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: June 30, 1998
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
<TABLE>
<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)
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
</TABLE>
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 August 7,
1998, there were 4,880,613 shares of common stock, $.006 par value per share,
outstanding.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
ASSETS
June 30, December 31,
1998 1997
Current assets:
Cash and cash equivalents.............. $ 3,410 $ 19,552
Restricted cash........................ 15,127 15,388
Accounts receivable, net............... 1,029 786
Inventories............................ 996 957
Assets held for sale................... 673 2,791
Prepaid expenses....................... 1,473 2,456
-------------- ---------------
Total current assets................ 52,708 41,930
-------------- ---------------
Property and equipment, net of
accumulated depreciation and
amortization of $27,934 and $26,525
as of June 30, 1998 and December 31,
1997, respectively..................... 116,591 128,375
Other assets:
Deferred financing fees and costs, net
of accumulated amortization of
$3,780 and $3,347 as of June 30,
1998 and December 31, 1997,
respectively........................ 2,307 2,740
Investment in unconsolidated
affiliates, net 12,410 9,313
Other.................................. 2,711 2,948
-------------- ---------------
17,428 15,001
-------------- ---------------
TOTAL ASSETS.............................. $ 186,727 $ 185,306
============== ===============
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
2
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LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
June 30, December 31,
1998 1997
Current liabilities:
Current portion of long-term debt...... $ 520 $ 4,481
Accrued interest....................... 1,823 1,846
Accounts payable....................... 3,963 5,178
Construction and retention payables.... 1,952 1,957
Accrued property taxes................. 776 1,476
Other accrued liabilities.............. 9,429 7,320
-------------- ---------------
Total current liabilities........... 18,463 22,258
-------------- ---------------
Long-term debt:
Mortgage notes payable................. 173,500 173,500
Other long-term debt................... 2,905 3,314
-------------- ---------------
Total long-term debt................ 176,405 176,814
-------------- ---------------
Total liabilities................ 194,868 199,072
-------------- ---------------
Commitments and contingencies
(Notes 5 through 11)
Series A mandatory cumulative redeemable
preferred stock, $44.91 and $42.44, as
of June 30, 1998 and December 31, 1997,
respectively per share liquidation
value, 1,800,000 shares authorized,
433,638 shares issued and outstanding.. 19,475 18,402
-------------- ---------------
Stockholders' deficit:
Common stock, $.006 par value,
75,000,000 shares authorized,
4,880,613 shares issued and
outstanding ........................ 29 29
Additional paid-in capital............. 31,382 31,382
Accumulated deficit.................... (59,027) (63,579)
-------------- ---------------
Total stockholders' deficit......... (27,616) (32,168)
-------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT.................. $ 186,727 $ 185,306
============== ===============
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
3
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<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Casino........................... $ 32,124 $ 35,043 $ 68,602 $ 71,842
Food and beverage................ 4,242 4,151 8,930 8,590
Hotel............................ 1,100 1,115 2,095 2,106
Equity in net income of
unconsolidated affiliates..... 1,629 1,434 3,097 2,376
Other............................ 903 1,432 1,905 2,862
---------- ---------- ---------- ----------
Gross revenues................ 39,998 43,175 84,629 87,776
Less: Promotional allowances (3,548) (3,097) (7,506) (6,490)
---------- ---------- ---------- ----------
Net revenues.................. 36,450 40,078 77,123 81,286
---------- ---------- ---------- ----------
Costs and expenses:
Casino........................... 13,812 14,300 29,244 29,199
Food and beverage................ 1,382 1,796 2,859 3,484
Hotel............................ 698 603 965 1,166
Other............................ 39 68 100 142
Selling, general and
administrative................ 12,649 13,105 25,345 26,489
Related party management/
license fees.................. 68 422 525 936
Depreciation and amortization.... 2,214 2,976 4,604 5,929
Gain on sale of assets........... (2,848) - (2,848) -
---------- ---------- ---------- ----------
Total costs and expenses...... 28,014 33,270 60,794 67,345
---------- ---------- ---------- ----------
Operating income ................... 8,436 6,808 16,329 13,941
Other income (expense):
Interest income.................. 494 211 757 370
Interest expense................. (5,505) (5,723) (11,089) (11,395)
Other............................ (342) 36 (342) 88
---------- ---------- ---------- ----------
Total other expense........... (5,353) (5,476) (10,674) (10,937)
---------- ---------- ---------- ----------
Income before income tax provision.. 3,083 1,332 5,655 3,004
Income tax provision................ 15 105 30 105
---------- ---------- ---------- ----------
NET INCOME.......................... 3,068 1,227 5,625 2,899
Preferred stock dividends........... 544 486 1,073 958
---------- ---------- ---------- ----------
Income applicable to
common stockholders.............. $ 2,524 $ 741 $ 4,552 $ 1,941
========== ========== ========== ==========
NET INCOME PER SHARE
Applicable to common stockholders $ 0.52 $ 0.15 $ 0.93 $ 0.40
========== ========== ========== ==========
Weighted average number of common
shares outstanding............... 4,880,613 4,880,613 4,880,613 4,880,613
========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these condensed consolidated
statements.
</FN>
</TABLE>
4
<PAGE>
LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net income............................ $ 5,625 $ 2,899
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization......... 4,604 5,929
Amortization of bond offering
fees and costs...................... 433 433
Gain on sale of assets................ (2,848) -
Equity in net income of
unconsolidated affiliates........... (3,097) (2,376)
(Increase) decrease in assets:
Accounts receivable................. (245) 160
Inventories......................... (39) 86
Prepaid expenses.................... 1,173 100
Increase (decrease) in liabilities:
Accounts payable.................... (1,215) 605
Other accrued liabilities........... (705) (596)
-------------- ---------------
Net cash provided by (used in)
operating activities.................. 3,686 7,240
-------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment.... (3,594) (1,557)
Proceeds from sale of
operating assets.................... 15,127 -
Restricted cash....................... 261 -
Other................................. (79) (174)
-------------- ---------------
Net cash provided by (used in)
investing activities.................. 11,715 (1,731)
-------------- ---------------
The accompanying notes are an integral part of these condensed consolidated
statements.
5
<PAGE>
LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands, except supplemental schedule)
(Unaudited)
Six Months Ended
June 30,
1998 1997
Cash flows from financing activities:
Payments on debt and slot contracts... (1,543) (1,999)
-------------- ---------------
Net cash provided by (used in) financing
activities............................ (1,543) (1,999)
-------------- ---------------
Net increase (decrease) in cash and cash
equivalents................... 13,858 3,510
Cash and cash equivalents,
beginning of period................... 19,552 15,490
-------------- ---------------
Cash and cash equivalents, end of period $ 33,410 $ 19,000
============== ===============
Supplemental disclosures of cash flow
information:
Cash paid during the period for
interest.......................... $ 10,679 $ 10,980
============== ===============
Cash paid during the period for
taxes............................. $ - $ 80
============== ===============
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The liquidation value of the Series A mandatory cumulative redeemable preferred
stock increased by approximately $1,073,000 and $958,000 in unpaid accrued
dividends for the six month periods ended June 30, 1998 and 1997, respectively.
The Company entered into several contracts with manufacturers for the purchase
of slot machines and other assets which totaled approximately $637,000 and
$618,000 for the six month periods ended June 30, 1998 and 1997, respectively.
Effective February 19, 1998, a subsidiary of the Company sold substantially all
of its real property and operating assets to the holder of its mortgage note in
exchange for forgiveness of the $2,750,000 mortgage note and the assumption of
certain liabilities.
The accompanying notes an integral part of these condensed consolidated
statements.
6
<PAGE>
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 1997 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 six
month periods ended June 30, 1998 and 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 reserve for disposition
costs related to the sale of Lady Luck Biloxi's operating assets as more fully
described below. The Company has made certain financial statement
reclassifications for the three and six month periods ended June 30, 1997 in
order to classify amounts in a manner consistent with the three and six month
periods ended June 30, 1998.
The consolidated financial statements of Lady Luck Gaming Corporation
("LLGC"), a Delaware corporation, include the accounts of LLGC and its
subsidiaries (collectively the "Company"). For the periods presented in the
financial statements, 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") (see Note 9),
Magnolia Lady, Inc. ("MLI"), Lady Luck Tunica ("LLT"), each a Mississippi
corporation (collectively the "Mississippi Companies") and Gold Coin, Inc.
("GCI") (see Note 10). The Company also owns an interest in a joint venture with
Bettendorf Riverfront Development Company ("BRDC") and previously owned an
investment in a joint venture (the "Bally's Joint Venture") with Bally's
Entertainment Corp. ("Bally's") (see Note 4) which are and have been 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. LLM began dockside casino
operations on February 26, 1993 in Natchez, Mississippi and acquired and took
over operation of the 147-room River Park Hotel in Natchez, Mississippi on April
15, 1996; Lady Luck Central City, Inc., formerly Gold Coin Incorporated
("LLCC"), a Delaware corporation and subsidiary of the Company, opened on May
28, 1993 and sold its real property and operating assets and ceased operations
effective February 19, 1998 (see Note 10); LLB began dockside casino operations
on December 13, 1993 in Biloxi, Mississippi and sold its real property and
operating assets and ceased operations effective June 7, 1998 (see Note 9); 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 on May 21, 1996 and acquired and took over operation of
the 120-room Riverbluff Hotel in Helena, Arkansas on July 3, 1996; Lady Luck
Quad Cities, Inc. ("LLQC"), a Delaware corporation and subsidiary of the
Company, formed a joint venture with BRDC (the "Bettendorf Joint Venture") to
operate a casino in Bettendorf, Iowa which commenced operation on April 21, 1995
(see Note 4); Old River Development, Inc., a subsidiary of the Company,
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, L.L. Gaming
Reservations, Inc., a Nevada corporation and subsidiary of the Company, began
operating a central reservations center for the Company's hotels on September 3,
1996. Lady Luck Vicksburg, Inc. ("LLV"), a subsidiary of the Company and Lady
Luck Kimmswick, Inc. ("LLK"), a 93% owned subsidiary of the Company and a
Missouri corporation, are in various stages of development and have no operating
history.
2. Certain Risks and Uncertainties
The Company's operations in Mississippi and Iowa 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.
7
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. Reverse Stock Split and Net Income Per Share
Effective June 4, 1998, the Company's shareholders approved a one-for-six
reverse stock split with regard to its Common Stock (the "Reverse Split"). The
effects of the Reverse Split were to reduce the number of issued and outstanding
shares of Common Stock from 29,285,698 to 4,880,613 and to increase the par
value of these shares from $0.001 to $0.006 per share. In lieu of fractional
shares resulting from the Reverse Split, stockholders shall receive a cash
payment from the sale of the aggregate fractional shares on the open market. The
Reverse Split did not change the number of authorized shares of the Company's
Common Stock and had no effect on the Company's Preferred Stock. All references
in the financial statements to number of shares, per share amounts and market
prices of the Company's Common Stock have been retroactively restated to reflect
the decreased number of shares of Common Stock outstanding.
As of December 31, 1997, the Company adopted Statement of Financial
Accounting Standard 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. The adoption of SFAS No. 128 did not
affect the Company's earnings per share calculations. As of June 30, 1998,
options to purchase 68,000 shares of common stock at exercise prices ranging
from $15.00 to $18.72 per share were outstanding and exercisable, respectively,
and could potentially dilute earnings per share in future periods. The related
weighted average number of shares of common stock were not included in the
computations of earnings per share because the options' exercise prices were
greater than the average market prices of common stock during the three and six
month periods ended June 30, 1998 and 1997 and any effective would be
antidilutive.
4 Investment in Unconsolidated Affiliates
The Company's investment in the joint ventures with BRDC and its former
investment in the joint venture with 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
six month periods ended June 30, 1998 and 1997.
Bettendorf Joint Venture
In December 1994, the Company entered the Bettendorf Joint Venture with
BRDC to develop 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 a lease rate equal to $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 June 30, 1998 of $19,694,000 to the
Bettendorf Joint Venture for approximately $189,000 per month, which amount was
determined based upon arms-length negotiations between the Company and BRDC. In
addition, from inception of the Bettendorf Joint Venture through December 31,
1997, the Company had been leasing certain gaming equipment to the Bettendorf
Joint Venture with a cost of $3,705,000 for approximately $122,000 per month,
its fair market rental value. Pursuant to such equipment lease, effective
January 1, 1998, the Company sold the equipment to the Bettendorf Joint Venture
for a negotiated amount of $712,000 cash.
8
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company's rental income relating to these leases for the three and six
month periods ended June 30, 1998 and 1997 are as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Gaming vessel lease $ 567 $ 566 $1,133 $1,133
Gaming equipment lease - 366 - 732
------ ------ ------ ------
Total Bettendorf lease
rental income $ 567 $ 932 $1,133 $1,865
====== ====== ====== ======
Lady Luck Bettendorf commenced operations on April 21, 1995. All net
profits and losses from all operations of Lady Luck Bettendorf are allocated
equally between the Company and BRDC. Effective January 1, 1996, the Company was
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 abated 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 six month
periods ended June 30, 1998 and 1997 as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Lady Luck Bettendorf
management fees $ 581 $ 437 $1,089 $ 796
====== ====== ====== ======
The Bettendorf Joint Venture is currently constructing a $39.5 million
expansion project pursuant to its master-plan (See Note 8).
Summarized balance sheet information for the Bettendorf Joint Venture as of
June 30, 1998 and December 31, 1997 is as follows (in thousands):
June 30, December 31,
1998 1997
Current assets $ 7,912 $ 4,758
Other 839 732
Property and equipment, net 43,441 25,459
------------ ------------
Total assets $ 52,192 $ 30,949
============ ============
Current liabilities $ 18,586 $ 12,276
Long-term liabilities 8,786 48
Members' equity 24,820 18,625
------------ ------------
Total liabilities and
members' equity $ 52,192 $ 30,949
============ ============
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 six month periods ended June 30, 1998 and 1997 are as follows (in
thousands):
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Net revenues $ 21,597 $ 19,055 $ 40,722 $ 36,473
Costs and expenses 18,338 16,967 34,527 32,943
---------- ---------- ---------- ----------
Net income $ 3,259 $ 2,088 $ 6,195 $ 3,530
========== ========== ========== ==========
A summary of changes in the Company's investment in the Bettendorf Joint
Venture for each of the six month periods ended June 30, 1998 and 1997 are as
follows (in thousands):
1998 1997
Investment, beginning of period $ 9,313 $ 5,886
Equity in net income
of unconsolidated affiliate 3,097 1,764
------------ ------------
Investment, end of period $ 12,410 $ 7,650
============ ============
Included in the Company's Retained Earnings at June 30, 1998 is $9,410,000 of
undistributed earnings of the Bettendorf Joint Venture.
Bally's Joint Venture
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 (the "Partnership Interest Redemption Agreement") (See Note 5).
5. Long-Term Debt
At June 30, 1998 and December 31, 1997, long-term debt consisted of the
following (in thousands):
June 30, December 31,
1998 1997
11 7/8% First Mortgage Notes;
quarterly payments of interest
only; due March 2001;
collateralized by substantially
all assets of the Company and
guaranteed by LLGC.................. $ 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 (See Note 10)....... - 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 (See Note 9)... - 714
10
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Notes payable to corporations;
monthly payments of principal
and interest at rates up to 12 1/2%
due through February 1999 secured
by the equipment.................... 242 1,122
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....................... 2,698 2,773
Mortgage note payable to an
individual; monthly payments of
principal and interest at 8 1/2%
based on a 20 year amortization;
due March 2018; collateralized
by a deed of trust.................. 348 -
Note payable to a corporation;
quarterly payments of principal
and accrued interest at 9%; due
October 1998, collateralized by
a deed of trust..................... - 110
Other.................................. 137 326
----------- ----------
176,925 181,295
Less: current portion.................. (520) (4,481)
----------- ----------
Total long-term debt................ $ 176,405 $ 176,814
=========== ==========
The Indenture, as amended and supplemented (the "Indenture"), covering the
Company's 11 7/8% First Mortgage Notes due 2001 (the " 2001 Notes") 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 in the Indenture. The Company believes it is
in compliance with the Indenture, as amended and supplemented, as of June 30,
1998.
The 2001 Notes bear interest at the rate of 11-7/8% per annum effective
October 15, 1995 (prior to that time they bore interest at the rate of 10-1/2%
per annum). Interest on the 2001 Notes held by each holder who consented to
certain amendments to and waivers of continuing defaults under the Indenture in
1996 (the "Amendments and Waivers") will be payable quarterly on each March 1,
June 1, September 1 and December 1, so long as the 2001 Notes are outstanding
(interest on the notes held by each holder who did not consent to the Amendments
and Waivers will continue to be payable semi-annually on March 1 and September
1). In addition, the Company is obligated within 180 days after the end of each
year, commencing with the year ending December 31, 1996, to purchase on the open
market, or to make an offer to purchase from the holders at par, 2001 Notes with
a principal amount equal to Excess Cash Flow (as defined in the Indenture) for
such year, provided that the Company will be able to credit towards the amount
of 2001 Notes required to be purchased in any year any amount of 2001 Notes it
has purchased since January 1, 1996 which it has not previously used as a credit
in any prior year. There was no Excess Cash Flow for the years ended December
31, 1997 and 1996. 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 continues to explore various options to refinance the 2001
Notes. However, there can be no assurance as to the timing of any such
refinancing or that the Company will continue these pursuits and, if pursued,
that terms acceptable to the Company can be negotiated.
11
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Sale of Biloxi Operating Assets
Pursuant to an Asset Purchase Agreement, on June 11, 1998, the Company
received approximately $15.1 million cash from Grand Casinos of Mississippi,
Inc. and Grand Casinos, Inc. (collectively "Grand Casinos") for the sale of
substantially all of the assets, excluding gaming equipment and certain
non-contiguous real property, associated with its Lady Luck Biloxi casino which
ceased operations June 7, 1998. In accordance with the Indenture, the Company
has 180 days after receiving the $15.1 million to invest the money and any
earnings thereon in a Related Business (as defined in the Indenture). If the
Company does not invest the funds in a Related Business before such time, 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 funds that was
not invested in a Related Business. Accordingly, the proceeds from the sale and
earnings thereon have been classified as Restricted Cash (as defined in the
Indenture) as of June 30, 1998. Any remaining funds not used to repurchase the
2001 Notes tendered, if any, will become unrestricted and available for general
purposes.
Sale of Interest in Bally's Joint Venture
Pursuant to a Partnership Interest Redemption Agreement, on November 3,
1997, the Company received approximately $15.3 million cash for its investment
in the Bally's Joint Venture. The Company will invest $5.7 million of the
proceeds from the sale of its interest in the Bally's Joint Venture in a Related
Business (as defined in the Indenture). Also in accordance with the Indenture,
the Company, on April 16, 1998, offered to repurchase up to $9.6 million
principal amount of the 2001 Notes (the "Tender Offer") at a price of 101% of
par plus accrued and unpaid interest thereon. The Tender Offer expired on May
14, 1998 and none of the 2001 Notes were tendered. The remaining proceeds from
the sale and interest earned thereon became unrestricted and available for
general purposes at that time.
6. Employment Agreements
On October 24, 1994, LLGC entered 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 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 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 difference between subtracting the exercise price of each
option held by Mr. Uboldi or Mr. Reid (whether or not fully exercisable) from
the 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
The Company has been named as a defendant in a purported shareholder class
action lawsuit alleging violations by the Company of the Securities Exchange Act
of 1933 and the Securities Exchange Act of 1934 for alleged material
misrepresentations and omissions in connection with the Company'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, President,
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. The Company 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
12
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
allegations with prejudice for failing to adequately state a claim. The court
also ordered the Plaintiffs to and the Plaintiffs have filed an amended
complaint regarding the five Section 11, 12 and 15 claims which were not
dismissed with prejudice. While the outcome of this matter cannot presently be
determined, 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 $7.1 million as of July 29, 1998 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 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.
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 $293,000 as of July 29, 1998 based upon
published exchange rates) plus interest. The Company has appealed the Court's
decision. During the fourth quarter of 1997, the Company's Greek counsel
informed the Company that it is more likely than not that the appellate court
will not overturn the Athens Court of First Instance's decision. A reserve has
been provided during the fourth quarter of 1997 and interest is accrued monthly;
however, the Company intends to continue to defend itself in 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 $47.0 million,
of which approximately $3.4 million 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
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 Lady Luck Gulfport, Inc., also a subsidiary of
the Company, 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.
13
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Construction Commitments
Bettendorf Joint Venture
The Bettendorf Joint Venture is currently constructing an expansion
project pursuant to its master-plan at a cost of approximately $39.5 million.
The project, which began construction June 23, 1997, is planned to include an
approximately 260 room hotel with a fully enclosed walkway to the riverboat
casino, 30-50 slip marina, a 500-car parking garage and a bypass over the nearby
railroad to improve access. In addition, during April 1998, the Iowa Racing and
Gaming Commission approved the addition of up to 230 new slot machines and six
table games at the Bettendorf Joint Venture. The expansion project financing is
non-recourse to the Company and includes a $17.5 million bank first mortgage
note, a $5.0 million second mortgage from an affiliated company of BRDC, and
$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.
Service Marine Vessel
The Company has entered into an agreement for the construction of a
cruising gaming vessel in the amount of $16.0 million and as of June 30, 1998,
approximately $6.0 million has been expended under this contract and
approximately $1.9 million is included in construction payables. Construction
has been discontinued and is not anticipated to resume until such time as a
suitable development project proceeds.
Natchez Site
Lady Luck Natchez was required under its current lease to move its casino
barge several hundred feet to another docking facility on land subject to its
existing lease by February 1998. Management has not relocated the casino barge
and the lessor has allowed the casino to remain in its current location.
Management and the lessor have reached an agreement in principle to amend the
existing lease to allow the barge to remain in its current location. Pursuant to
such agreement the lessor agrees to allow the barge to remain at its current
location in consideration of the Company's agreement to pay liquidated damages
of $1.2 million in the event it terminates the lease at any time during the 10
year period following the execution of the lease amendment. Should an amendment
to the lease reflecting the preliminary agreement discussed above not be
executed, the cost of relocating the barge is currently estimated not to exceed
$1.2 million. Pursuant to the existing lease, the lessor has asserted that the
Company did not make certain improvements to the site required by the agreement.
As part of the preliminary agreement discussed above, the Company has agreed to
pay the lessor $500,000 in liquidated damages and to pay up to $250,000 to
construct additional parking spaces on the leased property.
Development Stage Projects
In addition to its Operating Casinos, the Company has riverboat, dockside
or land-based casino projects in various stages of development in Kimmswick,
Missouri; Vicksburg, Mississippi; and Vancouver, British Columbia. The current
status of each of these Development Stage Projects is described below.
Kimmswick, Missouri
The first two phases of the project, as planned, include a land-based
hotel and casinos onboard two separate vessels (the "Missouri Project"). LLK has
entered into an option to lease the Kimmswick Site. The proposed site is located
on an approximately 45-acre parcel of land in Jefferson County, Missouri,
approximately 25 miles south of St. Louis (the "Kimmswick Site").
14
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of June 30, 1998, the Company has invested approximately $8.6 million
in the Missouri Project which investment has been fully reserved. The Missouri
Project is estimated to cost an additional $105.0 million to complete
development of the first two phases. The proposed project has received the
appropriate zoning approval from the Jefferson County Planning Commission and
has received a U.S. Army Corps of Engineers 404 permit. However, a new permit
might be necessary due to changes in the proposed project design subsequent to
receiving the permit.
The Company has continued its efforts towards obtaining a license for the
Missouri Project and provided updated information to the Missouri Gaming
Commission. The Missouri Gaming Commission investigates applicants at its
discretion and has not yet selected the Company to be investigated. Furthermore,
there can be no assurance that the Company will be selected or obtain such
approvals from the Missouri Gaming Commission. While the Company intends to
continue seeking license approval by the Missouri Gaming Commission, the
eventual development of the Missouri Project may also be subject to: (i)
satisfactory resolution of a November 1997 Missouri Supreme Court ruling that
several existing Missouri gaming facilities are illegal due to not being located
upon the Mississippi or Missouri rivers (the Kimmswick Site is located upon the
Mississippi River, but resolution of the decision could delay selection of
additional applicants for licensing investigation); (ii) the selection of three
new Missouri Gaming Commission members, which the Company believes may not be
familiar with the Company's application; (iii) gaming revenues in the major
metropolitan areas of Missouri have not increased commensurate with recent
increases in capacity, causing concerns of potential competitive saturation;
and, (iv) regulatory factors, including loss limits, have generally caused
gaming operations to underperform relative to facilities in neighboring
jurisdictions without such restrictions.
The Vicksburg Project
The development as planned will include a riverboat casino, an approximate
200-room hotel, an 800-car parking garage, and additional amenities (the
"Vicksburg Project"). The Vicksburg Project 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, in
Vicksburg, Mississippi.
During 1997, the Company entered into an agreement (the "Horseshoe Joint
Venture Agreement") with Horseshoe Gaming, LLC ("Horseshoe") to form a joint
venture to complete and operate the Vicksburg Project. Under the terms of the
joint venture agreement: (i) the Vicksburg Project will be operated by a wholly
owned subsidiary of Horseshoe Gaming, LLC; (ii) Horseshoe will own an equity
interest of 75%, with LLV, holding the remaining 25%; and, (iii) the partners
will contribute real property and other previously acquired assets with a
combined agreed-upon value of approximately $42.0 million. The Company
anticipates certain modifications to the joint venture agreement will be
necessary before the joint venture may be formed to reflect certain changes in
project scope.
A gaming license was granted to LLV on August 18, 1994 and has subsequently
been renewed through July 2000. As of June 30, 1998, the Company has invested
approximately $14.7 million in the Vicksburg Project with a net investment
remaining of approximately $8.4 million after project development cost
write-downs and reserves for assets which may not be usable in the project as
currently contemplated. Management's estimate 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. The total cost of the project is
initially estimated to be approximately $100.0 million including the agreed-upon
value of contributed assets.
The consummation of the transactions contemplated by the Horseshoe Joint
Venture Agreement are subject to the fulfillment of several conditions (the
"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. The Horseshoe Joint Venture Agreement provides
that it may be terminated by LLV or Horseshoe as of April 1, 1998 (the
"Termination Date") if the Conditions are not satisfied or waived as of the
Termination Date or without cause. All of the Conditions were not satisfied
15
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
prior to the Termination Date. While the partners have not elected to terminate
the Horseshoe Joint Venture Agreement as of the termination date, there can be
no assurance that LLV or Horseshoe will not terminate the Horseshoe Joint
Venture Agreement. Furthermore, there can be no assurance that if consummated,
that the joint venture will be successful.
In addition, during the fourth quarter of 1996, the Mississippi Gaming
Commission found a proposed casino site on the Big Black River unsuitable. The
Big Black River is located about 13 miles from Vicksburg, between Vicksburg and
Jackson, the major population base from which Vicksburg casinos draw their
customers. An affected landowner on the Big Black River sued the Mississippi
Gaming Commission after it rejected the site, and in the fourth quarter of 1997,
a circuit court found the site suitable. The Mississippi Gaming Commission and
City of Vicksburg have appealed the circuit court decision to the State Supreme
Court. In addition, on July 16, 1998, the Mississippi Gaming Commission adopted
a regulation, which is expected to take effect within 30 days of adoption, that
would no longer allow developments such as projects on the Big Black River.
Casino developments on the Big Black River could significantly adversely
affect operating casinos in Vicksburg, as well as the viability of the Vicksburg
Project. While the Company believes that, based on previous rulings in favor of
the Mississippi Gaming Commission, the Big Black River will not be found
suitable for casino development, it will be some time before a ruling comes
forth, and there can be no assurances that the circuit court ruling will be
overturned.
Lady Luck Vancouver
The Province of British Columbia (the "Province"), through its Lotteries
Advisory Committee (the "LAC") invited interested parties to respond to a
Request for Proposal ("RFP") relating to a planned expansion of gaming in the
Province. The gaming expansion is intended to include destination-style casinos,
limited to 30 table games and 300 slots, with the slot machines being provided
and owned by the Province. Pursuant to the RFP, the Provincial government will
participate in the revenue and net income generated by gaming operations, with
an initial licensing period of ten years. In addition, local host governments
will participate in the net income generated by projects in their respective
jurisdictions for providing requisite services.
The Company responded to the RFP during the fourth quarter of 1997, with a
proposed project to be developed on Tsawwassen First Nation Band Reserve lands
(the "Vancouver Project"), located about 20 miles south of downtown Vancouver.
The Vancouver Project, which is expected to cost approximately $25.0 to $30.0
million, includes a 55,000 square foot gaming and entertainment facility and an
11,000 square foot Aboriginal cultural center, all to be located on
approximately 20 acres. The proposed gaming facility will also include an
800-seat bingo hall.
The LAC has been reviewing the various responses to the RFP, and has
informed the Company that its response has successfully been short-listed.
During the second quarter of 1998, the Company entered a development agreement
with the Tsawwassen First Nation as host community and has an option to lease
property on which the Vancouver Project is to be constructed. The Company
believes that the LAC will make selections of successful proponents during the
third quarter of 1998. After a proponent is selected, it then must negotiate the
various operating agreements with the Provincial government and obtain financing
for the project. While the Company believes that it may be selected for a gaming
license, there can be no assurances that it will be selected, nor that an
agreement with the Province of British Columbia can be successfully negotiated
or that financing can be obtained. As of June 30, 1998, the Company has invested
approximately $700,000 of capital in this project (which was expensed when
incurred) and does not anticipate investing additional material amounts of
capital prior to licensing.
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.
16
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Although the Company knows of no pre-existing conditions at the intended
sites for the 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.
Other than those described, the Company has not made, and does not
anticipate making, material expenditures with respect to such environmental
protection, and health and safety laws and regulations. However, the compliance
or cleanup costs associated with such laws, regulations and ordinances may
result in future additional costs to the Company's operations.
Leverage
The Company is highly leveraged. As of June 30, 1998, the Company's total
indebtedness was approximately $176.9 million and its stockholders' deficit was
approximately $27.6 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, to the extent that a substantial portion of the Company's cash
flow from operations remains dedicated to the payment of principal and interest
on its indebtedness, such cash flow is not 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.
9. Sale of Biloxi Operating Assets
Pursuant to an Asset Purchase Agreement, on June 11, 1998, the Company sold
to Grand Casinos substantially all of the assets, excluding gaming equipment and
certain non-contiguous real property, associated with its Lady Luck Biloxi
casino which ceased operations June 7, 1998. The sale resulted in an
approximately $2.8 million gain, net of reserves for disposition costs.
Consideration received from Grand Casinos included the following: (i) base sales
price of $15.0 million; (ii) forgiveness by Grand Casinos of the $714,000
balance of a mortgage note plus accrued interest which had been owed to it by
the Company; and, (iii) certain other prorations and assumptions of liabilities
and leasehold obligations by Grand Casinos.
10. Sale of Lady Luck Central City
Effective February 19, 1998, LLCC sold substantially all of its real
property and operating assets, associated with its Lady Luck Central City casino
to the holder of its mortgage note in exchange for forgiveness of the $2.8
million note and the assumption of certain liabilities. During 1997, the Company
recorded a reserve of $7.3 million to write-down LLCC's assets held for sale to
fair market value less closing costs, to reserve for operating losses in 1998
prior to the effective sale date and to reserve for estimated future lease
payments and write-downs on its parking lot leases which were not assumed by the
purchaser of the assets sold. During March 1998, LLGC acquired a portion of
LLCC's leased property with the remainder to be acquired in 1999.
11. Statement of Position 98-5
During April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 "Reporting on the Costs of Start-up
Activities". The new standard requires that all companies expense costs of
"start-up" activities as those costs are incurred. The term "start-up" includes
pre-opening, pre-operating and organization activities. Previously, the Company
had capitalized these items until the property opened at which time these
cumulative costs were expensed. Although the Company has no capitalized
"start-up" costs as of June 30, 1998, any "start-up" costs related to projects
in the development stage will be required to be expensed as incurred.
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 Company's
Indenture covering the 2001 Notes; future acquisitions or strategic
partnerships; general business and economic conditions; and other factors
described from time to time in the Company's 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 June 30, 1998 Compared to
the Three Months Ended June 30, 1997
For the three month periods ended June 30, 1997 and 1998, consolidated
gross revenues decreased from $43.2 million to $40.0 million, respectively, a
decrease of $3.2 million or 7%. Increases in gross revenues were realized by:
(i) the Lady Luck Rhythm & Blues/Country Casino Complex; (ii) Lady Luck Natchez;
and (iii) equity in net income of the Bettendorf Joint Venture. These increases
were offset by changes in gross revenues realized by: (i) Lady Luck Biloxi; (ii)
Lady Luck Central City; (iii) an absence in the current year period of lease
income from equipment formerly leased to the Bettendorf Joint Venture; and (iv)
an absence in the current year period of equity in net income of the Bally's
Joint Venture.
The Lady Luck Rhythm & Blues/Country Casino Complex's gross revenues
increased $1.1 million primarily due to an $800,000 increase in slot machine
revenues and increases in food and beverage revenues. Slot machine revenues
increased because of greater amounts wagered despite a 3% decrease in the
average number of slot machines in operation and because of a higher win
percentage. The increase in amounts wagered on slot machines was due primarily
to changes in marketing strategies including a shift from advertising to special
events and increased offerings of hotel rooms, food and beverage to patrons on a
complimentary basis. Food and beverage revenues increased primarily due to the
additional complimentaries furnished to patrons and the replacement of the
Country Casino's food court with a full-service restaurant.
Lady Luck Natchez's gross revenues increased $800,000 primarily due to
a $500,000 increase in slot machine revenues and increases in food and beverage
revenues. These increases were due to the following: (i) the absence of business
interruption and disruption which had occurred during the three months ended
June 30, 1997; (ii) changes in marketing strategies including a shift from
advertising to increased offerings of hotel rooms, food and beverage to patrons
on a complimentary basis; and (iii) improvement in the local economy between
periods. The amount wagered on slot machines during the three month period ended
June 30, 1998 increased 15% over the prior year period. The business
interruption and continuing disruption during the three months ended June 30,
1997 at Lady Luck Natchez had been caused by adverse river conditions which
forced the casino to close during the 14 days preceding April 5, 1997. Food and
beverage revenues increased primarily due to the additional complimentaries
furnished to patrons and the addition of a nearby off-site full-service
restaurant at Lady Luck Natchez.
The Company's equity in net income of the Bettendorf Joint Venture
increased from $1.0 million during the three month period ended June 30, 1997 to
$1.6 million during the three month period ended June 30, 1998, an increase of
$600,000 or 60%. The increase was due primarily to an increase in slot machine
revenues which was made possible by a 13% increase
18
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
in the average number of slot machines in operation and an increase in the
average amount wagered by each customer. Lady Luck Bettendorf's market share of
48% during the three month period ended June 30, 1998, the largest of the three
competitors in its market, and this dramatic increase in slot machine revenues
were achieved despite some disruption of business at the Bettendorf Joint
Venture due to construction and expansion at the facility. During the three
months ended June 30, 1998, the property benefitted from the following: (i)
attracting many of the additional 45,000 visitors to the Quad Cities who were
attending bowling competitions; (ii) furnishing additional food complimentaries
to its patrons; (iii) completion in November 1997 of a 500-space parking garage;
and (iv) an absence of lease payments for certain gaming equipment which it
purchased from the Company effective January 1, 1998.
Lady Luck Biloxi's gross revenues decreased from $7.7 million to $4.0
million during the three month periods ended June 30, 1997 and 1998,
respectively, a decrease of $3.7 million or 48%. Pursuant to an Asset Purchase
Agreement, on June 11, 1998, the Company sold to Grand Casinos substantially all
of the assets, excluding gaming equipment and certain non-contiguous real
property, associated with its Lady Luck Biloxi casino which ceased operations
June 7, 1998. Amounts wagered also decreased due to the following: (i)
disruptions to operations from renovations and remodeling; (ii) the opening of
an additional competitive facility, the Imperial Palace, in December 1997; and,
(iii) a growing disparity in relation to its other competitors in the amenities
which LLB was able to offer its customers such as on-site hotel.
Substantially all of the operating assets of Lady Luck Central City
were sold effective February 19, 1998; therefore, comparisons between periods
may not be meaningful.
Effective January 1, 1998, pursuant to a prior gaming equipment lease,
the Company sold gaming equipment to the Bettendorf Joint Venture at its
negotiated value of $712,000. Accordingly, the Company did not receive any
revenues from the lease of such equipment for the three month period ended June
30, 1998. The Company had been recognizing gross revenues from leasing certain
gaming equipment to the Bettendorf Joint Venture for approximately $122,000 per
month, including the three month period ended June 30, 1997.
The Company recognized gross revenues from its equity in the net income
of the Bally's Joint Venture of approximately $400,000 during the three month
period ended June 30, 1997. The Company sold its 35% partnership interest during
1997.
Casino operating expenses as a percentage of casino revenues increased
from 41% in the three month period ended June 30, 1997 to 43% in the three month
period ended June 30, 1998, primarily due to the following: (i) decreases in
casino revenues from Lady Luck Biloxi which caused fixed costs such as gaming
device license fees to be spread over a lower revenue base; (ii) an increase in
the cost of complimentary rooms, food and beverage furnished to casino customers
in relation to casino revenues; and, (iii) an increase in 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 decreased from 97% for
the three month period ended June 30, 1997 to 90% for the three month period
ended June 30, 1998. This decrease was primarily due to reductions in labor and
food and beverage costs relative to food and beverage revenues at Lady Luck
Natchez and the Lady Luck Rhythm & Blues/Country Casino Complex offset partially
by increases in labor costs relative to food and beverage revenues at Lady Luck
Biloxi due to hiring contract labor at higher rates than former staff prior to
closing the facility. Relative costs also decreased due to the absence of Lady
Luck Central City operations during the three months ended June 30, 1998 which
historically operated at less favorable margins than the Company's other
properties.
Gross room revenues for the River Park Hotel increased 5% during the
three month period ended June 30, 1998 compared with the prior year three month
period primarily due to increased occupancy levels attributable to increased
offerings of hotel rooms to patrons on a complimentary basis to customers which
positively affected casino revenues. The River Park Hotel's overall occupancy
increased from 71% to 92% but was partially offset by a decrease in average
daily room rates. Gross room revenues decreased 6% at the Riverbluff Hotel
during three month period ended June 30, 1998 compared with the prior year three
month period due to a decrease in overall occupancy from 80% to 72% which was
only partially offset by an increase in average daily room rates. Gross room
revenues at the 173-room hotel adjacent to Lady Luck Rhythm & Blues decreased 4%
during three month period ended June 30, 1998 compared with the prior year three
month period primarily due to a decrease in average daily room rate which was
only partially offset by an increase in occupancy. This hotel's overall
19
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
occupancy level increased from 71% to 90% primarily attributable to increased
offerings of hotel rooms to patrons on a complimentary basis which positively
affected casino revenues. This hotel's decrease in average daily room rate was
primarily due to competitive pressures from properties which have added a
significant number of rooms in nearby Tunica County, Mississippi.
Selling, general and administrative expenses as a percentage of total
gross revenues increased from 30% to 32% during the three month periods ended
June 30, 1997 and 1998, respectively. The increase was primarily due to the
following: (i) increased insurance costs associated with employee medical
claims; (ii) reductions in casino marketing and advertising expenses at Lady
Luck Biloxi at a slower rate than reductions in gross revenues due to
contractual commitments entered into prior to winding down operations in
anticipation of closing the facility; and (iii) an increase in development costs
related primarily to the Company's pursuit of a license in Vancouver and
negotiating the ancillary development agreement. The effect of these increases
was partially offset by the following: (i) reductions in casino marketing and
entertainment costs and an increase in gross revenues at Lady Luck Natchez
compared to the prior year period when additional advertising and marketing had
been necessary to recapture customers subsequent to the casino reopening as
described above; and (ii) the absence of Lady Luck Central City's operations
during the three months ended June 30, 1998 which historically incurred higher
selling, general and administrative expense margins than the Company's other
properties.
Operating income was $8.4 million and $6.8 million for the three month
periods ended June 30, 1998 and 1997, respectively, an increase of $1.6 million
or 24%. The net income applicable to common stockholders was $2.5 million or
$0.52 per share for the three month period ended June 30, 1998 compared with net
income applicable to common stockholders of $700,000 or $0.15 per share for the
three month period ended June 30, 1997. In addition to the changes described
above, the increases in operating income and income applicable to common
stockholders were due to the following: (i) a $2.8 million gain, net of reserves
for disposition costs, recognized on the sale (more fully described below - see
Liquidity) of substantially all of the assets, excluding gaming equipment and
certain non-contiguous real property, associated with Lady Luck Biloxi casino;
(ii) reduced net related party license/management fees due to lower earnings, as
defined, upon which license fees are based and an increase in management fees
received from the Bettendorf Joint Venture due to improved operating results as
described above; and (iii) a decrease in depreciation expense which was
primarily due to a lower cost basis of depreciable assets at LLB and an absence
of depreciation at LLCC due to selling substantially all of its assets (also
more fully described below - see Liquidity). The lower cost basis at LLB was the
result of an asset impairment write-down recognized during December 1997. The
depreciation of LLCC's assets was recognized as part of the loss on sale
recorded as of December 31, 1997; accordingly, no depreciation for LLCC was
recognized for the three months ended June 30, 1998.
Six Months Ended June 30, 1998 Compared to
the Six Months Ended June 30, 1997
For the six month periods ended June 30, 1997 and 1998, consolidated
gross revenues decreased from $87.8 million to $84.6 million, respectively, a
decrease of $3.2 million or 4%. Increases in gross revenues were realized by:
(i) Lady Luck Natchez; (ii) the Lady Luck Rhythm & Blues/Country Casino Complex;
and (iii) equity in net income of the Bettendorf Joint Venture. These increases
were offset by changes in gross revenues realized by: (i) Lady Luck Biloxi; (ii)
Lady Luck Central City; (iii) an absence in the current year period of lease
income from equipment formerly leased to the Bettendorf Joint Venture; and (iv)
an absence in the current year period of equity in net income of the Bally's
Joint Venture.
Lady Luck Natchez's gross revenues increased $2.1 million primarily due
to a $1.3 million increase in slot machine revenues and increases in food and
beverage revenues. These increases were due to the following: (i) an absence of
business interruption and disruption which had occurred during the six months
ended June 30, 1997; (ii) changes in marketing strategies including a shift from
advertising to increased offerings of hotel rooms, food and beverage to patrons
on a complimentary basis; and (iii) improvement in the local economy between
periods. In fact, the amount wagered on slot machines during the six month
period ended June 30, 1998 increased 18% over the prior year period. The
business interruption and continuing disruption during the six months ended June
30, 1997 at Lady Luck Natchez had been caused by adverse river conditions which
forced the casino to close for 18 days during the period. Food and beverage
revenues increased primarily due to the additional complimentaries furnished to
patrons and the addition of a nearby off-site full-service restaurant at Lady
Luck Natchez.
20
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Lady Luck Rhythm & Blues/Country Casino Complex's gross revenues
increased $1.8 million primarily due to a $1.4 million increase in slot machine
revenues. Slot machine revenues increased because of greater amounts wagered
despite a 2% decrease in the average number of slot machines in operation. The
increase in amounts wagered on slot machines was due primarily to changes in
marketing strategies including a shift from advertising to special events and
increased offerings of hotel rooms, food and beverage to patrons on a
complimentary basis.
The Company's equity in net income of the Bettendorf Joint Venture
increased from $1.8 million during the six month period ended June 30, 1997 to
$3.1 million during the six month period ended June 30, 1998, an increase of
$1.3 million or 72%. The increase was due primarily to an increase in slot
machine revenues which was made possible by an 11% increase in the average
number of slot machines in operation and an increase in the average amount
wagered by each customer. The Bettendorf Joint Venture experienced this dramatic
increase in slot machine revenues despite some disruption of business at the
Bettendorf Joint Venture due to construction and expansion at the facility.
During the six months ended June 30, 1998, the property benefitted from the
following: (i) attracting many of the additional 45,000 visitors to the Quad
Cities who were attending bowling competitions during the six months ended June
30, 1998; (ii) furnishing additional food complimentaries to its patrons; (iii)
completion in November 1997 of a 500-space parking garage; and (iv) an absence
of lease payments for certain gaming equipment which it purchased from the
Company effective January 1, 1998.
Lady Luck Biloxi's gross revenues decreased from $15.8 million to $11.0
million during the six month periods ended June 30, 1997 and 1998, respectively,
a decrease of $4.8 million or 30%. Pursuant to an Asset Purchase Agreement, on
June 11, 1998, the Company sold to Grand Casinos substantially all of the
assets, excluding gaming equipment and certain non-contiguous real property,
associated with its Lady Luck Biloxi casino which ceased operations June 7,
1998. Amounts wagered also decreased due to the following: (i) disruptions to
operations from renovations and remodeling; (ii) the opening of an additional
competitive facility, the Imperial Palace, in December 1997; and, (iii) a
growing disparity in relation to its other competitors in the amenities which
LLB is able to offer its customers such as an on-site hotel.
Substantially all of the operating assets of Lady Luck Central City
were sold effective February 19, 1998; therefore, comparisons between periods
may not be meaningful.
Effective January 1, 1998, pursuant to a prior gaming equipment lease,
the Company sold gaming equipment to the Bettendorf Joint Venture at its
negotiated value of $712,000. Accordingly, the Company did not receive any
revenues from the lease of such equipment for the six month period ended June
30, 1998. The Company had been recognizing gross revenues from leasing certain
gaming equipment to the Bettendorf Joint Venture for approximately $122,000 per
month, including the six month period ended June 30, 1997.
The Company recognized gross revenues from its equity in the net income
of the Bally's Joint Venture of approximately $600,000 during the six month
period ended June 30, 1997. The Company sold its 35% partnership interest during
1997.
Casino operating expenses as a percentage of casino revenues increased
from 41% in the six month period ended June 30, 1997 to 43% in the six month
period ended June 30, 1998, primarily due to decreases in casino revenues from
Lady Luck Biloxi which caused fixed costs such as gaming device license fees and
certain labor charges to be spread over a lower revenue base; (ii) an increase
in the cost of complimentary rooms, food and beverage furnished to casino
customers in relation to casino revenues; and, (iii) an increase in 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 decreased from 95% for
the six month period ended June 30, 1997 to 90% for the six month period ended
June 30, 1998. This decrease was primarily due to reductions in labor and food
and beverage costs relative to food and beverage revenues at Lady Luck Natchez
and the Lady Luck Rhythm & Blues/Country Casino Complex offset partially by
increases at Lady Luck Biloxi prior to closing the facility. Relative costs also
decreased due to Lady Luck Central City ceasing operations February 19, 1998
which historically operated at less favorable margins than the Company's other
properties.
Gross room revenues for the River Park Hotel remained approximately
constant during the six month period ended June 30, 1998 compared with the prior
year six month period primarily due to increased occupancy levels attributable
21
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
to increased offerings of hotel rooms to patrons on a complimentary basis which
positively affected casino revenues. The River Park Hotel's overall occupancy
increased from 68% to 83% but was almost entirely offset by a decrease inaverage
daily room rates. Gross room revenues remained constant at the Riverbluff Hotel
during the six month period ended June 30, 1998 compared with the prior year six
month period. The Riverbluff's overall occupancy decreased from 85% to 72% but
such decrease was offset by an increase in average daily room rates. Gross room
revenues at the 173-room hotel adjacent to Lady Luck Rhythm & Blues decreased 6%
during the six month period ended June 30, 1998 compared with the prior year six
month period primarily due to a decrease in average daily room rate which was
only partially offset by an increase in occupancy. This hotel's overall
occupancy level increased from 69% to 89% primarily attributable to increased
offerings of hotel rooms to patrons on a complimentary basis to customers which
positively affected casino revenues. This hotel's decrease in average daily room
rate was primarily due to competitive pressures from properties which have added
a significant number of rooms in nearby Tunica County, Mississippi.
Selling, general and administrative expenses as a percentage of total
gross revenues remained constant at 30% during the six month periods ended June
30, 1997 and 1998. The following costs increased: (i) insurance costs associated
with employee medical claims; (ii) reductions during the six month period ended
June 30, 1998 in casino marketing and advertising expenses at Lady Luck Biloxi
which occurred at a slower rate than reductions in gross revenues due to
contractual commitments entered into prior to winding down operations in
anticipation of closing the facility; and (iii) an increase in development costs
related primarily to the Company's pursuit of a license in Vancouver and
negotiating the ancillary development agreement. The effect of these increases
was completely offset by the following: (i) reductions in casino marketing and
entertainment costs and an increase in gross revenues at Lady Luck Natchez
compared to the prior year period when additional advertising and marketing had
been necessary to recapture customers subsequent to the casino reopening as
described above; (ii) reductions during the first three months of the six month
period ended June 30, 1998 in labor costs and other administrative costs at Lady
Luck Biloxi made in response to increased competitive pressure created by the
opening of additional casino capacity in the Biloxi market during December 1997;
and (iii) the absence of Lady Luck Central City's operations since it was sold
in February 1998 which historically incurred higher selling, general and
administrative expense margins than the Company's other properties
Operating income was $16.3 million and $13.9 million for the six month
periods ended June 30, 1998 and 1997, respectively, an increase of $2.4 million
or 17%. The net income applicable to common stockholders was $4.6 million or
$0.93 per share for the six month period ended June 30, 1998 compared with net
income applicable to common stockholders of $1.9 million or $0.40 per share for
the six month period ended June 30, 1997. In addition to the changes described
above, the increases in operating income and income applicable to common
stockholders were due to the following: (i) a $2.8 million gain, net of reserves
for disposition costs, recognized on the sale (more fully described below - see
Liquidity) of substantially all of the assets, excluding gaming equipment and
certain non-contiguous real property, associated with the Lady Luck Biloxi
casino; (ii) reduced net related party license/management fees due to lower
earnings, as defined, upon which license fees are based and an increase in
management fees received from the Bettendorf Joint Venture due to improved
operating results as described above; and (iii) a decrease in depreciation
expense which was primarily due to a lower cost basis of depreciable assets at
LLB and an absence of depreciation at LLCC due to selling substantially all of
its assets (also more fully described below - see Liquidity). The lower cost
basis at LLB was the result of an asset impairment write-down recognized during
December 1997. The depreciation of LLCC's assets was recognized as part of the
loss on sale recorded as of December 31, 1997; accordingly, no depreciation for
LLCC was recognized for the six months ended June 30, 1998.
22
<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.
<TABLE>
<CAPTION>
Lady Luck Rhythm & Blues/County Casino Complex
% Increase % Increase
Three months ended (Decrease) Six months ended (Decrease)
June 30, 1998 vs. June 30, 1998 vs.
1998 1997 1997 1998 1997 1997
<S> <C> <C> <C> <C> <C> <C>
Gross revenues.............. $25.0 $23.9 5 $51.3 $49.5 4
Net revenues................ 22.7 22.1 3 46.6 45.7 2
Management/license fee...... 0.7 0.7 - 1.6 1.6 -
Operating income............ 4.9 5.1 (4) 11.1 11.5 (3)
Operating margin............ 22% 23% (1)pt 24% 25% (1) pt
Average daily net win per
table game.............. $597 $546 9 $647 $618 5
Average number of
tables in operation..... 50 51 (2) 50 51 (2)
Average daily net win per
slot machine............ $157 $146 8 $160 $151 6
Average number of slot
machines in operation... 1,321 1,355 (3) 1,328 1,358 (2)
</TABLE>
<TABLE>
<CAPTION>
Lady Luck Natchez
% Increase % Increase
Three months ended (Decrease) Six months ended (Decrease)
June 30, 1998 vs. June 30, 1998 vs.
1998 1997 1997 1998 1997 1997
<S> <C> <C> <C> <C> <C> <C>
Gross revenues.............. $8.7 $7.9 10 $17.5 $15.4 14
Net revenues................ 7.9 7.4 7 15.9 14.3 11
Management/license fee...... 0.2 0.2 - 0.5 0.5 -
Operating income............ 1.0 0.8 25 2.2 1.1 100
Operating margin............ 13% 11% 2pts 14% 8% 6pts
Average daily net win per
table game.............. $662 $634 4 $734 $656 12
Average number of
tables in operation..... 16 16 - 16 16 -
Average daily net win per
slot machine............ $111 $107 4 $111 $110 1
Average number of slot
machines in operation... 613 616 - 615 604 2
</TABLE>
23
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Lady Luck Bettendorf (a)
% Increase % Increase
Three months ended (Decrease) Six months ended (Decrease)
June 30, 1998 vs. June 30, 1998 vs.
1998 1997 1997 1998 1997 1997
<S> <C> <C> <C> <C> <C> <C>
Gross revenues.............. $22.8 $20.0 14 $43.1 $38.6 12
Net revenues................ 21.6 19.1 13 40.7 36.5 12
Management/license fee...... 0.6 0.4 50 1.1 0.8 38
Operating income............ 3.2 2.1 52 6.1 3.6 69
Operating margin............ 15% 11% 4pts 15% 10% 5pts
Average daily net win per
table game.............. $770 $702 10 $772 $706 9
Average number of
tables in operation..... 37 38 (3) 37 38 (3)
Average daily net win per
slot machine............ $200 $197 2 $192 $190 1
Average number of slot
machines in operation... 991 880 13 971 872 11
<FN>
(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.
</FN>
</TABLE>
Liquidity and Capital Resources
During the six month period ended June 30, 1998, the Company
generated $3.7 million in cash from operations. Also during this period, from
the formerly restricted proceeds of the sale of the Company's interest in the
Bally's Joint Venture which had been received during 1997, the Company received
releases from restriction and was distributed $5.7 million for investment in a
Related Business (as defined in the Indenture). In addition, $9.8 million was
released from the restricted classification upon expiration, on May 14, 1998, of
a tender offer which had been made by the Company to repurchase up to $9.6
million principal amount of the 2001 Notes, but for which no amount of the 2001
Notes were actually tendered. In addition, the $15.1 million proceeds received
from the sale of substantially all of Lady Luck Biloxi's operating assets, as
described below, have been classified as restricted as of June 30, 1998.
Effective February 19, 1998, LLCC sold substantially all of its real property
and operating assets to the holder of its mortgage note in exchange for
forgiveness of the approximately $2.8 million mortgage note and the assumption
of certain liabilities. These cash and non-cash sources and cash on hand at the
beginning of the period were the primary sources of cash and non-cash resources
during the six month period ended June 30, 1998. The primary uses of cash and
non-cash resources during the six month period ended June 30, 1998, other than
restriction of the Lady Luck Biloxi sale proceeds, operating expenditures and
the forgiveness of LLCC's approximately $2.8 million mortgage note and the
assumption of certain of its liabilities, include:
A. $3.6 million in cash and $600,000 in slot contracts for the
purchase of property and equipment, including the following:
(i) addition of a nearby off-site full-service restaurant at
Lady Luck Natchez; (ii) replacement of the Country Casino's
food court with a full-service restaurant; (iii) certain
remodeling of the casinos at Lady Luck Natchez and the Rhythm
& Blues/Country Casino Complex; (iv) a portion of the costs
related to replacement of the property-wide phone system for
more efficient communications and lower operating
24
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
costs at the Rhythm & Blues/Country Casino Complex; (v)
site-work for a potential hotel addition at the Country
Casino including modification of traffic patterns and
additional paved parking areas for 360 automobiles and 15
tractor-trailers; and (vi) the acquisition of slot machines.
B. $1.5 million cash for payment of debt and slot contracts.
Pursuant to an Asset Purchase Agreement, on June 11, 1998, the
Company sold to Grand Casinos substantially all of the assets, excluding gaming
equipment and certain non-contiguous real property, associated with its Lady
Luck Biloxi casino which ceased operations June 7, 1998. The sale resulted in an
approximately $2.8 million gain, net of reserves for disposition costs.
Consideration received from Grand Casinos included the following: (i) base sales
price of $15.0 million; (ii) forgiveness by Grand Casinos of the $714,000
balance of a mortgage note plus accrued interest which had been owed to it by
the Company; and, (iii) certain other prorations and assumptions of liabilities
and leasehold obligations by Grand Casinos. In accordance with the Indenture,
the Company has 180 days after receiving the approximately $15.1 million to
invest the money and any earnings thereon in a Related Business (as defined in
the Indenture). If the Company does not invest the funds in a Related Business
before such time, 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 funds that was not invested in a Related Business. Any remaining funds
not used to repurchase the 2001 Notes tendered, if any, will become unrestricted
and available for general purposes.
In anticipation of the sale of LLCC's assets as described above, the
Company recorded during 1997, a reserve of $7.3 million to write-down LLCC's
assets held for sale to fair market value less closing costs, to reserve for
operating losses in 1998 prior to the effective sale date and to reserve for
estimated future lease payments and write-downs on its parking lot leases which
were not assumed by the purchaser of the assets sold. LLCC required cash to fund
its operating cash shortfall during the six month period ended June 30, 1998;
required additional cash infusions related to these leases through the six month
period ended June 30, 1998 and will continue to require cash infusions related
to these leases in 1998 and 1999. During March 1998, LLGC acquired a portion of
LLCC's leased property with the remainder to be acquired in 1999.
Effective January 1, 1998, pursuant to an existing gaming equipment
lease, the gaming equipment that the venture had been leasing from the Company
since April 1995 was sold to the Bettendorf Joint Venture. The negotiated sale
price of $712,000 was received during the six month period ended June 30, 1998.
Accordingly, the Company will no longer receive rental income from such
equipment.
Various amounts of cash and non-cash resources have been used and/or
may be used during the remainder of 1998 for the following: (i) the Lady Luck
Rhythm & Blues/Country Casino Complex could begin construction of up to 340
hotel rooms which would be located adjacent to Country Casino, (ii)
additional parking spaces at Lady Luck Natchez within walking distance or close
proximity of the casino; and (iii) remodeling of two floors of the River Park
Hotel. Up to $6.0 million of the cost of additional hotel rooms including site
preparation and related construction at the Lady Luck Rhythm & Blues/Country
Casino Complex 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. In addition, various amounts of cash and non-cash
resources may be used during 1998 for other 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. 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 Bettendorf Joint Venture is currently constructing an expansion
project pursuant to its master-plan at a cost of approximately $39.5 million.
The project, which began construction June 23, 1997, is planned to include an
approximately 260 room hotel with a fully enclosed walkway to the riverboat
casino, a 30-50 slip marina, a 500-car parking garage and a
25
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
bypass over the nearby railroad to improve access. In addition, during April
1998, the Iowa Racing and Gaming Commission approved the addition of up to 230
new slot machines and six table games at the Bettendorf Joint Venture. The
expansion project financing is non-recourse to the Company and includes a $17.5
million bank first mortgage note, a $5.0 million second mortgage from an
affiliated company of BRDC, and $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 hotel project is scheduled to be completed in the Fall of 1998. The
Company does not expect any cash distributions from the Bettendorf Joint Venture
during 1998 as they are intended to be reinvested in the property or used to
repay indebtedness. Construction during the three month period ending September
30, 1998 is expected to require closure of the boat's second level for
approximately 5 days.
The Company has an agreement for the construction of a cruising
gaming vessel in the amount of $16.0 million and as of June 30, 1998,
approximately $6.0 million has been paid by the Company 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 a suitable
development project proceeds.
The Company responded to a request for proposal (the "RFP") during
the fourth quarter of 1997, for the Vancouver Project. The Vancouver Project is
expected to cost approximately $25.0 to $30.0 million. The LAC has been
reviewing the various responses to the RFP, and has informed the Company that
its response has successfully been short-listed. During the second quarter of
1998, the Company entered a development agreement with the Tsawwassen First
Nation as host community and has an option to lease property on which the
Vancouver Project is to be constructed. The Company believes that the LAC will
make selections of successful proponents during the third quarter of 1998. After
a proponent is selected, it then must negotiate the various operating agreements
with the Provincial government and obtain financing for the project. While the
Company believes that it may be selected for a gaming license, there can be no
assurances that it will be selected, nor that an agreement with the Province of
British Columbia can be successfully negotiated or that financing can be
obtained. The Company intends to fund any such development of the project
through a combination of cash on hand, earnings from operations, cash remaining
from the sale of its interest in Bally's after the repurchase of 2001 Notes, if
any, potential proceeds from the sale of LLB's assets as described herein, and
external financing. In any case, there can be no assurance that sufficient cash,
proceeds or financing will be available or, if available, that it will be
available on terms acceptable to the Company. In addition, any such financing
may require consent of the holders of the 2001 Notes.
No future 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.
Lady Luck Natchez was required under its current lease to move its
casino barge several hundred feet to another docking facility on land subject to
its existing lease by February 1998. Management has not relocated the casino
barge and the lessor has allowed the casino to remain in its current location.
Management and the lessor have reached an agreement in principle to amend the
existing lease to allow the barge to remain in its current location. Pursuant to
such agreement, the lessor agrees to allow the barge to remain at its current
location in consideration of the Company's agreement to pay liquidated damages
of $1.2 million in the event it terminates the lease at any time during the 10
year period following the execution of the lease amendment. Should an amendment
to the lease reflecting the preliminary agreement discussed above not be
executed, the cost of relocating the barge is currently estimated not to exceed
$1.2 million. Pursuant to the existing lease, the lessor has asserted that the
Company did not make certain improvements to the site required by the agreement.
The Company has agreed to pay the lessor $500,000 in liquidated damages and to
pay up to $250,000 to construct additional parking spaces on the leased
property.
26
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 continues to explore various options to refinance the
2001 Notes. However, there can be no assurance as to the timing of any such
refinancing or that the Company will continue these pursuits and, if pursued,
that terms acceptable to the Company can be negotiated.
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 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.
Although the Company knows of no pre-existing conditions at the
intended sites for the 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.
Other than those described, the Company has not made, and does not
anticipate making, material expenditures with respect to such environmental
protection, and health and safety laws and regulations. However, the compliance
or cleanup costs associated with such laws, regulations and ordinances may
result in future additional costs to the Company's operations.
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
which trend is expected to continue although the extent, materiality and
permanence of which cannot be definitively measured.
The Company is highly leveraged. As of June 30, 1998, the Company's
total indebtedness was approximately $176.9 million and its stockholders'
deficit was approximately $27.6 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, to the extent that a substantial portion of the Company's cash
flow from operations remains dedicated to the payment of principal and interest
on its indebtedness, such cash flow is not 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.
Year 2000
The Company's computers may not be year 2000 compliant. The year 2000
issue is the result of computer programs being written using two digits rather
than four to define the applicable year, which may result in systems failures
and disruptions to operations at January 1, 2000. The Company has not yet
completed its assessment of the systems which will
27
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
be affected, but is developing a plan to evaluate and remediate the year 2000
issue. This remediation plan will include assessing the Company's inventory of
year 2000 issues, contacting the suppliers of certain of their systems to
determine the timing of applicable upgrades, and implementing the year 2000
upgrades which are currently available. The Company will continue to evaluate
its vulnerability in the case of suppliers' failure to remediate their
respective year 2000 issues. The Company has not yet determined whether the
effect of the remediation could have a material effect on future financial
results; however, preliminary estimates indicate that, to bring systems
considered critical into compliance, expenditures should not exceed $300,000.
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 materially affect 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 materially
adversely affect the Company's financial results. Seasonal revenue fluctuations
may occur at the Company's existing and proposed casinos in Mississippi, Iowa,
Missouri and British Columbia.
28
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable.
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) The Company's Annual Meeting of Stockholders was
held on June 3, 1998.
(b) Not applicable.
(c) Amendment to the Certificate of Incorporation of the
Company effecting a Reverse Stock-Split and an
Increase in Par Value of Common Stock
At the Annual Meeting of Stockholders held on June 3,
1998, the Board of Directors unanimously adopted
resolutions to approve, and submit to the
stockholders of the Company for approval, amendments
to the Company's Certificate of Incorporation (the
"Amendment") to effect a reverse stock-split. The
principal effects of the reverse stock-split were to
reduce the number of issued and outstanding shares of
Common Stock from 29,285,698 to approximately
4,880,950 and to increase the par value of Common
Stock from $0.001 to $0.006 per share. The reverse
stock-split did not change the number of authorized
shares of Common Stock or change the number of
authorized shares or par value of the Company's
preferred stock, $25.00 par value per share, of which
433,638 shares were issued and outstanding at the
Annual Meeting date. The voting on such matters was
as follows:
For Withhold Abstain
22,100,175 364,812 10,007
Election of Directors
At the Annual Meeting of Stockholders held on June 3,
1998, Alain Uboldi and Minxin Pei were nominated as a
Class II directors to serve immediately with a term
expiring at the 2001 annual meeting or until their
successors are duly elected and qualified. The voting
on such matters was as follows:
For Withhold Abstain
Alain Uboldi 22,446,576 141,574 None
Minxin Pei 22,444,026 144,124 None
29
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(d) Not applicable.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description of Exhibits
3.1 Certificate of Incorporation of Lady Luck
Gaming Corporation, as amended through
June 4, 1998.
10.54 Asset Purchase Agreement dated June 2,
1998 among Lady Luck Biloxi, Inc., as
seller, Lady Luck Gaming Finance
Corporation and Lady Luck Gaming
Corporation, collectively as seller's
parent companies, and Grand Casinos of
Mississippi, Inc. - Biloxi, as buyer and
Grand Casinos, Inc., as buyer's parent.
Incorporated by reference to Exhibit 2.1
to the Form 8-K of Lady Luck Gaming
Corporation dated June 11, 1998.
27 Financial Data Schedule
(b) Reports on Form 8-K.
Form 8-K filed on June 11, 1998 related to
Item 5.
30
<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.
DATE: August 14, 1998 Lady Luck Gaming Corporation
Registrant
/s/James D. Bowen
Its: Vice President Finance and
Principal Accounting Officer and
duly authorized officer
DATE: August 14, 1998 /s/James D. Bowen
James D. Bowen
Vice President Finance and
Principal Accounting Officer and
duly authorized officer
31
CERTIFICATE OF INCORPORATION
OF
AMERICAN CASINOS GROUP, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the General Corporation Law of the State of Delaware"), hereby
certifies that:
ARTICLE I
The name of the corporation is American Casinos Group, Inc. (the
"Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State
of Delaware is 32 Loockerman Square, suite L-100, City of Dover 19901, County of
Kent; and the name of the registered agent of the Corporation in the State of
Delaware at such address is The Prentice-Hall Corporation System, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may now or thereafter be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code.
ARTICLE IV
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Four Million (4,000,000) shares
consisting of Two Million (2,000,000) shares of common stock, par value $0.01
per share (the "Common Stock'), and Two Million (2,000,000) shares of preferred
stock, par value $0.01 per share (the "Preferred Stock"). The designation,
powers, preferences and relative, participating, optional or other special
rights, including voting rights, and qualifications, limitations or restrictions
of the Preferred Stock shall be established by resolution of the Board of
Directors pursuant to Section 151 of the General Corporation Law of the State of
Delaware.
<PAGE>
ARTICLE V
The name and the mailing address of the incorporator signing this
Certificate of Incorporation is as follows:
Name Mailing Address
Steven W. Sackman 410 Seventeenth Street
22nd Floor
Denver, Colorado 80202-4437
ARTICLE VI
The Corporation is to have perpetual existence.
ARTICLE VII
The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors consisting of not less than 1
director nor more than 10 directors, the exact number of directors to be
determined from time to time by resolution adopted by the Board of Directors.
Directors shall be elected at the annual meeting of stockholders. A director
shall hold office until his successor shall be elected and qualified.
ARTICLE VIII
The initial Board of Directors shall consist of one member. The
name and the mailing address of the person who is to serve as director until the
first annual meeting of the stockholders or until his successors be elected and
qualified is as follows:
Name Mailing Address
Andrew Tompkins 206 North Third Street
Las Vegas, Nevada 89101
ARTICLE IX
Any or all of the directors of the Corporation may be removed from office at any
time, either with or without cause, by the affirmative vote of stockholders
owning a majority in amount of the entire capital stock of the Corporation
issued and outstanding, and entitled to vote.
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<PAGE>
ARTICLE X
Elections of directors at an annual or special meeting of
stockholders need not be by written ballot unless the Bylaws of the Corporation
shall otherwise provide.
ARTICLE XI
Cumulative voting in the election of directors is not allowed.
ARTICLE XII
Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the Board of Directors, the
Chairman of the Board of Directors, the President or the stockholders owning a
majority in amount of the entire capital stock of the Corporation issued and
outstanding, and entitled to vote.
ARTICLE XIII
The officers of the Corporation shall be chosen in such a manner,
shall hold their offices for such terms and shall carry out such duties as are
determined by the Board of Directors, subject to the right of the Board of
Directors to remove any officer or officers at any time with or without cause.
ARTICLE XIV
A. The Corporation shall indemnify to the full extent authorized or
permitted by law (as now or hereafter in effect) any person made, or threatened
to be made, a defendant or witness to any action, suit or proceeding (whether
civil or criminal or otherwise) by reason of the fact that he, his testator or
intestate, is or was a director or officer of the Corporation or by reason of
the fact that such director or officer, at the request of the Corporation, is or
was serving any other corporation, partnership, joint venture, employee benefit
plan or other enterprise, in any capacity. Nothing contained herein shall affect
any rights to indemnification to which employees other than directors or
officers may be entitled by law. No amendment or repeal of this Section A of
Article XIV shall apply to or have any effect on any right to indemnification
provided hereunder with respect to any acts or omissions occurring prior to such
amendment or repeal.
- 3 -
<PAGE>
B. No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such a director as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
General Corporation Law of the State of Delaware, or (iv) for any transaction
from which such director derived an improper personal benefit. No amendment to
or repeal of this Section B of this Article XIV shall apply to or have any
effect on the liability or alleged liability of any director of the Corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
C. In furtherance and not in limitation of the powers conferred by statute:
(i) the Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of law; and
(ii) the Corporation may create a trust fund, grant a security interest
and/or use other means (including, without limitation, letters of credit, surety
bonds and/or other similar arrangements), as well as enter into contracts
providing indemnification to the full extent authorized or permitted by law and
including as part thereof provisions with respect to any or all of the foregoing
to ensure the payment of such amounts as may become necessary to effect
indemnification as provided therein, or elsewhere.
ARTICLE XV
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors as expressly authorized to adopt, repeal, alter,
amend or rescind the Bylaws of the Corporation.
- 4 -
<PAGE>
ARTICLE XVI
The Corporation reserves the right to repeal, alter, amend, or
rescind any provision contained in this Certificate of Incorporation, in the
manner now or hereinafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, I have executed this Certificate of Incorporation
this 12th of February, 1993.
/s/ Steven W. Sackman
Steven W. Sackman, Incorporator
- 5 -
<PAGE>
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
AMERICAN CASINOS GROUP, INC.
It is hereby certified that:
1. NAME. The name of the Corporation
(hereinafter called the "Corporation")
is American Casinos Group, Inc.
2. AMENDMENT. The certificate of incorporation of
the Corporation is hereby amended by
deleting Article IV thereof In its
entirety and by substituting in lieu
thereof the following new Article:
ARTICLE IV
A. Capital Stock.
The total number of shares of all classes of stock which this
Corporation shall have authority to issue is Four Million (4,000,000)
shares consisting of (1) one Million (1,000,000) shares of Class A
common stock, par value $0.001 per share (the "Class A Common Stock");
(2) One Million (1,000,000) shares of Class B common stock, par value
$0.001 per share (the "class B Common Stock") (the Class A and Class B
Common Stock collectively are referred to as the "Common Stock") ; and
(3) Two million (2,000,000) shares of Preferred Stock, par value
$25.00 per share (the "Preferred Stock").
B. Preferred Stock.
1. Series A. Out of the Preferred Stock, the Board of Directors is
authorized to issue a series of up to 1,800,000 shares of Series A
Cumulative Redeemable Preferred Stock (shares of such series being
referred to herein as the "Series A Preferred Stock"), with the
following voting powers, designation, references and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions thereof;
a. Certain Definitions.
Unless the context otherwise requires, the terms defined In this
subparagraph shall have, for all purposes of Section 8 of this Article, the
meanings herein specified.
Dividend Payment Date.
The term "Dividend Payment Date" shall have the meaning set forth in
subparagraph b(i) below.
1
<PAGE>
Dividend Period.
The term "Dividend Period" shall mean any Quarterly Dividend Period.
Gaming Approval.
The term "Gaming Approval" means all approvals, licenses, findings and
other filings necessary under the Gaming Laws.
Gaming Authority.
The term "Gaming Authority" means the Mississippi Gaming Commission,
the Executive Director of the Mississippi Gaming Commission, the Colorado
Limited Gaming Control Commission, the Director of the Colorado Division of
Gaming, and the corresponding governmental authorities with responsibility
to interpret and enforce the laws and regulations applicable to gaming in
any Gaming Jurisdiction,
Gaming Law.
The term "Gaming Law" means the Mississippi Gaming Control Act, the
Colorado Limited Gaming Act of 1991, the regulations promulgated
thereunder, any of the corresponding statutes and regulations in each
Gaming Jurisdiction.
Gaming Jurisdiction.
The term "Gaming Jurisdiction" means the state of Colorado, State of
Mississippi and any other jurisdiction in which the Corporation has a
direct or indirect beneficial, legal or voting interest in the applicable
jurisdiction, if such entity in which the interest is hold conducts casino
gaming and is material to the business of the Corporation taken as a whole.
For purposes of the preceding sentence, a jurisdiction will be deemed to be
material and a Gaming Jurisdiction if the Corporation has a direct or
indirect beneficial, legal or voting interest of ten percent or more in an
entity which conducts casino gaming and has a net book value of assets in
excess of $1,000,000.00 in the applicable Jurisdiction.
Gaming Licenses.
The term "Gaming Licenses" shall mean every license, franchise, own,
lease, operate or otherwise conduct gaming in the States of Colorado,
Mississippi and any other State which the Corporation, or its Subsidiaries
conducts gaming operations including, without limitation, all such licenses
granted under the Colorado Limited Gaming Act, Mississippi Gaming Control
Act and other applicable laws and any applicable liquor licenses.
Issue Date.
The term "Issue Date" shall mean with respect to any shares of Series
A Preferred Stock the date that any shares of the Series A Preferred Stock
are first issued by the Corporation.
2
<PAGE>
Junior Stock.
The term "Junior Stock" shall mean the Corporation's Common Stock and
any other class or series of stock of the Corporation which is junior the
Series A Preferred Stock with respect to dividend rights to rights on
liquidation, dissolution or winding up.
Liquidation Preference.
The term "Liquidation Preference" shall mean $25.00 per share of
Series A Preferred stock.
Parity Stock.
The term "Parity Stock" shall mean any class or series of stock of the
Corporation authorized after the Issue Date on a parity with the Series A
Preferred Stock with respect to dividend rights or rights on liquidation,
dissolution or winding up unless specifically designated as Senior Stock or
Junior Stock, any series of Preferred Stock or other equity security
Authorized after the issue date shall be Parity Stock.
Quarterly Dividend Payment.
The term "Quarterly Dividend Period" shall mean each of the periods
commencing on January 1, April 1, July 1 and October 1 in each year and
ending on (and including) the day next preceding the first day of the next
Quarterly Dividend Period, beginning on the January 1, April 1, July 1 or
October 1 immediately following the issuance date of any share of Series A
Preferred stock with any period from the Issue Date of any such shares to
the first to occur of any January 1, April 1, July 1 or October 1 being
part of the first Quarterly Dividend Period.
Senior Stock.
The term "Senior Stock" shall mean any class or series of stock of the
Corporation authorized after the Issue Date ranking senior to the Series A
Preferred Stock with respect to dividend rights or right on liquidation,
dissolution or winding up.
Subsidiary.
The term "Subsidiary" shall mean (i) a corporation, a majority of
whose capital stock with voting power, under ordinary circumstances, to
elect directors in at the date of determination, directly or indirectly,
owned by the Corporation, by a subsidiary of the Corporation, or by the
Corporation and one or more subsidiaries of the Corporation, (ii) a
partnership in which the Corporation or a subsidiary of the Corporation is,
at the date of determination, a general partner, and (iii) any other entity
(other than a corporation or a partnership) in which such entity, a
subsidiary (as defined in clauses (i) and (ii) of this definition) of such
entity or such entity and one or more subsidiaries (as defined in clauses
(i) and (ii) of this definition) of such entity, directly or indirectly, at
the date of determination, has (x) at least a majority ownership interest,
or (y) the power to elect or direct the election of a majority of the
directors of other governing body of such entity.
3
<PAGE>
b. Dividends.
(i) The holders of the Series A Preferred Stock shall be entitled to
receive a dividend per share, for each Dividend Period, in an amount
equal to 11.5% of the Liquidation Preference per annum, payable in
equal quarterly installments; provided, however that if the Series A
Preferred Stock is not redeemed prior to April 1, 2004, thereafter the
dividend shall be 18% of the Liquidation Preference per annum. Such
dividends may, at the option of the Corporation, be either paid in
shares of Series A Preferred Stock valued at the Liquidation
Preference or the Corporation may elect to increase the Liquidation
Preference of the issued and outstanding Series A Preferred Stock by
the amount of the dividend. Such dividends shall be Cumulative from
the Issue Date and shall be payable in arrears, when and as declared
by the Board of Directors, on January 1, April 1, July 1 and October 1
of each year commencing after the Issue Date of any shares of Series A
Preferred Stock (each such date being herein referred to as a
"Dividend Payment Date"). Each such dividend shall be paid to the
holders of record of the Series A Preferred Stock as their names
appear on the shares register of the Corporation on the corresponding
Record Date. As used above, the term "Record Date" loans the record
date designated by the Board of Directors of the Corporation with
respect to the dividend payable.
(ii) In the event that full dividends are not paid or made available to the
holders of all outstanding shares of Series A Preferred Stock and any
Parity Stock, and funds available shall be insufficient to permit
payment in full to all such holders of the preferential amounts to
which they are then entitled, the entire amount available for payment
of dividends shall be distributed among the holders of the Series A
Preferred Stock and the Parity Stock ratably in proportion to the full
amount to which they would otherwise be respectively entitled and any
dividend not distributed to series A Preferred Stock shall cumulate
and compound as provided in subparagraph b(iii) below.
(iii)If, on any Dividend Payment Date, the holders of the series A
Preferred Stock shall not have received the full dividends provided
for in the other provisions of this paragraph b, then such dividends
shall cumulate, whether or not earned or declared, with additional
dividends thereon during which such dividends, or additional dividends
thereon, shall remain unpaid. The amount of such additional dividends
shall be calculated on the basis of a 360 day year. The amounts of
additional dividends determined in accordance with this subparagraph
(iii) shall compound on each Dividend Payment Date while the
arrearages remain unpaid.
4
<PAGE>
(iv) So long as any shares of the Series A Preferred Stock shall be
outstanding, the Corporation shall not declare or pay on any Junior
Stock any dividend whatsoever, whether in cash, prepay or otherwise
(other than shares of Junior Stock) , nor shall the Corporation make
any distribution on any Junior Stock, nor shall any Junior Stock be
purchased or redeemed by the Corporation or any Subsidiary, nor shall
any monies be paid or made available for a sinking fund for the
purchase or redemption of any Junior Stock, unless all dividends; to
which the holders of the Series A Preferred stock shall have been
entitled for all previous Dividend Periods (including any additional
dividends payable pursuant to subparagraph b(iii) above) shall have
been paid or declared and an sum of money sufficient for the payment
thereof set apart. Notwithstanding the foregoing, the Corporation may,
at any time, redeem shares of Junior Stock or Parity Stock if: (a)
such redemption is required by the Gaming Authority, or (b) the
ownership of the Junior Stock or Parity Stock will, as evidenced by
communications from the Gaming Authority, or the governmental
authority in charge of liquor licensing, materially preclude,
materially interfere with, materially threaten, materially delay the
issuance of, or result in the imposition of materially burdensome
terms and conditions on, any liquor or gaming license or other license
or permission necessary to the proposed or actual operations of the
Corporation or any entity in which the Corporation has a direct or
indirect beneficial, legal or voting interest of ten percent (10%) or
more and has a net book value of assets in excess of $1,000,000.00.
c. Distributions Upon Liquidation, Dissolution or Winding Up.
(i) In the event of any voluntary or involuntary liquidation, dissolution
or other winding up of the affairs of the Corporation, before any
distribution or payment shall be made to the holders of Junior Stock,
the holders of the Series A Preferred Stock shall be entitled to be
paid the Liquidation Preference of all outstanding shares of the
Series A Preferred Stock as of the date of such liquidation or
dissolution or such other winding up, plus any accrued and unpaid
dividends thereon (including any additional dividends payable pursuant
to subparagraph b(iii) above) to such date, in cash. If such payment
shall have been made in full to the holders of the Series A Preferred
Stock, and if payment shall have been made in full to the holders of
any Senior Stock and Parity Stock of all amounts to which such holders
shall be entitled, the remaining assets and funds of the Corporation
shall be distributed among the holders of Junior stock, according to
their respective shares and priorities.
5
<PAGE>
(ii) Neither the consolidation or merger of the Corporation into or with
another corporation or corporations, nor the sale of all or
substantially all of the assets of the Corporation to another
corporation or corporations shall be deemed a liquidation, dissolution
or winding up of the affairs of the Corporation within the meaning of
this paragraph c unless either (a) the sale, conveyance, exchange or
transfer of all or substantially all the property or assets of the
Corporation or the consolidation or merger of the Corporation results
in the holders of Junior stock of the Corporation receiving in
exchange for such Junior Stock solely cash or notes, debentures or
other evidences of indebtedness or obligations to pay cash or
preferred stock of the surviving entity which ranks on a parity with
or senior to the Series A-Preferred Stock in liquidation or dividends
or (b) such voluntary sale, conveyance, exchange or transfer shall be
in connection with a dissolution or winding up of the business of the
Corporation.
d. Redemption by the Corporation.
(i) The Corporation shall redeem all shares of Series A Preferred Stock
outstanding on December 31, 2013. The redemption price shall be the
Liquidation Preference, together with all accrued and unpaid dividends
through the redemption date.
(ii) The Corporation may, to the extent the Corporation shall have funds
legally available for such payment, at any time or from time to time,
redeem in whole or in part, at its option, the Series A Preferred
Stock for a price equal to the Liquidation Preference, together with
all accrued and unpaid dividends thereon to the redemption date;
provided however, that unless such redemption is pursuant to section
d(iv) hereof, the Corporation may not redeem any shares of Series A
Preferred Stock unless the Corporation shall have paid all dividends
on the Series A Preferred Stock through the end of the most recent
Quarterly Dividend Period.
(iii)In the event that fewer than all the outstanding shares of Series A
Preferred Stock are to be redeemed (unless such redemption is pursuant
to Section d(iv) hereof), the shares of Series A Preferred Stock shall
be redeemed pro rata by the Corporation.
(iv) The Corporation may, at any time, redeem shares of Series A Preferred
stock from any holder if (a) such redemption is required by the Gaming
Authority, or (b) the ownership of the Series A Preferred Stock will
as evidenced by communications from the Gaming Authority, or the
governmental authority in charge of liquor licensing, materially
precludes, materially interfere with, materially threaten, materially
delay the issuance of, or result in the imposition of materially
burdensome terms and conditions on, any liquor or gaming license or
other license or permission necessary to the proposed or actual
operation of the Corporation or any entity in which the Corporation
has a direct or indirect beneficial, legal or voting interest of ten
percent (10%) or more and has a net book value of assets in excess of
$1,000,000.00. The redemption price shall be the Liquidation
Preference plus all accrued and unpaid dividends.
6
<PAGE>
In the event the Corporation shall redeem shares of Series A Preferred
Stock, notice of such redemption shall be given by first class mail,
postage prepaid, mailed not less than 30 days nor more than 60 days
prior to the redemption date (unless an earlier time is required by a
Gaming Authority pursuant to Section d(iv) above) , to each holder of
record of the shares of Series A Preferred Stock (unless such
redemption is pursuant to Section d(iv) above, in which case notice
need only be given to the holder of the shares of Series A Preferred
Stock being redeemed) at such holder's address as the same appears on
the stock register of the Corporation; provided however, that no
failure to give such notice nor any defect therein shall affect the
validity of the procedure for the redemption of any shares of Series A
Preferred Stock to by redeemed except as to the holder to whom the
Corporation has failed to give said notice or except as to the holder
whose notice was defective. Each such notice shall state; (a) the
redemption date; (b) the number of shares of Series A Preferred Stock
to be redeemed from such holder; (c) the redemption price; (d) the
place or places where certificates for such shares are to be
surrendered for payment of the redemption price; and (e) that
dividends on the shares of Series A Preferred Stock to be redeemed
will cease to accrue on such redemption date. Notice having been
mailed as aforesaid, from and after the redemption date or such
earlier time as may be required by a Gaming Authority (unless the
Corporation shall default in its obligation to pay the redemption
price), dividends on the shares of Series A Preferred Stock so called
for redemption shall cease to accrue, and said shares shall no longer
be deemed to be outstanding.
e. Consent of Holders.
(i) The holders of the issued and outstanding shares of the Series A
Preferred Stock shall have no voting rights except as required by law
and for the consents required herein.
(ii) So long as any shares of Series A Preferred Stock remain outstanding,
the Corporation shall not, without the written consent of the holders
of at least two-thirds of the issued and outstanding shares of Series
A Preferred Stock entitled by law to vote, voting as a separate class,
(a) amend its Certificate of Incorporation or By-laws, if such
amendment would change any of the rights, preferences, privileges of
or limitations provided for herein; (b) create or authorize or issue
or obligate itself to create or authorize or issue any class or
classes of Senior Stock or Parity Stock or increase the authorized
number of shares of any senior Stock or Parity Stock; or (c) create or
authorize or issue or obligate itself to create or authorize or issue
any series of Preferred Stock that is Senior Stock or Parity Stock.
7
<PAGE>
f. Severability of Provisions.
If any right, preference, privilege or limitation of the Series A
Preferred Stock set forth in this Article is invalid, unlawful or incapable
of being enforced by reason of any rule of law or public policy (including,
but hot limited to, any Gaming Laws) , all other rights, preferences and
limitations set forth in this Article which can be given effect without the
invalid, unlawful or unenforceable right, preference or limitation shall,
nevertheless, remain in full force and effect, and no right, preference or
limitation herein set forth shall be deemed dependent upon any other such
right, preference or limitation unless so expressed herein.
g. Status of Reacquired shares.
Shares of the Series A Preferred Stock which have been issued and
reacquired in any manner shall (upon compliance with any applicable
provisions of the laws of the State of Delaware) have the status of
authorized and unissued shares, of Preferred stock of the Corporation
issuable in series undesignated as to series and may be redesignated and
reissued as part of any series of Preferred Stock, other than shares of
Series A Preferred Stock.
2. Additional Series.
The designation, powers, preferences and relative, participating,
optional or other special rights, including voting rights, and
qualifications, limitations or restrictions of any additional series of
Preferred Stock shall be established by resolution of the Board of
Directors pursuant to Section 151 of the General Corporation Law of the
State of Delaware and as set forth herein.
C. Common Stock.
1. Voting Rights.
Each holder of Class A Common Stock shall be entitled to ten
(10) votes for each such share of Class A Common Stock; provided
however, that with respect to the matters set forth in Article
IV, Paragraph C.4 hereof, each share of Class A Common Stock
shall be entitled to one (1) vote per share. In all matters
presented to the stockholders, including those set forth in
Article IV, Paragraph C.4 hereof, each share of Class B Common
Stock shall be entitled to one vote per share.
2. Conversion of Class A Common Stock.
Upon the sale, issuance, assignment (whether by operation of
law, or otherwise) or other transfer to anyone other than a
Permitted Transferee (as hereinafter defined) of any shares of
Class A Common Stock, such shares of Class A Common Stock will
automatically convert into an equal number of shares of Class B
Common Stock. A "Permitted Transferee" is defined as (a) Andrew
Tompkins, and (b) any person who acquires record or beneficial
ownership of any shares of Class A Common Stock if Andrew
Tompkins retains the sole power to vote or direct the vote of
such share of Class A Common Stock.
8
<PAGE>
3. Voting as a Class.
In all matters presented to the stockholders, including
those set forth in article IV, Paragraph C. 4 hereof, the Class A
Common Stock and the Class B Common Stock shall vote together as
one class.
4. Supermajority Vote.
The following matters Shall require the favorable vote by
the stockholders holding at least seventy-five percent (75%) of
the then issued and outstanding shares of Common Stock (Class A
and Class B) entitled to vote thereon: (a) the merger or
consolidation of the Corporation or any of its subsidiaries with
any other entity (except in connection with a merger consummated
for the sole purpose of changing the jurisdiction of organization
of the Corporation or any of its subsidiaries); (b) a sale of all
or substantially all of the Corporation's assets taken as a
whole; (c) the issuance of any additional shares of common stock
(whether Class A or Class B) ; (d) voluntary commencement of a
bankruptcy proceeding with the Corporation or any of its
subsidiaries as a debtor or any assignment for the benefit of
creditors of the Corporation or any of its subsidiaries or (e)
any amendments to the Certificate of Incorporation of the
Corporation or its subsidiaries, American Casinos, Inc., or the
Stockholders' Agreement among the Corporation, Andrew Tompkins.
and those certain Shareholders identified therein, as the same
may be amended (except to the extent that the Stockholders
Agreement requires a greater favorable vote to be so amended).
3. ADOPTION.
This amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of
Delaware.
Signed and attested to on March 30, 1993.
/s/Andrew Tompkins
Andrew Tompkins, President
Attest:
/s/Andrew Tompkins
Andrew Tompkins, Secretary
9
<PAGE>
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
AMERICAN CASINOS GROUP, INC.
It is hereby certified that:
1. The Corporation (hereinafter called the "Corporation") was
originally incorporated in the State of Delaware on February 16, 1993 under the
name American Casinos Group, Inc.
2. This Certificate of Amendment of Certificate of Incorporation was
duly adopted by the Sole Director and Stockholders of the Corporation in
accordance with the provisions of Sections 228 and 242 of the General
Corporation Law of the State of Delaware.
3. Article I of the Certificate of Incorporation of the Corporation is
hereby amended to change the name of the Corporation from "American Casinos
Group, Inc." to "Lady Luck Gaming Corporation," such Article I to be amended to
read in its entirety as follows:
"Article I
The name of the Corporation is Lady Luck Gaming Corporation (the
"Corporation")."
4. Article IV, Paragraph A of the Certificate of Incorporation of the
Corporation is hereby amended to (i) change the designation of the Class A
Common Stock to "Class B Common Stock" and the designation of the Class B Common
Stock to "Class A Common Stock;" (ii) (a) increase the total number of
authorized shares of all classes of stock of the Corporation from Four Million
(4,000,000) shares to Seventy-Nine Million (79,000,000) shares, (b) increase the
number of authorized shares of Class A Common Stock (after giving effect to the
change in designation) from One Million (1,000,000) shares to Sixty Million
(60,000,000) shares, (c) increase the number of authorized shares of Class B
Common Stock (after giving effect to the change in designation) from One Million
(1,000,000) shares to Fifteen Million (15,000,000) shares and (d) increase the
number of authorized shares of Preferred Stock, par value $25.00 per share, from
Two Million (2,000,000) shares to Four Million (4,000,000) shares; and (iii) add
a new subparagraph 1 relating to the optional redemption of Common Stock by the
Corporation for gaming purposes, such Article IV, Paragraph A to be amended to
read in its entirety as follows:
"ARTICLE IV
A. Capital Stock. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is seventy-Nine Million
(79,000,000) shares consisting of (1) Sixty Million (60,000,000) shares of
Class A common stock, par value $0.001 per share (the "Class A Common
Stock"); (2) Fifteen Million (15,000,000) shares of Class B common stock,
par value $0.001 per share (the "Class B Common Stock") (the Class A and
Class B Common Stock collectively are referred to as the "Common Stock") ;
and (3) Four Million (4,000,000) shares of Preferred Stock, par value
$25.00 per share (the "Preferred Stock").
<PAGE>
1. Redemption
(a) Subject to the limitations set forth below, the Corporation shall have
the right to redeem any shares of Common Stock ("Shares"), at the fair
market value thereof as determined pursuant to Subsection (d) below
(the "Redemption Price"), at any time if; (i) such redemption is
required by a Gaming Authority (as defined below) ; or (ii) the
ownership of the Shares by the holder of such Shares will, in the
Corporation's judgment and as evidenced by written communications from
any Gaming Authority or the governmental authority in charge of liquor
licensing, materially preclude, materially interfere with, materially
threaten, delay the issuance of, or result in the imposition of
materially burdensome terms and conditions on, any liquor, gaming or
other license or permission necessary to the proposed or actual
operations of the Corporation, or any entity in which the Corporation
has a direct or indirect beneficial, legal or voting interest of ten
percent (10%) or more and has a net book value of assets in excess of
One Million Dollars ($1,000,000).
(b) The right of redemption set forth in subsection (a) above shall be
exercisable upon not less than ninety (90) days (or such lesser amount
as required by law) and not more than one hundred and twenty (120)
days prior written notice (the "Redemption Notice") sent by
first-class U.S. mail, postage prepaid, certified or registered mail,
return receipt requested, to the holder of such Shares at its address
as the same shall appear on the share register of the Corporation.
Except as provided in subsection (c) below, on and after the date of
the mailing of such notice, all rights of the holder of such Shares in
the Shares, except the right to receive the Redemption Price, shall
cease and terminate. On or before the redemption date fixed as
aforesaid, the holder of such Shares shall deliver to the Corporation
the certificates for the Shares. Such certificates, if required, shall
be properly stamped for transfer and accompanied by proper instruments
of assignment and transfer duly executed in blank, with all signatures
appropriately guaranteed by a national bank or a firm which is a
member of the New York Stock Exchange, Inc. If the holder of such
Shares shall fail to tender its Shares as provided in this subsection,
the Corporation shall have the right to cancel such Shares upon its
books and, upon receipt of a reasonable and customary indemnity, pay
to the holder of such Shares the Redemption Price for such Shares. The
shares so canceled shall for all purposes be considered to have been
redeemed as provide herein. The Redemption Proceeds shall be paid on
the date fixed as the redemption date by the Corporation.
2
<PAGE>
(c) Subject to compliance with all Gaming Laws (as defined below), up to
the date fixed in the Redemption Notice as the date of redemption, the
holder of such Shares receiving the Redemption Notice may transfer the
Shares to an unaffiliated third party, provided that such person will
not, in the reasonable discretion of the Corporation, result in the
Corporation exercising its right of redemption set forth in this
Section with respect to such third party.
(d) For the purposes of calculating the Redemption Price, the fair market
value per share of Common Stock on any day shall be the average of the
daily closing prices of such Common Stock for the 20 consecutive
trading days immediately preceding the redemption date or the closing
price of such Common Stock on the day immediately preceding the
redemption date, whichever is higher. The closing price for each day
shall be the last reported sale price, regular way, or in case no such
reported sale takes place on such date, the average of the last
reported bid and asked prices, regular way, in either case on the
principal national securities exchange registered under the Securities
Exchange Act of 1934, as amended, on which such Common Stock is
admitted to trading or listed, or if not listed or admitted to trading
on any national securities exchange, the closing price of such Common
stock, or in case no reported sale takes place, the average of the
closing bid and asked prices, on NASDAQ or any comparable system, or
if such Common stock is not listed or quoted on NASDAQ or any
comparable system, the closing sale price, or in case no reported sale
takes place, the average of the closing bid and asked prices, as
furnished by any member of the National Association of Securities
Dealers, Inc., selected from time to time by the Corporation for that
purpose, or if no such closing bid and asked prices are furnished, the
fair market value of the Common Stock as determined by the
Corporation's Board of Directors in good faith after consulting with a
nationally recognized investment banking firm."
3
<PAGE>
5. Article IV, Paragraph C is hereby amended to change the designation of
the Class A Common Stock to "Class B Common Stock" and the designation of the
Class B Common Stock to "Class A Common Stock" and delete each of subparagraphs
1(c) and (d) thereto, such Article IV, Paragraph C to be amended to read in its
entirety as follows:
"C. Common Stock.
1. Voting Rights.
Each holder of Class B Common Stock shall be entitled to ten
(10) votes for each such share of Class B Common Stock; provided
however, that with respect to the matters set forth in Article
IV, Paragraph C.4 hereof, each share of Class B Common Stock
shall be entitled to one (1) vote per share. In all matters
presented to the stockholders, including those set forth in
Article IV, Paragraph C. 4 hereof, each share of Class A Common
Stock shall be entitled to one vote per share.
2. Conversion of Class B Common Stock
Upon the sale, issuance, assignment (whether by operation of
law or otherwise) or other transfer to anyone other than a
Permitted Transferee (as hereinafter defined) of any shares of
Class B common Stock, such shares of Class B Common Stock will
automatically convert into an equal number of shares of Class B
Common Stock. A "Permitted Transferee" is defined as (a) Andrew
Tompkins, and (b) any person who acquires record or beneficial
ownership of any shares of Class B Common Stock if Andrew
Tompkins retains the sole power to vote or direct the vote of
such share of Class B Common Stock.
3. Voting as a Class.
In all matters presented to the stockholders, including
those set forth in Article IV, Paragraph C.4 hereof, the Class A
Common Stock and the Class B Common Stock shall vote together as
one class.
4. Supermajority Vote.
The following matters shall require the favorable vote by
the stockholders holding at least seventy-five percent (75%) of
the then issued and outstanding shares of Common Stock (Class A
and Class B) entitled to vote thereon: (a) the merger or
consolidation of the Corporation or any of its subsidiaries with
any other entity (except in connection with a merger consummated
for the sole purpose of changing the jurisdiction of organization
of the Corporation or any of its subsidiaries) ; (b) a sale of
all or substantially all of the Corporation's assets taken as a
whole; or (c) any amendments to the Certificate of Incorporation
of the Corporation."
6. In accordance with the provisions of Section 103 (d) of the
General Corporation Law of the State of Delaware, Certificate of Amendment of
Certificate of Incorporation shall become effective upon its filing date
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Certificate of Incorporation to be signed in its name and attested
by its duly authorized officer, this 2nd day of June, 1993.
AMERICAN CASINOS GROUP, INC.
/s/Andrew Tompkins
Andrew Tompkins,
Chief Executive Officer
ATTEST:
/s/Andrew Tompkins
Andrew Tompkins,
Secretary
4
<PAGE>
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
LADY LUCK GAMING CORPORATION
It is hereby certified that:
1. The Corporation (hereinafter called the "Corporation") was originally
incorporated in the State of Delaware on February 16, 1993 under the
name American Casinos Group, Inc.
2. This Certificate of Amendment of Certificate of Incorporation was duly
adopted by the Board of Directors and stockholders of the Corporation
in accordance with the provisions of Section 228 and 242 of the
General Corporation Law of the State of Delaware.
3. Article VII of the Certificate of Incorporation is hereby amended to,
among other things, provide that the Board of Directors of the
Corporation shall consist of not less than three directors and shall
be divided into three classes, with the term of office of those of the
first class to expire at the 1994 annual meeting of stockholders, of
the second class at the 1995 annual meeting of stockholders, of the
third class at the 1996 annual meeting of stockholders, and at each
annual election held after such classification and election, directors
shall be chosen for a full term, as the case may be, to succeed those
whose terms expire, in accordance with Section 141(d) of the GCL,
Article VII to be amended to read in its entirety as follows:
"ARTICLE VII
The business and affairs of the Corporation shall be managed or
under the direction of the Board of Directors consisting of not less
than one director nor more than ten directors, the exact number of
directors to be determined from time to time by resolution adopted by
the Board of Directors. If there are two or fewer directors, there
will be only one class of directors who will serve for a term of one
year. So long as there are more than two directors, the directors
shall be divided into three classes, designated class I, Class II and
Class III. Each class shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting the entire
Board of Directors. The term of the initial Class I directors shall
terminate on the date of the 1994 annual meeting of stockholders; the
term of the initial Class II directors shall terminate on the date of
the 1995 annual meeting of stockholders; and the term of the initial
Class III directors shall terminate on the date of the 1996 annual
meeting of stockholders. At each annual meeting of stockholders
beginning in 1994, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term.
If the number of directors is changed, any increase or decrease shall
be apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall
coincide with the remaining term of that class, but in no case will a
<PAGE>
decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for
the year in which his term expires and until his successor shall be
elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Any
vacancy on the Board of Directors, howsoever resulting, may be filled
by a majority of the directors then in office, even if less than a
quorum, or by a sole remaining director. Any director elected to fill
a vacancy shall hold office for a term that shall coincide with the
term of the class to which such director shall have been elected.
Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation
shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of
such directorships shall be governed by the terms of this Certificate
of Incorporation or the resolution or resolutions adopted by the Board
of Directors pursuant to Article IV, Paragraph B applicable thereto,
and such directors so elected shall not be divided into classes
pursuant to this Article VII unless expressly provided by such terms."
4. Article IV, Paragraph A of the Certificate of Incorporation is hereby
amended to adjust the capitalization of the Company for only one class
of stock, such Article IV, Paragraph A to be amended to read in its
entirety as follows:
"A. Capital Stock.
The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is Seventy-Nine
Million (79,000,000) shares consisting of (1) Seventy-Five
Million (75,000,000) shares of Common Stock, par value $0.001 per
share (the "Common Stock"); and (2) Four Million (4,000,000)
shares of Preferred Stock, par value $25 per share (the
"Preferred Stock")."
5. Article IV, Paragraph C of the Certificate of Incorporation is hereby
amended to adjust for the change in capitalization of the Corporation
to one class of Common Stock, such Article IV, Paragraph C to be
amended to read in its entirety as follows:
"C. Common Stock.
1. Conversion.
Each share of Class A Common Stock and Class B Common Stock
outstanding on the date hereof shall, upon the filing of this
amendment, be automatically converted into one share of Common
Stock.
2. Voting Rights.
In all matters presented to the stockholders, each share of
Common Stock shall be entitled to one vote per share.
3. Supermajority Vote.
The following matters shall require the favorable vote, by
the stockholders holding at least seventy-five percent (75%) of
the then issued and outstanding shares of Common Stock entitled
to vote thereon: (a) the merger or consolidation of the
Corporation or any of its subsidiaries with any other entity
(except in connection with a merger consummated for the sole
purpose of changing the jurisdiction of organization of the
Corporation) or any of its subsidiaries; (b) a sale of all or
substantially all of the Corporation's assets taken as a whole;
or (c) any amendments to the Certificate of Incorporation of the
Corporation."
2
<PAGE>
6. Article XII of the Certificate of Incorporation is hereby amended to
eliminate the right of the holders of a majority of the Common Stock
to call a Special Meeting of Stockholders, such Article XII to be
amended to read in its entirety as follows:
"ARTICLE XII
Special meetings of the stockholders for any purpose, or
purposes, unless otherwise prescribed by statute, may be called by the
President and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors."
7. A new Article XVII is added to the Certificate of Incorporation to
read in its entirety as follows:
Article XVII. No action required or permitted to be taken at
any annual or special meeting of stockholders of the
Corporation may be taken by written consent of less than all
the stockholders without a meeting of such stockholders.
8. In accordance with the provisions of Section 103(d) of the General
Corporation Law of the State of Delaware, this Certificate of
Amendment of Certificate of Incorporation shall become effective upon
its filing date.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Certificate of Incorporation to be signed in its name and attested
by its duly authorized officers, this 29th day of September, 1993.
LADY LUCK GAMING CORPORATION
/s/Andrew Tompkins
Andrew Tompkins,
Chief Executive Officer
ATEST:
/s/Rory J. Reid
Rory J. Reid,
Secretary
3
<PAGE>
CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
OF LADY LUCK GAMING CORPORATION
Lady Luck Gaming Corporation (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY:
1. That the Board of Directors of the Corporation, acting in accordance
with Section 242 of the General Corporation Law of the State of Delaware,
approved a resolution recommending to the stockholders of the Corporation that
the Certificate of Incorporation of the Corporation be amended in the following
respects:
2. Article IV, Paragraph A of the Corporation's Certificate of
Incorporation is hereby amended to increase the par value of the Common Stock
from $0.001 per share to $0.006 per share in order to effectuate a one-for-six
reverse stock split, such Article IV, Paragraph A (excluding subparagraph 1) to
be amended to read in its entirety as follows:
"A. Capital Stock.
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Seventy-Nine Million
(79,000,000) shares consisting of (1) Seventy-Five Million (75,000,000)
shares of Common Stock, par value $0.006 per share (the "Common Stock");
and (2) Four Million (4,000,000) shares of Preferred Stock, par value
$25.00 per share (the "Preferred Stock").
Upon the foregoing becoming effective pursuant to the General
Corporation Law of the State of Delaware, the Corporation shall effect a
one-for-six reverse stock split (the "Reverse Stock Split") pursuant to
which every six (6) shares of the Corporation's Common Stock, par value of
$0.001 per share (the "Old Common Shares"), outstanding on the effective
date of this Article IV, Paragraph A will be exchanged for one new share of
the Corporation's Common Stock, par value $0.006 per share (the "New Common
Shares").
Stockholders whose Old Common Shares are not evenly divisible by six
(6) will receive from American Security Transfer & Trust Inc., the
Company's exchange agent for the Reverse Stock Split, a cash payment in an
amount equal to such holder's proportionate interest in the net proceeds
from the sale or sales in the open market by such exchange agent, on behalf
of all such holders, of the aggregate fractional shares of New Common
Shares for the fractional New Common Share that such stockholder would be
otherwise entitled to receive as a result of the Reverse Stock Split."
3. That said resolutions were duly approved by the stockholders of the
Corporation at the annual meeting of the stockholders in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, this Certificate of Amendment to the Certificate of
Incorporation of the Corporation has been executed by the undersigned, who
affirm that, under penalties of perjury, this instrument is the act of the
Corporation and the facts stated herein are true, this fourth day of June, 1998.
LADY LUCK GAMING CORPORATION
/s/Andrew Tompkins
Andrew Tompkins,
Chairman and Chief Executive Officer
/s/Rory J. Reid
Rory J. Reid,
Secretary and General Counsel
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at June 30, 1998
(Unaudited) and the Condensed Consolidated Statement of Income for the Six
Months Ended June 30, 1998 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000906527
<NAME> Lady Luck Gaming Corporation
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-01-1998
<CASH> 33,410
<SECURITIES> 0
<RECEIVABLES> 1,292
<ALLOWANCES> 263
<INVENTORY> 996
<CURRENT-ASSETS> 52,708
<PP&E> 144,525
<DEPRECIATION> 27,934
<TOTAL-ASSETS> 186,727
<CURRENT-LIABILITIES> 18,463
<BONDS> 176,405
19,475
0
<COMMON> 29
<OTHER-SE> (27,645)
<TOTAL-LIABILITY-AND-EQUITY> 186,727
<SALES> 77,123
<TOTAL-REVENUES> 84,629
<CGS> 33,168
<TOTAL-COSTS> 33,168
<OTHER-EXPENSES> 27,626
<LOSS-PROVISION> 97
<INTEREST-EXPENSE> 11,089
<INCOME-PRETAX> 5,655
<INCOME-TAX> 30
<INCOME-CONTINUING> 5,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,625
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.93
</TABLE>
