UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-22436
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<CAPTION>
<S> <C> <C>
Delaware Lady Luck Gaming Corporation 88-0295602
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
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206 North Third Street, Las Vegas, Nevada 89101
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (702) 477-3000
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of October 31, 1997,
there were 29,285,698 shares of common stock, $.001 par value per share,
outstanding.
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PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
ASSETS
<S> <C> <C>
September 30, 1997 December 31, 1996
Current assets:
Cash and cash equivalents................................ $ 19,334 $ 15,490
Accounts receivable, net................................. 16,985 1,276
Inventories.............................................. 1,178 1,198
Prepaid expenses......................................... 1,876 2,620
Total current assets................................. 39,373 20,584
Property and equipment, net of accumulated
depreciation and amortization of $37,524 and
$28,736 as of September 30, 1997 and December 31,
1996, respectively....................................... 167,554 173,119
Other assets:
Pre-opening costs........................................ 1,416 1,353
Deferred financing fees and costs net of
accumulated amortization of $3,131 and
$2,482 as of September 30, 1997 and
December 31, 1996, respectively...................... 2,956 3,605
Investment in unconsolidated affiliates, net............. 8,732 21,449
Other.................................................... 3,090 3,608
16,194 30,015
TOTAL ASSETS.................................................. $ 223,121 $ 223,718
The accompanying notes are an integral part of these condensed consolidated balance sheets.
</TABLE>
2
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LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
September 30, 1997 December 31, 1996
Current liabilities:
Current portion of long-term debt........................ $ 2,438 $ 3,385
Accrued interest......................................... 1,832 1,825
Accounts payable......................................... 5,199 4,416
Construction and retention payables...................... 1,957 1,957
Other accrued liabilities................................ 7,648 8,309
Total current liabilities............................ 19,074 19,892
Long-term debt:
Mortgage notes payable................................... 173,500 173,500
Other long-term debt..................................... 6,196 7,581
Total long-term debt................................. 179,696 181,081
Total liabilities............................... 198,770 200,973
Commitments and contingencies (Notes 6, 7 and 8)
Series A mandatory cumulative redeemable preferred
stock, $41.25 and $37.89, as of September 30, 1997
and December 31, 1996, respectively per share
liquidation value, 1,800,000 shares authorized,
433,638 shares issued and outstanding.................... 17,888 16,430
Stockholders' equity:
Common stock, $.001 par value, 75,000,000
shares authorized, 29,285,698 shares issued
and outstanding ..................................... 29 29
Additional paid-in capital............................... 31,382 31,382
Accumulated deficit...................................... (24,948) (25,096)
Total stockholders' equity........................... 6,463 6,315
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY..................................... $ 223,121 $ 223,718
The accompanying notes are an integral part of these condensed consolidated balance sheets.
</TABLE>
3
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LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Casino.......................................... $ 32,404 $ 38,319 $ 104,246 $ 109,664
Food and beverage............................... 4,261 4,790 12,851 12,602
Hotel........................................... 1,102 1,299 3,208 2,879
Equity in net income of
unconsolidated affiliates................... 1,768 789 4,144 3,450
Other........................................... 1,328 2,053 4,190 4,377
Gross revenues.............................. 40,863 47,250 128,639 132,972
Less: Promotional allowances................ (3,258) (3,520) (9,748) (9,079)
Net revenues................................ 37,605 43,730 118,891 123,893
Costs and expenses:
Casino.......................................... 13,603 15,454 42,802 42,248
Food and beverage............................... 1,580 1,975 5,064 5,358
Hotel........................................... 535 643 1,701 1,358
Other........................................... 60 16 202 159
Selling, general and
administrative.............................. 12,763 14,546 39,252 40,696
Related party management/license fees........... 314 881 1,250 1,924
Depreciation and amortization................... 2,970 2,955 8,899 8,348
Settlement of a claim........................... - 1,100 - 1,100
Loss on sale of investment in unconsolidated
affiliate................................... 1,912 - 1,912 -
Project development cost write-downs
and reserves................................ 50 - 50 -
Pre-opening expenses............................ - - - 247
Total costs and expenses.................... 33,787 37,570 101,132 101,438
Operating income .................................... 3,818 6,160 17,759 22,455
Other income (expense):
Interest income................................. 173 191 543 829
Interest expense................................ (5,355) (5,695) (16,750) (16,356)
Other........................................... 25 156 113 253
Total other income (expense)................ (5,157) (5,348) (16,094) (15,274)
Income (loss) before income tax provision............ (1,339) 812 1,665 7,181
Income tax provision (benefit)....................... (46) (175) 59 69
NET INCOME (LOSS).................................... (1,293) 987 1,606 7,112
Preferred stock dividends............................ (500) (446) (1,458) (1,302)
Income applicable to common stockholders............. $ (1,793) $ 541 $ 148 $ 5,810
NET INCOME (LOSS) PER SHARE
Applicable to common stockholders............... $ (0.06) $ 0.02 $ 0.01 $ 0.20
Weighted average number of common shares
outstanding..................................... 29,285,698 29,285,698 29,285,698 29,285,698
The accompanying notes are an integral part of these condensed consolidated statements.
</TABLE>
4
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LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income................................... $ 1,606 $ 7,112
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization................ 8,899 8,348
Amortization of bond offering
fees and costs............................ 649 649
Loss on sale of investment in
unconsolidated subsidiary................. 1,912 -
Equity in net income of unconsolidated
affiliates................................ (4,144) (3,450)
Project development cost write-downs
and reserves.............................. 50 -
(Increase) decrease in assets:
Accounts receivable....................... (459) (429)
Inventories............................... 20 (244)
Prepaid expenses.......................... 744 175
Increase (decrease) in liabilities:
Accounts payable.......................... 783 1,810
Accrued interest.......................... 7 (524)
Other accrued liabilities................. (941) (898)
Federal income taxes payable.............. (21) (153)
Net cash provided by (used in)
operating activities......................... 9,105 12,396
Cash flows from investing activities:
Purchase of property and equipment........... (2,716) (19,514)
Construction and retention payables.......... - (1,169)
Pre-opening costs............................ (63) (228)
Investments in unconsolidated affiliates - (10)
Restricted cash.............................. - 8,858
Other assets................................. 468 (568)
Net cash provided by (used in) investing
activities................................... (2,311) (12,631)
The accompanying notes are an integral part of these condensed consolidated statements.
</TABLE>
5
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LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands, except supplemental schedule)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from financing activities:
Issuance of notes payable................... - 40
Payments on debt and slot contracts......... (2,950) (4,636)
Net cash provided by (used in) financing
activities.................................. (2,950) (4,596)
Net increase (decrease) in cash and cash
equivalents................................. 3,844 (4,831)
Cash and cash equivalents,
beginning of period......................... 15,490 22,148
Cash and cash equivalents, end of period $ 19,334 $ 17,317
Supplemental disclosures of cash flow
information:
Cash paid during the period for
interest (net of amount capitalized
of $289 and $514 for the nine
months ended September 30, 1997
and 1996, respectively) .............. $ 16,094 $ 16,231
Income taxes paid........................ $ 80 $ 225
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The Company entered into an agreement to sell its equity investment in the
Bally's Joint Venture effective September 30, 1997 for $15,250,000. On November
3, 1997, after receiving certain regulatory approvals, such sales price was
remitted as cash to the Company and the account receivable was satisfied.
The liquidation value of the Series A mandatory cumulative redeemable
preferred stock increased by approximately $1,458,000 and $1,302,000 for the
nine month periods ended September 30, 1997 and 1996, respectively.
On July 3, 1996, Magnolia Lady, Inc. acquired the Riverbluff for
approximately $1,000,000, including approximately $600,000 cash and a
non-recourse mortgage note for the balance.
On April 15, 1996, Lady Luck Mississippi acquired the River Park for
approximately $4,000,000, including approximately $1,000,000 cash and a
non-recourse mortgage note for the balance.
The Company entered into contracts for the purchase of slot machines and,
other equipment which totaled approximately $618,000 and $3,766,000 during the
nine month periods ended September 30, 1997 and 1996, respectively.
The accompanying notes an integral part of these condensed consolidated
statements.
6
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The Company and Basis of Presentation
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
Company's 1996 Annual Report on Form 10-K. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. The results for the three and nine
month periods ended September 30, 1997 are not necessarily indicative of future
financial results. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates. Among the estimates made by
management is the evaluation of the recoverability of the carrying values of the
land held for development and the projects under development by Lady Luck
Vicksburg, Inc. and Lady Luck Kimmswick, Inc. and the carrying value of Lady
Luck Biloxi, Inc.'s and Gold Coin Inc.'s long-lived assets. The Company has made
certain financial statement reclassifications for the three and nine month
periods ended September 30, 1996 in order to classify amounts in a manner
consistent with the three and nine month periods ended September 30, 1997.
The consolidated financial statements of Lady Luck Gaming Corporation
("LLGC"), a Delaware corporation, include the accounts of LLGC and its
subsidiaries (collectively the "Company"). The Company's operations primarily
include those of LLGC, Lady Luck Gaming Finance Corporation ("LLGFC"), a
Delaware corporation; Lady Luck Mississippi, Inc. ("LLM"), Lady Luck Biloxi,
Inc. ("LLB"), Lady Luck Gulfport, Inc. ("LLG"), Lady Luck Vicksburg, Inc.
("LLV") and Lady Luck Tunica, Inc. ("LLT"), each a Mississippi corporation
(collectively the "Mississippi Companies"); Gold Coin Incorporated ("GCI"), a
Delaware corporation; Lady Luck Kimmswick, Inc. ("LLK"), a 93% owned Missouri
corporation; Magnolia Lady, Inc. ("MLI"), a Mississippi corporation; Lady Luck
Quad Cities, Inc. ("LLQC"), a Delaware corporation; and Old River Development,
Inc. ("ORD"), a Mississippi corporation. The Company also owns investments in
joint ventures with BRDC and Bally's (see Note 4) which are accounted for under
the equity method. LLGC and its subsidiaries were organized to develop and
operate gaming and hotel properties in emerging jurisdictions.
LLGC and LLGFC were formed in February 1993, pursuant to an Investment
Agreement dated October 20, 1992 between Andrew H. Tompkins, Chairman and CEO of
LLGC, certain affiliates of Mr. Tompkins and certain holders of equity and debt
securities of GCI (the "Investment Agreement"). Pursuant to the Investment
Agreement, Mr. Tompkins indirectly contributed all outstanding common stock of
the Mississippi Companies to LLGFC in exchange for 550,000 shares of LLGC Class
B Common Stock and 216,819 shares of LLGC Series A Mandatory Cumulative
Redeemable Preferred Stock ("Series A"), liquidation value of $5,420,000. In
connection with the contribution of the stock of the Mississippi Companies, Mr.
Tompkins received $3,734,000 which represented the historical carrying value of
the net assets of $13,400,000 in excess of the capital contribution required by
the Investment Agreement. LLM began dockside casino operations on February 26,
1993 in Natchez, Mississippi and acquired and took over operation of the
147-room River Park in Natchez, Mississippi on April 15, 1996; GCI reopened on
May 28, 1993; LLB began dockside casino operations on December 13, 1993 in
Biloxi, Mississippi; MLI, which does business as Lady Luck Rhythm & Blues,
commenced dockside gaming operations on June 27, 1994 in Coahoma County,
Mississippi, commenced operation of a 173-room hotel on August 16, 1994,
commenced gaming operations of Country Casino and the Pavilion, as described
below, on May 21, 1996 and acquired and took over operation of the 120-room
Riverbluff in Helena, Arkansas on July 3, 1996; LLQC commenced operation of the
Bettendorf Joint Venture on April 21, 1995 (see Note 4); ORD commenced operation
of a 240-room hotel on August 24, 1994 contributed it to the Bally's Joint
Venture in March 1995 and sold its equity investment to Bally's effective
September 30, 1997 (see Note 4); and LLQC and BRDC commenced casino operations
of the Bettendorf Joint Venture on April 21, 1995 (see Note 4). All of the other
Mississippi Companies and LLK are in various stages of development and have no
operating history.
7
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Certain Risks and Uncertainties
The Company's operations in Mississippi, Iowa and Colorado are dependent on
the continued licensability or qualifications of the Company and its
subsidiaries that hold the gaming licenses in these jurisdictions. Such
licensing and qualifications are reviewed periodically by the gaming authorities
in these states.
Mississippi Gaming Commission regulations require licensees to invest
certain minimum amounts in land-based, non- gaming infrastructure (the
"Land-Based Requirement"). The Mississippi Gaming Commission (the "Commission")
found, during the quarter ended March 31, 1997, that LLB complied with the
Land-Based Requirement.
A significant portion of the Company's consolidated revenues and operating
income are generated by the Company's Coahoma County, Mississippi casino
operations. These casinos are highly dependent on patronage by residents in
Arkansas. A change in general economic conditions, closure of the Helena Bridge
or a change in the extent and nature of regulations enabling casino gaming in
Arkansas could adversely affect these casinos' future operating results.
3. Net Income Per Share
Net income per share is computed using the weighted average number of
common shares and common stock equivalents, if dilutive, actually outstanding
during the period. Common stock equivalents represent the shares that would be
outstanding assuming exercise of dilutive stock options. No common stock
equivalents are included in the computation for the three and nine month periods
ended September 30, 1997 and 1996, as the effect would be anti-dilutive or would
dilute earnings per share by less than three percent.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS No. 128").
SFAS No. 128 establishes new accounting standards for the computation and
financial statement presentation of earnings per share data. SFAS No. 128 is
effective for statements issued for periods ending after December 15, 1997 and
earlier implementation is not permitted. The Company expects that there will be
no material effect upon implementing SFAS No. 128 on its earnings per share
calculations.
4. Investment in Unconsolidated Affiliates
The Company's investments in joint ventures with Bettendorf Riverfront
Development Company ("BRDC") and Bally's Entertainment Corporation ("Bally's")
are accounted for under the equity method and the Company's portion of income or
loss from the joint ventures is included in Equity in Net Income of
Unconsolidated Affiliates in the accompanying Condensed Consolidated Statements
of Operations for the three and nine month periods ended September 30, 1997 and
1996.
In December 1994, the Company entered into a joint venture (the "Bettendorf
Joint Venture") with BRDC to complete and operate a casino in Bettendorf, Iowa
("Lady Luck Bettendorf"). The joint venture agreement required that the Company
and BRDC each contribute cash to the Bettendorf Joint Venture of $3.0 million in
return for a 50% ownership interest. In addition, BRDC is leasing certain real
property to the Bettendorf Joint Venture at the lease rate of $150,000 per
month. The Company is leasing a gaming vessel with a cost of $21,635,000 and a
carrying value net of accumulated depreciation as of September 30, 1997 and
December 31, 1996 of $19,508,000 and $20,168,000, respectively, to the
Bettendorf Joint Venture for approximately $189,000 per month plus applicable
taxes, which amount was determined based upon the cost of the assets and the
Company's cost of capital at the time the lease was consummated. In addition,
the Company is leasing certain gaming equipment with a cost of $3,705,000 and a
carrying value net of accumulated depreciation as of September 30, 1997 and
December 31, 1996 of $2,330,000 and $2,755,000, respectively, to the Bettendorf
Joint Venture, as discussed below, for approximately $122,000 per month net of
applicable taxes, which amount was determined based upon the cost of the assets
and the Company's cost of capital at the time the lease was consummated.
8
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Bettendorf Joint Venture is currently constructing a $39.5 million
expansion project pursuant to its master-plan. The project, which began
construction June 23, 1997, is planned to include an approximately 250 room
hotel, 47-slip marina, 500-car parking garage, a bypass over the nearby railroad
to improve access and a fully enclosed walkway to the riverboat casino. The
project financing is non-recourse to the Company and includes a $17.5 million
bank first mortgage note, $5.0 million second mortgage from an affiliated
company of BRDC, $7.5 million in tax increment financing from the City of
Bettendorf to be repaid from property taxes and in exchange for deeding the
overpass to the City of Bettendorf. The cost of the overpass is not expected to
exceed such financing from the City of Bettendorf. The balance of the expansion
project's cost is to be paid from the Bettendorf Joint Venture's cash on hand.
The project is scheduled to be completed in the Fall of 1998.
The Company's rental income relating to these leases for the three and nine
month periods ended September 30, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Gaming vessel lease $ 566 $ 595 $ 1,699 $ 1,785
Gaming equipment lease 367 829 1,099 1,283
Total Bettendorf lease
rental income $ 933 $ 1,424 $ 2,798 $ 3,068
</TABLE>
Lady Luck Bettendorf commenced operations on April 21, 1995. All net
profits and losses from operations of Lady Luck Bettendorf are allocated equally
between the Company and BRDC. The Company has also been granted the right to
manage Lady Luck Bettendorf with substantially the same terms and fees as the
Company's wholly owned casinos, less $37,500 per month, with up to $325,000
annually of the fees received by the Company paid to BRDC as consultants.
Lady Luck Bettendorf incurred management fees for the three and nine month
periods ended September 30, 1997 and 1996 as follows (in thousands):
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<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Lady Luck Bettendorf management fees $ 416 $ 389 $ 1,212 $ 1,270
</TABLE>
Summarized balance sheet information for the Bettendorf Joint Venture as of
September 30, 1997 and December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
<S> <C> <C> <C>
Current assets $ 6,078 $ 5,935
Property and equipment, net 17,232 12,435
Total assets $ 23,310 $ 18,370
Current liabilities $ 4,043 $ 5,492
Long-term liabilities 1,803 1,107
Members' equity 17,464 11,771
Total liabilities and
members' equity $ 23,310 $ 18,370
</TABLE>
9
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Summarized results of operations for the Bettendorf Joint Venture for the
three and nine month periods ended September 30, 1997 and 1996 are as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net revenues $ 17,954 $ 17,192 $ 54,427 $ 48,869
Costs and expenses 15,791 15,281 48,734 43,709
Net income $ 2,163 $ 1,911 $ 5,693 $ 5,160
</TABLE>
The Company entered an agreement effective September 30, 1997 to sell its
35% minority interest in Bally's Saloon, Gambling Hall and Hotel in Tunica,
Mississippi to Hilton Hotels Corporation, the majority owner and manager of the
property. In March 1995, the Company had formed a joint venture with affiliates
of Bally's to complete a casino/hotel project in northern Tunica County,
Mississippi. Upon formation of the Bally's Joint Venture, ORD contributed its
existing 240-room hotel in northern Tunica County, as well as other related
assets and liabilities, with a total net cost of $16.1 million, to the joint
venture. Bally's contributed a closed dockside casino (the "Dockside Casino")
which was, at the time of such contribution, located at Mhoon Landing in
southern Tunica County, and certain other assets to the joint venture. The
Dockside Casino relocated to the ORD hotel site. The Bally's Joint Venture was
owned 58% by Bally's, 35% by ORD and 7% by D.J. Brata, a former 11% minority
shareholder of ORD. Hotel operations under Bally's management commenced in April
1995 and casino operations commenced in December 1995.
Pursuant to the Partnership Interest Redemption Agreement, on November 3,
1997, the Company received $15,250,000 cash for its investment after it received
certain regulatory approvals. At September 30, 1997, an account receivable for
the sales price had been established and the reductions in investment in
unconsolidated affiliates and related assets had been made. The Company has 180
days after receiving the $15,250,000 cash to invest the money in a Related
Business as defined in the indenture covering the 2001 Notes (as defined below).
If the Company does not make an investment or does not invest the $15,250,000
cash in a Related Business within 180 days, under certain circumstances, the
Company must make an offer to repurchase a portion of the 2001 Notes at a price
of 101% of par for the amount of the proceeds that was not invested in a Related
Business. The sale resulted in a loss of $1,912,000 which represents the
difference between the sales price and the net investment in the Bally's Joint
Venture and related assets. In 1995, the Company had provided a reserve of
$350,000 relating to its investment in the Bally's Joint Venture. Also, the
Company's net investment included, among other items, $1,100,000 representing
the Company's recognition of its cumulative 35% share of the Bally's Joint
Venture's net income for which no cash had been received to date.
Summarized balance sheet information for the Bally's Joint Venture as of
September 30, 1997 and December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
<S> <C> <C>
Current assets $ 11,099 $ 8,630
Property and equipment, net 49,226 51,537
Other assets 868 1,041
Total assets $ 61,193 $ 61,208
Current liabilities $ 6,567 $ 7,279
Long-term liabilities 5,238 6,994
Partners' capital 49,388 46,935
Total liabilities and
partners' capital $ 61,193 $ 61,208
</TABLE>
10
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Summarized results of operations for the Bally's Joint Venture for the
three and nine month periods ended September 30, 1997 and 1996 are as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net revenues $ 17,095 $ 15,639 $ 48,836 $ 54,875
Costs and expenses 15,133 16,067 45,129 52,340
Net income (loss) $ 1,962 $ (428) $ 3,707 $ 2,535
</TABLE>
Net loss of the Bally's Joint Venture for the nine month period ended
September 30, 1996 includes pre-opening expenses of $3.3 million which were
fully expensed prior to the beginning of the quarter ended September 30, 1996.
5. Long-Term Debt
At September 30, 1997 and December 31, 1996, long-term debt of the Company
consisted of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, 1997 December 31, 1996
11 7/8% First Mortgage Notes; quarterly payments
of interest only; due March 2001; collateralized by
substantially all assets of the Company (the "2001
Notes").................................................... $ 173,500 $ 173,500
Note payable to a corporation; monthly payments of
interest only at 10%; principal due July 2001,
collateralized by a deed of trust.......................... 2,750 2,750
Note payable to a corporation; annual payments of
principal of $119 plus accrued interest at 8%; due
June 2003; collateralized by a land deed of trust.......... 714 833
Notes payable to corporations; monthly payments of
principal and interest at rates up to prime plus 7%;
due through May 1998 secured by the equipment 1,729 3,589
Mortgage note payable to a corporation; quarterly
payments of principal and interest at prime plus
1 1/2% based on a 20 year amortization; due
April 2006; collateralized by a deed of trust.............. 2,813 2,925
Note payable to a corporation; quarterly payments of
principal and accrued interest at 9%; due
October 1998; collateralized by a deed of trust............ 220 385
Other.......................................................... 408 484
182,134 184,466
Less: current portion......................................... (2,438) (3,385)
Total long-term debt...................................... $ 179,696 $ 181,081
</TABLE>
11
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Indenture dated February 17, 1994, as amended and supplemented,
relating to the 2001 Notes (the "Indenture") provides for, among other things,
restrictions on the Company's and certain of its subsidiaries' abilities (a) to
pay dividends or other distributions on its capital stock, (b) to incur
additional indebtedness, (c) to make asset sales, (d) to engage in other lines
of business, and (e) to maintain a minimum consolidated net worth, as defined.
The Company believes it was in compliance with the Indenture as of September 30,
1997 and December 31, 1996.
6. Employment Agreements
On October 24, 1994, LLGC entered into Letter Agreements with Alain J.
Uboldi, LLGC's President, Chief Operating Officer and Director, and Rory J.
Reid, LLGC's Senior Vice-President, General Counsel, Secretary and Director (the
"Agreements"). The Agreements provide that in the event of a Change of Control,
as defined in the Agreements, and the subsequent termination of the employment
of either Mr. Uboldi or Mr. Reid, under certain circumstances, LLGC would be
required to pay to each of Mr. Uboldi and Mr. Reid a lump sum severance payment
equal to 2.99 times the sum of their respective annual base salary plus the
amount of any bonus paid to such executive in the year preceding such
termination. In the event of such termination, Mr. Uboldi and Mr. Reid would
also receive in cash an amount equal to the product of the number of options
held by such executive and the difference between the exercise price of each
option held by Mr. Uboldi or Mr. Reid (whether or not fully exercisable) and the
then current price of LLGC's common stock, as defined. Further, in connection
with the Agreements, Mr. Uboldi and Mr. Reid would receive life, disability,
accident and health insurance benefits substantially similar to those they are
receiving immediately prior to their termination for a 36-month period after
such termination.
7. Litigation
Shareholder Class Action Lawsuits
In 1995, LLGC was named as a defendant in a purported shareholder class
action lawsuit alleging violations by the Company of Sections 11, 12 and 15 of
the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of
1934 for alleged material misrepresentations and omissions in connection with
LLGC's 1993 prospectus and initial public offering of Common Stock. The
complaint seeks, inter alia, injunctive relief, rescission and unspecified
compensatory damages. In addition to the Company, the complaint also names as
defendants Andrew H. Tompkins, Chairman and Chief Executive Officer of LLGC,
Alain Uboldi, Director and Chief Operating Officer of LLGC, Michael Hlavsa, the
former Chief Financial Officer of LLGC, Bear Stearns & Co., Inc. and Oppenheimer
& Co., Inc., who acted as lead underwriters for the initial public offering.
LLGC has retained outside counsel to respond to the complaint. On October 8,
1997, the Company was served with an order of the court dismissing all of the
Plaintiff's Section 10(b) and eleven of the Plaintiff's sixteen Section 11, 12
and 15 allegations with prejudice for failing to adequately state a claim. The
court also ordered the Plaintiffs to file an amended complaint regarding the
five Section 11, 12 and 15 claims which were not dismissed with prejudice. The
lawsuit is still in the preliminary stages and its outcome cannot be predicted
with any degree of certainty; however, the Company believes, based in part on
advice of counsel, that it has meritorious defenses.
Greek Lawsuits
The Company and certain of its joint venture partners (the "Defendants")
are defendants in a lawsuit brought by the country of Greece and its Minister of
Tourism before the Greek Multi-Member Court of First Instance. The action
alleges that the Defendants failed to make certain payments in connection with
the gaming license bid process for Patras, Greece. The payments the Company is
alleged to have been required to make aggregate approximately 2.1 billion
drachma (which was approximately $7,611,000 as of October 27, 1997 based upon
published exchange rates). Although it is difficult to determine the damages
being sought from the lawsuit, the action may seek damages up to such aggregate
amount. The Company's Greek counsel is defending the lawsuit. The cases are
still in their preliminary stages and their outcome cannot be predicted with any
degree of certainty; however, the Company believes, based in part on advice of
counsel, that it has meritorious defenses.
12
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A Greek architect filed an action against the Company alleging that he was
retained by the Company to provide professional services with respect to a
casino in Loutraki, Greece. The plaintiff in such action sought damages of
approximately $800,000. On July 29, 1996, the Company's Greek counsel was served
with a decision by the Athens Court of First Instance in such matter. The Greek
Court entered judgment against the Company in the amount of approximately 87.1
million drachma (which was approximately $316,000 as of October 27, 1997 based
upon published exchange rates). The Company has appealed the Court's decision
and has been informed by its Greek counsel that it has meritorious grounds to
prosecute such appeal; accordingly, no reserve has been provided for this
matter.
Other Matters
On November 5, 1996, the United States Bankruptcy Court for the Northern
District of Mississippi dismissed a lawsuit which had been brought by Superior
Boat Works, Inc. ("Superior") against LLM on or about September 23, 1993.
Superior had previously done construction work for LLM on its Natchez barge
("Lady Luck Natchez"), as well as some minor preparatory work on one other barge
of the Company. Such proceeding alleged damages of approximately $47,000,000, of
which approximately $3,400,000 was alleged for additional construction work on
Lady Luck Natchez and the remaining amount was alleged for unjust enrichment,
for causing the bankruptcy of Superior and for future work Superior expected to
perform for the Company. Superior has appealed the decision to dismiss the
action. The Company, based in part on the advice of its counsel, believes that
it has meritorious defenses and does not believe that the appeal of the decision
will have a material adverse effect on the Company's financial condition or
results of operations.
8. Commitments and Contingencies
Lease Commitments
MLI leases approximately 1,000 acres of land surrounding the Helena Bridge
which connects Mississippi to Arkansas. The MLI lease provides that the monthly
lease payment would increase by $150,000 per month beginning July 1, 1995 until
an additional casino either north or south of the Lady Luck Rhythm & Blues
property commenced operation. In accordance with the lease agreement, this
additional rent was paid by the Company. With the opening of the Country Casino
on May 21, 1996, this provision was satisfied and the rental payment reverted to
a percentage basis.
LLGC on its own or through its operating subsidiaries, has entered into a
series of leases and options to lease in various locations where it is operating
or intends to develop and operate dockside casinos. The leases are primarily for
a term of 40 years from the date of execution and are cancelable at the option
of LLGC with a maximum period of notice of 60 days, with the exception of
certain leases entered into by LLB and LLG which are cancelable upon six months
notice on the fifth anniversary of the commencement date of such leases and upon
six months notice on any fifth anniversary date thereafter. In addition, LLGC,
on its own or through its operating subsidiaries, has entered into certain
options to either lease or purchase additional property in other states. Most of
the leases are contingent upon regulatory approval of the lease and all leases
contain certain periodic rent adjustments.
Prior to suspending development of a planned casino in Gulfport,
Mississippi, the Company entered into three leases for real property (the
"Gulfport Lease"). During December 1996, the Company agreed to accept
approximately $400,000 compensation from the Mississippi Department of
Transportation in exchange for surrendering one of these leasehold interests
pursuant to condemnation proceedings. The surrender of the leasehold interest
also released the Company from its remaining obligations under the lease. The
remaining leases currently require annual payments of approximately $830,000 and
provide for future increases based on the Consumer Price Index. The principal
lease is terminable by LLG in November 1998 and requires an annual lease payment
of approximately $550,000 per year through such date. The Company was required
to prepay these lease payments for the twelve months ending November 1998. The
Company was required to make improvements to the leased property of at least
$1.0 million on or before May 8, 1995 (the "Improvement Requirement"). While the
Company has spent in excess of $1.0 million on the Gulfport Project, the
landlord, while not
13
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
now claiming that the Company is in default, has reserved the right to claim
that LLG has not satisfied the Improvement Requirement. The Company has had
discussions with third parties, including joint venture partners, regarding an
assumption of the Gulfport Lease. There can be no assurance that such
negotiations or discussions will be successful. A reserve of approximately
$600,000 was provided as of December 31, 1995 to fully reserve the prepaid lease
payment for the twelve months ending November 1998, and an additional reserve of
approximately $350,000 was provided as of December 31, 1996 to reserve a portion
of future lease payments.
Central City Memorandum of Understanding
During November 1996, GCI entered into a non-binding Memorandum of
Understanding (the "Memorandum") with BWCC, Inc. which does business as
Bullwhackers - Central City ("Bullwhackers"). The Memorandum provides for a
combination of the respective companies' gaming establishments which currently
operate on adjacent real property in Central City, Colorado and the use of, but
not the title transfer or assumption of debt related to, the assets of GCI and
Bullwhackers. Pursuant to the Memorandum, Bullwhackers shall provide resources
and expertise to manage the joint operation subsequent to the completion of
certain capital improvements to be made by GCI to combine the facilities and
improve GCI's gaming equipment, which capital improvements shall in no event
exceed $1.5 million. The Memorandum provides for distributions to be made at
least quarterly in accordance with certain priorities which first recognize the
capital improvements to be made by GCI. The Memorandum provides GCI an option to
purchase the assets of Bullwhackers and gives Bullwhackers an option to purchase
the assets of GCI upon advance written notice after the joint facility commences
gaming operations. In addition, the Memorandum provides a put option for
Bullwhackers to sell its assets to GCI under similar terms. The option price
shall be determined based on carrying amounts or earnings multiples and shall be
at discounted amounts if the sale is within a certain period and shall be in
exchange for certain consideration, a portion of which may include LLGC common
stock. The transactions contemplated by the Memorandum are subject to various
contingencies including, inter alia, governmental approvals. The negotiation of
definitive agreements reflecting the provisions of the Memorandum is continuing.
No assurance can be provided that these contingencies will be satisfied or that
a definitive agreement will be executed, or if executed, that all contingencies
provided for therein will be satisfied.
Construction Commitments
Bettendorf Joint Venture
The Bettendorf Joint Venture is currently constructing a $39.5 million
expansion project pursuant to its master-plan. The project, which began
construction June 23, 1997, is planned to include an approximately 250 room
hotel, 47-slip marina, 500-car parking garage, a bypass over the nearby railroad
to improve access and a fully enclosed walkway to the riverboat casino. The
project financing is non-recourse to the Company and includes a $17.5 million
bank first mortgage note, $5.0 million second mortgage from an affiliated
company of BRDC, $7.5 million in tax increment financing from the City of
Bettendorf to be repaid from property taxes and in exchange for deeding the
overpass to the City of Bettendorf. The cost of the overpass is not expected to
exceed such financing from the City of Bettendorf. The balance of the expansion
project's cost is to be paid from the Bettendorf Joint Venture's cash on hand.
The project is scheduled to be completed in the Fall of 1998.
Lady Luck Kimmswick
The Company has an agreement for the construction of a cruising gaming
vessel in the amount of $16.0 million and as of September 30, 1997,
approximately $6.0 million has been paid under this contract and approximately
$1.9 million is included in construction payables. It is anticipated that this
vessel will be utilized by LLK. However, construction has been discontinued and
is not anticipated to resume until such time as LLK is selected for
investigation by the State of Missouri with regard to its gaming license
application.
14
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Development Stage Projects
In addition to its Operating Casinos, the Company has dockside or riverboat
casino projects in various stages of development in Kimmswick, Missouri and
Vicksburg, Mississippi. The current status of each of these Development Stage
Projects is described below.
Kimmswick, Missouri
On November 30, 1995, LLK entered into an Agreement of General Partnership
with Davis Gaming Company II ("Davis") to form a joint venture (the "Kimmswick
Joint Venture") to construct and operate a hotel and casino (the "Missouri
Project") on an approximately 45-acre parcel of land in Jefferson County,
Missouri (the "Kimmswick Site"). Pursuant to the Kimmswick Agreement, either
party could elect to dissolve the partnership if a gaming license had not been
issued by the gaming authorities in the State of Missouri on or prior to May 31,
1997. As the State of Missouri did not issue on or before that date, LLK and
Davis mutually agreed to dissolve the Kimmswick Joint Venture.
LLK intends to continue to develop the project. The project, as planned,
includes a land-based hotel and a casino onboard two separate vessels. The
Missouri Project is estimated to cost an additional $93.1 million to complete
development of the first two phases. LLK has the rights to the proposed
Kimmswick Site and owns the assets which will be utilized for the Missouri
Project. The Kimmswick Site is located in Kimmswick, Missouri, approximately 25
miles south of St. Louis. The proposed project has received the appropriate
zoning approval from the Jefferson County Planning Commission, and has the
necessary U.S. Army Corps of Engineers 404 permit. Through September 30, 1997,
the Company had expended approximately $8.5 million on the project. Such
investment consists of approximately $6.0 million for construction of the
partially finished cruising vessel and approximately $2.5 million in other costs
associated with the development of the project.
Development of the Missouri Project is subject to approval by gaming
authorities in the State of Missouri. The Company has filed an application
seeking such approval. The State of Missouri investigates applicants at its
discretion and there can be no assurance that the Company's application will be
actively reviewed in future periods.
The Company has provided no reserve for the assets designated for the
Kimmswick Joint Venture. Management believes that the project is viable and that
the assets as of September 30, 1997 are stated at estimated net realizable
value. This assumption is based upon expected future economic, market and gaming
regulatory conditions. Changes in these assumptions could result in changes in
the estimated net realizable value of the property.
Vicksburg, Mississippi
During the quarter ended September 30, 1997, the Company entered into
agreements with Horseshoe Gaming, LLC to form a joint venture to complete and
operate the Vicksburg Project as defined below. The planned casino project in
Vicksburg, Mississippi is expected to be located on approximately 23.9 acres of
land owned by the Company immediately south of the I-20 bridge along the
Mississippi River, with access to Washington Street (the "Vicksburg Project").
The Vicksburg Project will be operated by a wholly owned subsidiary of Horseshoe
Gaming, LLC. Under the terms of the joint venture agreement, the partners will
contribute real property and other previously acquired assets with a combined
value of approximately $42 million. Horseshoe will maintain an equity interest
of 75%, with LLV holding the remaining 25%. The total cost of the project is
initially estimated to be approximately $100 million including the contributed
assets, and will include a riverboat casino, an approximate 200-room hotel, an
800-car parking garage, and additional amenities. The consummation of the
transactions contemplated by the agreements are subject to the fulfillment of
several conditions, including but not limited to, the partners' future agreement
as to the scope and cost of the project, required regulatory approval, and
completion of project financing. Thus, there can be no assurance that the
Company will form the joint venture or, if formed, that the joint venture will
be successful.
15
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A gaming license was granted to LLV on August 18, 1994 and has subsequently
been renewed. As of September 30, 1997, approximately $14.6 million had been
spent by the Company to develop the Vicksburg Project (including approximately
$7.3 million for land). Reserves of $3.8 million were provided in 1994 to reduce
the carrying value of the Vicksburg Project assets to estimated net realizable
value. Management's calculation of net realizable value is based upon
assumptions regarding future economic, market and gaming regulatory conditions
including the viability of the Vicksburg site for the development of a casino
project. Changes in these assumptions could result in changes in the estimated
net realizable value of the property.
Long-lived Assets
Long-lived assets, which are not to be disposed of, including property and
equipment, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. An estimate of undiscounted future cash flows produced by the asset
is compared to the carrying amount to determine whether an impairment exists. If
an asset is determined to be impaired, the loss is measured based on quoted
market prices in active markets, if available. If quoted market prices are not
available, the estimate of fair value is based on the best information
available, including considering prices for similar assets and the results of
valuation techniques to the extent available.
The Company has evaluated the recoverability of LLB's and GCI's long-lived
assets as of September 30, 1997 pursuant to Financial Accounting Standards Board
Statement No. 121. In performing its review for recoverability, the Company
compared the estimated undiscounted future cash flows to the carrying value of
LLB's and GCI's long-lived assets. The carrying value of LLB's and GCI's
long-lived assets were $32.0 million and $9.1 million, respectively, at
September 30, 1997. As the estimated undiscounted future cash flows exceeded the
carrying value of long-lived assets, the Company was not permitted or required
to recognize an impairment loss.
Although the Company's latest evaluation of recoverability has not resulted
in the recognition of an impairment loss, given the additional casino and hotel
capacity being added to the Biloxi, Mississippi market and the disappointing
performance of GCI, management expects to update its assessment during 1997.
These factors and other circumstances affecting managements estimates could, in
the near future, affect the Company's estimate of undiscounted future cash flows
to be generated by LLB and GCI. A change that results in recognition of an
impairment loss would require the Company to reduce the carrying value of LLB
and GCI to fair market value, which may be significantly below the current
carrying value of the long-lived assets.
Leverage
The Company is highly leveraged. As of September 30, 1997, the Company's
total long-term indebtedness was approximately $179.7 million and its
stockholders' equity was approximately $6.5 million. This level of indebtedness
could have important consequences to stockholders. While management believes the
Company will have sufficient cash flow to meet its debt service and other cash
outflow requirements and maintain compliance with the covenants of the
Indenture, as supplemented, during the remainder of 1997, to the extent that a
substantial portion of the Company's cash flow from operations is dedicated to
the payment of principal and interest on its indebtedness, such cash flow would
not be available for other purposes such as general operations, maintenance and
improvement of casino and hotel facilities or expansion of existing sites or
into other gaming markets. Furthermore, the Company's ability to obtain
additional financing in the future for working capital, capital expenditures or
acquisitions may be limited and the Company's level of indeb tedness could limit
its flexibility in planning for, or reacting to, changes in its industry.
16
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Environmental Matters
The Company is subject to certain federal, state and local environmental
protection, health and safety laws, regulations and ordinances that apply to
businesses generally, such as the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, CERCLA, the Occupational Safety and
Health Act, and similar state statutes. The Colorado casino operations of Lady
Luck Central City are located generally within the Central City/Clear Creek
Superfund Site as designated by the EPA pursuant to CERCLA. The Superfund Site
includes numerous specifically identified areas of mine tailings and other waste
piles from former gold mine operations that are the subject of ongoing
investigation and cleanup by the EPA and the State of Colorado. CERCLA requires
cleanup of sites from which there has been a release or threatened release of
hazardous substances and authorizes the EPA to take any necessary response
actions at Superfund sites, including ordering Potentially Responsible Parties
("PRP's") to clean up or contribute to the cleanup of a Superfund site. PRP's
are broadly defined under CERCLA, and include past and present owners and
operators of a site. Courts have interpreted CERCLA to impose strict, joint and
several liability upon all persons liable for response costs.
The Vicksburg Site had been used as a bulk petroleum storage facility since
the early 1950's, and contained above ground storage tanks and barge and truck
loading docks associated with that operation. Known releases of petroleum
products from three of the seven tanks have occurred since 1986, along with
other small releases at various locations on site. The Subsurface Assessment of
the environmental condition of the site by an outside environmental consultant
indicated that certain of the soils at the site were contaminated with petroleum
hydrocarbons and associated volatile organic compounds, and that such
contamination was present in significant concentrations in some locations on
site.
Remediation efforts at the Vicksburg Site have been completed by the seller
at their own expense. On February 21, 1996, the Mississippi Department of
Environmental Quality determined that the environmental remediation conducted by
the seller meets all federal and state standards, and has certified that no
further action is required. However, no assurance can be provided that the
Mississippi Department of Environmental Quality or the Federal Environmental
Protection Agency will not alter target cleanup levels in the future, resulting
in additional cleanup requirements. This would expose the Company to additional
liability as the owner of the property, and could result in a material delay of
the construction of new facilities on-site.
In the course of conducting the environmental investigation at the proposed
site for Lady Luck Gulfport before development of the project was suspended, the
Company identified certain contamination at the site. Pursuant to an
administrative order issued by the Mississippi Department of Environmental
Quality, the Company undertook remedial activities, including soil remediation
and the installation of groundwater monitoring wells. No additional remediation
is currently required, although some additional soil remediation may be required
in the course of obtaining a building permit. Although there can be no
assurances, the Company believes that the cost of such additional soil
remediation, if any, will not be material.
Although the Company knows of no other pre-existing conditions at the
intended sites for its development or pre- development stage projects that will
result in any material environmental liability or delay, there can be no
assurance that pre-existing conditions will not be discovered and result in
material liability or delay to the Company. The Company does not anticipate
making material expenditures with respect to such environmental protection, and
health and safety laws and regulations; accordingly, no accrual for any costs
has been made. However, the compliance or cleanup costs associated with such
laws, regulations and ordinances may result in future additional costs to the
Company's operations.
17
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All statements contained herein that are not historical facts, including
but not limited to, statements regarding the Company's current business
strategy, the Company's prospective joint ventures, asset sales and expansions
of existing projects, and the Company's plans for future development and
operations, are based upon current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties.
Generally, the words "anticipates," "believes," "estimates," "expects" and
similar expressions as they relate to the Company and its management are
intended to identify forward looking statements. Actual results may differ
materially. Among the factors that could cause actual results to differ
materially are the following: the availability of sufficient capital to finance
the Company's business plan on terms satisfactory to the Company; competitive
factors, such as legalization of gaming in jurisdictions from which the Company
draws significant numbers of patrons and an increase in the number of casinos
serving the markets in which the Company's casinos are located; changes in
labor, equipment and capital costs; the ability of the Company to consummate its
contemplated joint ventures on terms satisfactory to the Company and to obtain
necessary regulatory approvals therefor; changes in regulations affecting the
gaming industry; the ability of the Company to comply with the Indenture as
supplemented by the Amendments and Waivers; future acquisitions or strategic
partnerships; general business and economic conditions; and other factors
described from time to time in the Companys reports filed with the Securities
and Exchange Commission. The Company wishes to caution readers not to place
undue reliance on any such forward- looking statements, which statements are
made pursuant to the Private Litigation Reform Act of 1995 and, as such, speak
only as of the date made.
Results of Operations
Three Months Ended September 30, 1997 Compared to the Three Months Ended
September 30, 1996
The Company's gross revenues decreased significantly from $47.3 million in
the three month period ended September 30, 1996 to $40.9 million during the
three month period ended September 30, 1997, a decrease of $6.4 million or 14%.
Decreases in casino revenues at each of the Company's wholly owned subsidiaries
were responsible for $5.9 million of this decrease and food and beverage
revenues at the Lady Luck Rhythm & Blues/Country Casino Complex and Lady Luck
Natchez were responsible for $0.5 million of this decrease. The effect of these
decreases and of certain reclassifications were offset partially by increases in
the Company's equity in net income of unconsolidated affiliates.
Access to the Lady Luck Rhythm & Blues/Country Casino Complex's two
casinos, hotel and pavilion, which operate at the base of the Helena Bridge in
Coahoma County, Mississippi, was severely restricted from July 16, 1997 through
August 3, 1997. On July 16, 1997, a barge with a large boom attachment hit the
Helena Bridge which crosses the Mississippi River and connects Arkansas and
Mississippi. The resulting structural damage to the bridge caused the Arkansas
Department of Transportation to close the bridge. The Lady Luck Rhythm &
Blues/Country Casino Complex's operations are highly dependent upon patronage by
residents of Arkansas. The Lady Luck Rhythm & Blues/Country Casino Complex's
revenues and operating results during the bridge's closure were materially
adversely affected by the bridge's closure. However, based on management's
review of MLI's revenues and operating results after the bridge's reopening,
management believes no permanent material adverse changes have resulted from the
temporarily restricted access.
Primarily due to this disruption, MLI's gross revenues decreased from $25.8
million in the three month period ended September 30, 1996 to $20.7 million
during the three month period ended September 30, 1997, a decrease of $5.1
million or 20%. MLI's slot machine, table games and food and beverage revenues
decreased $3.5 million, $0.9 million and $0.3 million, or 18%, 27% and 15%,
respectively, during the three month period ended September 30, 1997 compared to
the three month period ended September 30, 1996. These declines were also due in
part to increased competition from the nearby Tunica County, Mississippi gaming
market.
LLM's gross revenues decreased from $8.7 million in the three month period
ended September 30, 1996 to $7.8 million during the three month period ended
September 30, 1997, a decrease of $0.9 million or 10%. LLM's slot machine, table
games and food and beverage revenues decreased $0.3 million, $0.4 million and
$0.2 million, or 4%, 31% and 21%,
18
<PAGE>
respectively, during the three month period ended September 30, 1997 compared to
the three month period ended September 30, 1996. This decrease in slot machine
revenues was due to a decline in the win percentage as the amount wagered by
slot machine customers was constant. The decrease in LLM's table games revenues
was due primarily to decreases in the total amount wagered on table games. Table
games wagers decreased in part due to fewer rooms, food and beverage furnished
to customers on a complimentary basis during the comparative periods. This
decrease in complimentary food and beverage was a significant factor in the
decline in gross food and beverage revenues.
Casino revenues at LLB decreased from $7.3 million in the three month
period ended September 30, 1996 to $6.9 million during the three month period
ended September 30, 1997, a decrease of $0.4 million or 5%. This decrease was
primarily due to a decrease in LLB's table games revenues which was the result
of reductions in the total amount wagered by table games customers. The decline
in table games wagers has been due in part to a growing disparity in the
amenities which LLB is able to offer its table games customers in relation to
its competitors, some of which are able to offer on-site hotel rooms and
entertainment.
GCI's slot machine revenues declined $0.4 million between the three month
periods ended September 30, 1997 and 1996. This decrease was due to both a
decrease in the total amount wagered on slot machines and a decrease in the
related win percentage. During these comparative periods, GCI's total amount
wagered on slot machines decreased 16% while the Central City market's total
amount wagered on slot machines increased slightly. GCI's decreases were due in
part to operational changes, an absence of capital improvements at the facility
and increased competition from certain nearby casinos.
During the three month period ended September 30, 1997, the Company's
equity in net income of the Bally's Joint Venture was $0.7 million, a $0.9
million increase from the $0.2 million equity in net loss for the three month
period ended September 30, 1996. The three month period ended September 30, 1996
had been significantly adversely affected by the opening of competing facilities
which are located closer to its primary customers. An increase in slot machine
revenues in total and in relation to slot department expenses was the primary
cause of the improvements during the current year three month period compared to
the three month period ended September 30, 1996.
Casino operating expenses company-wide as a percentage of casino revenues
increased from 40% in the three month period ended September 30, 1996 to 42% in
the three month period ended September 30, 1997, primarily due to the severe
access restrictions at the Lady Luck Rhythm & Blues/Country Casino Complex and
the decreases in casino revenues from the Company's other wholly owned
subsidiaries which caused fixed costs and certain variable costs to be spread
over a lower revenue base.
Food and beverage costs and expenses, prior to reclassifying the cost of
complementaries, as a percentage of related revenues decreased from 92% for the
three month period ended September 30, 1996 to 91% for the three month period
ended September 30, 1997. This approximately constant percentage was due to
increases in costs and expenses at LLM being offset by cost and expense
decreases at LLB. MLI was able to keep food and beverage cost and expense
percentages approximately constant despite the disruption to operations from the
severe access restriction.
Gross room revenues at MLI's 173-room hotel adjacent to Lady Luck Rhythm &
Blues decreased 25% during the three month period ended September 30, 1997
compared to the three month period ended September 30, 1996 primarily due to
access restriction. Gross room revenues at MLI's 120-room Riverbluff in Helena,
Arkansas increased 36% during the three month period ended September 30, 1997
compared to the three month period ended September 30, 1996 in part due to rooms
out of service and under renovation upon MLI's acquisition of the Riverbluff on
July 3, 1996. Gross room revenues at LLM's River Bluff hotel decreased 19% due
in part to fewer rooms furnished on a complimentary basis to customers during
the three month period ended September 30, 1997 compared to the three month
period ended September 30, 1996.
Selling, general and administrative expenses as a percentage of total gross
revenues remained constant in the three month period ended September 30, 1996
compared to the three month period ended September 30, 1997. MLI's lease
payments decreased because they are primarily based on a percentage of gaming,
food and beverage revenues which declined as described above. In addition,
marketing programs and other administrative expenses at MLI were reduced
19
<PAGE>
while access was restricted. LLM decreased marketing programs and other
administrative expenses in response to revenue decreases at Lady Luck Natchez.
These decreases were offset partially by increases at LLB.
Operating income was $3.8 million and $6.2 million for the three month
periods ended September 30, 1997 and 1996, respectively. In addition to the
changes described above, this $2.4 million or 39% decrease was due to a $1.9
million loss on the sale of the Bally's Joint Venture to Hilton Hotels
Corporation. The loss represents the difference between the sales price and the
net investment in the Bally's Joint Venture and related assets as of September
30, 1997. The effects of the changes described above and the loss on sale were
partially offset by the absence of a $1.1 million settlement of a claim which
was recognized during the three month period ended September 30, 1996 and a
reduction in current period related party management/license fees.
The net loss applicable to common stockholders was $1.8 million or $0.06
per share in the three month period ended September 30, 1997 compared with net
income applicable to common stockholders of $0.5 million or $0.02 per share for
the three month period ended September 30, 1996. This $2.3 million or $0.08 per
share decrease was primarily due to the $2.4 million decrease in operating
income as described above offset partially by a decrease in interest expense due
to capitalizing interest on preconstruction stage assets under development
during the three month period ended September 30, 1997.
Nine Months Ended September 30, 1997 Compared to the Nine Months Ended
September 30, 1996
An improvement in gross revenues of $2.1 million realized during the first
six months of 1997 compared to the prior year was overshadowed by a $6.4 million
or 14% decrease in gross revenues during the three month period ended September
30, 1997. This resulted in a $4.3 million or 3% decrease in gross revenues
during the nine month period ended September 30, 1997 compared to the prior year
period. The significant decline in gross revenues was primarily due to Lady Luck
Rhythm & Blues/Country Casino Complex's revenues and operating results being
materially adversely affected by a temporary closure by the Arkansas Department
of Transportation of the Helena Bridge. The bridge provides access to MLI's
Arkansas customers upon which it is highly dependent. Other causes of the
decrease in gross revenues to $128.6 million during the nine month period ended
September 30, 1997 from $133.0 during the prior year period include: (i) closure
due to flooding on the Mississippi and adverse weather conditions of Lady Luck
Natchez for approximately 18 days and lingering disruptive effects for a period
after each reopening; (ii) consistent declines in table games revenues at each
wholly owned subsidiary; (iii) the addition of two competitive casinos and a
significant number of hotel rooms by MLI's competitors; (iv) a growing disparity
in relation to its competitors in the amenities which LLB is able to offer its
customers such as on-site hotel rooms; and (iv) operational changes and an
absence of capital improvements at GCI in addition to increased competition from
certain nearby casinos. The effects of these items were partially offset by: (i)
increases in the Company's equity in net income of unconsolidated affiliates;
(ii) LLB's increase in slot machine revenues; (iii) LLM's purchase of the River
Park on April 15, 1996; and (iv) MLI's acquisition of the 120-room Riverbluff in
Helena, Arkansas on July 3, 1996.
Although MLI's Country Casino opened May 21, 1996, during the nine month
period ended September 30, 1997, gross revenues at the Lady Luck Rhythm &
Blues/Country Casino Complex decreased to $70.2 million from $72.6 million
during the nine month period ended September 30, 1996, a decrease of $2.4
million or 3%. The decrease was due primarily to access to the Lady Luck Rhythm
& Blues/Country Casino Complex's two casinos, hotel and pavilion being severely
restricted from July 16, 1997 through August 3, 1997. On July 16, 1997, a barge
with a large boom attachment hit the Helena Bridge which crosses the Mississippi
River and connects Arkansas and Mississippi. The resulting structural damage to
the bridge caused the Arkansas Department of Transportation to close the bridge
until August 4, 1997. As noted above, the bridge provides access to MLI's
Arkansas customers upon which it is highly dependent.
MLI's decline during the nine month period ended September 1997 compared to
the prior year period may also have been due in part to the addition of two
competitive casinos and a significant number of hotel rooms in nearby Tunica
County, Mississippi during 1996. Nevertheless, during the six month period ended
June 30, 1997 compared to the prior year period, MLI's gross revenues had
increased $2.7 million or 6%. During these comparative six month periods, slot
machine revenues increased $2.0 million, primarily between the three month
periods ended March 31, 1997 and 1996, and
20
<PAGE>
food and beverage revenues increased $1.0 million primarily due to increased
food and beverage furnished to customers as complimentaries. These and other
increases were offset partially by a $1.0 million decrease in table games
revenues between the six month periods ended June 30, 1997 and 1996. The
decrease in table games revenues was due to decreases in the total amount
wagered on table games and in the related win percentage. The increases in
complimentaries were a necessary response to the additional competitor
facilities added in 1996 as described above.
Declines during the three month period ended September 30, 1997 compared to
the prior year period; however, eclipsed the earlier gains due to the opening of
Country Casino. MLI's gross revenues decreased from $25.8 million in the three
month period ended September 30, 1996 to $20.7 million during the three month
period ended September 30, 1997, a decrease of $5.1 million or 20%. MLI's slot
machine, table games and food and beverage revenues decreased $3.5 million, $0.9
million and $0.3 million, or 18%, 27% and 15%, respectively, during the three
month period ended September 30, 1997 compared to the three month period ended
September 30, 1996. However, based on management's review of MLI's revenues and
operating results after the bridge's reopening, management believes no permanent
material adverse changes have resulted from the temporarily restricted access.
Slot machine, table games and food and beverage revenues decreased $0.9
million, $1.1 million and $0.4 million, or 5%, 29% and 15%, respectively, at
Lady Luck Natchez during the nine month period ended September 30, 1997 compared
to the prior year period. In addition to the adverse effects of flooding on the
Mississippi and other adverse weather conditions, which closed its operations
for approximately 18 days during the nine month period ended September 30, 1997
and had lingering disruptive effects for a period after each reopening, the
decrease in slot machine revenues was due to a decline in the win percentage.
The decrease in LLM's table games revenues, while also due in part to business
interuption from weather conditions and a decline in the win percentage, was
primarily due to continuing decreases in the total amount wagered on table
games. Table games wagers decreased in part due to fewer rooms, food and
beverage furnished to customers on a complimentary basis during the comparative
periods. This decrease in complimentary food and beverage was a significant
factor in the decline in gross food and beverage revenues.
Lady Luck Biloxi's gross revenues increased $0.6 million during the nine
month periods ended September 30, 1997 and 1996. This increase occurred
primarily between the three month periods ended March 31, 1997 and 1996 during
which time an 8% increase in the average number of slot machines and a 20%
increase in the average daily net win per slot machine increased Lady Luck
Biloxi's slot machine revenues by $1.2 million. Lady Luck Biloxi's increase in
slot machine revenues was primarily a result of increased marketing expenditures
and increased food and beverage furnished as complimentaries to customers. The
increase in slot revenues was offset partially by decreases in table game
revenues each quarter during the nine month period ended September 1997 compared
to the respective prior year quarters. These declines in table games revenues
were primarily due to decreases in total amounts wagered which has been caused
in part due to a growing disparity in the amenities which LLB is able to offer
its table games customers in relation to its competitors, some of which are able
to offer on-site hotel rooms and entertainment.
GCI's slot machine revenues declined $0.7 million between the nine month
periods ended September 30, 1997 and 1996. This decrease was due to both a
decrease in the total amount wagered on slot machines and a decrease in the
related win percentage. During these comparative periods, GCI's total amount
wagered on slot machines decreased 9% while the Central City market's total
amount wagered on slot machines increased slightly. GCI's decreases were due in
part to operational changes, an absence of capital improvements at the facility
and increased competition from certain nearby casinos.
The Company's equity in net income of the Bettendorf Joint Venture
increased $0.3 million, or 12%, during the nine month period ended September 30,
1997 compared to the prior year period. This increase is primarily due to a 15%
increase in slot machine revenues offset partially by increases in casino
operating and selling, general and administrative expenses.
Although the Company's equity in net income of the Bally's Joint Venture
increased $0.9 million during the three month period ended September 30, 1997
compared to the prior year period, its equity in net income of the Bally's Joint
Venture increased only $0.4 million, from $0.9 million to $1.3 million during
the nine month periods ended September 30, 1996 and 1997, respectively. Thus,
despite the increases in slot machine revenues in total and in relation to slot
21
<PAGE>
department expenses during the comparative quarters ended September 30, 1997 and
1996, the opening of additional competitor facilities during mid-1996, some of
which are located closer to its primary customers, has necessitated increases in
marketing expenditures from the prior year period. Furthermore, the Company's
equity in net income for the nine month period ended September 30, 1996 reflects
a $1.2 million deduction for the Company's share of pre-opening expenses while
none were recognized during the current year period.
Casino operating expenses company-wide as a percentage of casino revenues
increased from 39% in the nine month period ended September 30, 1996 to 41% in
the nine month period ended September 30, 1997, primarily due to the following:
(i) severe access restrictions at the Lady Luck Rhythm & Blues/Country Casino
Complex and the decreases in casino revenues from the Company's other wholly
owned subsidiaries which caused fixed costs and certain variable costs to be
spread over a lower revenue base; (ii) a 1% increase in the cost of
complimentary rooms, food and beverage furnished to casino customers in relation
to casino revenues; and (iii) an increase in table games payroll expense at each
property in relation to table games revenue, and (iv) increases in slot machine
rentals and slot department special events and cash incentives for slot machine
players in relation to slot revenues.
Food and beverage costs and expenses, prior to reclassifying the cost of
complementaries, as a percentage of related revenues increased from 90% for the
nine month period ended September 30, 1996 to 93% for the nine month period
ended September 30, 1997, due to increases in the cost of sales in relation to
revenues primarily at Lady Luck Natchez. This increase in expenses was primarily
due to marketing an improved "restaurant experience" to casino customers at Lady
Luck Natchez and increased beverage costs during the current year period.
Gross room revenues for the River Park and the Riverbluff increased 25% and
261%, respectively, and decreased 17% for the 173-room hotel adjacent to Lady
Luck Rhythm & Blues during the nine month periods ended September 30, 1997
compared with the prior year period. However, these comparisons are not for
equivalent periods and quarterly results described previously and above are more
comparable because LLM purchased the River Park on April 15, 1996, MLI acquired
the 120-room Riverbluff in Helena, Arkansas on July 3, 1996 and access to MLI's
173-room hotel adjacent to Lady Luck Rhythm & Blues was temporarily restricted
during the current year period.
Selling, general and administrative expenses as a percentage of total gross
revenues remained a constant 31% during the nine month periods ended September
30, 1996 and 1997. A significant reduction in rent paid by the Rhythm &
Blues/Country Casino Complex was offset by increases in casino marketing
expenditures at MLI, LLM and LLB and increases in facility expenses at MLI for
utilities, insurance and property taxes. MLI's increase in facility expense was
due to the addition of Country Casino. Rent paid by MLI decreased because
percentage rents under the lease during the current year period were reduced due
to the temporary access restriction. In addition, rent was greater during the
five month period ended May 31, 1996 compared to the corresponding current year
period. An additional fixed monthly rental expense of $150,000 was required to
be paid prior to the opening of Country Casino on May 26, 1996 at which time the
fixed rent was replaced with a percentage rent which was less than the fixed
rent.
Operating income was $17.8 million and $22.5 million for the nine month
periods ended September 30, 1997 and 1996, respectively. In addition to the
changes described above, this $4.7 million or 21% decrease was due to the
following: (i) a $0.6 million increase in depreciation expense during the
current year period primarily related to the acquisition of the River Park and
Riverbluff hotels and the opening of Country Casino and the Pavilion during
1996; (ii) decreased hotel operating margins; (iii) a $1.9 million loss on the
sale of the Bally's Joint Venture to Hilton Hotels Corporation during the
current year period. The loss represents the difference between the sales price
and the net investment in the Bally's Joint Venture and related assets as of
September 30, 1997. The effects of these items were partially offset by the
following: (i) the absence of a $1.1 million settlement of a claim which was
recognized during the three month period ended September 30, 1996; (ii) a $0.7
million decrease in related party management fees from lower operating results
during the current year period; and (iii) the absence of $0.2 million of
pre-opening expense which was recognized during the second quarter of 1996 in
conjunction with the opening of Country Casino and the Pavilion.
The net income applicable to common stockholders was $0.1 million or $0.01
per share in the nine month period ended September 30, 1997 compared with net
income applicable to common stockholders of $5.8 million or $0.20 per share for
the nine month period ended September 30, 1996. This $5.7 million or $0.19 per
share decrease was primarily due
22
<PAGE>
to the following: (i) the $4.7 million decrease in operating income as described
above; (ii) a $0.2 million increase in preferred stock dividends caused by
compounding return on dividends not paid in cash; (iii) a $0.4 million increase
in interest expense primarily from the financing of slot machines for Country
Casino and a portion of the purchase prices of the River Park and Riverbluff
while capitalized interest decreased due to the interest capitalized by LLV in
the current year period being surpassed in the prior year by interest
capitalized for the construction of Country Casino and the Pavillion; and (iv) a
$0.3 million decrease in interest income due to greater cash invested in the
prior year period prior to the opening of Country Casino.
23
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating Casinos
Amounts shown in the following tables are in millions except percentage,
unit and per unit amounts. Operating margin is calculated as operating income
divided by net revenues.
Lady Luck Rhythm & Blues/County Casino Complex (a)
<TABLE>
<CAPTION>
% Increase % Increase
Three months ended (Decrease) Nine months ended (Decrease)
September 30, 1997 vs. September 30, 1997 vs.
1997 1996 1996 1997 1996 1996
<S> <C> <C> <C> <C> <C> <C>
Gross revenues.................... $20.7 $25.8 (20) $70.2 $72.5 (3)
Net revenues...................... 19.0 23.9 (21) 64.7 68.0 (5)
Management/license fee............ 0.6 0.8 (25) 2.2 2.3 (4)
Operating income.................. 3.6 5.8 (38) 15.1 18.5 (18)
Operating margin.................. 19% 24% (5)pts 23% 27% (4) pts
Average daily net win per
table game.................... $517 $708 (27) $584 $905 (35)
Average number of
tables in operation........... 50 50 - 51 40 28
Average daily net win per
slot machine.................. $125 $154 (19) $142 $183 (22)
Average number of slot
machines in operation......... 1,326 1,323 - 1,347 1,076 25
</TABLE>
(a) Country Casino and the Pavilion opened May 21, 1996; therefore, a
comparison of nine months ended September 30, 1997 to 1996 may not be
meaningful.
Lady Luck Natchez
<TABLE>
<CAPTION>
% Increase %Increase
Three months ended (Decrease) Nine months ended (Decrease)
September 30, 1997 vs. September 30, 1997 vs.
1997 1996 1996 1997 1996 1996
<S> <C> <C> <C> <C> <C> <C>
Gross revenues.................... $7.8 $8.7 (10) $23.1 $25.2 (8)
Net revenues...................... 7.2 7.9 (9) 21.5 23.1 (7)
Management/license fee............ 0.2 0.3 (33) 0.7 0.8 (13)
Operating income.................. 1.0 1.0 - 2.1 4.2 (50)
Operating margin.................. 14% 13% 1pts 10% 18% (8)pts
Average daily net win per
table game.................... $556 $810 (31) $620 $786 (21)
Average number of
tables in operation........... 16 16 - 16 17 (6)
Average daily net win per
slot machine.................. $98 $109 (10) $106 $112 (5)
Average number of slot
machines in operation......... 627 593 6 612 577 6
</TABLE>
24
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Lady Luck Bettendorf (a)
<TABLE>
<CAPTION>
% Increase %Increase
Three months ended (Decrease) Nine months ended (Decrease)
September 30, 1997 vs. September 30, 1997 vs.
1997 1996 1996 1997 1996 1996
<S> <C> <C> <C> <C> <C> <C>
Gross revenues.................... $18.9 $18.2 4 $57.6 $51.3 12
Net revenues...................... 18.0 17.2 5 54.4 48.9 11
Management/license fee............ 0.4 0.4 - 1.2 1.3 (8)
Operating income.................. 2.1 2.0 5 5.7 5.4 6
Operating margin.................. 12% 12% - 10% 11% (1)pt
Average daily net win per
table game.................... $629 $603 4 $680 $736 (8)
Average number of
tables in operation........... 38 40 (5) 38 35 9
Average daily net win per
slot machine.................. $176 $184 (4) $185 $174 6
Average number of slot
machines in operation......... 922 831 11 889 820 8
</TABLE>
(a) Lady Luck Bettendorf is 50% owned by LLQC. The Company includes 50% of
its net income as equity in net income of affiliates using the equity method of
accounting.
Lady Luck Biloxi
<TABLE>
<CAPTION>
% Increase %Increase
Three months ended (Decrease) Nine months ended (Decrease)
September 30, 1997 vs. September 30, 1997 vs.
1997 1996 1996 1997 1996 1996
<S> <C> <C> <C> <C> <C> <C>
Gross revenues.................... $8.3 $8.7 (5) $24.1 $23.5 3
Net revenues...................... 7.4 7.9 (6) 21.8 21.5 1
Management/license fee............ 0.3 0.3 - 0.8 0.8 -
Operating income (loss)........... (0.4) 0.2 (300) (1.7) (0.6) (183)
Operating margin.................. (5)% 3% (8)pts (8)% (3)% (5)pts
Average daily net win per
table game.................... $574 $638 (10) $566 $606 (7)
Average number of
tables in operation........... 20 23 (13) 21 23 (9)
Average daily net win per
slot machine.................. $92 $100 (8) $93 $92 1
Average number of slot
machines in operation......... 690 648 6 666 623 7
</TABLE>
25
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Lady Luck Central City
<TABLE>
<CAPTION>
% Increase %Increase
Three months ended (Decrease) Nine months ended (Decrease)
September 30, 1997 vs. September 30, 1997 vs.
1997 1996 1996 1997 1996 1996
<S> <C> <C> <C> <C> <C> <C>
Gross revenues.................... $1.4 $1.9 (26) $4.2 $5.1 (18)
Net revenues...................... 1.3 1.8 (28) 3.9 4.8 (19)
Management/license fee............ - 0.1 (100) 0.1 0.2 (50)
Operating income (loss)........... (0.5) (0.3) (67) (1.1) (0.8) (38)
Operating margin.................. (38)% (17)% (21)pts (28)% (17)% (11)pts
Average daily net win per
table game.................... $104 $131 (21) $99 $143 (31)
Average number of
tables in operation........... 6 6 - 6 6 -
Average daily net win per
slot machine.................. $39 $56 (30) $42 $52 (19)
Average number of slot
machines in operation......... 300 300 - 300 293 2
</TABLE>
26
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
During the nine month period ended September 30, 1997, the Company
generated $9.1 million in cash from operations. Cash flow from operations and
cash on hand at the beginning of the period were the primary sources of cash
during the nine month period ended September 30, 1997. The primary uses of cash
and non-cash resources during the nine month period ended September 30, 1997,
other than operating expenditures, include:
A. $2.7 million cash for the purchase of property and equipment. Also
included are costs of remodeling a portion of the River Park.
B. $3.0 million cash for payment of debt and slot contracts.
C. $0.6 million for the acquisition of slot machines and other assets by
certain subsidiaries for the incurrence of indebtedness.
GCI did not generate positive operating cash flow during the nine month
period ended September 30, 1997. Due primarily to debt service requirements on
an equipment note payable and a mortgage note, GCI required cash infusions of
$0.7 million during the nine month period ended September 30, 1997 and for the
remainder of 1997 is expected to require additional cash infusions to cover up
to $0.5 million of scheduled repayments on an equipment note payable and
anticipated operating cash shortfalls. The extent of cash infustions will depend
in part upon the timing of the transaction contemplated by the Memorandum as
described below becoming effective, if at all.
Access to MLI's two casinos, hotel and pavilion operated at the base of the
Helena Bridge in Coahoma County, Mississippi was severely restricted from July
16, 1997 through August 3, 1997. On July 16, 1997, a barge with a large boom
attachment hit the Helena Bridge which crosses the Mississippi River and
connects Arkansas and Mississippi. The resulting structural damage to the
bridge's structure caused the Arkansas Department of Transportation to close the
bridge. MLI's operations are highly dependent upon patronage by residents of
Arkansas. MLI's operating results during the bridge's closure were materially
adversely affected by the bridge's closure. However, based on management's
review of MLI's revenues and operating results after the bridge's reopening,
management believes no permanent material adverse changes have resulted from the
temporarily restricted access.
A significant portion of the Company's consolidated revenues and operating
income are generated by the Company's Rhythm & Blues and Country Casino gaming
operations in Coahoma County, Mississippi. These casinos are highly dependent on
patronage by residents of Arkansas. A change in general economic conditions,
closure of the Helena Bridge or a change in the extent and nature of regulations
enabling casino gaming in Arkansas could adversely affect these casinos' future
operating results. In addition, casino and hotel capacity has been added to the
nearby Tunica, Mississippi market, which competition the Company believes has
adversely affected revenues and operating results at MLI, the extent,
materiality and permanence of which are not presently known.
Additional hotel capacity has been added in close proximity to LLB and
additional casino and hotel capacity are currently under construction in Biloxi.
The Company believes the opening of certain of the facilities under construction
may initially have an adverse effect upon LLB's operating results and that the
long-term effects on LLB's results of operations cannot presently be estimated.
27
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Bettendorf Joint Venture is currently constructing a $39.5 million
expansion project pursuant to its master-plan. The project, which began
construction June 23, 1997, is planned to include an approximately 250 room
hotel, 47-slip marina, 500-car parking garage, a bypass over the nearby railroad
to improve access and a fully enclosed walkway to the riverboat casino. The
project financing is non-recourse to the Company and includes a $17.5 million
bank first mortgage note, $5.0 million second mortgage from an affiliated
company of BRDC, $7.5 million in tax increment financing from the City of
Bettendorf to be repaid from property taxes and in exchange for deeding the
overpass to the City of Bettendorf. The cost of the overpass is not expected to
exceed such financing from the City of Bettendorf. The balance of the expansion
project's cost is to be paid from the Bettendorf Joint Venture's cash on hand.
The project is scheduled to be completed in the Fall of 1998.
During November 1996, GCI entered into a non-binding Memorandum of
Understanding (the "Memorandum") with BWCC, Inc. which does business as
Bullwhackers - Central City ("Bullwhackers"). The Memorandum provides for a
combination of the respective companies' gaming establishments which currently
operate on adjacent real property in Central City, Colorado and the use of, but
not the title transfer or assumption of debt related to, the assets of GCI and
Bullwhackers. Pursuant to the Memorandum, Bullwhackers shall provide resources
and expertise to manage the joint operation subsequent to the completion of
certain capital improvements to be made by GCI to combine the facilities and
improve GCI's gaming equipment, which capital improvements shall in no event
exceed $1.5 million. The Memorandum provides for distributions to be made at
least quarterly in accordance with certain priorities which first recognize the
capital improvements to be made by GCI. The Memorandum provides GCI an option to
purchase the assets of Bullwhackers and gives Bullwhackers an option to purchase
the assets of GCI upon advance written notice after the joint facility commences
gaming operations. In addition, the Memorandum provides a put option for
Bullwhackers to sell its assets to GCI under similar terms. The option price
shall be determined based on carrying amounts or earnings multiples and shall be
at discounted amounts if the sale is within a certain period and shall be in
exchange for certain consideration, a portion of which may include LLGC common
stock. The transactions contemplated by the Memorandum are subject to various
contingencies including, inter alia, governmental approvals. The negotiation of
definitive agreements reflecting the provisions of the Memorandum is continuing.
No assurance can be provided that the contingencies will be satisfied or that a
definitive agreement will be executed, or if executed, that all contingencies
provided for therein will be satisfied.
The Company entered an agreement effective September 30, 1997 to sell its
35% minority interest in Bally's Saloon, Gambling Hall and Hotel in Tunica,
Mississippi to Hilton Hotels Corporation, the majority owner and manager of the
property. Pursuant to the Partnership Interest Redemption Agreement, on
Novemeber 3, 1997, the Company received $15,250,000 cash for its investment
after it received certain regulatory approvals. At September 30, 1997, an
account receivable for the sales price had been established and the reductions
in investment in unconsolidated affiliates and related assets had been made. The
Company has 180 days after receiving the $15,250,000 cash to invest the money in
a Related Business as defined in the indenture covering the 2001 Notes. If the
Company does not make an investment or does not invest the $15,250,000 cash in a
Related Business within 180 days, under certain circumstances, the Company must
make an offer to repurchase a portion of the 2001 Notes at a price of 101% of
par for the amount of the proceeds that was not invested in a Related Business.
The sale resulted in a loss of $1,912,000 which represents the difference
between the sales price and the net investment in the Bally's Joint Venture and
related assets. In 1995, the Company had provided a reserve of $350,000 relating
to its investment in the Bally's Joint Venture. Also, the Company's net
investment included, among other items, $1,100,000 representing the Company's
recognition of its cumulative 35% share of the Bally's Joint Venture's net
income for which no cash had been received to date.
Various amounts of cash and non-cash resources may be used during the
remainder of 1997 for capital improvements, expansions or acquisitions which
cannot currently be estimated and may be contingent upon market conditions and
other factors. If significant cash or other resources become available, the
Company may make additional capital expenditures.
28
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
If availabile, Lady Luck Rhythm & Blues could add up to 250 hotel rooms
which would be located adjacent to Country Casino. Up to $6 million of the cost
of such additional hotel rooms including site preparation and related
construction is permitted by the indenture covering the 2001 Notes to be funded
by secured non-recourse indebtedness; however, there can be no assurance that
such financing would be available, or if available, will be on terms
satisfactory to the Company.
Lady Luck Natchez is required under its current lease to move its casino
barge several hundred feet to another docking facility on land subject to the
existing lease by February 1998. Management has commenced negotiations with the
lessor to allow the casino to remain in its current location. Should such lease
amendment not be available on terms satisfactory to the Company, the cost of
relocating the barge is currently estimated not to exceed $2 million. In
addition, the Company intends to remodel certain portions of the barge and may
acquire a nearby restaurant leasehold. Such capital expenditures are currently
estimated to be between $0.5 million and $1.0 million.
Lady Luck Biloxi is exploring remodeling options to better position itself
within the Mississippi Gulf Coast gaming market. Such remodeling of the barge
and adjoining beach area are currently estimated not to exceed $1.0 million.
Other capital acquisitions, improvements, or expansions which cannot
currently be estimated and may be contingent upon market conditions and the
amount of excess cash or non-cash resources available, if any. In any case, the
amount of capital expenditures will be based upon cash available and market
conditions at the time any commitment is made.
The Company may also repurchase a portion of the 2001 Notes from time to
time in early satisfaction of any required repurchase expected pursuant to the
Indenture or otherwise, the amount of which and the timing of repurchase cannot
currently be estimated and is dependent on adequate cash availability and market
conditions.
The Company has an agreement for the construction of a cruising gaming
vessel in the amount of $16.0 million and as of September 30, 1997,
approximately $6.0 million has been paid under this contract and approximately
$1.9 million is included in construction payables. It is anticipated that this
vessel will be utilized by LLK. However, construction has been discontinued and
is not anticipated to resume until such time as LLK is selected for
investigation by the State of Missouri with regard to its gaming license
application.
No further significant expenditures for projects under development are
anticipated to be made by the Company from existing cash or cash flow from
operations. If the Company determines it needs additional funds, there can be no
assurance that such funds, whether from equity or debt financing or other
sources, will be available, or if available, will be on terms satisfactory to
the Company.
Long-lived assets, which are not to be disposed of, including property and
equipment, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. An estimate of undiscounted future cash flows produced by the asset
is compared to the carrying amount to determine whether an impairment exists. If
an asset is determined to be impaired, the loss is measured based on quoted
market prices in active markets, if available. If quoted market prices are not
available, the estimate of fair value is based on the best information
available, including considering prices for similar assets and the results of
valuation techniques to the extent available.
The Company has evaluated the recoverability of LLB's and GCI's long-lived
assets as of September 30, 1997 pursuant to Financial Accounting Standards Board
Statement No. 121. In performing its review for recoverability, the Company
compared the estimated undiscounted future cash flows to the carrying value of
LLB's and GCI's long-lived assets. The carrying value of LLB's and GCI's
long-lived assets were $32.0 million and $9.1 million, respectively, at
29
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 1997. As the estimated undiscounted future cash flows exceeded the
carrying value of long-lived assets, the Company was not permitted or required
to recognize an impairment loss.
Although the Company's latest evaluation of recoverability has not resulted
in the recognition of an impairment loss, given the additional casino and hotel
capacity being added to the Biloxi, Mississippi market and the disappointing
performance of GCI, management expects to update its assessment during 1997.
These factors and other circumstances affecting management's estimates could, in
the near future, affect the Company's estimate of undiscounted future cash flows
to be generated by LLB and GCI. A change that results in recognition of an
impairment loss would require the Company to reduce the carrying value of LLB
and GCI to fair market value, which may be significantly below the current
carrying value of the long-lived assets.
The Company is involved in several lawsuits which if adversely decided
could have a material adverse effect upon the Company's financial position and
results of operations (see note 7 to the condensed consolidated financial
statements included in Item 1, Part 1).
The Company is highly leveraged. As of September 30, 1997, the Company's
total long-term indebtedness was approximately $179.7 million and its
stockholders' equity was approximately $6.5 million. This level of indebtedness
could have important consequences to stockholders. While management believes the
Company will have sufficient cash flow to meet its debt service and other cash
outflow requirements and maintain compliance with the covenants of the Indenture
during the remainder of 1997 as supplemented, to the extent that a substantial
portion of the Company's cash flow from operations is dedicated to the payment
of principal and interest on its indebtedness, such cash flow would not be
available for other purposes such as general operations, maintenance and
improvement of casino and hotel facilities or expansion of existing sites or
into other gaming markets. Furthermore, the Company's ability to obtain
additional financing in the future for working capital, capital expenditures or
acquisitions may be limited and the Company's level of indebtedness could limit
its flexibility in planning for, or reacting to, changes in its industry.
Impact of Inflation
Absent changes in competitive and economic conditions or in specific prices
affecting the industry, management does not expect that inflation will have a
significant impact on the Company's operations. Changes in specific prices (such
as fuel and transportation prices) relative to the general rate of inflation may
have a material effect on the hotel-casino industry. There has been no material
impact from inflation during the periods covered by the accompanying financial
statements.
Seasonality and Weather
A flood or other severe weather condition could cause the Company to lose
the use of one or more dockside facilities for an extended period. The inability
to use a dockside facility during any period could have a material adverse
effect on the Company's financial results. In addition, a materially
disproportionate amount of GCI's revenues is received during the summer months.
GCI is accessible only via a narrow, winding mountain road and, accordingly,
inclement weather may have an adverse effect on revenues. While seasonal revenue
fluctuations may occur at the Company's existing and proposed casinos in
Mississippi, Iowa and Missouri, such seasonal fluctuations are expected to be
less significant than those experienced in Colorado.
30
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In 1995, LLGC was named as a defendant in a purported
shareholder class action lawsuit alleging violations by the
Company of Sections 11, 12 and 15 of the Securities Act of
1933 and Section 10(b) of the Securities Exchange Act of
1934 for alleged material misrepresentations and omissions
in connection with LLGC's 1993 prospectus and initial public
offering of Common Stock. The complaint seeks, inter alia,
injunctive relief, rescission and unspecified compensatory
damages. In addition to the Company, the complaint also
names as defendants Andrew H. Tompkins, Chairman and Chief
Executive Officer of LLGC, Alain Uboldi, Director and Chief
Operating Officer of LLGC, Michael Hlavsa, the former Chief
Financial Officer of LLGC, Bear Stearns & Co., Inc. and
Oppenheimer & Co., Inc., who acted as lead underwriters for
the initial public offering. LLGC has retained outside
counsel to respond to the complaint. On October 8, 1997, the
Company was served with an order of the court dismissing all
of the Plaintiff's Section 10(b) and eleven of the
Plaintiff's sixteen Section 11, 12 and 15 allegations with
prejudice for failing to adequately state a claim. The court
also ordered the Plaintiffs to file an amended complaint
regarding the five Section 11, 12 and 15 claims which were
not dismissed with prejudice. The lawsuit is still in the
preliminary stages and its outcome cannot be predicted with
any degree of certainty; however, the Company believes,
based in part on advice of counsel, that it has meritorious
defenses.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
(a) None.
(b) None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 5. OTHER INFORMATION - None.
31
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description of Exhibits
10.51 Partnership Interest Redemption Agreement dated September
30, 1997 between Bally's Olympia Limited Partnership, a
Delaware limited partnership, and Old River Development,
Inc., a Mississippi corporation.
27 Financial Data Schedule
(b) Reports on Form 8-K.
Form 8-K dated August 26, 1997 relating to Item 5.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Lady Luck Gaming Corporation
DATE: November 14, 1997 Registrant
/s/James D. Bowen
Its: Vice President Finance and
Principal Accounting Officer and duly
authorized officer
DATE: November 14, 1997 /s/James D. Bowen
James D. Bowen
Vice President Finance and
Principal Accounting Officer
and duly authorized officer
33
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial informtion extracted from the
Condensed Consolidated Statement of Financial Condition at September 30, 1997
(Unaudited) and the Condensed Consolidated Statement of Income for the Three
Months Ended September 30, 1997 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000906527
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 19,334
<SECURITIES> 0
<RECEIVABLES> 17,328
<ALLOWANCES> 343
<INVENTORY> 1,178
<CURRENT-ASSETS> 39,373
<PP&E> 205,078
<DEPRECIATION> 37,524
<TOTAL-ASSETS> 223,121
<CURRENT-LIABILITIES> 19,073
<BONDS> 179,696
17,889
0
<COMMON> 29
<OTHER-SE> 6,434
<TOTAL-LIABILITY-AND-EQUITY> 223,121
<SALES> 118,891
<TOTAL-REVENUES> 128,639
<CGS> 49,768
<TOTAL-COSTS> 49,768
<OTHER-EXPENSES> 49,401
<LOSS-PROVISION> 136
<INTEREST-EXPENSE> 16,750
<INCOME-PRETAX> 1,665
<INCOME-TAX> 59
<INCOME-CONTINUING> 1,606
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,606
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
PARTNERSHIP INTEREST REDEMPTION AGREEMENT
by and between
BALLY'S OLYMPIA LIMITED PARTNERSHIP,
a Delaware limited partnership,
as the Partnership
and
OLD RIVER DEVELOPMENT, INC.,
a Mississippi corporation,
as Seller
<PAGE>
THIS PARTNERSHIP INTEREST REDEMPTION AGREEMENT (the "Agreement"), dated as
of September 30, 1997, is made by and between Bally's Olympia Limited
Partnership, a Delaware limited partnership (the "Partnership"), Old River
Development, Inc., a Mississippi corporation ("Seller"), Lady Luck Gaming
Corporation (solely for purposes of Section 15 hereof, "Lady Luck") and Bally's
Operator, Inc., a Delaware corporation (solely for purposes of Section 6 hereof,
the "General Partner").
RECITALS
A. The Partnership was formed pursuant to that certain Limited Partnership
Agreement of Bally's Olympia Limited Partnership, dated as of March 31, 1995
(the "Original Partnership Agreement"), by and among the General Partner, and
Bally's Tunica, Inc. ("Bally's Tunica") and Seller as limited partners.
B. The Original Partnership Agreement was amended by that certain First
Amendment to Agreement of Bally's Olympia Limited Partnership, dated as of March
31, 1995 by and between the Partnership and Joe Brata as assignee of a 7%
limited partnership interest in the Partnership ("Brata," and together with
Bally's Tunica and Seller, the "Limited Partners") and by that certain Second
Amendment to Limited Partnership Agreement of Bally's Olympia Limited
Partnership dated as of March 18, 1996, by and among the General Partner and the
Limited Partners (as amended, the "Partnership Agreement").
C. The General Partner and the Limited Partners desire to cause the
Partnership to redeem Seller's entire interest in the Partnership and Seller
desires to allow the Partnership to redeem such interest.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions
hereinafter set forth and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by Seller and the Partnership,
Seller and the Partnership agree as follows:
SECTION Defined Terms.
"Affiliate" of any Person means any other Person that, directly or
indirectly, controls, is controlled by, or is under common control with such
Person.
"Amended Partnership Agreement" has the meaning assigned to it in Recital
"B" hereof.
"Brata Agreement" means that certain Asset Purchase Agreement dated as of
September 30, 1997 by and between D. J. Brata and Hilton Corporation, as
attached hereto.
"Claims" means any and all damages, losses, liabilities, obligations,
penalties, claims, litigation, demands, defenses, judgments, suits, proceedings,
costs, disbursements or expenses of any kind or of any nature whatsoever
(including, without limitation, court costs, attorneys' and experts' fees and
disbursements).
"Closing" has the meaning assigned to it in Section 2(a) hereof.
"Closing Documents" means any of the agreements, instruments or other
documents to be executed in connection with the Closing.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time hereafter, and any successor statute.
"Consents" has the meaning assigned to it in Section 4(e) hereof.
"Contracts" means all agreements, contracts and other contractual rights
and obligations relating to the Property or held by the Partnership and all
amendments and other modifications thereof.
"Exception" means, with respect, to any property, asset or interest (as the
case may be), any mortgage, lien, pledge, charge, security interest,
encumbrance, right of way, easement, servitude, covenant, restriction, title
exception or defect in title of any kind with respect to such property, asset or
interest, including the interest of a vendor or lessor under any
conditional-sale agreement, capital lease or other title-retention agreement,
with respect to such property, asset or interest.
"General Partner" has the meaning assigned to it in Recital "A" hereof.
"Material Adverse Effect" means a material adverse effect on the condition
(financial or otherwise, determined in accordance with generally accepted
accounting principles as in effect from time to time of application to the
provisions hereof), business, operations, or properties of a Person, taken as a
whole.
"Nonsolicitation Period" means the period beginning on the Closing Date and
ending on the second anniversary of the Closing Date.
"Original Partnership Agreement" has the meaning assigned to it in Recital
"A" hereof.
"Partnership Interest" of any Person means that Person's interest in the
Partnership.
"Person" means any natural person, employee, corporation, limited
partnership, general partnership, joint stock company, limited liability
company, joint venture, association, company, trust, bank, trust company, land
trust, business trust or other organization, whether or not a legal entity, or
any other nongovernmental entity, or any governmental authority.
"Property" means all real and personal property owned by the Partnership.
"Redemption Price" has the meaning assigned to it in Section 3(b) hereof.
SECTION Closing.
The closing of the transactions contemplated in this Agreement (the
"Closing") shall take place on or before October 31, 1997 (the "Closing Date");
provided, however, that the Closing Date may be extended (at any one or more
times) by either party upon written notice to the other party until December 31,
1997 (the "Extension Period") if permits and/or approvals from governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement have not been obtained as of the Closing Date.
If this Agreement is not terminated pursuant to any applicable provision
hereof, subject to the provisions of this Agreement, the Closing shall be held
at the offices of the General Partner's counsel, Latham & Watkins, Sears Tower,
Suite 5800, Chicago, Illinois, 60606, at 10:00 a.m., Chicago time.
If the Closing has not occurred on or prior to the Closing Date or, if
applicable, the expiration of the Extension Period, this Agreement shall
terminate, and all rights and duties of Seller, the Partnership, the General
Partner and the Limited Partners hereunder shall expire and the foregoing shall
have no further rights or obligations hereunder, and without liability or
obligation on the part of any party, except for claims for damages arising out
of a breach of the representations and warranties or covenants of this
Agreement, provided that this sentence shall survive such termination.
SECTION Redemption.
Subject to the provisions of this Agreement, on the Closing Date, Seller
shall sell, convey, assign and transfer to the Partnership, and the Partnership
shall purchase from Seller, Seller's Partnership Interest, free and clear of all
Exceptions.
On the Closing Date, the Partnership shall pay to Seller, in redemption of
Seller's Partnership Interest, Fifteen Million Two Hundred Fifty Thousand
Dollars ($15,250,000) (the "Redemption Price").
On the Closing Date, the Partnership shall pay the Redemption Price by
Federal Reserve wire, bank wire or bank transfer of immediately available funds
to Seller, pursuant to wiring instructions provided by Seller.
Seller agrees that, from the date hereof until termination of this
Agreement in accordance with its terms ("Acquisition Exclusivity Period"),
neither Seller nor any of its subsidiaries or affiliates will, and none of them
will permit any of their respective officers, directors, members, stockholders,
agents, advisors, counsel or representatives to, directly or indirectly, (a)
solicit or entertain any inquiries or proposals or enter into or continue any
discussions, negotiations or agreements relating to the direct or indirect sale
or other disposition of Seller' s Partnership Interest (whether through a
merger, reorganization, stock purchase or otherwise) (a "Proposed Acquisition")
to or with any person or entity other than the Partnership or (b) take any
action to initiate, assist, solicit, receive, negotiate, encourage or accept or
make any offer or inquiry from or to, or furnish or cause to be furnished any
information with respect to Seller's Partnership Interest or the Partnership to,
any person (other than as contemplated by this Agreement) who Seller or any such
affiliate, stockholder or representative knows is in the process of considering
a Proposed Acquisition. Seller agrees that it will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties (other than the Partnership) heretofore conducted, or the provision of
any information related to Seller's Partnership Interest or the Partnership to
any party (other than the Partnership) to which information heretofore has been
provided, with respect to any Proposed Acquisition. If Seller receives any such
inquiry or proposal or request for information, or offer to discuss or negotiate
any Proposed Acquisition, Seller will immediately provide notice thereof to the
Partnership, indicating therein the name of the person or entity initiating such
activity and the terms and conditions of any such offer. During the Acquisition
Exclusivity Period, Seller shall not dispose of any portion of Seller's
Partnership Interest.
The parties agree that the Partnership may suffer irreparable harm from a
breach by Seller or any of its Affiliates of any of the covenants or agreements
contained in Section 3(d) herein. In the event of an alleged or threatened
breach by Seller or any of its Affiliates of any of the provisions of Section
3(d) hereof, the Partnership or its successors or assigns may, in addition to
all other rights and remedies existing in its favor, apply to any court of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof.
SECTION Representations and Warranties of Seller.
Seller hereby represents and warrants to the Partnership as follows:
Seller is a corporation, duly organized, validly subsisting and in good
standing under the laws of the State of Mississippi. Seller has all requisite
corporate power and authority to carry on its business as now conducted and to
execute, deliver and perform its obligations under this Agreement and the
Closing Documents to be executed and delivered by Seller.
The execution, delivery and performance by Seller of this Agreement and the
Closing Documents to be executed and delivered by Seller have been authorized by
all necessary corporate action, including the shareholders of Seller, and do not
contravene any provision of Seller' s Articles of Incorporation or By-Laws. This
Agreement has been duly executed and delivered by an authorized officer of
Seller. The Closing Documents to be executed and delivered by Seller will be
duly executed and delivered by an authorized officer of Seller.
This Agreement is a valid and binding obligation of Seller enforceable
against Seller in accordance with its terms (except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws affecting creditor's rights and remedies generally
and general principles of equity). The Closing Documents to which Seller is a
party, when executed and delivered by Seller, will be valid and binding
obligations of Seller enforceable against Seller in accordance with their
respective terms (except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws affecting
creditor's rights and remedies generally and general principles of equity).
Except as set forth in Schedule 4(d), the execution, delivery and
performance by Seller of this Agreement and the Closing Documents to be executed
and delivered by Seller do not conflict with, or result in the breach of any of
the provisions of, or constitute a default under, any bond, note or other
evidence of indebtedness, indenture, mortgage, deed of trust, loan agreement or
similar instrument, any lease or other material agreement or material contract
by which Seller or any of its Affiliates or their respective assets is bound
(other than the Partnership Agreement) or any applicable law binding Seller or
any of its Affiliates or their respective assets or any order, rule or
regulation of any court or government agency having jurisdiction over Seller or
any of its Affiliates or their respective assets.
Except as set forth in Schedule 4(e), no order, permission, consent,
approval, license, authorization, registration or filing by or with any
government agency (each, a "Consent") having jurisdiction over Seller or any of
its Affiliates or their respective assets is required for the execution,
delivery or performance by Seller of this Agreement or the Closing Documents to
be executed and delivered by Seller.
Except as set forth in Schedule 4(f), Seller owns its Partnership Interest
free and clear of all Exceptions. Except for this Agreement and in the
Partnership Agreement, there are no outstanding agreements to sell Seller's
Partnership Interest or options, rights of first refusal or other rights to
purchase Seller's Partnership Interest.
Upon the Closing, to the best knowledge of Seller, Seller shall have
neither possession of nor control over any asset of the Partnership.
To the best knowledge of Seller, other than Seller's Partnership Interest,
neither Seller nor any of its Affiliates has any (i) interest in the
Partnership, (ii) right, title or interest in or to any Contract of the
Partnership, or (iii) Contract with the Partnership (other than the Partnership
Agreement).
To the best knowledge of Seller, there are no Contracts executed by Seller
or its Affiliates on behalf of the Partnership since the date of the Original
Partnership Agreement which have not been consented to by the General Partner.
(j) Seller (i) has had an opportunity to make such investigations as Seller
has deemed necessary or useful with respect to the Partnership and the
Partnership's financial condition and prospects, (ii) has made such inquiries of
and has received responses from the General Partner as Seller deemed to be
useful or necessary for purposes of evaluating the financial condition and
prospects of the Partnership and the value of Seller's interests therein in
connection with entering into the transactions contemplated hereby, and (iii)
has been represented by counsel in connection with the negotiation and
documentation of this Agreement and the transactions contemplated hereby.
SECTION Representations and Warranties of the Partnership.
The Partnership hereby represents and warrants to Seller as follows:
The Partnership is a limited partnership, duly formed, validly existing and
in good standing under the laws of the State of Delaware. The Partnership has
all requisite power and authority to carry on its business as now conducted and
to execute, deliver and perform this Agreement and the Closing Documents to be
executed and delivered by the Partnership.
The execution, delivery and performance by the Partnership of this
Agreement and the Closing Documents to be executed and delivered by the
Partnership have been authorized by all necessary partnership action and do not
contravene any provision of the Partnership Agreement. This Agreement has been
duly executed and delivered by an authorized officer of the General Partner, on
behalf of the Partnership, and the Limited Partners. The Closing Documents to be
executed and delivered by the Partnership will be duly executed and delivered by
an authorized officer of the General Partner, on behalf of the Partnership, and
the Limited Partners.
This Agreement is a valid and binding obligation of the Partnership
enforceable against the Partnership in accordance with its terms (except as may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws affecting creditor's rights and remedies
generally and general principles of equity). The Closing Documents, when
executed and delivered by the Partnership, will be valid and binding obligations
of the Partnership enforceable against the Partnership in accordance with their
respective terms (except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws affecting
creditor's rights and remedies generally and general principles of equity).
The execution, delivery and performance by the Partnership of this
Agreement, and the Closing Documents to be executed and delivered by the
Partnership, do not conflict with, violate or result in a breach of any of the
provisions of, or constitute a default under, any bond, note or other evidence
of indebtedness, indenture, mortgage, deed of trust, loan agreement or similar
instrument, any lease or other material agreement or material contract by which
the Partnership or any of its Affiliates or their respective assets is bound
(other than the Partnership Agreement) or any applicable law binding upon the
Partnership or any of its Affiliates or their respective assets or any order,
rule or regulation of any court or governmental agency that will have
jurisdiction over the Partnership or any of its Affiliates or their respective
assets.
Except as set forth in Schedule 5(e), no Consent of any government agency
having jurisdiction over the Partnership or any of its Affiliates or their
respective assets is required to be obtained by the Partnership for the
execution, delivery or performance of this Agreement or the Closing Documents
executed and delivered by the Partnership.
The Partnership will have on the Closing Date sufficient funds with which
to pay the Redemption Price and is solvent as of the date hereof, will be
solvent on the Closing Date, and the payment of the Redemption Price will not
render the Partnership insolvent. No insolvency proceedings of any character
affecting the Partnership or any of the Partnership's assets or business is
pending or, to the knowledge of the Partnership, threatened.
There are no suits, actions, claims or legal, administrative, arbitration
or other proceedings or governmental investigations pending or threatened in any
federal, state or local court, or before any administrative agency against the
Partnership or any of its assets or which seek to enjoin, prohibit, or otherwise
question the validity of any action taken or to be taken pursuant to or in
connection with this Agreement or any of the transactions contemplated hereby.
SECTION Representations and Warranties of the General Partner.
The General Partner hereby represents and warrants to Seller that the
representation and warranty made to the Seller by the Partnership in Section
5(f) hereof is true and correct as of the date hereof and shall be the joint and
several representation and warranty of the General Partner and the Partnership.
SECTION Conditions to the Obligations of the Partnership.
The obligations of the Partnership to consummate the transactions described
herein are subject to the fulfillment, prior to or at the Closing, of the
following conditions:
The representations and warranties of Seller set forth in this Agreement
that are qualified as to materiality shall be true and correct, and those that
are not so qualified shall be true and correct in all material respects, as of
the Closing Date as though made on the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date (in which
case such representations and warranties that are qualified as to materiality
shall be true and correct, and those that are not so qualified shall be true and
correct in all material respects, as of such earlier date).
Seller shall have performed or complied in all material respects with all
of the obligations under this Agreement to be performed or complied with by
Seller prior to the Closing.
Seller shall have delivered to the Partnership a certificate dated the
Closing Date, in form and substance reasonably satisfactory to the General
Partner, certifying (i) that the representations and warranties of Seller set
forth in this Agreement that are qualified as to materiality are true and
correct, and those that are not so qualified are true and correct in all
material respects, as of the Closing Date as though made on the Closing Date,
except to the extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties that are
qualified as to materiality are true and correct, and those that are not so
qualified are true and correct in all material respects, as of such earlier
date) and (ii) that Seller has performed or complied in all material respects
with all of the obligations under this Agreement to be performed or complied
with by Seller prior to the Closing.
Each of Seller and Lady Luck shall have delivered to the Partnership a
general release of claims in all material respects in the forms attached as
Exhibits 7(d)-1 and 7(d)-2, respectively, duly completed, executed and
acknowledged by Seller.
The transactions contemplated by the Brata Agreement shall have been
consummated in all material respects.
Seller shall have delivered to the Partnership a waiver of its rights
contained in Sections 9.1(a) and 9.2 of the Partnership Agreement in all
material respects in the form attached as Exhibit 7(f), with respect to the
Brata Agreement, duly executed and acknowledged by Seller.
Seller shall have delivered to the Partnership all documents sufficient to
release Seller's Partnership Interest from all Exceptions, including without
limitation, release of the security interests of First Trust National
Association, as trustee ("First Trust").
No event, circumstance or condition which has had or is reasonably likely
to have a Material Adverse Effect upon the Partnership shall have occurred since
the date hereof.
Seller shall have delivered (or the General Partner, on behalf of the
Partnership, shall have received from the appropriate Person) the following
Closing Documents, each dated as of the Closing Date:
(i) An assignment of partnership interest (the "Assignment") in all
material respects in the form attached as Exhibit 7(i)(i), duly completed,
executed and acknowledged by Seller;
(ii)A good standing certificate with franchise tax clearance issued by the
Secretary of State of the State of Mississippi, certifying that Seller is duly
formed and in good standing under the laws of said State;
(iiiA non-foreign certificate in all material respects in the form attached
as Exhibit 7(i)(iii), duly completed, executed and acknowledged by Seller;
(iv)A certificate by the secretary or an assistant secretary of Seller with
respect to (A) Seller's Articles of Incorporation, (B) Seller's By-Laws, (C)
resolutions of the board of directors and shareholders of Seller authorizing the
sale to the Partnership of Seller's Partnership Interest and execution, delivery
and performance of this Agreement and (D) the incumbency of the officers of
Seller who executed this Agreement and the Closing Documents;
(v) Opinions of counsel to Seller and Lady Luck addressed to the
Partnership, as to the matters set forth in the form as attached Exhibit
7(i)(v);
(vi)An opinion of McDermott, Will & Emery, counsel to Lady Luck Gaming
Finance Corporation, addressed to the Partnership, as to the matters set forth
in the form as attached Exhibit 7(i)(vi); provided, however, that the
qualifications and/or exceptions set forth in such opinion shall be reasonably
satisfactory to the Partnership;
(viii) Any documentary stamp, transfer or other tax return or affidavit of
Seller required under applicable law with respect to the transaction described
herein, duly completed, executed and acknowledged or sworn and in proper form
for filing.
SECTION Conditions to the Obligations of Seller.
The obligations of Seller to consummate the transactions described herein
are subject to the fulfillment, prior to or at the Closing, of the following
conditions:
The representations and warranties of the Partnership set forth in this
Agreement that are qualified as to materiality shall be true and correct, and
those that are not so qualified shall be true and correct in all material
respects, as of the Closing Date as though made on the Closing Date, except to
the extent such representations and warranties expressly relate to an earlier
date (in which case such representations and warranties that are qualified as to
materiality shall be true and correct, and those that are not so qualified shall
be true and correct in all material respects, as of such earlier date).
The Partnership shall have performed or complied with all of the other
obligations under this Agreement to be performed or complied with by the
Partnership prior to the Closing.
The General Partner, on behalf of the Partnership, shall have delivered to
Seller a certificate dated the Closing Date, in form and substance reasonably
satisfactory to Seller, certifying (i) that the representations and warranties
of the Partnership set forth in this Agreement that are qualified as to
materiality are true and correct, and those that are not so qualified are true
and correct in all material respects, as of the Closing Date as though made on
the Closing Date, except to the extent such representations and warranties
expressly relate to an earlier date (in which case such representations and
warranties that are qualified as to materiality are true and correct, and those
that are not so qualified are true and correct in all material respects, as of
such earlier date) and (ii) that the Partnership has performed or complied in
all material respects with all of the obligations under this Agreement to be
performed or complied with by the Partnership prior to the Closing.
The Partnership, the General Partner and the Limited Partners (other than
Seller) each shall have delivered to Seller a general release of claims in the
forms attached as Exhibits 8(d)-1 and 8(d)-2, respectively, duly completed,
executed and acknowledged by all parties other than Seller.
The Partnership, the General Partner and the Limited Partners (other than
Seller) shall have delivered to Seller a consent to transactions contemplated by
this Agreement as required by Section 9.1(a) of the Partnership Agreement, a
waiver of their respective rights contained in Section 9.2 of the Partnership
Agreement and a waiver of Seller's obligations contained in Section 9.4(b) of
the Partnership Agreement in the form attached as Exhibit 8(e) with respect to
this Agreement, duly executed and acknowledged by such parties.
Seller shall have received all documents sufficient to release Seller's
Partnership Interest from all Exceptions upon the occurrence of the Closing,
including, without limitation, a release by First Trust of the security interest
in and to the Seller's Partnership Interest held by First Trust.
The Partnership shall have delivered to Seller the following Closing
Documents, each dated as of the Closing Date:
(i) A good standing certificate issued by the Secretary of State of the
State of Delaware, certifying that the Partnership is duly formed and in good
standing under the laws of said State;
(ii)A certificate by the secretary or an assistant secretary of the General
Partner, with respect to (A) resolutions of the board of directors of the
General Partner authorizing the purchase by the Partnership of Seller's
Partnership Interest and the execution, delivery and performance of this
Agreement and (B) the incumbency of the officers of the General Partner who
executed this Agreement and the Closing Documents on behalf of the Partnership;
(iiiAn opinion from each of Hilton Gaming Corporation and Lott, Franklin,
Fonda & Flanagan addressed to Seller as to the matters set forth in the form
attached as Exhibit 8(g)(iii); and
(iv)An opinion of Latham & Watkins addressed to Seller as to the matters
set forth in the form attached as Exhibit 8(g)(iv); provided, however, that the
qualifications and/or exceptions set forth in such opinion shall be reasonably
satisfactory to Seller.
SECTION Conditions to the Obligations of the Partnership and Seller. The
obligations of Seller on the one hand, and the Partnership on the other hand, to
consummate the transactions described herein are subject to the fulfillment,
prior to or at the Closing, of the following conditions:
All Consents necessary to the consummation of the transactions contemplated
hereby shall have been obtained, including, without limitation, approval from
the Mississippi gaming commission. The applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have
expired or been terminated.
Neither Seller or the Partnership nor any of their respective Affiliates
shall be subject to any order, decree or injunction by a governmental authority
having jurisdiction over such entity which prevents or materially impairs the
consummation of the transactions contemplated hereby.
No statute, rule, regulation, order, decree, judgment, injunction,
stipulation or determination shall have been enacted by any governmental
authority having jurisdiction over either Seller or Partnership or any of their
respective Affiliates that makes the consummation of the transactions
contemplated hereby illegal.
SECTION Covenants of the Partnership and Seller.
Between the date of this Agreement and the Closing Date or date of any
termination hereof, as the case may be, the parties hereto agree (i) to use all
reasonable efforts to (A) obtain all consents, permits or approvals from
governmental authorities or other third parties necessary to consummate and make
effective the transactions contemplated by this Agreement and (B) release the
Seller's Partnership Interest from any and all Exceptions; (ii) not to take or
omit to take any action which would be reasonably likely to cause any condition
of Closing set forth in Sections 7, 8 or 9 of this Agreement not to occur; and
(iii) to cooperate with each other in connection with the foregoing.
Neither Seller nor any of its Affiliates shall take or omit to take any
action which would cause Seller's Partnership Interest to be subject to an
Exception.
Each party represents to the other that it has not dealt with any brokers
in connection with this Agreement and no broker is entitled to any commissions
in connection with the transactions contemplated by this Agreement. Each party
agrees to indemnify, defend and hold the other party and its Affiliates,
employees, agents, their officers and partners harmless from and against any
claims made by any broker or finder for a commission or fee in connection with
the transactions contemplated by this Agreement alleged to arise out of an
agreement or arrangement with such indemnifying party.
SECTION Payment of Fees and Expenses. The parties shall each bear their own
costs and expenses incurred in connection with the transactions contemplated by
this Agreement.
SECTION Further Assurances. Upon the reasonable request of the General
Partner, on behalf of the Partnership, Seller shall deliver such other
assignments, instruments and documents and take such other actions, as the
General Partner, on behalf of the Partnership, shall reasonably request to
effectuate the transaction described herein and in the Closing Documents in
accordance with the provisions hereof and thereof.
SECTION Obligations Discharged at Closing.
Except for provisions specifically stated to survive the Closing, the
acceptance by the Partnership of the Closing Documents and the acceptance by
Seller of the Redemption Price shall be an acknowledgment by each party of the
full performance and observance of every covenant and condition in this
Agreement to be performed or observed by the other party.
<PAGE>
SECTION Tax Matters.
As of December 31, 1996, Seller's tax basis in Seller's Partnership
Interest is $14,700,000.
(b) Pursuant to Section 4.6(b) of the Partnership Agreement, the
Partnership shall distribute to Seller a copy of the Partnership's federal tax
return (and the accompanying Schedule K-1 of Seller) for the period ending on
the Closing Date not later than thirty days before the date on which the
Partnership's federal tax return is required to be filed.
SECTION Nonsolicitation; Confidentiality.
During the Nonsolicitation Period, none of Seller, Lady Luck or any of
their respective Affiliates shall induce or attempt to induce any Employee to
leave their employ with the Partnership or in any way interfere with the
relationship between the Partnership and any of its employees.
At all times Seller, Lady Luck and all of their respective Affiliates shall
keep secret and retain in strictest confidence, and all not use for the benefit
of himself or others, confidential matters of the Partnership or its Affiliates,
including, without limitation, "know-how", trade secrets, customer lists,
supplier lists, details of contacts, pricing policies, operational methods,
marketing plans or strategies, product development techniques or plans, or
technical processes (collectively, "Confidential Information"); provided,
however, that the term Confidential Information of the Partnership or its
Affiliates does not include information (i) that was or becomes generally
available to the public other than as a result of disclosure by Seller or Lady
Luck; (ii) was available on a non-confidential basis prior to its disclosure by
Seller or Lady Luck; or (iii) becomes available to Seller or Lady Luck on a
non-confidential basis from a source other than the Partnership or its
Affiliates who was not, to Seller's or Lady Luck's knowledge, bound by any
fiduciary or confidentiality obligation to the Partnership or any of its
Affiliates. The prohibition against disclosure of Confidential Information shall
survive the Closing Date, and the restrictive covenants contained in this
Section 15(b) shall not terminate until such Confidential Information ceases to
be Confidential Information as defined herein. Seller's and Lady Luck's duties
under this Section 15(b) shall not extend to any disclosures that may be
required by law in connection with any judicial or administrative proceeding or
inquiry.
The parties agree that the Partnership may suffer irreparable harm from a
breach by Seller or any of its Affiliates of any of the covenants or agreements
contained herein. In the event of an alleged or threatened breach by Seller,
Lady Luck or any of their respective Affiliates of any of the provisions of this
Section 15, the Partnership or its successors or assigns may, in addition to all
other rights and remedies existing in its favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other relief in order
to enforce or prevent any violations of the provisions hereof.
If, at the time of enforcement of any of the provisions of this Section 15,
a court holds that the restrictions stated herein are unreasonable under the
circumstances then existing, the parties hereto agree that the maximum period,
scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area.
SECTION Miscellaneous.
This Agreement constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof and supersedes all previous and
contemporaneous oral or written negotiations, agreements, arrangements and
understandings relating to the subject matter hereof. There have been no
representations or statements, oral or written, that have been relied on by any
party hereto, except those expressly set forth in this Agreement.
This Agreement shall not be amended, supplemented or modified except by an
instrument in writing signed and delivered by each of the parties hereto.
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO THE
APPLICATION OF ITS CONFLICT OF LAWS RULES.
The representations, warranties, agreements and covenants of the parties
set forth in this Agreement shall survive the Closing Date.
This Agreement may be executed in any number of counterparts, and by each
of the undersigned on separate counterparts, and each such counterpart shall be
deemed to be an original, but all such counterparts put together shall
constitute but one and the same Agreement.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns, if any.
The headings preceding the text of Sections of this Agreement are provided
for convenience and reference only and should not be used in construing this
Agreement.
Except as otherwise set forth herein, no remedy set forth in this Agreement
or otherwise conferred upon or reserved to any party shall be considered
exclusive of any other remedy available hereunder, at law or in equity to any
party, but the same shall be distinct, separate and cumulative and may be
exercised from time to time as often as occasion may arise or as may be deemed
expedient.
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, it shall be ineffective to the extent of such
invalidity, illegality or unenforceability, and the validity, legality and
enforceability of the remaining provisions contained herein shall not be
affected thereby.
No party hereto shall make any public disclosure of the specific terms of
this Agreement, except as required by law and then only upon joint consultation
as to the substance of such disclosure; provided, however, that the parties
hereto may disclose the material financial terms of this Agreement and the
occurrence of the Closing in applicable regulatory filings and financial
statements without such prior consultation. In connection with the negotiation
of this Agreement and the preparation for the consummation of the transactions
contemplated hereby, each party acknowledges that it will have the opportunity
to have access to confidential information relating to the other parties. Each
party shall treat such information as confidential, preserve the confidentiality
thereof and not duplicate or use such information, except to advisors,
consultants and affiliates in connection with the transactions contemplated
hereby, and except as required to comply with any law or any provision of this
Agreement.
All notices, approvals or other communications Seller or the Partnership
may desire or be required to give to each other under the terms of this
Agreement shall be in writing and shall be deemed to have been properly given,
served and received (i) if delivered by messenger, when delivered, (ii) if
mailed in the United States certified or registered mail, postage prepaid,
return receipt requested, on the third (3rd) business day after mailing, (iii)
if telexed, telegraphed or telecopied, six (6) hours after being dispatched by
telex, telegram or telecopy if such sixth (6th) hour falls on a business day
within the hours of 8:00 a.m. through 5:00 p.m. of the time in effect at the
place of receipt, or at 8:00 a.m. on the next business day thereafter if such
hour is later than 5:00 p.m., or (iv) if delivered by reputable express carrier,
freight prepaid, the next business day after delivery to such carrier, addressed
to such party as follows:
If to Seller, addressed as follows:
Old River Development, Inc.
206 North Third St.
Las Vegas, Nevada 89101
Telecopy Number: (702) 477-3003
Attention: Rory Reid, Esq.
with a copy to:
McDermott, Will & Emery
50 Rockefeller Plaza, 11th Floor
New York, New York 10020
Telecopy Number: (212) 547-5444
Attention: Brian Hoffmann, Esq.
If to the Partnership, addressed as follows:
Bally's Olympia Limited Partnership
c/o Bally's Park Place
Park Place & Boardwalk
Atlantic City, New Jersey 08401
Telecopy Number: (609) 340-2410
Attention: Dennis Venuti, Esq.
with a copy to:
Latham & Watkins
Sears Tower, Suite 5800
Chicago, Illinois 60606
Telecopy Number: (312) 993-9767
Attention: Mark D. Gerstein, Esq.
Any notice to the other parties to this Agreement shall be deemed to have
been properly given, served and received if given in the manner described above
to the address of such party as set forth on a signature page of this Agreement.
Any party may change the address or party to which notices may be sent by notice
to the other party or parties as provided herein.
[SIGNATURE PAGE FOLLOWS.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto or the authorized representatives of
the parties hereto have executed and delivered this Agreement as of the date
first above written.
SELLER:
OLD RIVER DEVELOPMENT, INC., a Mississippi corporation
By:
Name: Andrew H. Tompkins
Title: President
BALLY'S OLYMPIA LIMITED PARTNERSHIP a Delaware limited partnership
General Partner
BALLY'S OPERATOR, INC., a Delaware corporation
By:
Name: Wallace R. Barr
Title: President
BALLY'S OPERATOR, INC., a Delaware corporation
By:
Name: Wallace R. Barr
Title: President
Solely with respect to Section 6 hereof
LADY LUCK GAMING CORPORATION, a Delaware corporation
By:
Name: Andrew H. Tompkins
Title: Chairman and C.E.O.
Solely with respect to Section 15 hereof
