be required to be repaid to
Boomtown at such time.
On August 12, 1996, Hollywood Park and Roski further entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") pursuant to which Hollywood
Park will, concurrently with the Swap, purchase the stock in Boomtown held by
Roski ("Roski Stock") for its market price on the date of the Swap (estimated to
be $3.5 million). The purchase will be paid through the issuance of an
unsecured promissory note having an interest rate equal to the prime rate plus
one percent (1%) per annum and providing for four equal annual principal
payments plus accrued interest and maturing on the date that is four years
after the Exchange Date. The Stock Purchase Agreement may also be terminated
by Hollywood Park in the event that Boomtown and Hollywood Park, in accordance
with the provisions set forth in the Swap Agreement, elect to utilize a
structure to effect the Swap which would require Roski to retain the Roski
Stock.
Boomtown took a non-cash, pre-tax charge of $36.6 million related to the
Swap Agreement. The charge is comprised of the write-off of Boomtown's
investment in lease of $12.7 million, an $18.9 million write-down of the related
party notes receivable to $8.5 million and the write-down of the remaining net
assets less the liabilities assumed by Roski of $5.0 million. In the
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
109
<PAGE>
event that the actual amount of the second note is less than 3.5 million the
Company will incur an additional loss on the sale of Blue Diamond.
For a full discussion of the terms of the above described transactions and
relationships, see Boomtown's 1994 Registration Statement on Form S-4, and
Hollywood Park, Inc.'s Form S-4 dated September 18, 1996 as filed with the SEC.
USE OF ESTIMATES - The accompanying financial statements have been prepared
in conformity with generally accepted accounting principles which require the
Partnership's management to make estimates and assumptions that effect the
amounts reported therein. Actual results could vary from such estimates.
FAIR VALUES OF FINANCIAL INSTRUMENTS - The carrying amounts reported in the
accompanying balance sheets for cash and cash equivalents approximate their
respective fair values. The carrying amounts of the Company's borrowings under
its debt agreements approximate their fair value. The fair value was based on
the Company's current incremental borrowing rates for similar types of borrowing
arrangements.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of cash on
hand and in banks. For purposes of the statements of cash flows, the Company
considers highly liquid investments with original maturities of three months or
less as cash equivalents. During the years ended September 30, 1994, 1995 and
1996, the Company paid interest of approximately $132,000, $452,000, and
$216,000, respectively. Long-term debt incurred for the purchase of equipment
during the years ended September 30, 1994, 1995 and 1996 amounted to
approximately $6,296,000, $910,000, and $411,000, respectively. In addition,
approximately $6,191,000 of the Company's debt related to certain equipment was
relieved in a sales-leaseback transaction during the year ended September 30,
1995.
CONCENTRATIONS OF CREDIT RISK - The Company places its cash in short-term
investments which potentially subjects the Company to concentration of credit
risk. Such investments are made with financial institutions having a high
credit quality, and are collateralized by securities issued by the United States
Government and other investment grade securities.
INVENTORIES - Inventories consist primarily of food and beverage stock,
hotel linens, supplies and uniforms, and are stated at the lower of cost
(determined using the first-in, first-out method) or market.
PRE-OPENING EXPENSES - Pre-opening expenses were associated with the
development and opening of the Company's casino/hotel resort. These amounts
include items that were capitalized as incurred prior to opening and items that
are directly related to the opening of the of the Company's casino/hotel. Such
amounts were expensed when the Company commenced gaming operations (May 20,
1994).
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
110
<PAGE>
DEPRECIATION AND AMORTIZATION - Depreciation and amortization of property
and equipment is provided on the straight-line method over the lesser of the
estimated useful lives of the respective assets or the lease term. The
estimated useful lives range from three to thirty-five years. In connection
with the Swap Agreement the Company's property and equipment were written down
to net realizable value as of September 30, 1996 and depreciation and
amortization ceased. Amortization of the investment in lease was provided on
the straight line method over 25 years. Accumulated amortization as of
September 30, 1995 was approximately $545,000. Additionally, as a result of the
Swap Agreement the investment in lease was written-off as of June 30, 1996.
INCOME TAXES - The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes",
which requires the Company to record deferred income taxes for temporary
differences that are reported in different years for financial reporting and for
income tax purposes, and classify deferred tax liabilities and assets into
current and non-current amounts based on the classification of the related
assets and liabilities. The Company files its income tax return as a part of a
consolidated return filed by Boomtown. The income tax accounts are computed as
if the Company had filed a separate return. The Company reflects benefits for
losses incurred when the losses would be utilized in their separate return or in
the consolidated return.
GAMING REVENUES AND PROMOTIONAL ALLOWANCES - In accordance with industry
practice, the Company recognizes as gaming revenues the net win from gaming
activities, which is the difference between gaming wins and losses. Revenues in
the accompanying statements of operations exclude the retail value of rooms,
food, beverage and other promotional allowances provided to customers without
charge. The estimated costs of providing such promotional allowances have been
classified as gaming operating expenses through interdepartmental allocations as
follows:
Years ended September 30,
-------------------------------
1994 1995 1996
---------- ---------- ----------
Food and beverage $1,055,000 $3,012,000 $2,696,000
Hotel 32,000 239,000 120,000
Other -- 74,000 --
---------- ---------- ----------
Total costs allocated to
gaming operating expenses $1,087,000 $3,325,000 $2,816,000
---------- ---------- ----------
ADVERTISING COSTS - Advertising costs are expensed as incurred.
Advertising expenses for the years ended September 30, 1996, 1995 and 1994
totaled $1.9 million, $2.0 million and $561,000, respectively.
COMMON STOCK OUTSTANDING AND NET LOSS PER SHARE - The Company is a
wholly-owned and consolidated subsidiary of Boomtown. There are 100 shares of
Company common stock issued
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
111
<PAGE>
and there are no common stock equivalents outstanding. Therefore, the net loss
per share of the Company has little or no meaning and is not presented herein.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1994
and 1995 financial statements to conform to the 1996 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30,
-----------------------
1995 1996
-----------------------
Equipment $1,559,000 $2,536,000
Furniture and fixtures 3,584,000 2,677,000
Building improvements 1,495,000 2,441,000
Construction in progress 66,000 --
---------- ----------
6,704,000 7,654,000
Less accumulated depreciation
and amortization 943,000 1,549,000
Write-down of assets in connection
with the Swap Agreement (Note 1) -- 5,065,000
---------- ----------
$5,761,000 $1,040,000
---------- ----------
---------- ----------
Amortization of leased assets is included in depreciation and amortization
expense.
3. NOTE PAYABLE - BOOMTOWN, INC.
Note payable - Boomtown, Inc., consists of (1) advances of
approximately $10.1 million to the Company from Boomtown used to fund the
Company's operating expenses, (2) advances of approximately $10.8 million to
the Company from Boomtown used to fund the Company's pre-opening expenses and to
acquire property and equipment for the resort and (3) approximately
$13.6 million, including $1.2 million in capitalized interest representing
non-cash transactions in which Boomtown exercised an option to purchase Roski's
ownership interest in the Company in exchange for Boomtown stock and capitalized
interest in the notes receivable from IVAC (Note 1). The principal of the note
is variable and is due on demand along with the accrued interest. However,
management of Boomtown will not require payment except to the extent of the
Company's available cash flow. Payments are applied first to accrued interest
and then to principal. Interest is calculated on the note at 11.5% and is based
on the average monthly outstanding balance. In addition, management of Boomtown
has agreed to continue to fund the Company's negative cash flows for the year
ended September 30, 1997.
Certain cash payments were made by Boomtown on behalf of the Company,
primarily while in the Company's development stage, and are included in the
accompanying statements of cash flows for the year ended September 30, 1994.
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
3. NOTE PAYABLE - BOOMTOWN, INC. (CONTINUED)
112
<PAGE>
During the years ended, September 30, 1994, 1995 and 1996, the Company
incurred interest costs of $1,473,000 ($520,000 was capitalized), $2,801,000
(none capitalized) and $3,616,000 (none capitalized), respectively on advances
and notes from Boomtown.
The advances, note payable, accrued interest payable, interest expense to
Boomtown, and management fee (Note 8), are eliminated in the consolidated
financial statements of Boomtown.
4. LONG-TERM DEBT
Long-term debt consists of the following:
September 30,
----------------------
1995 1996
----------------------
11.5% note payable $ 808,000 $442,000
Capital lease obligation 673,000 358,000
----------- --------
1,481,000 800,000
Less amounts due within one year 587,000 800,000
----------- --------
$ 894,000 $ --
----------- --------
----------- --------
The 11.5% note payable is secured by furniture, fixtures and equipment with
a net book value of approximately $1,480,000 as of September 30, 1996 (prior to
the write down related to the Swap Agreement). This note matures in September
1997. The Capital lease obligation is secured by equipment with a net book
value of approximately $727,600 as of September 30, 1996 (prior to the write
down related to the Swap Agreement).. The capital lease obligation matures in
September 1997.
5. INCOME TAXES
The benefit for income taxes consists of the following:
Years ended September 30,
1994 1995 1996
Current ($1,362,000) ($3,754,000) ($4,722,000)
Deferred ( 1,280,000) 292,000 ( 1,005,000)
---------- ---------- ----------
($2,642,000) ($3,462,000) ($5,727,000)
---------- ---------- ----------
---------- ---------- ----------
The difference between the Company's benefit for federal income taxes as
presented in the accompanying statements of operation and benefit for income
taxes computed at the statutory rate is comprised of the items shown in the
following table as a percent of loss before income tax benefit.
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
5. INCOME TAXES (CONTINUED)
Years ended September 30,
------------------------------------
1994 1995 1996
---------- ---------- ----------
113
<PAGE>
Income tax benefit at statutory rate (34.0)% (34.0)% (34.0)%
Meals and entertainment 0.3 % 1.3 % --
Operating loss benefit limitation -- 1.4 % --
Write-off of investment in lease -- -- 14.9 %
------ ----- -----
(33.7)% (31.3)% (19.1)%
------ ----- -----
------ ----- -----
The significant components of the deferred income tax assets and
liabilities included on the accompanying balance sheets are as follows:
Years ended September 30,
-------------------------------
1995 1996
-------------------------------
Deferred tax assets:
Pre-opening expenses $1,238,000 $ 769,000
Unrecognized loss on fixed assets
under Swap Agreement -- 1,722,000
Accrued expenses 194,000 272,000
Operating loss carry forwards 161,000 161,000
Less valuation allowance - loss
carry forwards (161,000) (161,000)
---------- ----------
1,432,000 2,763,000
Deferred tax liabilities:
Depreciation 123,000 474,000
Prepaid expenses 322,000 297,000
---------- ----------
445,000 771,000
Net deferred tax assets $ 987,000 $1,992,000
---------- ----------
---------- ----------
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company leases its facilities and certain
operating equipment under non-cancelable operating lease arrangements with terms
in excess of one year. The aggregate future minimum annual rental commitments
as of September 30, 1996 under operating leases having non-cancelable lease
terms in excess of one year are as follows:
Related Party Other
-----------------------------
1997 $ 5,429,000 $4,210,000
1998 5,429,000 465,000
1999 3,456,000 266,000
----------- ----------
$14,314,000 $4,941,000
----------- ----------
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
RENTAL EXPENSE - During the years ended September 30, 1994, 1995 and
1996, rent expense amounted to approximately $2.2 million in 1994 and
$9.4 million 1n 1995 and 1996, of which
114
<PAGE>
approximately $5.4 million was related to the resort lease with IVAC (Note 1).
The resort lease commitments to IVAC are included in the above schedule even
though the Company entered into the "Swap Agreement" on August 12, 1996, and
following the closing of Boomtown's merger with Hollywood Park (refer to
Item 1. "Business") the Swap Agreement will be consummated and the lease
agreement will be terminated.
SELF-INSURANCE - The Company maintains a plan of partial self-insurance for
medical and dental coverage for substantially all full-time employees and their
dependents. Claims aggregating $75,000 or more per individual during the policy
year are fully covered by insurance. Management has established reserves
(approximately $172,000 at September 30, 1996) considered adequate to cover
estimated future payments on claims incurred through September 30, 1996.
DEBT GUARANTEES - On November 24, 1993, Boomtown completed the private
placement of $103.5 million of 11.5% First Mortgage Notes due November 2003 (the
"Notes"). The Notes are secured by, among other things, a limited guarantee by
the Company. As defined in the Indenture relating to the Notes, the Company's
guarantee is limited to loans made by Boomtown to IVAC (approximately $27.3
million at September 30, 1996) any outstanding liability related to advances
received by the Company from Boomtown ($34.5 million at September 30, 1996).
However, under the terms of the Swap Agreement, the Company would not be
required to repay the loans made by Boomtown upon transferring the interest in
the Company.
In addition, the Company is a guarantor for a ship mortgage with an
outstanding balance of $ 3.2 million at September 30, 1996, of Louisiana-I
Gaming, L.P., a majority owned and controlled partnership of Boomtown.
The Indenture governing the Notes places certain business, financial and
operating restrictions on Boomtown and its subsidiaries including, among other
things, the incurrence of additional indebtedness, issuance of preferred equity
interests and entering into operating leases; limitations on dividends,
repurchases of capital stock of Boomtown and redemption of subordinated debt;
limitations on transactions with affiliates; limitations on mergers,
consolidations and sales of assets; limitations on amending existing partnership
and facility construction agreements; and limitations on the use of proceeds
from the issuance of the Notes.
7. 401(k) PLAN
The Company's employees are covered under the Boomtown, Inc., 401(k) Plan
(the "Plan"). Under the Plan, the Company will match 50% of employees'
contributions up to a maximum of 5% of the employees' wages. The Company
recorded approximately, $6,000, $55,000 and $139,000 of expense during the years
ended September 30, 1994, 1995 and 1996, respectively, related to their matching
contributions.
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
8. MANAGEMENT FEE
Boomtown is responsible for managing the operations of the Company and
other of its subsidiaries (collectively the "Subsidiaries"). During 1995 and
1996, Boomtown charged the Subsidiaries for their pro-rata share of the costs it
incurred relative to this management function (the
115
<PAGE>
"Management Fee"). During the year ended September 30, 1995 and 1996, the
Company recorded Management Fees of $876,000 and $840,000, respectively (none
in 1994).
9. OTHER EVENTS
BOOMTOWN'S PROPOSED MERGER WITH HOLLYWOOD PARK, INC. ("HOLLYWOOD PARK") -
On April 23, 1996, the Boomtown entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Hollywood Park relating to the strategic
combination of Hollywood Park and Boomtown. Pursuant to the Merger Agreement
and subject to the terms and conditions set forth therein, the Company would
become a wholly-owned subsidiary of Hollywood Park (the "Merger"). Pursuant to
the Merger Agreement, at the effective date of the Merger (the "Effective
Date"), each issued and outstanding share of Boomtown Common Stock will be
converted into the right to receive 0.625 (the "Exchange Ratio"), of a share of
Hollywood Park Common Stock. The Merger is intended to be structured as a
tax-free reorganization, for income tax purposes and will be accounted for as a
purchase for financial reporting purposes.
Certain additional matters relating to the signing of the Merger Agreement
and a complete description of the Merger Agreement are more fully described in
Boomtown's Form 8-K dated April 23, 1996, including the Agreement and Plan of
Merger filed as exhibit 2.1 thereto, and filed with the Securities and Exchange
Commission on May 3, 1996, in addition to Boomtown's Form 10-K dated December
27, 1996 and filed with the SEC.
116
<PAGE>
BLUE DIAMOND HOTEL & CASINO, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions Deductions
Balance at Charged to Write-offs,
beginning of Costs and net of Balance at
Description Period Expenses Collections End of Period
- ------------------------------------ ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Year ended September 30, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts: $ -- $ 2 $ -- $ 2
Year ended September 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts: $ 2 $ 32 ($ 20) $ 14
Year ended September 30, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts: $ 14 $ 66 ($ 33) $ 47
</TABLE>
117
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized on this 27th day of
December, 1996.
BOOMTOWN, INC.
/s/ Timothy J. Parrott
-----------------------------------------
Timothy J. Parrott, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Timothy J. Parrott and Phil Bryan and
each of them acting individually, as such person's true and lawful
attorneys-in-fact and agents, each with power of substitution, for such person,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Report on Form 10-K, and to file with same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agents, and each of them, 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 such person might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K 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/ Timothy J. Parrott Chairman of the Board and Chief December 27, 1996
- ------------------------ Officer (Principal Executive Officer)
Timothy J. Parrott
/s/ Phil E. Bryan President and Director December 27, 1996
- ------------------------
Phil E. Bryan
/s/ Jon L. Whipple Vice President of Finance (Principal December 27, 1996
- ------------------------
Jon L. Whipple Financial and Accounting Officer)
/s/ Robert F. List Senior Vice President, Corporate December 27, 1996
- ------------------------
Robert F. List Counsel and Director
/s/ Richard J. Goeglein Director December 27, 1996
- ------------------------
Richard J. Goeglein
118
<PAGE>
/s/ Peter L. Harris Director December 27, 1996
- ------------------------
Peter L. Harris
/s/ Edward P. Roski, Jr. Director December 27, 1996
- ------------------------
Edward P. Roski, Jr.
/s/ Delbert W. Yocam Director December 27, 1996
- ------------------------
Delbert W. Yocam
119
<PAGE>
SCHEDULE OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3.1(5) Amended and Restated Certificate of Incorporation of Registrant.
3.2(11) Amended and Restated Bylaws of Registrant.
3.3(10) Amended and Restated Articles of Incorporation of Boomtown Hotel &
Casino, Inc.
3.4(10) Revised and Restated Bylaws of Boomtown Hotel & Casino, Inc.
3.5(10) Articles of Incorporation of Blue Diamond Hotel & Casino, Inc.
3.6(10) Bylaws of Blue Diamond Hotel & Casino, Inc.
3.7(10) Articles of Incorporation of Louisiana Gaming Enterprises, Inc.
3.8(10) Articles of Incorporation of Bayview Yacht Club, Inc.
3.9(10) Bylaws of Bayview Yacht Club, Inc.
3.10(11) Articles of Organization of Boomtown Iowa, L.C.
3.11(11) Articles of Incorporation of Boomtown Council Bluffs, Inc.
3.12(11) Bylaws of Boomtown Council Bluffs, Inc.
3.13(11) Articles of Incorporation of Boomtown Indiana, Inc.
3.14(11) Bylaws of Boomtown Indiana, Inc.
3.15(11) Articles of Incorporation of Boomtown Riverboat, Inc.
3.16(11) Articles of Incorporation of Boomtown Missouri, Inc.
3.17(11) Bylaws of Boomtown Missouri, Inc.
4.1(1) Form of Warrant issued to the lead Underwriters of Boomtown, Inc.'s
initial public offering.
4.2(7) Form of Private Placement Note.
4.3(7) Form of Exchange Note.
SCHEDULE OF EXHIBITS (CONTINUED)
120
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
4.4(7) Form of Subsidiary Guaranty.
4.5(7) Form of Addendum to Subsidiary Guaranty.
4.6(9) Registration Rights Agreement dated November 10, 1993, by and among
the Company and the Initial Purchases named herein.
4.7(7) Warrant Agreement dated as of November 10, 1993 between Boomtown,
Inc. and First Trust National Association, including Form of
Warrant Certificate.
10.1(11) Amended and Restated 1990 Stock Option Plan.
10.2(11) 1992 Director's Stock Option Plan.
10.3(5) 1993 Stock Bonus Plan.
10.4(1) Standard Form of Indemnification Agreement between Boomtown, Inc.
and its officers and directors.
10.5(1) Exercise of Option of Purchase and Agreement of Sale of Real
Property dated October 29, 1986 between Boomtown, Inc. and S. Ross
Mortensen and Irene Mortensen (the "Option Exercise Agreements").
10.6(1) Note dated October 29, 1986 payable to Boomtown, Inc. to S. Ross
Mortensen and Irene Mortensen in the principal amount of $823,000
and accompanying Deed of Trust, issued pursuant to the Option
Exercise Agreement.
10.7(1) Agreement of Sale and Purchase and accompanying Agreement, each
dated November 1, 1982 ( the "Purchase Agreement"), between
Boomtown, Inc. and Chris Garson, Ruth R. Garson, George Garson,
George Garson as Guardian of the Person and Estate of Agnes M.
Garson, and Beatrice Garson (collectively the "Garsons").
10.8(1) Registration Agreement dated May 6, 1988 between Boomtown, Inc.,
MLIF, Kenneth Rainin and Timothy J. Parrott.
10.9(11) Promissory Note dated September 10, 1992, payable by Timothy J.
Parrott to Boomtown, Inc. in the principal amount of $221,000.
10.10(1) Agreement dated January 1, 1989 between Boomtown, Inc., Nevada
Fun Flight Tours and Val Ruggerio.
SCHEDULE OF EXHIBITS (CONTINUED)
121
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
10.11(1) Memorandum of Understanding dated February 13, 1992 between
Boomtown, Inc. and the Internal Revenue Service.
10.12(1) Termination Agreement and Mutual Release dated April 24,1992 between
Registrant, Boomtown, Inc., Frank Gianopolus and Delores Gianopolus.
10.13(3) Letter of Intent dated as of March 26, 1993 among Boomtown, Inc.,
The Skrmetta Group, Inc. and Skrmetta Machinery Corporation,
relating to the property in Harvey, Louisiana.
10.14(3) Letter of Intent dated as of March 26,1993 among Boomtown, Inc. and
Raphael Skrmetta, relating to the property in Biloxi, Mississippi.
10.15(11) Amended and Restated Agreement to Lease Real Property in Biloxi,
Mississippi dated September 12,1993 by and between Boomtown, Inc.
and Raphael Skrmetta.
10.16(4) Agreement to Lease Real Property in Harvey, Louisiana by and between
Boomtown, Inc., The Skrmetta Group, Inc. and Skrmetta Machinery
Corporation.
10.17(4) Letter Agreement dated April 16, 1993 among Boomtown, Inc., Raphael
Skrmetta, The Skrmetta Group, Inc., and Skrmetta Machinery
Corporation.
10.18(4) Loan Agreement dated April 23, 1993 by and between Boomtown, Inc.,
First Interstate Bank of Nevada, N.A., First Interstate Bank of
Arizona, N.A. and the Diawa Bank, Limited.
10.19(2) Memorandum of Understanding dated March 15, 1993 among Boomtown,
Inc., Industry Hills Visitor Accommodations Center, Blue Diamond
Hotel & Casino, Inc. ("Blue Diamond"), Majestic Realty Co.
("Majestic"), and Edward P. Roski, Jr. ("Roski").
10.20(5) Stockholders and Affiliates Agreement dated as of June 30, 1993 by
and among Blue Diamond, Edward P. Roski, Sr., Roski, Boomtown, Inc.,
IVAC, a California general partnership formerly known as Industry
Hills Visitor Accommodations Center, a California general
partnership ("IVAC") and Majestic.
10.21(11) First Amendment to and Clarification of Stockholders and Affiliates
Agreement dated as of November 10, 1993 between Blue Diamond,
Edward P. Roski, the Roski Community Property Trust, the Roski
Senior Revocable Trust, the Registrant, IVAC and Majestic.
SCHEDULE OF EXHIBITS (CONTINUED)
122
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
10.22(5) Lease dated as of June 30, 1993 between IVAC and Blue Diamond.
10.23(11) Lease Amendment to Lease dated as of November 10, 1993 between IVAC
and Blue Diamond.
10.24(5) Purchase Option Agreement dated as of June 30, 1993 by and among
IVAC, Boomtown, Inc., and Blue Diamond.
10.25(11) Amendment to Purchase Option Agreement; Consent to Assignment
dated as of November 10, 1993 between IVAC, the Registrant and Blue
Diamond.
10.26(5) Development and Pre-Opening Services Agreement dated as of June 30,
1993 between Boomtown, Inc., Blue Diamond and IVAC.
10.27(5) Management Agreement dated as of June 30, 1993 between Boomtown,
Inc. and Blue Diamond.
10.28(5) Affiliate Loan Agreement dated as of June 30, 1993 by and among
IVAC, Majestic and Boomtown, Inc.
10.29(5) Bridge Loan Agreement dated as of June 30, 1993 by and between IVAC
and Boomtown, Inc.
10.30(11) Amendment No. 1 to Bridge Loan Agreement dated as of November 10,
1993 between IVAC and the Registrant.
10.31(5) Trademark License Agreement dated as of June 30, 1993 by and between
Boomtown, Inc. and Blue Diamond.
10.32(5) Boomtown Stockholders Agreement dated as of June 30, 1993 by and
among Boomtown, Inc., IVAC and Roski.
10.33(5) Standard Form Agreement Between Owner and Designer/Builder, Part 1
Agreement Preliminary Design and Budgeting, dated as of May 10,
1993between IVAC and Commerce Construction Co., Inc. and Standard
Form Agreement Between Owner and Designer/Builder, Part 2
Agreement - FinalDesign and Construction dated as of May 17, 1993
between IVAC and Commerce Construction Co., Inc. and related
documents.
10.34(11) Subordination Agreement dated as of November 10, 1993 between
Majestic, IVAC and the Registrant.
SCHEDULE OF EXHIBITS (CONTINUED)
EXHIBIT
NUMBER DESCRIPTION
123
<PAGE>
10.35(11) Omnibus Consent Agreement dated as of November 10, 1993 between Blue
Diamond, Edward P. Roski, Sr., Roski, the Roski Community Property
Trust, the Roski Senior Revocable Trust, the Registrant, IVAC and
Majestic.
10.36(6) Indenture dated as of November 1, 1993 by and among the Registrant,
Boomtown Casino, Blue Diamond, Louisiana - I Gaming, a Louisiana
Partnership in Commendam (the "Louisiana Partnership"), Louisiana
Gaming Enterprises, Inc. ("LGE"), Mississippi - I Gaming, L.P. (the
Mississippi Partnership"), Bayview Yacht Club, Inc. ("Bayview")
and First Trust National Association.
10.37(7) Purchase Agreement dated as of November 3, 1993 among Boomtown,
Inc., Boomtown Casino, Blue Diamond, the Louisiana Partnership, LGE,
the Mississippi Partnership, Bayview, Oppenheimer & Co., Inc. and
Sutro & Co. Incorporated.
10.38(8) Master Agreement dated as of February 1, 1994 by and between
Boomtown Indiana, Inc., Boomtown Riverboat, Inc., Boomtown, Inc.,
SES Indiana, L.L.C., First SES Indiana, Inc., SES Facilities, Inc.,
SES Gaming, Inc. and Sheldon E. Stunkel.
10.39(8) Agreement of Limited Partnership of Boomtown Landing, L.P., and
Indiana Partnership.
10.40(8) Agreement of Limited Partnership of SES Boat, L.P., an Indiana
limited partnership.
10.41(8) Development and Pre-Opening Services Agreement between Boomtown
Indiana, Inc., and SES Boat, L.P.
10.42(8) Management Agreement between Boomtown Indiana, Inc. and SES Boat,
L.P.
10.43(8) Agreement of Limited Partnership of Boomtown Belle II, L.P., and
Indiana limited partnership.
10.44(8) Agreement of Limited Partnership of Single Riverboat, L.P., and
Indiana limited partnership.
10.45(9) Asset Purchase Sale Agreement dated as of April 27, 1994 by and
between HFS Gaming Corp. and Mississippi - I Gaming, L.P.
10.47(9) Marketing Services Agreement dated as of April 27, 1994 by and
among Boomtown, Inc. and HFS Gaming Corp.
SCHEDULE OF EXHIBITS (CONTINUED)
EXHIBIT
NUMBER DESCRIPTION
124
<PAGE>
10.48(10) Stock Acquisition Agreement and Plan of Reorganization dated
June 30, 1994 by and between Boomtown, Inc. and Roski.
10.49(11) Master Agreement dated as of September 19, 1994, as amended
September 19, 1994, by and between Boomtown Council Bluffs, Inc.
("BCB"), the Registrantand Iowa Gaming Associates, Inc. ("IGA").
10.50(11) Operating Agreement dated September 19, 1994 between BCB and IGA.
10.51(11) Management Agreement dated September 19, 1994 between BCB and IGA.
10.52(11) Development and Pre-Opening Services Agreement dated September 19,
1994 between BCB and Boomtown Iowa, L.C.
10.53(12) Agreement and Plan of Merger and Reorganization dated January 17,
1995, by and among Boomtown, Inc., Tweety Sub., Inc. and National
Gaming Corp.
10.54(12) Guarantee letter dated January 17, 1995 between Hospitality
Franchise Services, Inc., National Gaming Corp. and Boomtown, Inc.
10.55(13) Letter agreement dated March 31, 1995 between Boomtown, Inc., Tweety
Sub., Inc., National Gaming Corp., Hospitality Franchise Systems.,
Inc. and HFSGaming Corp.
10.56(14) Promissory Note dated December 1, 1994 by and between Boomtown, Inc.
and First National Bank of Commerce.
10.57(14) Promissory Note dated December 30, 1994 by and between the Louisiana
Partnership and PDS Financial.
10.58(15) Lease Agreement dated as of March 29, 1995 by and between Marquis
Leasing Company, a Louisiana Corporation and Louisiana-I Gaming,
L.P.
10.59(16) Option Agreement dated as of November 6, 1995 by and between
National Gaming Mississippi, Inc. and Mississippi - I Gaming, L.P.
10.60(16) Marketing Services Agreement Amendment dated as of November 6, 1995
to Marketing Services Agreement dated as of April 27, 1994 by and
among Boomtown, Inc. and HFS Gaming Corporation.
10.61(16) Lease Amendment dated November 6, 1995 to the Lease Agreement dated
as of April 27, 1994 by and among National Gaming Mississippi, Inc.
and Mississippi - I Gaming, L.P.
SCHEDULE OF EXHIBITS (CONTINUED)
EXHIBIT
NUMBER DESCRIPTION
10.62(16) Articles of Organization Indiana Ventures, LLC
125
<PAGE>
10.63(16) Operations Agreement Indiana Ventures, LLC.
10.64(16) Stock Purchase Agreement for all shares of Pinnacle Gaming
Development Corp. between Switzerland County Development Corp.
(Buyer) and Century Casinos Management, Inc. and Cimarrron
Investment Properties Corp. (Sellers).
10.65(16) Option Agreement to lease real property (Parcel I) in Switzerland
County, Indiana, between Daniel Webster, et al (Landlord) and
Indiana Ventures,LLC (Tenant).
10.66(16) Option Agreement to lease real property (Expansion Parcel) in
Switzerland County, Indiana, between Daniel Webster, et al
(Landlord) and IndianaVentures, LLC (Tenant).
10.67(17) Agreement and Plan of Merger dated as of April 23, 1996, among
Hollywood Park, Inc., HP Acquisition, Inc. and Boomtown, Inc.
10.68(17) Voting Agreement dated as of April 23, 1996, by and between
Hollywood Park,Inc., a Delaware corporation, and Timothy J.
Parrott, in his capacity as a stockholder of Boomtown, Inc.
10.69(17) Voting Agreement dated as of April 23, 1996, by and between
Boomtown, Inc.,a Delaware corporation, and R.D. Hubbard, in his
capacity as a stockholder of Hollywood Park, Inc.
10.70(17) Joint Press Release issued on April 24, 1996 by Hollywood Park, Inc.
and Boomtown, Inc.
10.71(18) Agreement between Boomtown and related entities ("Boomtown Group")
and SES Gaming, Inc. and related entities ("SES Group") terminating
the Master Agreement by and between the Boomtown Group and the SES
Group dated February 1, 1994 relating to the proposed gaming
project in Lawrenceburg,Indiana.
10.72(19) Agreement between Boomtown, Hollywood Park and Edward P. Roski, Jr.
("Swap Agreement") effectively terminating the lease of the Blue
Diamond Property and selling virtually all assets and liabilities
effective with the close of Boomtown's merger with Hollywood Park.
10.73 Settlement and Purchase Agreement dated November 18, 1996 among
Louisiana-I Gaming, Inc., Boomtown, Inc. and Eric Skrmetta.
SCHEDULE OF EXHIBITS (CONTINUED)
EXHIBIT
NUMBER DESCRIPTION
126
<PAGE>
(1) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (File No. 33-51968), effective
October 22, 1992.
(2) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K, filed with the SEC on March 18, 1993.
(3) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K, filed with the SEC on April 1, 1993.
(4) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (File No. 33-61198), effective
May 24, 1993.
(5) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K, filed with the SEC on July 28, 1993.
(6) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K, filed with the SEC on December 23, 1993.
(7) Incorporated by reference to the exhibit filed with the Company's
Form 10-K for the fiscal year ended September 30, 1993.
(8) Incorporated by reference to the exhibit filed with the Company's
Form 10-Q for the quarter ended December 31, 1993.
(9) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-4 (File No. 33-70350), effective
May 6, 1994.
(10) Incorporated by reference to the exhibit filed with the Company's
Form 10-Q for the quarter ended June 30, 1994.
(11) Incorporated by reference to the exhibit filed with the Company's
Form 10-K for the fiscal year September 30, 1994.
(12) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K, filed with the SEC on January 25, 1995.
(13) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K, filed with the SEC on April 14, 1995.
(14) Incorporated by reference to the exhibit filed with the Company's
Form 10-Q for the quarter ended March 31, 1995.
(15) Incorporated by reference to the exhibit filed with the Company's
Form 10-Q for the quarter June 30, 1995.
SCHEDULE OF EXHIBITS (CONTINUED)
EXHIBIT
NUMBER DESCRIPTION
127
<PAGE>
(16) Incorporated by reference to the exhibit filed with the Company's
Form 10-K for the fiscal year September 30, 1995.
(17) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K, filed with the SEC on April 23, 1996.
(18) Incorporated by reference to the exhibit filed with the Company's
Form 10-Q for the quarter ended March 31, 1996.
(19) Incorporated by reference to the exhibit filed with the Company's
Form 10-Q for the quarter ended June 30, 1996.
128
<PAGE>
EXHIBIT 10.73
SETTLEMENT AND PURCHSE AGREEMENT
This agreement is entered into between Louisiana Gaming Enterprises, Inc.,
a Louisiana Corporation, Boomtown, Inc., a Delaware Corporation ("Boomtown"),
and Eric Skrmetta ("Skrmetta"), a limited partner, as of this 18th day of
November 1996.
RECITALS
The parties have entered into an Amended and Restated Partnership Agreement
of Louisiana-I Gaming, a Louisiana partnership in commendam (the
"Partnership"), on September 16, 1993. The parties have also entered into an
Equity Conversion Agreement, a Subscription Agreement, and Power of Attorney as
of the same date. A Modification Agreement was executed as of August 10, 1993
to which Eric Skrmetta is a successor in interest to Skrmetta Group, Inc. and
Skrmetta Machinery Corporation.
Disagreements have arisen between the parties with regard to the Amended
Partnership Agreement which disagreement has resulted in the filing of a First
Restated and Amended Partnership Agreement which disagreement has resulted in
the filing of a First Restated and Amended Demand for Arbitration with the
American Arbitration Association, Arbitration No. 79-180-00045-96.
The parties wish to resolve any and all disputes between each other with
regard to the Partnership, the Modification Agreement, and the Equity
Conversion Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. In return for the agreement to pay $5,673,000.00, Skrmetta hereby
releases Boomtown, Inc., the Partnership, and Louisiana Gaming
Enterprises, Inc. from any and all claims, liabilities, causes of
action of any kind and nature arising from or relating to the Amended
and Restated Partnership Agreement, the Modification Agreement, and the
Equity Conversion Agreement, including any and all claims from any
third party that was a predecessor in interest to Skrmetta, including
the "Approved Designees" as defined in the Modification Agreement.
This release is effective immediately. Further, Skrmetta hereby sells
and assigns to Boomtown, his 7.5% Limited Partnership interest in the
Partnership free and clear of any liens, encumbrances, or claims,
payment to be upon the terms as set for below. This transfer is
subject to all necessary gaming approvals and consent, ("Regulatory
Approvals"), and shall take place at a closing to occur within ten (10)
days after such Regulatory Approvals. Subject to the Regulatory
Approvals, the time of transfer shall be considered effective November
18, 1996.
2. Boomtown shall make the following payments in consideration of the
release and the purchase of the Skrmetta limited partnership interest:
a. $500,000.00 to be paid on or before December 5, 1996;
b. $5,173,000.00 to be paid not later than August 10, 1997.
130
<PAGE>
The amount set forth in subparagraph (b) shall be reduced by a discount
which is calculated on a daily basis based upon the prime rate of
interest as charged by the Bank of America, San Francisco branch, for
the time that the amount, or any portion thereof, is paid in full prior
to August 10, 1997.
3. Skrmetta consents to the restructuring of current debt or assumption
of additional debt by the Partnership or Boomtown to the extent his
consent might be required and agrees to execute any necessary documents
reflecting that consent.
4. Boomtown, Louisiana Gaming Enterprises, Inc. and the Partnership agree
to release Skrmetta from any and all claims, liabilities, or causes of
action arising out of any action of Skrmetta related to the Partnership,
the Modification Agreement, Equity Conversion Agreement (excluding from
any release those matters relating to the Mississippi Agreement, defined
in the Modification Agreement). This release shall be effective
immediately.
5. Both parties represent and warrant that they have been represented by
lawyers, accountants, and experts of their choosing, and that while
there are disagreements existing with regard to the disputes regarding
the Partnership, the Modification Agreement, the Equity Conversion
Agreement, and the matters set forth in the arbitration, that this
Agreement is in settlement of those disputes. Further, neither part
has relied upon the other for any representations or warranties on this
matter and each consents to and waives any claims of a breach of
fiduciary duty arising from these negotiations.
6. Each party signatory hereto represents and warrants that they have full
and complete authority to execute and make the Agreement binding upon
their respective entities, predecessors, principals, and their
affiliates. Skrmetta represents and warrants that the 7.5% limited
partnership interest in his entire interest in the Partnership, and
that he has not transferred, or agreed to transfer, any of that
interest to any person.
7. The parties agree to execute each additional documents as are necessary
to complete this transaction including, but not limited to, deeds of
conveyance, the filing of any and all necessary gaming applications,
and any required state partnership filings.
8. The parties agree that the costs associated with the arbitration in this
matter will be split equally between them. Additionally, each party to
this Agreement will bear their own attorneys' fees and costs.
9. The parties agree that upon execution of this Agreement, notification
will be sent to the American Arbitration Association that the pending
arbitration in this matter shall be canceled and that this matter is
being withdrawn from arbitration.
10. This Agreement may be executed by facsimile signature.
LOUISIANA GAMING ENTERPRISES, INC.
131
<PAGE>
BY: /s/ Eric F. Skrmetta BY: /s/ Robert F. List
-------------------- ------------------
Eric Skrmetta, individually and as Robert F. List,
Limited Partner and on behalf of Senior Vice President
Skrmetta Machinery Corporation
and the Skrmetta Group, Inc.
BOOMTOWN, INC.
BY: /s/ Patrick Patrick, Esq. BY: /s/ Robert F. List,
------------------------- -------------------
Attorney for Eric Skrmetta Senior vice President/Corporate Counsel
BY: /s/ Ed Conway, C.P.A.
---------------------
For Eric Skrmetta
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the 1990 Stock Option Plan, the 1992 Director Option
Plan and the 1993 Employee Stock Bonus Plan of Boomtown, Inc. and the
Registration Statement (Form S-8) pertaining to the Boomtown, Inc. 401 (k) Plan
of our report dated November 15, 1996, with respect to the consolidated
financial statements and schedule of Boomtown, Inc. included in its annual
Report (Form 10-K) for the year ended September 30, 1996.
Reno, Nevada
December 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 23,100,628
<SECURITIES> 0
<RECEIVABLES> 941,657
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<CURRENT-ASSETS> 36,677,590
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0
0
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